Immigrant-Native Wage Gaps and Rent Sharing: A Segmented Assimilation Story?

Although an increasing body of literature has examined the relationship between firms’ profitability and wage inequality in the context of a diverse workforce, the role of rent sharing in explaining origin-based wage differentials has yet to be explored. Our paper aims to fill this gap using detailed Belgian matched employer-employee data from 1999 to 2016. After controlling for a wide range of covariates and addressing endogeneity issues, our estimates show that the wage-profit elasticity equals approximately 3% and does not differ statistically between native and immigrant workers, be they first or second generation. It therefore appears that firms share their profits equally with their employees, regardless of their origin. However, Oaxaca-Blinder decompositions suggest that rent sharing has a significant influence on immigrants’ wages through labour market segregation. Specifically, first-generation immigrants are found to earn lower wages than natives because of their higher concentration in firms with lower profit margins. The same is true for second-generation immigrants, but almost half as much. These findings, corroborated and refined by heterogeneity tests according to gender, educational attainment and level of collective bargaining, support the hypothesis of a segmented assimilation process for immigrants.