High Unemployment in Germany: Why do Foreigners Suffer Most?

In Germany, immigrant unemployment is not only higher than native unemployment; italso reacts more to changes in the situation on the labor market. Decomposing the gapbetween native and immigrant unemployment into a baseline and a labor-marketsituation component, I find that the unemployment rate of immigrants would lie at 5.6 percentagepoints for zero native unemployment (the baseline component of the gap). Anincrease in overall unemployment by 1 percentage point leads to a 0.7 percentage pointshigher increase in immigrant unemployment than in native unemployment (the situationcomponent). The large part of this difference, about 3/4 of the baseline and 4/5 of thesituation component, can be explained by differences in the endowments with classicalhuman capital (educational degrees and experience) between immigrants and natives.Also controlling for country-specific human capital, particularly language skills, thesituation component becomes insignificant and the baseline effect again decreases by1/2. Adding controls for social networks, the baseline effect also becomes insignificant.Thus, human capital and social networks can possibly fully explain the differencebetween native and immigrant unemployment in Germany.