Table Of ContentMigration and the Inter-Industry
Wage Structure in Germany
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Titels in the Series
Jacques J. Siegers • Jenny de Jong-Gierveld
Evert van Imhoff (EdsJ
Female Labour Market Behaviour and Fertility
Hendrik P. van Dalen
Economic Policy in a Demographically Divided World
Dieter Bos • Sijbren Cnossen (EdsJ
Fiscal Implications of an Aging Population
Klaus F. Zimmermann (Ed.)
Migration and Economic Development
Nico Heerink
Population Growth, Income Distribution,
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Tommy Bengtsson (EdJ
Population, Economy,
and Welfare in Sweden
Dennis A. Ahlburg • Allen C. Kelley
Karen Oppenheim Mason
The Impact of Population Growth
on Well-being in Developing Countries
John P. Haisken DeNew
Migration and the
Inter-Industry Wage
Structure in Germany
with 25 figures
Springer
Dr. John P. Haisken DeNew
German Institute for Economic Research (DIW)
SOEPGroup
Konigin-Luise-Stra6e 5
14195 Berlin
Library of Congress Cataloging-in-Publication Data
Haisken-DeNew, John P., 1965-
Migration and the inter-industry wage structure in Germany I John
P. Haisken DeNew.
p. cm. -- (Population economics)
Includes bibliographical references and index.
ISBN-iS: 978-3-642-80144-0 e-ISBN-1S: 978-3-642-80142-6
DOl: 10.1007/978-3-642-80142-6
1. Alien labor--Germany. 2. Wages--Germany. I. Title.
II. Series.
HD8458.A2H25 1996
331.2' 15--dc20 96-13405
CIP
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SPIN 10516320 4213135 -5 43 2 1 0 -Printed on acid-free paper
For Larissa:
This is what I was doing
when I should have been
taking the time ...
Foreword
Although this list is by no means exhaustive, I would like to take this opportunity
to give the warmest and heartiest of thanks to all who have been so instrumental
in helping me along the way, especially:
Klaus F. Zimmermann for his comments, invaluable help and for opening "the
door of opportunity" on countless occasions, Ray Rees for his comments and the
Deutsche Forschungsgemeinschaft (DFG) for financial assistance,
co-conspirator Christoph Schmidt, and the rest of the SELAPO research team,
Thomas Bauer, Peter Geil, Stefan Hochgiirtel Veronika Klusak, Gela
Kiihnel, Anja Koch, Lucie Merkle, Andreas Mibion, Martin Miihleisen,
Ralph Rotte, Regina Riphabn, Anette Stilz, Rolf Tschernig, Michael
Vogler, Hannes Wiegand, Rainer Winkelmann, for having taught me what
team-work is all about,
Marno Verbeek for helpful comments on programming the Pseudo Panel estima
tors, and Gotz Rohwer for his excellent dataset retrieval program TDA-RZOO, a
significant contribution to applied panel research in Germany,
special thanks to Christoph Schmidt and Ralph Rotte for 11th_hour proof
reading above and beyond the call of duty (as usual, any and all remaining errors
are mine, for which I apologize in advance),
my wife Larissa Haisken-DeNew for helping type in the macro-data tables and
putting up with the long evenings at the University,
Ira Gang and Michael VeaH for showing me that applied economics is fun,
my parents Dr. W. Paul De New and Joan E. M. De New for their limitless
support and enthusiasm for whatever I have chosen to do.
JOHN P. HAISKEN-DE NEW
Ludwig-Maximilians-Universitiit Miinchen
December 1995
Contents
Foreword ...... . VII
1 Introduction -. 1
1.1 Background . . . 1
1.2 Overview of Chapters 3
2 Economic Framework 9
2.1 Industry Wage Differentials 9
2.1.1 Efficiency Wages ...... 10
2.1.2 Unobserved Ability ..... 11
2.1.3 Firm Size and Other Motivations . 11
2.1.4 Minorities, Crowding & Migration 12
2.2 A Sensible German Industry Classification 13
2.3 Empirical Evidence: Industry Differentials . 18
2.3.1 Laying the Foundation. . . . . . . . 18
2.3.2 The German Response . . . . . . . . 20
2.3.3 Germany Reconsidered (1980-1990) 26
2.4 The German Migration Experience . 32
2.4.1 Historical Background (1950-1992) . 32
2.4.2 The Industry Foreigner Structure in Germany 35
2.4.3 Foreigner Heterogeneity . . . . . . . . . . 38
2.5 Measuring Migration Wage Effects ...... 44
2.5.1 Foreigners as Bundles of Human Capital. . . 44
2.5.2 Foreigners as Explicit Factors of Production. 49
2.6 . Empirical Evidence: Migration & Wages . 59
2.6.1 U.S. Evidence. . . 59
.............
