Ethnic Diversity in European Labor Markets

Klaus F. ZimmermannIZA, DIW Berlin and University of Bonn

Budapest October 22, 2010

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Background

• Social and economic exclusion remains an everyday challenge to millions of members of ethnic minorities living in Europe today

• Underlying differences between ethnic minorities and majority populations often correlate with gaps in their labor market outcomes

• Being a member of an ethnic minority per se often bears a disadvantage in terms of relative labor market outcomes

• Integration challenges appear in a variety of forms:– Unequal access to health care– Unequal access to social services– Underemployment– Wage gaps– And in particular: labor market segmentation

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Challenges for the Analysis of Ethnic Minorities

• Ethnic minorities still insufficiently covered by empirical research

• Cross-country comparisons of economic conditions often uninformative and biased

• Explanations:

– Scarcity of quantitative and qualitative data of sufficient quality to allow cross-country comparisons

– Different understandings of the term ‘ethnic minority’

– (Matters further complicated by countries using different empirical definitions of what it means to be an ethnic minority)

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Outline of this Presentation

1) Definition and measurement of ethnic minorities

2) Previous empirical research

3) Analyzing interethnic gaps in labor market outcomes

in Europe:

a) based on aggregate statistics

b) based on individual data and an econometric model

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Definition of “Ethnic Minorities”

• Ethnic minorities can be defined as...– groups exhibiting cultural preferences different to those of the

majority population– groups with different cultural and societal origins

• But empirical research often refers to ethnic minorities as...– groups born in a different country– groups with a different citizenship– groups with different racial background

• This can lead to discrepancies and the omission of data:– Naturalized immigrants– Autochthonous minorities– Second and third generation immigrants

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Deeply Rooted Measurement Problems

• Those issues are especially relevant in some Eastern European countries:– “Nationality” has the meaning of ethnicity, or belonging to a

national group (but not synonym for citizenship)– Low availability of socio-economic indicators in the data

• Altogether, there are deeply rooted measurement problems• Those can be at least partly addressed by adopting a broad and

flexible understanding of ethnic minorities that encompasses...– all categories of the population of foreign origin

(i.e., first, second and third generation immigrants),– ethnic minorities, national minorities, linguistic minorities,

religious minorities, and stateless people

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Previous Empirical Research: Overview

Overall picture:

Robust evidence of the presence of labor market disadvantages

for ethnic minorities in many European countries in terms of...

– higher unemployment rates

– lower labor income (conditional on employment)

– greater barriers to finding work

– lower probability to stay employed (conditional on employment)

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Foreign Origin vs. Foreign Citizenship

• Analysis in the enlarged EU shows a differentiated picture

across its member states (Kahanec and Zaiceva, 2009):

– 15 old member states:

Primarily immigrant status which is associated with

employment and earnings penalties

– New member states:

Citizenship is a relatively more important factor

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European Country-level Evidence

• Immigrant-native gaps in labor market outcomes documented for a large number of countries:– Germany (Constant and Massey, 2003) – Spain (Amuedo-Dorantes and de la Rica, 2007) – The Netherlands (van Ours and Veenman, 2005) – France (Aeberhardt et al., 2009; Constant, 2005)– United Kingdom (Simpson et al., 2006; Wheatley Price, 2001;

Dustmann et al., 2003; Kahanec and Mendola, 2009)– Denmark (Pedersen, 2005, 2006; Nielsen et al., 2004)– Hungary (Kertési, 2004; Kertési and Kézdi, 2009)– Slovakia (Vašečka, 2001)– Latvia (Hazans, 2007; Hazans et al., 2007)

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Immigrant-Native Gaps: Some Important Findings

European country-level evidence shows (among other things):

• Extent of gaps varies by gender

• Gaps are heterogeneous across minority groups

• Gaps are in general not decreasing over immigrant generations, and sometimes even increasing for particular minority groups (e.g., Black African minorities in France)

• Social ties and social networks are important:

– with co-ethnics for self-employment

– across ethnic boundaries for wage employment

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Explaining Immigrant-Native Gaps

Explanations for the immigrant-native gaps which are present:

• Lower educational attainment, differences in human capital

• Insufficient language skills

• Non-transferability of skills

• Discrimination

• Selection effects (of migration)

• Differences in social or ethnic capital

• Differences in other unobserved characteristics

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Data: Ethnic Minorities in the EU Labor Market

• The meta-analysis of the available EU-wide harmonized individual data (ESS, EU LFS, EU SILC, ECHP) reveals the lack of data disaggregated by ethnicity

– Either not available at all, not available due to anonymity, or the number of observations is too small

To empirically examine the situation of immigrant ethnic minorities...

