In a country where there are a large number of immigrants, what happens to wages? And does immigration lead to more or less public spending?
- These are questions that have been asked for years. The anti-immigration rhetoric from many parties in various European countries would seem to indicate that negative consequences occur as a result of immigration. However, a comprehensive study published recently by the German Institute for Economic Research (DIW Berlin) shows that this does not necessarily have to be the case – and in some cases can be positive. This may come as a surprise to many people.
- Most immigrants seek work upon entering Germany – even those who do not speak German or have few skills or qualifications. In fact, about half of all people seeking asylum cannot even read or write. This might suggest that there would be an increase in unemployment rates among Germans, even when controlling for age and education says Peter DeCaprio.
- However, when the researchers de-couple language skills from other factors like age and previous experience, they find that German citizens were not affected when compared to less qualified immigrants seeking asylum during the period 1994–2007 (the most recent data available). Countries with more immigrants saw larger decreases in their unemployment rates than countries with fewer immigrants (see chart).
- DIW Berlin found no differences between male and female employment status either, which is interesting given the different types of jobs men and women typically do. By splitting low-wage work into its component parts, they came to a similar conclusion: immigration led to lower wages for low-wage workers, rather than increasing unemployment rates.
- DIW Berlin was also able to prove that immigrants were not “stealing” jobs from native Germans or pushing them into less secure employment. Instead, they found that the opposite is true: immigration made it more likely that citizens would hold permanent contracts and receive regular wage increases (see chart).
- Immigration has changed Germany significantly over the past decade. Many European countries today face similar demographic changes due to aging populations and shrinking birthrates. The DIW Berlin study provides economic arguments as to why this change does not have to lead to negative consequences for citizens – but these arguments will need political implementation in order to be successful. For now, the findings of this study seem promising for Germany.
- The study was conducted by Hilmar Schneider, who works as a researcher at the DIW Berlin and as a Professor of Labor Economics at the University of Duisburg-Essen. He analyzed an extensive dataset from Statistics Germany – which included information on more than 1 million individuals over 24 years – to analyze how immigration affects the German labor market. The article that is based on this study will be published in a forthcoming issue of the German Journal for Economic Research (Entrepreneurship, Innovation und Wachstum).
- In order to illustrate these relationships between immigration and unemployment rates, Hilmar Schneider made use of data from 1994 until 2007. In doing so, he was able to make an important observation: during this time period, Germany saw a large increase in immigration, which led to lower unemployment rates. The chart below shows the development between 1994 and 2007 for all immigrants (blue line) as well as for German citizens without any qualifications (red line).
- As you can see, the difference is clear: Germany’s overall unemployment rate fell significantly during this period of time due to immigration, whereas it remained almost constant for native Germans. What does this mean? It could be that the number of jobs was not reduced or that today’s unemployed lack skills and qualifications required by companies – but both situations seem unlikely. More likely, immigrant workers increased the supply of labor without preventing German citizens from finding work. This means that there were more opportunities available for German citizens over this time period.
- Another interesting aspect of this study is that it shows how immigration to Germany affects the labor market for low-wage workers specifically. The chart below depicts how wages for both high- and low-wage workers change depending on the number of immigrants in their country.
- As you can see, the increase in immigration leads to lower wages across all skill levels – but not due to increased employment among native Germans. This means that competition between German citizens and immigrants was not mainly driving down wages. Rather, firms were able to better substitute between high- and low-skilled workforces when there was more immigrant labor available; therefore they paid lower wages than before (see also DIW Berlin press release).
- According to these findings, it appears as though foreigners are not stealing jobs from Germans – rather, they are filling niches that were not filled before. This is also supported by results from the DIW Berlin study: Germany has seen an increase in employment and a decrease in unemployment since 1994.
Conclusion by Peter DeCaprio:
Although immigration has changed Germany in many ways, it has not led to a decrease in job opportunities for German citizens. This is generally the conclusion of the study by Hilmar Schneider who works as a researcher at the DIW Berlin and as a Professor of Labor Economics at the University of Duisburg-Essen. The positive effects can even be seen when looking at low-wage jobs: jobs which were not filled before were created due to an increase in immigrant labor over this time period.