2.6.2 German Evidence 64
X Contents
3 Econometric Theory . . . . . . . . 73
3.1 Measuring Inter-Industry Differentials 73
3.1.1 Reference Industry Analysis ..... . 74
3.1.2 Deviations from the Weighted Average. 74
3.1.3 Deviations Revisited .......... . 75
3.1.4 Overall Standard Deviation of Industry Variation. 85
3.2 True Panel Data Models. . . 89
3.2.1 Random Effects Model ............ . 89
3.2.2 Fixed Effects Model (LSDV) .. . . . . . . . 92
3.3 Pseudo Panel Estimation for Cross-Sections . 94
3.3.1 Areas of Application ....... . 94
3.3.2 Cohort Grouping and Sample Size 95
3.3.3 Pseudo Panel Basics . . . . . . . . 97
p. .
3.3.4 Deaton's "Within" Estimator 98
i3
3.3.5 Deaton's "Errors-in-Variables" Estimator 99
3.3.6 "Within" or LSDV ? . . . . . . . . . . . . . 100
3.3.7 Verbeek and Nijman's "MSE" Estimator (J(a:) 101
3.3.8 Previous Applied Pseudo Panel Studies 102
4 Application to Germany. 101
4.1 Introduction ........ . 107
4.2 West-German Micro-Data .. 110
4.2.1 DIW's GSOEP Panel Data (1984-1992) 110
4.2.2 ZA's ALLBUS RCS Data (1980-1992) 111
4.2.3 Computer Issues . . . . . . 112
4.3 West German Macro Data ..... . 114
4.3.1 Industry Affiliation. . . . . . . . . . . 114
4.3.2 Foreigner Industry Employment Share . 116
4.3.3 Foreigners and Average Education 116
4.3.4 Value Added by Industry 118
4.4 Wage Effects of Migration ..... 119
4.4.1 Models and Data . . . . . . . . . . 119
4.4.2 Interpretation of Migration Impacts 120
4.4.3 Overall Foreigner Wage Effects ... 121
4.4.4 Foreigner Effects by Nationality .. 122
4.5 Differentials and Intertemporal Changes . 130
4.6 Industry Differentials: Panel and Pooled . 137
4.6.1 Background . . . . . . . . . . 137
4.6.2 Human Capital Explanations ...... . 138
4.6.3 Job Status and Experience ....... . 142
4.6.4 Migration Impacts on Industry Wage Structure . 146
Contents XI
4.6.5 Comparing True Panel, Pseudo Panel, & Pooling . 147
5 Conclusions . . . . . . 153
A GSOEP (1984-1992) 157
B ALLB US (1980-1992) 181
References. . . 195
Author Index . 201
Subject Index 203
List of Figures 205
List of Tables . 207
Glossary of Acronymns 210
1 Introduction
1.1 Background
Although the issue of migration has received substantial attention in public
debate in most countries of the West, only moderately satisfactory atten
tion has been given in the economic literature. In the case of Germany in
the 1960's, an active Gastarbeiter recruitment policy of importing temporary
foreign workers from such low-wage countries as Turkey, Italy, Spain, Greece
and Yugoslavia was adopted in an effort to quell overheated domestic labor
demand. After the first Oil Crisis in 1973, and in the face of recession and
rising unemployment, the federal government, concerned with the additional
wage and employment impacts of migration, ended this policy. However, those
"temporary" foreigners already in Germany, chose overwhelmingly to stay,
even with the offer of financial assistance to return to their home countries.
The question of migration has become acute again, with the fall of Social
ism in Eastern Europe in early 1990, and the 1992 movement toward general
European Union (EU) integration.
In the past, definitive answers to many very basic labor market policy ori
ented questions have not surfaced. Are there substantial negative side-effects
of migration, faced by native workers, as sometimes publicly claimed? Do
some groups of natives fair better than others in the face of immigration ?
Do highly skilled and unskilled natives experience different effects ? In or
der to make policy decisions, how does one best quantify this phenomena
called "migration", and what underlying assumptions need to be made in
the analysis ?
Virtually no attention in the German migration literature has been given
to the following questions: Do certain foreigner national groups affect natives
differently ? How important is the level of education of these incoming for
eigners in determining wage impacts on natives? Do native workers in some
industries profit from migration, while others suffer ? How is the industrial
wage structure affected by migration, if at all ? In carefully examining native
