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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

Suggested Citation

  • Günter Lang, 2005. "The difference between wages and wage potentials: Earnings disadvantages of immigrants in Germany," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 3(1), pages 21-42, April.
  • Handle: RePEc:kap:jecinq:v:3:y:2005:i:1:p:21-42
    DOI: 10.1007/s10888-004-7581-4
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    References listed on IDEAS

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    1. 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, vol. 37(Supplemen), pages 379-397.
    2. 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.
    3. 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.
    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, number 9780195072181.
    5. Polachek, Solomon W & Yoon, Bong Joon, 1996. "Panel Estimates of a Two-Tiered Earnings Frontier," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(2), pages 169-178, March-Apr.
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    Cited by:

    1. 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.
    2. 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.
    3. Dipanwita Sarkar & Trevor Collier, 2016. "Does Host-Country Education Mitigate Immigrant Inefficiency? Evidence from Earnings of Australian University Graduates," QuBE Working Papers 040, QUT Business School.
    4. Robert C. M. Beyer, 2017. "The Performance of Immigrants in the German Labor Market," SOEPpapers on Multidisciplinary Panel Data Research 892, DIW Berlin, The German Socio-Economic Panel (SOEP).
    5. repec:ebl:ecbull:v:10:y:2006:i:7:p:1-17 is not listed on IDEAS
    6. Bazen, Stephen & Waziri, Khalid Maman, 2017. "The Assimilation of Young Workers into the Labour Market in France: A Stochastic Earnings Frontier Approach," IZA Discussion Papers 10841, Institute for the Study of Labor (IZA).
    7. Aldashev Alisher & Gernandt Johannes & Thomsen Stephan L., 2012. "The Immigrant-Native Wage Gap in Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 232(5), pages 490-517, October.
    8. 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.
    9. Victoria Chorny & Rob Euwals & Kees Folmer, 2007. "Immigration policy and welfare state design; a qualitative approach to explore the interaction," CPB Document 153, CPB Netherlands Bureau for Economic Policy Analysis.
    10. Robert C. M. Beyer, 2016. "The Labor Market Performance of Immigrants in Germany," IMF Working Papers 16/6, International Monetary Fund.
    11. 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.
    12. 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).
    13. Wido Geis, 2010. "High Unemployment in Germany: Why do Foreigners Suffer Most?," ifo Working Paper Series 90, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    14. 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.

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