Immigrant occupational composition and the earnings of immigrants and natives in Germany

In this paper we examine the influence of immigrant occupational composition on wages of immigrants and natives in Germany. Using data from the German Socio-Economic Panel Study and the German Microcensus we test several sociological, social-psychological, and economic explanations relevant to this topic. The notion of quality sorting states that the differences in wages that are associated with the immigrant share within occupations are due to differences in qualification requirements in those jobs alone. A cultural devaluation of occupations with a high immigrant share should have a negative influence on both immigrants’ and natives’ wages above and beyond quality sorting. Group threat theory predicts that the negative effect of immigrant presence within an occupation on wages is stronger for immigrants than for natives. Inter-group contact theory suggests that with increasing immigrant presence relations between immigrants and natives improve, leading to a curvilinear effect of immigrant occupational composition on wages. The results indicate that quality sorting is clearly at work, but there is an additional wage penalty tied to immigrant presence within occupations, speaking for cultural devaluation. We do not find evidence for the group threat argument, but there is a curvilinear relationship between immigrant share and wages, which is in line with the inter-group contact hypothesis. Gender differences exist only for the native sample, with native women being more strongly subject to the negative effects of immigrant presence than native men. Additional analyses on samples stratified by occupational position reveal that the wage dynamics tied to immigrant position are restricted to white-collar occupations. This partly explains why native women’s wages are overall more strongly affected negatively by devaluation. All of these results are robust against accounting for selection bias. We discuss the implications of these findings and of ongoing changes in the German labor market for future immigration.