How do new immigration flows affect existing immigrants? Evidence from the refugee crisis in Germany

Abstract

We apply difference-in-differences regressions to study the impact of the 2015 refugee crisis in Germany on the culturally closer diaspora of existing immigrants originating from Turkey and Middle-Eastern and North-African countries (TMENA). Our identification allows us to emphasize the role of immigrants' culture in estimating the impact of immigration. Additionally, we are able to distinguish between the labor demand and labor supply effects associated with immigration, suggesting overall ambiguous signs on the estimated coefficients. In particular, we find that TMENA immigrants experienced a substantial reduction in unemployment in the year 2015, consistent with the differential demand shock induced by refugees' consumption of culturally similar goods and services. The unemployment effects, however, dissipated starting in 2016, coinciding with refugees' delayed yet incremental labor market integration. We also consider the social impact of the refugee crisis and find that while worries about immigration and xenophobic hostility increased among all respondents, the increases were statistically significantly smaller among TMENA immigrants, primarily due to their cultural proximity to arriving refugees. We find that TMENA immigrants' assimilation of German identity was not affected after the refugee crisis, whereas they increased bonding with the home country's culture.