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How Different are Wages from Wage Potentials? - Analyzing the earnings disadvantage of immigrants in Germany

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Abstract

Immigrants in Germany display a poor earnings performance relative to natives. Arguing that human capital endowments identify earnings potentials rather than actual earnings, this paper estimates a stochastic earnings frontier and searches for systematic differences between natives and migrants in terms of distance to the frontier. GSOEP-Data of the year 2000 is used for estimation. The empirical results clearly support the frontier assumption, but – surprisingly – find natives and immigrants at about the same distance to the frontier. Assuming a half-normal distribution of the wage-inefficiency term, both groups trans­formed on average a modest 81% share of their potential income into market earnings. Due to the similar positions of natives and immigrants relative to the frontier, the wage discrimination hypothesis is rejected. Actually, human capital differentials are clearly the most important source for wage inequality. The earnings frontiers of immigrants from Eastern Europe as well as from Turkey are steeper than the respective frontier of natives, which supports the assimilation hypothesis. No assimilation is found for migrants from the European Union and from the former Yugoslavia.

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  • Guenter Lang, 2004. "How Different are Wages from Wage Potentials? - Analyzing the earnings disadvantage of immigrants in Germany," Discussion Paper Series 256, Universitaet Augsburg, Institute for Economics.
    • Handle: RePEc:aug:augsbe:0256
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    Cited by:

    1. Sharif, Najma R. & Dar, Atul A., 2007. "An Empirical Investigation of the Impact of Imperfect Information on Wages in Canada," Review of Applied Economics, Lincoln University, Department of Financial and Business Systems, vol. 3(1-2), pages 1-19.
    2. Solomon W. Polachek & Jun (Jeff) Xiang, 2006. "The Effects of Incomplete Employee Wage Information: A Cross-Country Analysis," Research in Labor Economics, in: The Economics of Immigration and Social Diversity, pages 35-75, Emerald Group Publishing Limited.
    3. Vera A. Adamchik & Arthur E. King, 2007. "Labor Market Efficiency In Poland: A Stochastic Wage Frontier Analysis," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 1(2), pages 41-50.

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    More about this item

    Keywords

    Stochastic Wage Frontier; Inefficiency; Immigration; Assimilation; Discrimination; Human Capital Approach;
    All these keywords.

    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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