How Do Industries and Firms Respond to Changes in Local Labor Supply?

In this paper, we investigate how changes in the skill mix of local labor supply are absorbed by the economy. We distinguish between three adjustment mechanisms: through factor prices, through an expansion in the size of those production units that use the more abundant skill group more intensively, and through more intensive use of the more abundant skill group within production units. We investigate which of these channels is dominant. We contribute to the existing literature by analyzing these adjustments on the level of firms, rather than industries, and by assessing the role of new firms in the absorption process of labor supply shocks. Our analysis is based on administrative data, comprising the entirety of firms in Germany over a 10 years period. We find that, while factor price adjustments are important in the non-tradable sector, labor supply shocks do not induce factor price changes in the tradable sector. In this sector, most of the adjustment to changes in relative factor supplies takes place within firms by changing relative factor intensities. Given the non-response of factor prices, this finding points towards changes in production technology. Our results further show, that firms that enter and exit the market are an important additional channel of adjustment. Finally, we demonstrate that an industry level analysis is likely to over-emphasize technology-based adjustments.immigration, endogenous technological change, firm structure

How Do Industries and Firms Respond to Changes in Local Labor Supply?

In this paper, we investigate how changes in the skill mix of local labor supply are absorbed by the economy. We distinguish between three adjustment mechanisms: through factor prices, through an expansion in the size of those production units that use the more abundant skill group more intensively, and through more intensive use of the more abundant skill group within production units. We investigate which of these channels is dominant. We contribute to the existing literature by analyzing these adjustments on the level of firms, rather than industries, and by assessing the role of new firms in the absorption process of labor supply shocks. Our analysis is based on administrative data, comprising the entirety of firms in Germany over a 10 year period. We find that, while factor price adjustments are important in the non-tradable sector, labor supply shocks do not induce factor price changes in the tradable sector. In this sector, most of the adjustment to changes in relative factor supplies takes place within firms by changing relative factor intensities. Given the non-response of factor prices, this finding points towards changes in production technology. Our results further show, that firms that enter and exit the market are an important additional channel of adjustment. Finally, we demonstrate that an industry level analysis is likely to over-emphasize technology-based adjustments.Immigration, Endogenous Technological Change, Firm Structure

Migration and Education

Sjaastad (1962) viewed migration in the same way as education: as an investment in the human agent. Migration and education are decisions that are indeed intertwined in many dimensions. Education and skill acquisition play an important role at many stages of an individual's migration. Differential returns to skills in origin- and destination country are a main driver of migration. The economic success of the immigrant in the destination country is to a large extent determined by her educational background, how transferable these skills are to the host country labour market, and how much she invests into further skills after arrival. The desire to acquire skills in the host country that have a high return in the country of origin may also be an important reason for a migration. From an intertemporal point of view, the possibility of a later migration may also affect educational decisions in the home country long before a migration is realised. In addition, the decisions of migrants regarding their own educational investment, and their expectations about future migration plans may also affect the educational attainment of their children. But migration and education are not only related for those who migrate or their descendants. Migrations of some individuals may have consequences for educational decisions of those who do not migrate, both in the home and in the host country. By easing credit constraints through remittances, migration of some may help others to go to school. By changing the skill base of the receiving country, migration may change incentives to invest in certain types of human capital. Migrants and their children may create externalities that influence educational outcomes of non-migrants in the destination country. This chapter will discuss some of the key areas that connect migration and education.Migration, Education, Human Capital, Return Migration, Immigrant Selection, Second-generation

Referral-based Job Search Networks

This paper develops a model and derives novel testable implications of referral-based job search networks in which employees provide employers with information about potential job market candidates that they otherwise would not have. Using unique matched employeremployee data that cover the entire workforce in one large metropolitan labor market over a 20 year period, we find strong support for the predictions of our model. We first show that firms are more likely to hire minority workers from a particular group if the existing share of workers from that group employed in the firm is higher. We then provide evidence that workers earn higher wages, and are less likely to leave their firms, if they were hired by a firm with a larger share of minority workers from their own group and are therefore more likely to have obtained the job through a referral. The effects are particularly strong at the beginning of the employment relationship and decline with tenure in the firm. These findings have important implications in suggesting that job search networks help to reduce informational deficiencies in the labor market and lead to productivity gains for workers and firms.Networks, Referrals, Uncertainty

