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Native-Immigrant Wage Differentials in Germany - Assimilation, Discrimination, or Human Capital?

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Abstract

This study uses the concept of stochastic frontiers for analyzing the income disparity between ethnic groups in West Germany. Estimation of a potential rather than an average earnings function increases the explanatory power of the human capital approach and allows for detecting discrimination as well as assimilation processes. The empirical results im-ply that the human capital gap explains more than 75% of the wage differential between natives and foreign nationalities in Germany. As for ethnic Germans migrants, their wage disparity can be explained by 50% with human capital differentials. Surprisingly, only small differences could be observed with regard to the question of earnings efficiency. On an average, inhabitants as well as immigrants transformed about 85% to 90% of their potential income into actual earnings. The sources for the individually diverging efficiency ratios are not well understood, with discrimination only found for ethnic Germans from Eastern Europe. Somewhat disappointing, the assimilation hypothesis was clearly rejected for all migrants with again the exception being ethnic Germans from Eastern Europe.

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  • Guenter Lang, 2000. "Native-Immigrant Wage Differentials in Germany - Assimilation, Discrimination, or Human Capital?," Discussion Paper Series 197, Universitaet Augsburg, Institute for Economics.
    • Handle: RePEc:aug:augsbe:0197
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    Cited by:

    1. Usamah Fayez Al-Farhan, 2010. "Changes in the Gender Wage Gap in Germany during a Period of Rising Wage Inequality 1999-2006: Was it Discrimination in the Returns to Human Capital?," SOEPpapers on Multidisciplinary Panel Data Research 293, DIW Berlin, The German Socio-Economic Panel (SOEP).
    2. Leilanie Basilio & Thomas K. Bauer & Anica Kramer, 2017. "Transferability of Human Capital and Immigrant Assimilation: An Analysis for Germany," LABOUR, CEIS, vol. 31(3), pages 245-264, September.
    3. Carmen Garcia Prieto & Angel Martin Roman & Carlos Perez Dominguez, 2005. "Actual and Potential Returns to Schooling in Spain," Education Economics, Taylor & Francis Journals, vol. 13(4), pages 387-407.
    4. Heather Dickey & Alessa M. Widmaier, 2021. "The persistent pay gap between Easterners and Westerners in Germany: A quarter‐century after reunification," Papers in Regional Science, Wiley Blackwell, vol. 100(3), pages 605-631, June.
    5. Dixon, Peter B. & Rimmer, Maureen T. & Johnson, Martin & Rasmussen, Chris, 2009. "The effects of a credit crisis: simulations with the USAGE model," Conference papers 331861, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    6. Christensen, Björn, 2002. "Reservation wages, offered wages, and unemployment duration: new empirical evidence," Kiel Working Papers 1095, Kiel Institute for the World Economy (IfW Kiel).
    7. Michael Chletsos & Stelios Roupakias, 2017. "Native-immigrant wage differentials in Greece: discrimination and assimilation," Applied Economics, Taylor & Francis Journals, vol. 49(17), pages 1732-1736, April.
    8. Teodora Paligorova & Lubomira Anastassova, 2005. "Why Immigrants Manage to Grab More Social Benefits? Empirical Cross - Country Analysis," LIS Working papers 411, LIS Cross-National Data Center in Luxembourg.
    9. DeVoretz, Don J., 2004. "Immigration Policy: Methods of Economic Assessment," IZA Discussion Papers 1217, Institute of Labor Economics (IZA).
    10. Ferrari, Emanuele & Mueller, Marc & Mellado, Aida Gonzalez, 2010. "Using Macro Indicators for Consistent CGE Baselines," Conference papers 331987, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    11. Teodora Paligorova & Lubomira Anastassova, 2006. "What is Behind Native-Immigrant Social Income Gaps?," LIS Working papers 432, LIS Cross-National Data Center in Luxembourg.
    12. Lubomira Anastassova & Teodora Paligorova, 2005. "Why Immigrants Manage to Grab More SocialBenefits? Empirical Cross - Country Analysis," CERGE-EI Working Papers wp263, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

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    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing

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