Employment Effects of Immigration to Germany: An Analysis Based on Local Labor Markets

TLDR

The study examines how increased immigration affects native employment in Germany during the late 1980s using county‑level data. The authors aggregate 328 counties into 167 labor‑market regions, use changes in foreign‑share and immigrant flows as immigration measures, and control for prior labor‑market outcomes to account for selection and mean reversion in unemployment. The results show that immigration does not harm native employment, rule out alternative identification strategies, and find no evidence that displacement effects are masked by native migration.

Abstract

We analyze the impact of increased immigration on employment outcomes of natives in Germany using a data set of county-level variables for the late 1980s. In order to construct more unified labor market regions, we aggregate the 328 counties to 167 larger regions. We study two measures of immigration, the change in the share of foreigners between 1985 and 1989 as well as one-year gross and net flows of immigrants to an area. In order to address the potential problem of immigrant selection into local labor markets, we condition on previous labor market outcomes, which may serve as the basis of immigrant selection. This specification allows for mean reversion in the unemployment rate, which is strong in our data set and period of study. We show that this rules out some other approaches of identifying the impact of immigration. Our results indicate no detrimental effect of immigration. We find no support for the hypothesis that the absence of displacement effects is due to a response of native migration patterns.