Cultural Diversity and Local Labour Markets

35 Pages Posted: 15 Dec 2009

See all articles by Jens Suedekum

Jens Suedekum

Heinrich-Heine-University Duesseldorf, Duesseldorf Institute for Competition Economics (DICE); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA)

Katja Wolf

Government of the Federal Republic of Germany - Institute for Employment Research (IAB)

Uwe Blien

Institute for Employment Research (IAB); IZA Institute of Labor Economics

Abstract

During the last decade there have been marked changes in the composition of the non-native workforce in the German labour market. In particular there has been a notable increase in the diversity of nationalities of which the foreign workforce is composed. In this paper we investigate the effects of this diversity for native employees. Our analysis is conducted at the local level and uses a panel of 326 Western German regions over the time period 1995-2006. When considering high-skilled foreign workers, we find that both the size of this group and the diversification into different nationalities raise local wages and employment for native employees. For low-skilled foreign workers we find negative size effects. However, these negative effects can be partly offset if the group of low-skilled foreigners is culturally diversified. Our results imply that diversity raises productivity at the local level, but that it is important to distinguish the skill composition of the foreign workforce. These findings remain robust in a variety of robustness checks that take into account omitted variable bias, self-selection of foreigners into particular regions, and spatial autocorrelation.

Keywords: regional labour markets, cultural diversity, immigration, spatial equilibrium

JEL Classification: R23, J21, J31

Suggested Citation

Südekum, Jens and Wolf, Katja and Blien, Uwe, Cultural Diversity and Local Labour Markets. IZA Discussion Paper No. 4619, Available at SSRN: https://ssrn.com/abstract=1522687

Jens Südekum (Contact Author)

Heinrich-Heine-University Duesseldorf, Duesseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Katja Wolf

Government of the Federal Republic of Germany - Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

Uwe Blien

Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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