Language proficiency may not only affect the earnings of the individual, but the probability to participate in the labor market or becoming employed as well. It may also affect selection of people into economic sector and occupation. In this paper, the effects of language proficiency on earnings are analyzed for foreigners in Germany with joint consideration of up to four types of selection. The results show that language proficiency significantly increases participation and employment probability and affects occupational choice. When selection into economic sector and occupation is regarded, we do not find an impact of language ability on earnings thereby implying an indirect effect.

Die Discussion Papers dienen einer möglichst schnellen Verbreitung von neueren Forschungsarbeiten des ZEW. Die Beiträge liegen in alleiniger Verantwortung der Autoren und stellen nicht notwendigerweise die Meinung des ZEW dar.Discussion Papers are intended to make results of ZEW research promptly available to other economists in order to encourage discussion and suggestions for revisions. The authors are solely responsible for the contents which do not necessarily represent the opinion of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp06019.pdf . Two samples of workers, one for all workers including the self-employed and one for the group of prime age dependent male workers, have been drawn from the GSOEP. The increase in wage inequality is decomposed econometrically into a composition, a price and a residual effect. Not surprisingly, the paper confirms the well known stability of the West German wage distribution for the period 1984 to 1994. Wage inequality started to rise around 1994 in the sample for prime age dependent male workers in both parts of Germany. In the sample for all workers, including the self-employed, the trend towards rising wage inequality started around 1996. The main reason for this lag is that there is no rising inequality for the group of self-employed worker, although the level of inequality is higher compared to wage worker. Non technical summaryThe evolution of wage inequality differs in East compared to West Germany. Rising wage inequality in West Germany primarily occurred in the lower part of the wage distribution, and wage inequality in East Germany primarily occurred in the upper part of the wage distribution. These differences presumably are due to the adjustment processes of the two parts of Germany and the induced competition for high wage workers. Surprisingly, the evolution of wage inequality in East Germany seems to have some similarities to the evolution of wage inequality in the United States in the 80s.There are some more interesting and economically meaningful results from the econometric decomposition analysis. For West German workers residual wage inequality "explains" roughly two thirds of rising inequality, with composition and price effects accounting for one third of the rising inequality. For East German workers residual wage inequality "explains" roughly 40 percent, whereas price effects account for roughly 50 percent of the rising inequality.Rising wage inequality seems to be a general trend in the sense that it is not restricted to wage workers with specific characteristics, although it is quantitatively more pronounced among low skilled workers and workers with low tenure in West Germany. High rates of unemployment, presumably reinforced by non-neutral technical change, led to wage adjustment primarily through wage decreases for the low skilled and for entrants. Wages for workers with longer years of tenure are more rigid and firm's adjustment for this group of employees takes place primarily through reductio...

Die Discussion Papers dienen einer möglichst schnellen Verbreitung von neueren Forschungsarbeiten des ZEW. Die Beiträge liegen in alleiniger Verantwortung der Autoren und stellen nicht notwendigerweise die Meinung des ZEW dar.Discussion Papers are intended to make results of ZEW research promptly available to other economists in order to encourage discussion and suggestions for revisions. The authors are solely responsible for the contents which do not necessarily represent the opinion of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp06019.pdf . Two samples of workers, one for all workers including the self-employed and one for the group of prime age dependent male workers, have been drawn from the GSOEP. The increase in wage inequality is decomposed econometrically into a composition, a price and a residual effect. Not surprisingly, the paper confirms the well known stability of the West German wage distribution for the period 1984 to 1994. Wage inequality started to rise around 1994 in the sample for prime age dependent male workers in both parts of Germany. In the sample for all workers, including the self-employed, the trend towards rising wage inequality started around 1996. The main reason for this lag is that there is no rising inequality for the group of self-employed worker, although the level of inequality is higher compared to wage worker. Non technical summaryThe evolution of wage inequality differs in East compared to West Germany. Rising wage inequality in West Germany primarily occurred in the lower part of the wage distribution, and wage inequality in East Germany primarily occurred in the upper part of the wage distribution. These differences presumably are due to the adjustment processes of the two parts of Germany and the induced competition for high wage workers. Surprisingly, the evolution of wage inequality in East Germany seems to have some similarities to the evolution of wage inequality in the United States in the 80s.There are some more interesting and economically meaningful results from the econometric decomposition analysis. For West German workers residual wage inequality "explains" roughly two thirds of rising inequality, with composition and price effects accounting for one third of the rising inequality. For East German workers residual wage inequality "explains" roughly 40 percent, whereas price effects account for roughly 50 percent of the rising inequality.Rising wage inequality seems to be a general trend in the sense that it is not restricted to wage workers with specific characteristics, although it is quantitatively more pronounced among low skilled workers and workers with low tenure in West Germany. High rates of unemployment, presumably reinforced by non-neutral technical change, led to wage adjustment primarily through wage decreases for the low skilled and for entrants. Wages for workers with longer years of tenure are more rigid and firm's adjustment for this group of employees takes place primarily through reductio...

SummaryImmigrant-native wage differentials are observed in many countries, so in Germany. However, the available empirical literature for Germany defined the groups in consideration, immigrants and natives, by citizenship. This limits the explanatory power of the estimates since citizenship distinguishes foreigners and German nationals, but assigns naturalised immigrants (including the large group of ethnic Germans) to the latter group. Providing a more adequate definition based on the concept of origin we analyse the immigrant-native wage gap. Based on data from the German Socio-Economic Panel Study,we decompose the wage gap between native Germans, foreigners, and naturalised immigrants, and consider further subgroups in the analysis. In the literature, time of residence has been proven to be a relevant determinant of immigrants’ wages. For the natives, time of residence is perfectly collinear with age, and unequal sets of variables have to be considered.We therefore suggest an extension of the Oaxaca-Blinder decomposition technique. Our results show a substantial gap in earnings for all immigrants’ groups compared to natives. Discarding immigrants who completed education abroad reduces much of the immigrants’ wage gap. Hence, educational attainment in Germany is an important component of economic integration of immigrants, and degrees obtained abroad are valued less.

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp08089.pdf Non-technical summaryWage differentials between the native and immigrant population have been observed for many countries. The questions raised in the literature usually include identifying factors which cause the gap and whether the wages of the two groups converge. Human capital usually measured by years of formal education plays a central role. For example, imperfect transferability of human capital from the country of origin to the country of destination could lead to a wage differential between persons having the same formal qualification.In Germany migration background has long been approximated by citizenship. Due to the fact that the share of naturalized immigrants has increased in the last years, this approximation seems to be quite imprecise. In this short study we analyze determinants of wage gap between foreigners, native Germans and naturalized immigrants using the data from the German Socio-Economic Panel Das Wichtigste in Kürze