Wage inequality and immigration in Europe during the first stage of the international division of labour (1960-1975)

In this paper we propose an explanation for the substantial migration inflows that occurred in North-Western Europe in the 1960s using a modified Heckscher-Ohlin model to show how migration inflows and the product specialisation pattern were linked to the skill premium of countries. In the 1960s, wages of low-skilled workers were essentially determined by bargaining or by institutional rules (e.g. minimum wages) that prevented labour markets from clearing automatically. Hence, immigration to Western Europe was essentially driven by the countries’ demand for lowskilled labour resulting from the institutionally determined skill premium. The model implies that, given a country’s domestic endowment of high-skilled labour, a high skill premium boosts immigration because it fosters the demand for low-skilled workers. Countries enforced higher wage inequality by importing more low-skilled workers from the South. This proposition is tested by estimating a push-pull immigration model for four Western-European countries (Belgium, France, West Germany and Sweden). In support of the model’s prediction, we find that the skill premium has a significant positive effect on immigration. Immigration inflows were mainly driven by the demand for low-skilled labour in the host countries.