International migration is among the most important issues that have shaped the policy debates and political landscape in Europe in recent decades. Both the intra-European migration of workers and the influx of refugee migrants from outside Europe pose enormous economic and political challenges to Europe in the coming decades. This proposed research will investigate three key areas in which migration can have fundamental consequences for both economies and societies: (i) The Impact of Migration on Workers, Firms, and Productivity; (ii) Migration and the Rise of
Populism; and (iii) Immigration, Integration and the Policies of the Welfare State. The specific questions to be addressed include: How does the policy of free mobility affect workers and firms in sending and receiving countries, through channels other than the standard demand-supply mechanism? How does immigration affect citizens’ voting
behaviour? In particular, what are the roles of past and present economic circumstances and the media in driving the relationship? What are the intended and unintended, and immediate and long term effects of policy reforms on residency rights of and welfare transfers to refugee migrants? The research will combine innovative theoretical
perspectives with state-of-the-art empirical analyses, exploiting linked employer-employee datasets and population registers, as well as previously unexplored data sources on voting and electoral outcomes to uncover important causal relations. All the proposed research questions, while focused on immigration, also speak to different core issues on the frontier of economics research, including inequality, rent sharing between firms and workers, productivity, political economy, and welfare reforms. The results of this investigation will thus not only provide relevant insights for contemporary immigration policies in Europe but deepen our core understanding of the economy that should reach well beyond it.

Wage inequality in industrialised countries has increased sharply over the past decades, and much of this increase has occurred between rather than within firms. Furthermore, substantial inequality between men and women persists in all industrialised countries, and a large part of the gender gaps observed today is attributable to the arrival of children. In this proposal, we put firms at the centre of the analysis and ask the following questions: First, which market forces can (partly) explain the increasing wage inequality between firms? Second, how do government policies alter the wage structure? And
third, how do firm policies and the firm environment impact on gender inequality? All projects draw on four decades of German social security records comprising the near universe of workers and establishments, which we augment with survey and administrative data on firms. In Project A, we investigate how two important market forces, increased product market competition and routine-biased technological change, contributed to the increasing wage inequality between firms, by changing which firms operate in the market (selection) and how employment is distributed across low and high productivity firms (reallocation), and by differentially affecting wage growth across firm types (differential wage growth). In Project B, we study how two prominent government policies, the introduction of a minimum wage and changes in business tax rates, affect wage dispersion between firms through selection, reallocation and differential growth effects. In Project C, we first analyse whether firm provided family-friendly policies, most notably flexible working times and child care facilities, can be effective at reducing gender inequality. We then investigate how the firm environment, specifically the presence of co-workers who are likely to have a working mother and hold more egalitarian gender attitudes, shapes mothers’ return-to work decisions and earnings trajectories after childbirth.

Immigration-induced labour supply shocks trigger responses by all agents in the economy: workers, firms and migrants themselves. There are three primary adjustment channels: wages and employment, technology, and the mix of output. Most of the existing research has focused on the first channel, with only few studies looking at adjustment of firms through the products they produce or their relative quantities, and through innovation or differential adoption of technologies available on the market. The lack of suitable firm-level data led most of the work that focusses on firm adjustment to be carried out at the industry level. Further, hardly any work exists that utilises direct measures of technology or considers alternative outcomes such as profits and product mix.

In the 1st phase of this project, our principal focus is on the responses to immigration through native wage and employment adjustment, changes in immigrant composition through return migration, and the effect of demand for specific skills of immigrants on their productivity, and contribution to the host country. This research makes a number of contributions to the existing literature, e.g. by providing analysis of the robustness of estimation approaches, using novel identification strategies and studying various channels of native responses to immigrant inflows. This project phase has so far produced three published (forthcoming) papers, one draft paper, and one project is ongoing. The 2nd phase of the project will focus instead of workers, on the adjustment of firms. This phase consists of three connected projects (i)-(iii) that address firm adjustment to immigration-induced labour supply shocks from different perspectives. In (i) we analyse the various margins of firm technology and organisational (T&O) adjustment to labour supply shocks, as well as adjustment in workforce composition and in wages, and how these interact. We investigate alternative and rarely researched firm responses, such as withdrawing from union agreements, product development, and product innovation. In (ii) we focus on the dynamics of T&O adjustment to labour supply shocks, to investigate the dynamics and timing of the various potential channels of firm response, and heterogeneity of adjustment across firms. In (iii) we provide in depth analysis of firm responses using a design that provides us with longitudinal information of immigrants and natives within firms after being hit by an unforeseen immigration induced labour supply shock. We will study for instance whether new immigrants underbid wages, and how firms may benefit from this in the short and long run.

Our project will use high quality data and employ new methods and alternative identification strategies to overcome the limitations previous studies have faced. Analysis is based on several data sources provided by the IAB, which will be used in-house, or through the IAB FDZ at UCL. Collaboration with the IAB is envisaged through the CADAL project.

Many private and public investments have regional consequences, e.g. by attracting new firms to a region. Building on our earlier work in the network program, our project studies three such place-based investments: the opening of a large “flagship” plant, the establishment of a new college and local public spending. The overarching goal of our project is to investigate the potential spillover effects of such investments in the context of the German labor market. Our empirical analysis relies on data from the German social security records and the CADAL project to draw a sample of employees in each region and follow them over time.  

Building on our earlier work, our empirical strategy combines a difference-in-difference approach with an event-study approach. We first match for each treatment district a “control” district that in years prior to the event was similar to the treatment district in terms of the demographic and industry structure. We then compare in the second step outcomes in treatment and control districts in the years after the event took place. To analyze the local spillover effects of local public spending, we use updates in population counts after the 1986 Census which result in adjustments of transfers within the municipal fiscal equalization scheme as instrument for local public spending. The second-stage estimation then relates local public spending to labor market outcomes.

