Migration and Imperfect Labor Markets: Theory and Cross-Country Evidence from Denmark, Germany and the UK
German Institute for Economic Research (DIW Berlin); Institute for the Study of Labor (IZA)
Elke J. Jahn
Government of the Federal Republic of Germany - Institute for Employment Research (IAB); University of Aarhus - Business and Social Sciences; Institute for the Study of Labor (IZA); University of Erlangen-Nuremberg - Department of Economics
University of Nottingham - School of Economics
IZA Discussion Paper No. 6713
We investigate the labor market effects of immigration in Denmark, Germany and the UK, three countries which are characterized by considerable differences in labor market institutions and welfare states. Institutions such as collective bargaining, minimum wages, employment protection and unemployment benefits affect the way in which wages respond to labor supply shocks, and, hence, the labor market effects of immigration. We employ a wage-setting approach which assumes that wages decline with the unemployment rate, albeit imperfectly. We find that wage flexibility is substantially higher in the UK compared to Germany and, in particular, Denmark. As a consequence, immigration has a much larger effect on the unemployment rate in Germany and Denmark, while the wage effects are larger in the UK. Moreover, the elasticity of substitution between natives and foreign workers is high in the UK and particularly low in Germany. Thus, the preexisting foreign labor force suffers more from further immigration in Germany than in the UK.
Number of Pages in PDF File: 42
Keywords: immigration, unemployment, wages, labor markets, panel data, comparative studies
JEL Classification: F22, J31, J61working papers series
Date posted: July 21, 2012
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo5 in 0.453 seconds