Foreign workers and the wage distribution: Where do they fit in?

The presence of foreign workers is commonly deemed as driving wage inequality upwards. By 2006, seven in ten private sector workers in Luxembourg were foreign. This note builds on recentered influence function regression methods to identify where these foreign workers stand in the distribution of private sector wages, and assess whether and how much their wages contribute to overall wage inequality. Our analysis of the 2006 Structure of Earnings Survey reveals that foreign workers have generally lower wages than natives and therefore tend to haul the overall wage distribution downwards. Yet, surprizingly, their influence on wage inequality reveals small and negative. All impacts are further muted when accounting for human capital and, especially, job characteristics. Not observing any large positive inequality contribution on the Luxembourg labour market is a striking result given the sheer size of the foreign workforce and its polarization at both ends of the skill distribution.