– Data from the 2007 wave of the EU Labor Force Survey is used

– Minorities are defined by foreign origin or citizenship, across European destinations

– Two measures of labor market outcomes are investigated:

– Labor force participation rates

– Unemployment rates

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Outcome Variables and Sample

• Outcome variables:• Labor force participation rate:

proportion of the total working-age population which belongs to the labor force (i.e., employed or unemployed) in a given year

• Unemployment rate: proportion of individuals who are unemployed in the labor forceInterpretation of the differentials in these rates vis-à-vis natives and nationals, respectively, as measures of integration

• Sample: • Working-age population (15 to 64 years)• Excluding those in compulsory military service or

regular education

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Empirical Findings: Participation Rates

Participation rates by citizenship and immigration status:• Nationals or native-born:

• Lowest participation rates in Hungary • Highest participation rates in Sweden

• Gender differences:• Lower participation rate for women in all member states

• Foreigner-native gaps:• Gaps in participation rates prevail across the EU • However, in several countries, mainly from Southern Europe

or the group of new member states, the proportion of non-EU foreign-born or non-EU nationals participating in the labor force is higher than for the corresponding native groups

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Empirical Findings: Participation Rates of Foreigners

• Similarly to natives, among foreigners the participation rate of

women in the labor force is lower than for men

• However, in several Eastern as well as Southern European

member states the proportion of foreign women is higher than

the proportion of native women participating in the labor force

• Comparing Non-EU foreign-born with fewer than five

and more than five years of residence in the host country,

in most countries experience in the host society implies

catching up in terms of labor market attachment (exceptions

include the UK)

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Empirical Findings: Unemployment Rates

Unemployment rates by citizenship and immigration status:• Nationals or native-born:

• Highest unemployment rate in in Slovakia and Poland • Lowest unemployment rate in the Netherlands

• Gender differences:• For natives, unemployment rates of women are usually

higher than those of men (exceptions: Estonia, Ireland, Latvia, Lithuania Romania, Sweden and the UK)

• Foreigner-native gaps:• Being a foreigner results in a higher unemployment likelihood• Experience in the host country seems to improve the ability

of foreigners finding a job• Female foreigners suffer from higher unemployment rates

more than their male counterparts

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Next Step: Formal Econometric Analysis

• Findings so far not entirely informative• A more formal econometric regression analysis is needed

to disentangle the underlying causes:– Probit model to explain...

a) the probability of participating in the labor force

b) the probability of employment – Control for differences in observable characteristics across

groups in these regressions– Effects of being a foreigner is picked up by a dummy variable

that attains the value of one for foreigners and zero otherwise– Estimated coefficient for this variable is attributable to the

compound effect of unobserved differences in social and ethnic capital, discrimination, any other omitted variable, or selection

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Empirical Findings: Econometric Analysis

• Marginal effects of being a foreigner on labor force participation and

unemployment:

– The effect of being a foreigner on labor force participation is by

and large negative both for men and women

– The marginal effects of being a foreigner for unemployment

probability are mainly positive or insignificant across the EU, with

the exception of some Southern European states

– But years since migration in many cases improve the labor

market prospects of the non-EU foreign-born both in terms of

participation and employment

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Empirical Findings: Ethnic Minorities in France

• Definition “immigrant”: older than 10 years upon arrival in France

• Findings:• Immigrants almost twice as likely to be unemployed than natives

• Same is true for those who were younger then 10 years upon arrival (“generation 1.5”)

• Second generation men fare worse in the labor market than natives and fare the worst compared to any ethnic minority of other generations

• Second generation women, with the exception of Moroccan women, tend to be more economically active and experience lower unemployment than other female immigrants or “generation 1.5” women

• Mixed second generation (with a parent born in France) are marginally less active in the labor market and have much lower unemployment rates compared to other ethnic minorities of foreign origin

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Empirical Findings: Self-identified Ethnic Minorities (1/2)

• Extending the convenient but quite limiting definition based on foreign origin or citizenship to those who self-identify into an ethnic minority group

• Data available for three European countries:

– Hungary, Romania, UK• Comparison between the labor market statistics of the largest ethnic

minorities and their native counterparts

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Empirical Findings: Self-identified Ethnic Minorities (2/2)

• Findings:– Ethnic minorities in the UK have lower attachments to the labor

market and higher unemployment rates than the white majority – In Hungary and Romania, non-Roma ethnic minorities fare at

least as well as natives do – The unemployment rate in Hungary is marginally higher only for

African minorities; for immigrants from China, Croatia, Poland, Armenia and Arab countries it is substantially lower than for natives

– The labor participation rate in Hungary is higher for all ethnic minorities

– Hungarians are marginally less active in the Romanian labor market than natives, although there is very little difference in labor market outcomes in Romania for either Hungarians, Ukrainians or native Romanians

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The Situation of Roma in Spain, Romania and Hungary

• Roma have lived in European countries for hundreds of years and many generations

• They are still poorly integrated and are considered to be a minority at high risk of exclusion in almost every country they are present

• The activity rate for Roma is half of that for natives in either country; the unemployment rate is also much higher

• The unemployment rate for economically active Roma in Hungary is five times higher than for natives

• The unemployment rate of Roma in Bulgaria, at 77 per cent, is three times higher than the rate for non-Roma Bulgarians

• The Roma unemployment rate in some Slovakian settlements has even reached 100 per cent

• Less dramatic disparity between Roma and non-Roma in Spain

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Conclusions

• Worrisome reality of ethnic minorities in Europe

• Although in several countries ethnic minorities exhibit relatively high

participation rates, they appear to face significant difficulties in

finding a job, securing adequate earnings and occupational status

• While a positive role of years since migration is observed, analysis

has not indicated any clear assimilation over immigrant generations

• Importance of tackling the issue of the integration of ethnic

minorities into the whole social fabric

• Gender plays an important role in labor market outcomes:

Important variable that interacts with ethnicity and may drive some

of the interethnic labor market gaps

Klaus F. ZimmermannIZA, DIW Berlin and University of Bonn

IZA, P.O. Box 7240, 53072 Bonn, Germany

Phone: +49 (0) 228 - 38 94 - 0Fax: +49 (0) 228 - 38 94 - 180

Email: director@iza.org

www.iza.org