Immigration and Unemployment

The paper presented in this ZEW Research Seminar evaluates the impact of immigration following the EU Eastern Enlargement on the German labor market. The paper assesses the effects of immigration on natives' transitions into and out of unemployment, and starting wages, and job vacancies. The research design compares commuting zones before and after Germany opened its labor market and accounts for the endogeneity of migration across regions by using two variants of a shift-share instrument. The author find that immigration reduced native unemployment, increased the job-finding rate, reduced the job-separation rate, and increased starting wages while having no discernible effect on vacancies. Delving into the mechanisms suggests that immigration spurred firm entry and productivity. The results support the common assumption of search-and-matching models that labor demand is highly elastic.