Labor Market Segmentation and the Earnings of German Guestworkers

Abstract

In this paper we study the occupational progress and earnings attainment of immigrants in Germany and compare them to native Germans. Our analysis is guided by the human capital, segmented labor market, and discrimination theories. To assess the separate effects of occupational segmentation and discrimination in the allocation of occupations and wages, we conceptualize the process of earnings attainment as occurring in three stages: initial occupational achievement, final occupational achievement after the accumulation of experience, and, contingent on the former, final earnings attainment. Our analysis of data from the German Socioeconomic Panel suggests a high degree of initial occupational segmentation, with mmigrants being less able to translate their human capital into a good first job than natives. We also find that immigrants experienced significant discrimination in the process of occupational attainment, yielding little job mobility over time, and a widening of the status gap between Germans and guestworkers. Holding occupational status constant, however, we find less evidence of direct discrimination in the process of earnings attainment. Although immigrants achieved lower rates of return to technical or vocational training than natives, their wage returns to experience, hours worked, years since migration, and academic high school were greater, yielding significant earnings mobility over time.