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Real Exchange Rates and the Earnings of Immigrants

Author

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  • Christian Dustmann

    (University College London, Department of Economics and CReAM)

  • Hyejin Ku

    (University College London, Department of Economics and CReAM)

  • Tanya Surovtseva

    (Universitat Pompeu Fabra, Department of Economics and Business and CReAM)

Abstract

Higher price levels in the destination relative to the origin increase the effective real wages of immigrants, thereby affecting immigrants’ reservation and entry wages as well as their subsequent career trajectories. Based on micro-level longitudinal administrative data from Germany and exploiting within-country and across-cohort variations in the real exchange rate (RER) between Germany and countries that newly joined the European Union in the 2000s, we find that immigrants arriving with high RERs initially settle for lower paying jobs than comparable immigrants arriving with low RERs. In subsequent periods, however, wages of high RER arrivals catch up to that of their low RER counterparts, convergence achieved primarily through changes to better paying occupations and firms. Our findings thus point to the persistent regional price differences as one possible reason for immigrants’ downgrading, with implications for immigrants’ career profiles and the assessment of labor market impacts of immigration.

Suggested Citation

  • Christian Dustmann & Hyejin Ku & Tanya Surovtseva, 2021. "Real Exchange Rates and the Earnings of Immigrants," CReAM Discussion Paper Series 2110, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  • Handle: RePEc:crm:wpaper:2110
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    References listed on IDEAS

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    Cited by:

    1. Christoph Albert & Albrecht Glitz & Joan Llull, 2021. "Labor Market Competition and the Assimilation of Immigrants," CESifo Working Paper Series 9231, CESifo.

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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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