Scandinavian Working Papers in Economics

Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics

No 08-4: Migration and the Wage-Settings Curve: Reassessing the Labor Market Effects of Migration.

Herbert Brücker () and Elke J. Jahn ()
Additional contact information
Herbert Brücker: University of Bamberg, Postal: IAB Nürnberg,
Elke J. Jahn: Department of Economics, Aarhus School of Business, Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark

Abstract: In this paper we examine the labor market effects of migration in Germany on basis of a wage-setting curve. The wage-setting curve relies on the assumption that wages respond to a change in the un- employment rate, albeit imperfectly. This allows one to derive the wage and employment effects of migration simultaneously in a gen- eral equilibrium framework. Using administrative micro data we find that the elasticity of the wage-setting curve is particularly high for young workers and workers with an university degree, while it is low for older workers and workers with a vocational degree. The wage and employment effects of migration are moderate: a 1 percent increase in the German labor force through immigration increases the aggregate unemployment rate by less than 0.1 percentage points and reduces average wages by 0.1 percent in the short run. While native workers benefit from increased wages and lower unemployment, foreign work- ers are adversely affected.

Keywords: Migration; wage-setting curve; labor markets; panel data

JEL-codes: F22; J31; J61

59 pages, May 1, 2008

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08-4_elja.pdf PDF-file 

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