The E¤ect of Migration on NativesEmployment Outcomes: Evidence from the Fall of the Berlin Wall

I study the impact of East-West internal migration in Germany after the fall of the Berlin Wall on wages and unemployment rates in West German local labor markets. Because migrants’ choice of destination is likely to be correlated with local labor market conditions, I instrument migration ‡ows into each western labor market with the distance to each of the East German regions sending migrants and economic conditions in those regions. Consistent with earlier work, I …nd no signi…cant e¤ect of migration on West German residents as a whole, but I do …nd evidence of important distributional e¤ects. My results suggest that migration led to relatively worse employment outcomes for the least-educated workers, for bluecollar workers, for men and for foreign nationals. I also attempt to isolate the e¤ect of migrants’demand for goods and services from the e¤ect of their incremental labor supply. I estimate that the demand e¤ect of a one percent increase in population due to migration is to reduce native unemployment by about 0.5 percentage points. Finally, I …nd that migration increased the daily wages of part-time employees. This might indicate that employers responded to increased product demand by making more intensive use of their existing part-time workforce, rather than hire new workers who would enjoy strong legal protections against dismissal. (JEL Code: J61) Assistant Professor of Strategy, INSEAD, Boulevard de Constance, 77305 Fontainebleau. This is a revised version of Chapter 2 of my Ph.D. dissertation. I would like to thank Nils Drews, Scott Schaefer and Chris Taber for helpful comments and suggestions. I would also like to thank the sta¤ of the German Statistisches Bundesamt, Bundesagentur für Arbeit and Institut für Arbeitsmarktund Berufsforschung for their assistance.