Reservation Wages of First and Second Generation Migrants

Amelie F. Constant2, Annabelle Krause 1, Ulf Rinne1, Klaus F. Zimmermann1
1IZA, Germany, 2DIW DC, USA

This paper analyzes the reservation wages of first and second generation migrants in Germany. Based on recently collected and rich survey data of a representative sample of entrants into unemployment, we empirically test and confirm the hypothesis that reservation wages increase from first to second generation migrants, other things equal. If the wage offer distribution is unknown, the reservation wage may be a function of the job seekers' beliefs---which we argue are formed via reference groups. And these reference groups in turn may shift from one migrant generation to the next: we expect first generation migrants to still have their home country's wages in mind when forming beliefs about the wage offer distribution, while second generation migrants are supposedly more strongly attached to the host country's society and culture and thus form beliefs to a larger extent through German experiences.

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