Wage Assimilation of Foreigners: Which Factors Close the Gap? Evidence from Germany

Abstract

type="main"> This study analyzes the development of the wages of male foreign workers from all important sending countries across time using longitudinal employment register data. A cohort analysis of the individuals entering the German labor market in the years 1999 to 2001 indicates that the raw wage gap of migrants compared to native Germans decreases by 14 log percentage points in the first eight years. The results of a decomposition method based on fixed effects regression models give evidence that this wage adjustment is mostly due to time-varying observable characteristics. Selective return migration, and the trend effects play no role for the aggregate. We find that wage assimilation happens mainly through three channels: first, through the accumulation of firm-specific human capital, which explains approximately 40 percent; second, search gains are approximately the same order of magnitude; and third, the accumulation of general human capital explains one-fifth of the assimilation. We further demonstrate that the importance of these channels differs substantially by the origin groups.