Employment effects of immigration to Germany: An analysis based on local labor markets

We analyze the impact of increased immigration on employment outcomes of natives In Germany using a data set of county-level variables for the late 1980s. In order to construct more unified labor market regions, we aggregate the 328 counties to 167 larger regions. We study two measures of immigration, the change in the share. of foreigners between 1985 and 1989 as well as one-year gross and net flows of immigrants to an area. In order to address the potential problem of immigrant selection into local labor markets, we condition on previous labor market outcomes, which may serve as the basis of immigrant selection. This specification allows for mean reversion in the unemployment rate, which is strong in our data set and period of study. We show that this rules out some other approaches of identifying the impact of immigration. Our results indicate no detrimental effect of immigration. We find no support for the hypothesis that the absence of displacement effects is due to a response of native migration patterns.