Language and Cultural Barriers in Labor Markets and International Factor Mobility INAUGURALDISSERTATION zur Erlangung der Würde eines Doktors der Wirtschaftswissenschaft der Fakultät für Wirtschaftswissenschaft der Ruhr-Universität Bochum Kumulative Dissertation, bestehend aus fünf Beiträgen vorgelegt von Diplom-Ökonom Sebastian Otten aus Rhede 2013 Dekan: Prof. Dr. Helmut Karl Referent: Prof. Dr. Thomas K. Bauer Koreferent: Prof. Dr. Christoph M. Schmidt Tag der mündlichen Prüfung: 11.02.2014 i Contents List of Tables . vi List of Figures . vii 1 Introduction and Overview 1 2 The Costs of Babylon – Linguistic Distance in Applied Economics 7 2.1 Introduction . 7 2.2 Measuring Linguistic Distance . 9 2.2.1 Previous Literature . 9 2.2.2 The Levenshtein Distance . 10 2.3 Language Fluency of Immigrants . 11 2.3.1 Data and Method . 13 2.3.2 Results . 15 2.4 International Trade . 16 2.4.1 Data and Method . 17 2.4.2 Results . 19 2.5 Conclusion . 22 2.A Appendix . 28 3 Linguistic Barriers in the Destination Language Acquisition of Immi- grants 35 3.1 Introduction . 35 3.2 Measuring Linguistic Distance . 38 3.3 Data . 45 3.4 Method . 48 3.5 Results . 50 3.6 Conclusion . 55 3.A Appendix . 68 3.B Supplementary Appendix . 72 CONTENTS ii 4 Language and Cultural Barriers in International Trade and Investment 80 4.1 Introduction . 80 4.2 Empirical Model . 86 4.2.1 Theoretical Background: The Structural Gravity Model . 86 4.2.2 Empirical Strategy . 88 4.3 Data . 94 4.3.1 Measuring Linguistic and Genetic Distance . 94 4.3.2 Data on Trade Flows, Portfolio Investment, and Banking Claims . 97 4.4 Empirical Findings . 98 4.4.1 The Effect of Linguistic and Genetic Distance on Trade . 98 4.4.2 The Effect of Linguistic and Genetic Distance on Investment . 101 4.5 Conclusion . 102 5 The Role of Language Skills in the German Labor Market 114 5.1 Introduction . 114 5.2 Data . 116 5.3 Empirical Strategy . 119 5.4 Results . 121 5.5 Conclusions . 123 6 The Role of Source- and Host-Country Characteristics in Female Immi- grant Labor Supply 130 6.1 Introduction . 130 6.2 Background . 132 6.3 Method, Data, and Descriptive Statistics . 137 6.3.1 Method . 137 6.3.2 The European Social Survey . 138 6.3.3 Aggregated Data . 143 6.4 Basic Results . 149 6.4.1 Source- and Host-Country Fixed Effects . 149 6.4.2 Source-Country FLFPR . 151 6.4.3 Host-Country FLFPR . 155 6.5 Sensitivity Analyses . 158 6.5.1 Control for Partner Characteristics . 158 6.5.2 Control for Parents’ Human Capital and Employment . 159 6.5.3 Ratio of FLFPR to MLFPR . 160 6.5.4 Source-Country Characteristics at Year of Migration . 162 6.5.5 Bias-Reduced Linearization of Standard Errors . 162 CONTENTS iii 6.6 Conclusion . 164 6.A Appendix . 177 Bibliography 182 Acknowledgments 196 Curriculum Vitae 198 iv List of Tables 2.1 Closest and Furthest Language Pairs with Respect to the Levenshtein Distance 24 2.2 Descriptive Statistics of Dependent and Explanatory Variables – Immigra- tion Sample . 24 2.3 Immigrant’s Language Skills – Probit Results . 25 2.4 Descriptive Sample Statistics and Variable Definitions – International Trade Sample . 26 2.5 Effect of Language on Bilateral Trade – OLS Results . 27 2.A1 40-Items Swadesh Word List . 28 2.A2 Summary Statistics for the Language Variables – International Trade Sample 29 2.A3 Immigrant’s Language Skills – Probit Results, Including Native Speakers . 32 2.A4 Effect of Language on Bilateral Trade – OLS Results, Subsample Language Barrier > 0 ................................... 33 2.A5 Effect of Language on Bilateral Trade – OLS Results, Subsample Linguistic Features Index . 34 3.1 Average Test Scores of US Language Students . 58 3.2 40-Items Swadesh Word List with Computational Examples . 