Economic Assimilation and Outmigration of Immigrants in West-Germany∗

By analyzing earnings of observed immigrants workers, the literature on the economic assimilation of immigrants has generally overlooked two potentially important selectivity issues. First, earnings of immigrant workers may differ substantially from those of non-workers. Second, earnings of immigrants who do not return to their native country may differ from earnings of outmigrants. Economic theory has contradictory predictions on the signs of these potential selection biases. This paper uses data drawn from 8 waves of the German Socio-Economic Panel and estimates a three-equation model of income, work and outmigration decisions taking into account time-invariant unobserved heterogeneity across individuals. We find strong evidence in favor of negative outmigration selection in both the earnings and work equations. Simulation results show that the magnitude of the outmigration bias is important. JEL Codes: J24, J61