How much someone earns in Germany can be seen from their passport. The RWI – Leibniz Institute for Economic Research has now determined that German employees get 13 percent more wages per hour than foreign workers. Even more striking than this difference is how it is developing: the wage deficit for foreigners has doubled in the past 30 years. This is from the unpublished study that the Süddeutsche Zeitung present.
There can be many reasons why a foreign citizen earns less. Language barriers are one of them, as are differences in qualifications. Or discrimination: With a foreign name, it is often more difficult to be invited to an interview for a coveted job.
That still doesn’t explain why the wage gap is widening. The qualifications, for example, are converging. Recently, there was a higher proportion of new migrants without a school-leaving certificate than among Germans – but also more academics. “Despite further significant differences, the mean educational differences between Germans and foreigners have decreased over the past few decades,” says RWI researcher Eduard Storm.
The increase in the wage gap is therefore not due to qualifications. And not because of the high migration numbers since 2015: on average, foreign workers have been in the country much longer. They are a group of several million, which includes Polish construction workers as well as Indian programmers and Bosnian couriers. Half of them come from Eastern Europe and one quarter each from the rest of Europe and non-European countries.
Foreign employees work more often in service, logistics or construction
Storm offers another explanation for why the wage gap is widening: “Native workers tend to be winners of technological change, foreign workers tend to be losers.” According to this, foreign employees, regardless of their qualifications, do more manual jobs in service, logistics or construction than Germans. And these are now rather poorly paid than many other jobs, and are often awarded through temporary work and subcontractors.
The change has many facets, and according to Storm, the different specializations of foreigners and Germans explain up to a third of the wage gap. New technology has profoundly changed the job market. Jobs with a high proportion of routine are disappearing or at least stagnating in terms of income. On the other hand, IT specialists or so-called interactive jobs that involve communicating and selling are getting better and better paid.
The change at a bank can be seen as an example. ATMs have eliminated the need for routine jobs like withdrawing money. Online banking eliminates the need for employees who process handwritten transfers and the like. Anyone who is no longer needed here may have to look for a lower-paying service job.
Employees who advise customers on investments, for example, are more in demand at the bank. With such communicative activities, more is important than just good language skills, which foreign employees in the study usually have. Storm observes that those who act in their native language often appear more self-confident because of their body language. “It’s easier for him to present himself and sell himself.” The German economist experienced this himself as a lecturer at American universities.
So it could be that German employees grab such interactive jobs more easily. That foreign citizens are less likely to trust themselves – or that German bosses are less likely to trust them, even though they could do it well. As a result, some foreign workers in the same profession slip into jobs that are less well paid. An example of how change widens the wage gap.
Migrants lack the contact networks that locals have
“At least initially, migrants often go into different jobs than Germans, regardless of their qualifications,” says migration expert Herbert Brücker. “And that’s because they’re at the back of the line on the job market.” They lack the contact networks that locals have. And information. “Discrimination also plays a role,” says Brücker, who heads the migration research department at the Institute for Labor Market and Vocational Research (IAB).
The researcher gives hope: Studies have shown that the wage gap shrinks the longer someone lives in the country. The engineer, who initially drove a taxi because no company would accept his certificates and work experience abroad, later works as an engineer. For Brücker, the fact that foreigners have been there recently, due to high levels of migration, could partly explain why the wage gap is increasing.
Two laws from 2012 and 2020 are intended to ensure that German companies obsessed with formalities recognize qualifications from abroad more. That already helps, RWI researcher Storm states. But more could be done to really employ foreign workers according to their qualifications – which not only benefits them, but would also be important given the increasing shortage of skilled workers.
Storm envisions companies training in programs, which is especially important for interactive jobs. The careers advice provided by employment agencies should take technological change more into account. Herbert Brücker believes that job placement will make it easier to compensate for the lack of contact networks for foreign workers. He calls for offers to improve language skills and adjust qualifications.
Because the RWI study differentiates according to nationality, it only partially depicts the situation of the migrants. Anyone who becomes German falls into the group of Germans. And because the data is only available for employees, the sometimes very successful foreign self-employed do not appear. Nevertheless, the study allows some conclusions. Qualified foreigners should not end up on the wrong side of technological change. And when interactive jobs become more and more important, Germany has a bad hand when it comes to wooing foreign skilled workers. Because they could opt for English-speaking countries more often because they had more to do with this language in their home country than with German.