This paper provides an analysis of the labor market performance of immigrants in Germany. While immigrants make substantial contributions to the economy, this paper shows that they face more obstacles in the labor market than native workers, and that these obstacles are overcome only gradually and never fully. Some of the findings in this paper are relevant for the current policy debates in Germany.
This paper uses a large survey (SOEP) to update and deepen our knowledge about the labor market performance of immigrants in Germany. It documents that immigrant workers initially earn on average 20 percent less than native workers with otherwise identical characteristics. The gap is smaller for immigrants from advanced countries, with good German language skills, and with a German degree, and larger for others. The gap declines gradually over time but at a decreasing rate and much stronger for more recent cohorts. Less success in obtaining jobs with higher occupational autonomy explains half of the wage gap. Immigrants are initially less likely to participate in the labor market and more likely to be unemployed. While participation fully converges after 20 years, immigrants always remain more likely to be unemployed than the native labor force.
It is often argued that highly skilled immigrants are the most needed by German employers, and that Germany is not yet a prime destination for these immigrants compared to countries like the U.K., the U.S., or Canada. This paper has shown that highly skilled immigrants experience sizable skill downgrading and relatively large and persistent wage gaps in Germany. To attract highly-skilled immigrants, therefore, it is essential to understand better why such downgrading takes place and see if policies can reduce obstacles to skill transfer.
Another important topic is how the current large wave of refugees will fare in the labor market. The findings in this paper indicate that they may face bigger obstacles than the average immigrant from the past. While we still do not know a lot about the current wave of refugees, preliminary evidence points to lower education and qualification levels than for other immigrants (IAB, 2015). In addition, they come from non-advanced countries and they likely have no German degrees and cannot write German well. This analysis has shown that these immigrants – even conditional on characteristics like education and experience – are less likely to participate in the labor market and are more likely to be unemployed than other immigrants. Moreover, when they find work, they initially earn 30 percent less than otherwise similar natives. While these gaps decrease over time, the process is slow and immigrants remain more likely to be unemployed throughout. The recent introduction of the minimum wage may lower the wage gap of new immigrants, but at the same time may further increase their likelihood of being unemployed. While the recent influx of refugees helps to address a severe humanitarian crisis and constitutes an opportunity for boosting working age population in Germany, successful labor market integration of the newcomers must not be taken for granted. It will likely need some time, particular efforts, and decisive policy action.
Chosen excerpts by Job Market Monitor. Read the whole story at DIW Berlin: The Performance of Immigrants in the German Labor Market