Foreign labor and regional labor markets: Aggregate and disaggregate impact on growth and wages in Danish regions

Abstract

Foreign labor has become a central issue in Western Europe. This paper tests whether (1) inflows of foreign labor affect regional growth, and thereby whether employment opportunities for Danish workers are affected; (2) inflows of foreign labor lower real wage growth. We find that foreign labor has non-negative effects on the job opportunities for Danish workers in regional labor markets, whereas the evidence of a regional wage growth effect is mixed. We also present disaggregated results focusing on regional heterogeneity of business structures, skill levels and backgrounds of foreign labor. The results are interpreted within a specific Danish labor market context and the associated regional outcomes. This adds to previous findings and emphasizes the importance of labor market institutions for the effect of foreign labor on regional employment growth. © 2012 Springer-Verlag.