Labour Markets
German immigration

Although economists usually argue that increased mobility of workers or capital raises overall welfare by allowing the more efficient combination of resources, theoretical models also consider the effects of increased migration on native workers but yield no clear predictions about their direction or magnitude. In Discussion Paper No. 935, Jörn-Steffen Pischke and Johannes Velling present an empirical investigation of the effects of increased immigration on competition for jobs, unemployment and wages for Germany during 1985-9. Immigration had fallen dramatically in the 1982-3 recession, but it rose from 1985 to an all-time peak in the early 1990s, while unemployment remained in the range of 7-9% throughout the period, so native workers had some reason to fear losing their jobs to immigrants.

Pischke and Velling compare the employment and wage prospects of 166 labour market regions. Making allowance for immigrants' tendency to move to regions with growing labour markets and concentrate in regions of low unemployment, they find little evidence that a rise in the share of foreigners in the labour market either reduces native employment or wages or raises unemployment. This change in the share of foreigners reflects a combination of immigration, internal migration and labour force growth. Focusing on the migration effect by also investigating gross migration flows from abroad and other parts of Germany, they find that immigrants and natives tend to settle in the same locations. The absence of negative effects of immigration therefore cannot be due to offsetting internal migration by natives, and it may reflect the German labour market's greater ability to absorb additional foreigners during a period of expansion. Unemployment was still high in 1985, however, and it remained so even in 1989, which suggests that there should have been significant competition from unemployed Germans to fill the new jobs created during the expansion. Pischke and Velling account for this paradox by suggesting that labour markets for Germans and migrants may now be so segmented that such direct competition hardly exists.

Wage and Employment Effects of Immigration to Germany: An Analysis Based on Local Labour Markets
Jörn-Steffen Pischke and Johannes Velling

Discussion Paper No. 935, March 1994 (HR)