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The difference between wages and wage potentials: Earnings disadvantages of immigrants in Germany

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  • Günter Lang

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Abstract

Immigrants in Germany have poor earnings performance relative to natives. Claiming that human-capital endowments determine earnings potentials rather than actual earnings, a stochastic earnings frontier is estimated and used to seek systematic differences between natives and migrants for GSOEP data for the year 2000. While empirical results clearly support the frontier assumption, natives and immigrants are surprisingly about the same with respect to the frontier. Assuming a half-normal distribution of the wage gap, on average, both groups transform a modest 84% share of their potential income into market earnings. This implies wage inequality can be attributed to human-capital differentials alone. The human-capital endowments of immigrants are largely determined by the very low percentage who have college degrees, their slow assimilation and zero-return on imported experience. The paper also tries to explain individual wage gaps, which are significantly decreased in married subjects raising families, but increased in employees in small- or medium-sized relative to larger firms. However, these variables only make minor contributions to the variance. Copyright Springer 2005

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Bibliographic Info

Article provided by Springer in its journal The Journal of Economic Inequality.

Volume (Year): 3 (2005)
Issue (Month): 1 (April)
Pages: 21-42

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Handle: RePEc:kap:jecinq:v:3:y:2005:i:1:p:21-42

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Web page: http://springerlink.metapress.com/link.asp?id=111137

Related research

Keywords: assimilation; human capital; immigration; imported skills; stochastic wage frontier; wage gap;

References

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  1. Sanders Korenman & David Neumark, 1991. "Does Marriage Really Make Men More Productive?," Journal of Human Resources, University of Wisconsin Press, vol. 26(2), pages 282-307.
  2. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, Elsevier, vol. 6(1), pages 21-37, July.
  3. Schmidt, Christoph M., 1997. "Immigrant performance in Germany: Labor earnings of ethnic German migrants and foreign guest-workers," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 37(Supplemen), pages 379-397.
  4. Fried, Harold O. & Lovell, C. A. Knox & Schmidt, Shelton S. (ed.), 1993. "The Measurement of Productive Efficiency: Techniques and Applications," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195072181, October.
  5. Polachek, Solomon W & Yoon, Bong Joon, 1996. "Panel Estimates of a Two-Tiered Earnings Frontier," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 11(2), pages 169-78, March-Apr.
  6. Oaxaca, Ronald, 1973. "Male-Female Wage Differentials in Urban Labor Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 693-709, October.
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Cited by:
  1. repec:ebl:ecbull:v:10:y:2006:i:7:p:1-17 is not listed on IDEAS
  2. Bishop, John A. & Grodner, Andrew & Liu, Haiyong & Chiou, Jong-Rong, 2007. "Gender earnings differentials in Taiwan: A stochastic frontier approach," Journal of Asian Economics, Elsevier, vol. 18(6), pages 934-945, December.
  3. Bruder, Jana & Frosch, Katharina, 2006. "Foreign nationality and age: A double drawback for reemployment in Germany?," Thuenen-Series of Applied Economic Theory 63, University of Rostock, Institute of Economics.
  4. Wido Geis, 2010. "High Unemployment in Germany: Why do Foreigners Suffer Most?," Ifo Working Paper Series Ifo Working Paper Nr. 90, Ifo Institute for Economic Research at the University of Munich.
  5. Victoria Chorny & Rob Euwals & Kees Folmer, 2007. "Immigration policy and welfare state design; a qualitative approach to explore the interaction," CPB Document, CPB Netherlands Bureau for Economic Policy Analysis 153, CPB Netherlands Bureau for Economic Policy Analysis.
  6. Choi, Hyung-Jai & Joesch, Jutta M. & Lundberg, Shelly, 2008. "Sons, daughters, wives, and the labour market outcomes of West German men," Labour Economics, Elsevier, vol. 15(5), pages 795-811, October.
  7. Choi, Hyung-Jai & Joesch, Jutta M. & Lundberg, Shelly, 2005. "Work and Family: Marriage, Children, Child Gender and the Work Hours and Earnings of West German Men," IZA Discussion Papers 1761, Institute for the Study of Labor (IZA).
  8. Alan T.K. Wan, 2006. "On discrimination and the status of immigrants in the Hong Kong labour market," Economics Bulletin, AccessEcon, vol. 10(7), pages 1-17.
  9. Alisher Aldashev & Johannes Gernandt & Stephan L. Thomsen, 2012. "The Immigrant-Native Wage Gap in Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 232(5), pages 490-517, September.
  10. Bodvarsson, Orn & Sessions, John, 2010. "Nationality Discrimination in the Labor Market : Theory and Test," Department of Economics Working Papers 19997, University of Bath, Department of Economics.

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