The Effect of a Culturally Diverse Population on Regional Income in EU Regions

After the crisis years of 2008 and 2009 EU countries followed different employment paths. Employment and wage levels, for instance, are quite unevenly distributed across Europe. Some of the EU countries expect labour shortages due to demographic change in the future. If this is the case, wages will rise when the shortages occur. From literature on migration it is well known that regions with relatively higher income levels and a lower risk of unemployment are typical destination countries for immigration. Thus, European regions might be expected to become rather mixed in cultural terms in the future. Despite the filling of the labour market and the redistribution of the resource of labour, the ultimate question raised in the discussion is whether there are additional gains or losses due to immigration. This work therefore focuses on the impact of migrants on regional GDP per capita for European regions. Does the proportion of foreigners in the labour force increase or lower regional income? Does the composition of non-natives with respect to their countries of origin matter? Both questions are addressed in this study while controlling for endogeneity. We provide evidence that immigration raises regional income and a tendency towards (roughly classified) dominant foreign-born groups reduces the costs of interaction and integration. Thus, in general immigration has a positive effect on regional performance and the costs of immigration in destination regions are balanced out. Depending on the labour market status of migrants, the regions of origin of migrants within the EU face a rise or decline in income as a result of the outflow.