Wage inequality and segregation between native and immigrant workers in Switzerland: evidence using matched employee–employer data

Purpose – We analyze segregation between immigrants and natives at the firm level and explore the connection between segregation and wage inequality in Switzerland. Methodology/Approach – Our approach accounts for the interaction between skill level and immigration status (work permit). First, we calculate exposure rates in order to analyze segregation at the firm level along these two dimensions. Second, we examine the role of segregation in the explanation of wage inequality between different skill–nationality groups. We use data from the Swiss Wage Structure Survey 2002, an employer–employee database that records individual wages among a very large sample of establishments in all industries, covering approximately 42,000 firms and 1 million workers. Findings – Our results show that interfirm segregation is particularly pronounced for unskilled foreign workers and for recently arrived, highly skilled foreigners. The former earn lower wages than equally skilled Swiss workers, and the latter are paid higher wages than highly skilled Swiss workers. In both cases, interfirm segregation accounts for almost the entire wage differential. Originality/Value of paper – This paper presents a generalization of the approach used by Groshen (1991) to the multigroup case by defining segregation with respect to the two dimensions of nationality and skill. The use of multigroup exposure rates is common in studies of neighborhood segregation (e.g., Bayer et al., 2004), but our paper shows that they can also be fruitfully applied in the analysis of interfirm segregation and wage inequality.