The Labour Market Impact of Immigration: Quasi-Experimental Evidence

With the fall of the Berlin Wall, ethnic Germans living in the former Soviet Union and the Warsaw Pact countries were given the chance to migrate to Germany. Within 15 years, 2.8 million individuals moved. Upon arrival, these immigrants were exogenously allocated to different regions by the administration in order to ensure an even distribution across the country. Their inflows can therefore be seen as a natural experiment of immigration, avoiding the typical endogeneity problem of immigrant inflows with regard to local labour market conditions. I analyse the effect of these exogenous inflows on relative skill-specific employment and wage rates of the resident population in different geographical areas between 1996 and 2001. The variation I exploit in the empirical estimations arises primarily from differences in the initial skill composition across regions. Skill groups are defined either based on occupations or educational attainment. For both skill definitions, my results indicate a displacement effect of around 4 unemployed resident workers for every 10 immigrants that find a job. I do not find evidence of any detrimental effect on relative wages.Immigration, Labour Market Impact, Skill Groups, Germany

The Labour Market Impact of Immigration

In the first part of this paper, we present a stylised model of the labour market impact of immigration. We then discuss mechanisms through which an economy can adjust to immigration: changes in factor prices, output mix and production technology. In the second part, we explain the problems of empirically estimating how immigration affects labour market outcomes of the resident population and review some strategies to address these. We then summarise some recent empirical studies for the UK and other countries. We conclude with an outlook of what we believe are important avenues for future research.Migration, Labour Market Impact, Wage Distribution

Employment, Wages, and the Economic Cycle: Differences between Immigrants and Natives

In this paper, we analyse differences in the cyclical pattern of employment and wages of immigrants and natives for two large immigrant receiving countries, Germany and the UK. We show that, despite large differences in their immigrant populations, there are similar and significant differences in cyclical responses between immigrants and natives in both countries, even conditional on education, age, and location. We decompose changes in outcomes into a secular trend and a business cycle component. We find significantly larger unemployment responses to economic shocks for low-skilled workers relative to high-skilled workers and for immigrants relative to natives within the same skill group. There is little evidence for differential wage responses to economic shocks. We offer three explanations for these findings: an equilibrium search model, where immigrants experience higher job separation rates, a model of dual labour markets, and differences in the complementarity of immigrants and natives to capital.immigration, unemployment, business cycle

Referral-based Job Search Networks

This paper develops a model and derives novel testable implications of referral-based job search networks in which employees provide employers with information about potential job market candidates that they otherwise would not have. Using unique matched employer-employee data that cover the entire workforce in one large metropolitan labor market over a 20 year period, we find strong support for the predictions of our model. We first show that firms are more likely to hire minority workers from a particular group if the existing share of workers from that group employed in the firm is higher. We then provide evidence that workers earn higher wages, and are less likely to leave their firms, if they were hired by a firm with a larger share of minority workers from their own group and are therefore more likely to have obtained the job through a referral. The effects are particularly strong at the beginning of the employment relationship and decline with tenure in the firm. These findings have important implications in suggesting that job search networks help to reduce informational deficiencies in the labor market and lead to productivity gains for workers and firms.networks, referrals, uncertainty

Referral-based Job Search Networks

This paper develops a model and derives novel testable implications of referral-based job search networks in which employees provide employers with information about potential job market candidates that they otherwise would not have. Using unique matched employeremployee data that cover the entire workforce in one large metropolitan labor market over a 20 year period, we find strong support for the predictions of our model. We first show that firms are more likely to hire minority workers from a particular group if the existing share of workers from that group employed in the firm is higher. We then provide evidence that workers earn higher wages, and are less likely to leave their firms, if they were hired by a firm with a larger share of minority workers from their own group and are therefore more likely to have obtained the job through a referral. The effects are particularly strong at the beginning of the employment relationship and decline with tenure in the firm. These findings have important implications in suggesting that job search networks help to reduce informational deficiencies in the labor market and lead to productivity gains for workers and firms.Networks, Referrals, Uncertainty

The Economic Situation of First- and Second-Generation Immigrants in France, Germany, and the UK

A central concern about immigration is the integration into the labour market, not only of the first generation, but also of subsequent generations. Little comparative work exists for Europe’s largest economies. France, Germany and the UK have all become, perhaps unwittingly, countries with large immigrant populations albeit with very different ethnic compositions. Today, the descendants of these immigrants live and work in their parents’ destination countries. This paper presents and discusses comparative evidence on the performance of first- and second-generation immigrants in these countries in terms of education, earnings, and employment.immigration, second-generation immigrants, integration