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Real Exchange Rates and the Earnings of Immigrants

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  • Christian Dustmann
  • Hyejin Ku
  • Tanya Surovtseva

Abstract

We relate origin-destination real price differences to immigrants’ reservation wages and their career trajectories, exploiting administrative data from Germany and the 2004 enlargement of the European Union. We find that immigrants who enter Germany when a unit of earnings from Germany allows for larger consumption at home settle for lower entry wages, but subsequently catch up to those arriving with less favourable exchange rates, through transition to better-paying occupations and firms. Similar patterns hold in the US data. Our analysis offers one explanation for the widespread phenomenon of immigrants’ downgrading, with new implications for immigrant cohort effects and assimilation profiles.

Suggested Citation

  • Christian Dustmann & Hyejin Ku & Tanya Surovtseva, 2023. "Real Exchange Rates and the Earnings of Immigrants," CESifo Working Paper Series 10625, CESifo.
    • Handle: RePEc:ces:ceswps:_10625
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    Cited by:

    1. Christoph Albert & Albrecht Glitz & Joan Llull, 2021. "Labor Market Competition and the Assimilation of Immigrants," Working Papers 1280, Barcelona School of Economics.
    2. Julian Costas-Fernandez & Simon Lodato, 2023. "Distributional effects of immigration and imperfect labour markets," RF Berlin - CReAM Discussion Paper Series 2301, Rockwool Foundation Berlin (RF Berlin) - Centre for Research and Analysis of Migration (CReAM).
    3. Arellano-Bover, Jaime & San, Shmuel, 2023. "The Role of Firms and Job Mobility in the Assimilation of Immigrants: Former Soviet Union Jews in Israel 1990–2019," IZA Discussion Papers 16389, Institute of Labor Economics (IZA).
    4. Hasan, Syed & Shakur, Shamim & Breunig, Robert, 2021. "Exchange rates and expenditure of households with foreign-born members: Evidence from Australia," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 977-997.
    5. Joseph-Simon Görlach & Katarina Kuske, 2022. "Temporary migration entails benefits, but also costs, for sending and receiving countries," IZA World of Labor, Institute of Labor Economics (IZA), pages 503-503, November.

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    More about this item

    Keywords

    real exchange rate; reservation wage; immigrant downgrading; earnings assimilation;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • 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
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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