Migration and Regional Wage Disparities in Germany

Abstract This study provides an analysis of the effect of migration and commuting on regional wage disparities in Germany. Using the INKAR dataset and the GSOEP from the years 1998 to 2009, dynamic GMM panel estimations are applied to consider dynamics as well as the simultaneity between migration and regional labor market circumstances. To begin with, the influence of migration on relative wage levels is analyzed. The results show a small positive wage effect due to the overall regional migration balance. However, only domestic migration is relevant for analyzing the influence of migration on regional wage disparities. The wage effect due to domestic migration turns out to be smaller and negative. Regions seem to benefit primary from a combination of internal and foreign migration, however effects are small. Assuming that individuals usually move to high-wage regions, the negative wage effect of German migration would trigger an adjustment mechanism of wage disparities. Therefore, a second dynamic GMM panel estimation tests whether an influence of the regional wage levels on migration exists. Results show no statistically significant effects. An adjustment of existing wage disparities due to migration is not likely to occur in Germany in the next few years.