Copyright by Charles Gregory Demakis 2018 The Report Committee for Charles Gregory Demakis Certifies that this is the approved v ersion of the following Report : Immigrants’ Changing Position in Germany’s Labor Market Institutions APPROVED BY SUPERVISING COMMITTE E: Chandler Stolp , Supervisor Pat rick P. Wong Immigrants’ Changing Position in Germany’s Labor Market Institutions by Charles Gregory Demakis Report Presented to the Faculty of the Graduate School of The University of Texas at Austin in Partial Fulfillment of the Requirements for the Degree of Master of Public Affairs The University of Texas at Austin August 2018 Acknowledgements I would like to th ank everyone who provided their support and feedback during the process of writing this report, including Jen Cooper, Lukas Graf, Michaela Kreyenfeld, Camilo Rodr í guez Ronderos, Christian Traxler, and Pat Wong. I am especially grateful for the guidance of Chandler Stolp, who kept me focused in my research (no easy task) and answered my constant queries about matters econometric and Stata - related. I would also like to thank the Hertie School of Governance for hosting me as an exchange student during the Spri ng Semester 2018 , which allowed me to live in Berlin as I researched and wrote this report , as well as the Research Data Center SOEP for granting me access to their data. I could not have written this report without the instruction, experience, and resourc es afforded by the LBJ School of Public Affairs and its supportive staff and faculty . D uring my time as a graduate student , I was also able to take coursework in the College of Liberal Arts at the University of Texas, Austin . I learned a great deal about l abor markets, inequality, and statistical modeling from Ken - Hou Lin and Daniel Powers in the Department of Sociology and Sandra Black and Richard Murphy in the Department of Economics as an interloper in their graduate seminars . I hope I have managed to ap ply this knowledge competently and critically in my analysis . I likely would not have pursued this master’s degree without the financial support of Governor Ben Barnes, who generously funded my fellowship for two years and offered some solace following the cataclysmic events of Election Day 2016. Lastly, I would like to thank my loving parents, who listened to periodic updates on the piecemeal progress of this report with great patience from across the Atlantic, no doubt wondering where this all would lead. iv Abstract Immigrants’ Changing Position in Germany’s Labor Market Institutions Charles Gregory Demakis, MPAff The University of Texas at Austin, 2018 Supervisor: Chandler Stolp As Germany works to get its refugee population into employment , immigrant labor market assimilation has become a major policy concern . The German economy has undergone significant structural changes since the first cohort of guest workers arrived over a half century ago , with t he corporatist features that defined the G erman model now much weaker . This report examines how th is shift towards greater liberalization ha s affected immigrants in the German labor force relative to natives . Using data from the German Socio - Economic Panel, I find that immigrants’ position in Germ any’s labor market institutions changed considerably in the period from 1984 to 2016. W orking immigrants were originally more likely to hold permanent contracts, have works council representation, and belong to trade unions than native Germans, but the rel ationship has reversed in all three cases. During this period, immigrants were 50% more likely to exit union member s hip than natives after controlling for demographics, labor market events, and industry and occupation. Immigrant - native income and wage gaps have widen ed , although structural features of the German labor market likely mitigate intergroup inequality. I conclude by discussing refugees’ limited prospects of entering the primary labor market and what policymakers can do to improve them . v Table of Contents List of Tables ................................ ................................ ................................ ................ vii List of Figur es ................................ ................................ ................................ .............. viii I. Introduction ................................ ................................ ................................ ............ 1 II. The German Labor Market: An Overview of Recent Changes ................................ 6 III. Data and Methods : The German Socio - Economic Panel ................................ ....... 16 IV. Native and Immigrant Labor Force Characteristics ................................ ............... 21 V. Immigrant Access to German Labor Market Institutions ................................ ....... 24 Employment Contracts ................................ ................................ ....................... 24 Works Councils ................................ ................................ ................................ 28 Trade Unions ................................ ................................ ................................ ..... 31 VI. The Growing Gap in Immigrant - Native Outcomes ................................ ................ 43 Evolution of the Immigrant - Native Income and Wage Gaps ............................... 43 Decomposing the Immigrant - Native Income and Wage Gaps ............................. 47 VII. Conclusion ................................ ................................ ................................ ........... 53 Tables ................................ ................................ ................................ ........................... 59 Figures ................................ ................................ ................................ .......................... 69 References ................................ ................................ ................................ ..................... 84 vi List of Tables Table 1: Native and Immigrant Labor Force Characteristics, 1984 to 2016 1 ................... 59 Table 2: Native and Immigrant Labor Market Outcomes, 1984 to 2016 ......................... 60 Table 3: Changes in Labor Mar ket Institution Coverage over Time ............................... 61 Table 4: German Labor Force and Union Membership Characteristics, 1985 to 2015 .... 62 Table 5: Transitions Into and Out of Union Membership, 1985 - 2015 ............................. 63 Table 6: Logistic Regressions of Union Memb ership Transitions, 1985 - 2015 ................ 64 Table 7: Returns to Union Membership ................................ ................................ ......... 65 Table 8: Oaxaca - Blinder Decomposition of Immigrant - Native Income Gap .................. 66 Table 9: Oaxaca - Blinder Decomposition of Immigrant - Native Wage Gap ..................... 67 Table 10: Pooled OLS Mincer Earnings Regressions ................................ ..................... 68 1 Throughout this report, I consistently use the word “to” between two years to indicate I am comparing the beginning and the end of a given time period, and a hyphen “ - ” to indicate I am presenting time - series data for the entire per iod. So “1984 to 2016” means there will be a comparison of those two years as before - and - after endpoints, whereas “1984 - 2016” will include the whole interval to portray the continuous trend. vii List of Figures Figure 1: Trade Union Density in Germany, 1960 - 2016 ................................ ................ 69 Figure 2: Trends in Prime - Age Labor Force Participation, 1984 - 2016 ........................... 70 Figure 3: Education of the German Labor Force, 1984 - 2016 ................................ .......... 71 Figure 4: Degrees Held by the German Labor Force, 1984 - 2016 ................................ ... 72 Figure 5: Selection into Permanent Contract by Immigrant Status, 1985 - 2016 ............... 73 Figure 6: Selection into Permanent Contract by Education Level, 1985 - 20 16 ................ 74 Figure 7: Trends in Union Membership 1985 - 2015 ................................ ........................ 75 Figure 8: Sel ection into Union Membership by Immigrant Status, 1985 - 2015 ................ 76 Figure 9: Selection into Union Membership by Education Level, 1985 - 2015 ................. 77 Figure 10: Gap in Immigrant - Native Mean Log Monthly Income, 1984 - 2016 ................ 78 Figure 11: Change in German Income Distribution, 1984 to 2016 ................................ 79 Figure 12: Trends in Contractual Working Hours, 1984 - 2016 ................................ ........ 80 Figure 13: Involuntary Underemployment in the Bottom Income Quintile, 1985 - 2016 .. 81 Figure 14: Gap in Immigrant - Native Mean Log Hourly Wage, 1984 - 2016 ..................... 82 Figure 15: Change in German Wage Distribution, 1984 to 2016 ................................ .... 83 viii I. Introduction The guestworkers pose serious management problems for policy makers. The presence of highly visible immigrant groups, inferior socially and economically to the national population, creates a challenge to the liberal ethos of national governments committed to democracy… Na tional policy makers appear to have little choice between two courses – either exploitation and structural marginality or integration and structural equality for immigrants. – Ray C. Rist, 1979 Since 2014, Germany has experienced one of the largest migr ation episodes in post - war Europe an history . The German Federal Statistical Office