Introduction

Immigration is one of the most heatedly debated issues in politics. The rising immigrant numbers and the resulting fears of the native population have led to more restrictive immigration policies in many industrialised countries. Most of the native's reservations regarding immigration are based on ‘distributional’ arguments, that is, that immigrants will replace native workers, which will result in higher native unemployment rates and/or lower wages. However, the theoretical and the empirical economic literature do not arrive at these clear results. To the contrary, the economic literature on immigration concludes that immigration can be beneficial, harmful or can even have no effect at all on the labour market prospects of natives. Everything depends on which theoretical model or empirical study one believes.

I will concentrate in this survey on the impact of immigration on different labour market institutions: competitive versus rigid labour markets. Therefore we will review the different theoretical models and the results of empirical studies from two prototypes of immigration countries, the US and Germany, which are characterised by the aforementioned labour market institutions. US labour markets are typically thought as competitive, while in Germany wage rigidities are generated by collective wage setting and a generous social protection system. There are further important issues of the impact of immigration on native welfare that this survey does not cover. The structure of this survey is as follows: first, we describe the immigrant population in the receiving countries; second, we summarise the theoretical literature on the impact of immigration on the labour market; and third, we provide an overview of the empirical studies.

In section two, we will summarise the stylised facts on immigration to show similarities and differences between the immigrant inflows to both countries. The similarities between the US and Germany are the increased number of low-skilled immigrants and the increased number of refugees. The differences are their recognition of the increasing immigrant flows and the different immigrant population concerning the educational level of immigrants. In both countries, immigrants often have higher unemployment rates, less education and earn lower wages. However, in the US we find much more heterogeneity with regards to immigrants’ education levels and their success on the labour market. In contrast, the German immigrant population does not show this bimodality because there are very few highly skilled immigrants.