Immigrants in the UK and in West Germany – Relative income positions, income portfolio, and redistribution effects

We analyse the economic performance, measured in terms of relative income positions, of various ethnic groups in the UK and West Germany, as well as the effects of income redistribution on these populations. The two countries under investigation differ strongly with respect to their welfare state arrangements as well as the socio-economic structure of their immigrant populations. We use data from the BHPS, years 1995 to 1998, and from the GSOEP, years 1995 to 1999. Taking the indigenous population of both countries as the reference category, we find that, as a whole, the non-indigenous population in the UK does much better than the immigrant population in Germany. We interpret this as an outcome of negative selection in the hiring of low-skilled guest workers who, along with their descendants, make up the majority of the immigrant population in Germany. However, the range of economic performance among different ethnic groups in the UK is much larger than that in Germany, where we were not able to identify a single ethnic group that is as badly off as, for example, Pakistanis and Bangladeshis in the UK. With ongoing duration of stay, and especially during the initial immigration period, the economic situation of immigrants in Germany improves substantially. Such a time effect was not found for immigrants to the UK. Private transfers play a much bigger role among UK immigrants than in the native-born white population. This finding is specific to the UK. The income redistribution analysis, focusing on absolute differences in the relative income positions when preand post-government incomes are compared, shows that immigrants in Germany rely more heavily on public than on private transfers. The German corporatist welfare system exhibits much stronger redistribution effects than the liberal UK one. Consequently, the relatively low-performing immigrant population in Germany profits more from the redistribution system than immigrants with similar socio-economic structures in the UK.