Migration and Imperfect Labor Markets: Theory and Cross-Country Evidence from Denmark, Germany and the UK

42 Pages Posted: 21 Jul 2012

See all articles by Herbert Brücker

Herbert Brücker

German Institute for Economic Research (DIW Berlin); IZA Institute of Labor Economics

Elke J. Jahn

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

Richard Upward

University of Nottingham - School of Economics

Abstract

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.

Keywords: immigration, unemployment, wages, labor markets, panel data, comparative studies

JEL Classification: F22, J31, J61

Suggested Citation

Brücker, Herbert and Jahn, Elke J. and Upward, Richard, Migration and Imperfect Labor Markets: Theory and Cross-Country Evidence from Denmark, Germany and the UK. IZA Discussion Paper No. 6713, Available at SSRN: https://ssrn.com/abstract=2114893

Herbert Brücker (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

IZA Institute of Labor Economics

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

Elke J. Jahn

Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

University of Bayreuth ( email )

Bayreuth, 95447
Germany

IZA Institute of Labor Economics ( email )

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

Richard Upward

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom
+44 115 951 5151 (Phone)
+44 115 951 4159 (Fax)

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