Heterogeneous Firms and Substitution by Tasks: the Productivity Effect of Migrants

Economic debate about the consequences of immigration in Germany has largely focused on the wage effects for natives at an aggregate level. Especially the role of imperfect substitutability of migrants and natives gained importance. A new micro oriented approach is to focus on the firm level by estimating production functions in an equilibrium framework to gain more detailed information including firm heterogeneity. Another branch of recent literature emphasizes the role of task dimension of occupations additionally to the qualification of workers: migrants work in different jobs than natives do and are concentrated in agglomerations. The task approach is thus a key to understand imperfect substitution on the firm level. Our contribution in this article is manifold: we examine the effects of the relative (dis-)advantages in performing certain tasks and their implications on the labor market outcomes. Using this framework we construct a general equilibrium model with monopolistic competition a la Dixit-Stiglitz considering heterogeneous firms with different productivity levels and two types of jobs for migrants and natives. Firms differ in the ability to employ migrants which gives rise to wage differences between natives and migrants. Therefore firms with a higher share of migrants realize wage cost advantages. In the long run equilibrium only those firms survive in the market which are highly productive or are able to compensate their lower productivity level by wage cost advantages. We show that a higher migrant share is able to explain the increase of productivity. Further, the heterogeneous distribution of migrants in our model is the source of regional disparities. Thus part of the agglomeration advantages can be explained by the empirical stable observation that migrants tend to move to cities. The conclusions of the model are in line with three empirical facts in Germany. Firstly, the average productivity of firms is higher in cities. Secondly, the wage difference between migrants and natives in a region is increasing in the share of migrants in that region. Thirdly, less productive firms are more likely to employ a higher share of migrants, as wage advantages and productivity acts as a substitute. keywords: immigration, firm heterogeneity, skills, tasks, regional labor markets JEL: R23, J15, J24, J61