59 3.3 Closest and Furthest Languages to English and German . 60 3.4 Rank Correlations among Linguistic, Geographic, and Genetic Distance Measures . 61 3.5 Distribution of Language Skills across Samples . 62 3.6 Language Ability and Linguistic Distance – Aggregated Results . 63 3.7 OLS Results of Linguistic Distance – ACS Sample . 64 3.8 Ordered Logit Marginal Effects of Linguistic Distance – Model 1 ACS & SOEP Sample . 64 3.9 OLS Results of Linguistic Distance – SOEP Sample . 65 3.A1 Descriptive Statistics – ACS & SOEP Sample . 68 3.A2 Variables Description – ACS & SOEP Sample . 69 LIST OF TABLES v 3.A3 Robustness Checks: OLS Results of Linguistic Distance – Model 2 ACS Sample . 70 3.A4 Robustness Checks: OLS Results of Linguistic Distance – Model 2 SOEP Sample . 71 3.B1 OLS Results – Model 1 & 2 ACS Sample . 72 3.B2 Ordered Logit Results – Model 1 & 2 ACS Sample . 73 3.B3 Ordered Logit Marginal Effects – Model 1 ACS Sample . 74 3.B4 Ordered Logit Marginal Effects – Model 2 ACS Sample . 75 3.B5 OLS Results – Model 1 & 2 SOEP Sample . 76 3.B6 Ordered Logit Results – Model 1 & 2 SOEP Sample . 77 3.B7 Ordered Logit Marginal Effects – Model 1 SOEP Sample . 78 3.B8 Ordered Logit Marginal Effects – Model 2 SOEP Sample . 79 4.1 Closest and Furthest Language Pairs with Respect to the Levenshtein Distance104 4.2 Effect of Linguistic and Genetic Distance on Bilateral Exports . 105 4.3 Effect of the Bilateral LDE Indicator on Bilateral Exports . 106 4.4 Effect of the Linguistic Distance toward English on Bilateral Exports . 107 4.5 Effect of Linguistic and Genetic Distance on Cross-Border Asset Stocks . 108 4.6 Effect of Linguistic and Genetic Distance on Bilateral Banking Claims . 109 4.7 Effect of the Bilateral LDE Indicator on Cross-Border Asset Stocks . 110 4.8 Effect of the Bilateral LDE Indicator on Bilateral Banking Claims . 111 4.9 Effect of the Linguistic Distance toward English on Cross-Border Asset Stocks112 4.10 Effect of the Linguistic Distance toward English on Bilateral Banking Claims113 5.1 Swadesh 40-Item List with Computational Examples . 124 5.2 Distance from German – Closest and Furthest Languages . 124 5.3 Descriptive Statistics by Oral German Ability . 125 5.4 Results of Employment Regressions . 127 5.5 Results of Wage Regressions – Oral Ability . 128 5.6 Results of Wage Regressions – Written Ability . 129 6.1 Descriptive Statistics – Individual Variables . 168 6.2 Descriptive Statistics – Aggregated Variables . 169 6.3 Model 1 – Source- and Host-Country Fixed Effects . 170 6.4 Model 2 – Source-Country Characteristics . 171 6.5 Model 3 – Host-Country Characteristics . 172 6.6 Models 2 & 3 – Controlling for Partner Characteristics . 173 6.7 Models 2 & 3 – Controlling for Parents Characteristics . 174 LIST OF TABLES vi 6.8 Models 2 & 3 – Ratio of FLFPR to MLFPR . 175 6.9 Model 2 – Source-Country Characteristics at Year of Migration . 175 6.10 Models 2 & 3 – Bias-Reduced Linearization of Standard Errors . 176 6.A1 Explanatory Power of Source- & Host-Country Fixed Effects . 177 6.A2 Explanatory Power of Source- & Host-Country Characteristics . 177 6.A3 List of Source Countries . 178 6.A4 Macroeconomic Data – Sources and Descriptions . 179 vii List of Figures 2.A1 Comparisons of Linguistic Distance Using the Test-Score-Based Measure and the Levenshtein Distance – 2000 U.S. Census . 28 2.A2 Bivariate Kernel Density Estimation of Log Bilateral Trade and Levenshtein Distance – International Trade Sample . 30 3.1 Language Relations in the TREE Approach . 58 3.2 Predicted Language Assimilation Profiles for the ACS Sample . 66 3.3 Predicted Language Assimilation Profiles for the SOEP Sample . ..