Our analysis seeks to answer the following questions: 1) Do local investments, through massive job creation, a new college or local public spending, create additional jobs and raise wages in the local labor market; and if so, in which sectors? 2) How do these local investments influence the mobility of workers in and out of the region? 3) Do these investments spur innovation and attract new businesses to the region?

Our research will make three contributions. First, governments often spend considerable sums of money to attract large “flagship” firms or establish new colleges, often motivated by the idea of agglomeration and local multiplier effects. Our research will shed light on the existence and magnitude of such spillover effects. In particular, we can contrast possible spillover effects from negative shocks (i.e., mass layoffs) with those from positive shocks (i.e., plant openings); and from private investments (i.e., plant openings) with those from public investments (i.e., college openings). Second, we distinguish between jobs and workers and analyze how local economies adjust to shocks which are an important step in understanding whether plant openings, for example, create jobs not only at the local but also at the national level. Finally, the results of our research have important policy implications. Our research will shed some light on the question whether these policy instruments are effective in spurring local growth and innovation, and thus potentially reduce regional disparities.

While the average rate of corporation tax amongst OECD countries was close to 50 percent in the early 1980's, it had fallen to below 25 percent by 2015. Moreover, competition to attract inward investment through cuts in business and payroll taxes is likely to intensify in the near future. In the UK, Prime Minister Theresa May has suggested that Britain is to have the lowest corporate tax rate among the world's 20 largest economies, and in the US, President Donald Trump is seeking a dramatic reduction in the rate of corporation tax to around 15 percent.

Advocates of a reduction in business or payroll taxes argue that it will lead to an increase in firm profits and thereby affect firms' location decisions and hence employment levels. Opponents, on the other hand, claim that such taxes are shifted either onto workers' wages or consumer prices, and hence will not alter firms' location decisions. Even if tax reductions have a positive effect on employment, governments might face a trade-off between job creation and tax revenues; while business and payroll taxes may indirectly boost tax revenues through increased employment and wages, they directly reduce tax revenues. Unless the indirect positive effects dominate the direct negative effects, tax reductions will result in a decrease in tax revenues and public spending. Therefore, a thorough understanding of the overall effects on employment, wages and tax revenues of cutting taxes levied on businesses is crucial for governments to make informed policy choices.

This project aims to improve our understanding of firms' adjustments in response to changes in two types of taxes levied on firms: business taxes (levied on profits) and payroll taxes. Employing rare and detailed administrative data linking firms and workers and following them over a prolonged period of time, we will analyse the causal effects of changes in business and payroll taxes on firm adjustments, including the demand for labour (hiring and firing), wages, investments, product price setting, firm entry and exit. Furthermore, we will look at whether workers respond by migrating. Based on our thorough understanding of the responses of firms and workers, we will simulate the overall effects of business and payroll tax changes on tax revenues, taking into account both the direct and indirect effects.

A particular strength of our analysis, besides using unusually rich longitudinal administrative data on firms and workers, is the proposed research designs. We exploit policy changes induced by national-level regulations that generated tax changes of different magnitudes across local labour markets. These changes were unrelated to local economic conditions, and our research designs hence allow us to separate out the causal effects of tax changes from confounding factors.

The scientific output of the proposed research is aimed at publication in top academic journals, and we expect our contributions to significantly advance the academic debate on business and payroll taxation, firm behaviour and labour market outcomes of workers. Moreover, a thorough understanding of the overall effects on employment and tax revenues of cutting business and payroll taxes is crucial for governments to make informed policy choices. We expect the results from our proposed research to have direct policy relevance to governments, the business community as well as to central banks, and international institutions such as the EU, Organisation for Economic Co-operation and Development (OECD), the World Bank, The International Monetary Fund (IMF) and NGO's.

By contrast to the politically-dominant view that populism is primarily a consequence of immigration, PII investigates the argument that the underlying driver is lifetime shifts in economic inequality, caused by on-going economic transformation through technological change and import competition. Our fundamental hypotheses are that the underlying dynamics of long-term economic structural transformation display similar patterns of change across advanced European countries. However, the pattern of populist attitudes may differ across countries, depending on how such long-term change can be mediated through institutions, education, retraining and upgrading; and how the effect of populist attitudes on politics is magnified via the configuration of electoral and party institutions. We address these hypotheses in comparative analysis combining theory with unique administrative and life-course data, combining insights from economics and political science. Research examining these hypotheses should have a major impact on rethinking education and training strategies and on how labour markets work.

Organised in three thematic sections, PII contributes to Theme 2 of the call by studying early adult transitions into upper secondary or tertiary education, re-training and vocational training and how these help counteracting on-going economic shocks; to 3 by analysing the precise (and separate) consequences of technological change and globalisation on labour market and long-term career trajectories of workers, retraining frameworks, and changing economic status; to 4 by linking institutionally-mediated lifetime inequality dynamics resulting from technological change and globalisation with populist attitudes.

Over the last decades many countries have seen rapid changes in the returns to skills and in income inequality. Theory predicts that a sudden increase in the supply of skilled workers is likely to reduce skilled wages. In the longer run skills can adjust, increased skills can have spillovers such as on innovation, and the competitiveness of the economy may change as skilled work becomes cheaper. We know little about the size and speed of adjustments of wages and skills to a skilled labour supply shock, and its spillovers and effects on the local economy.

This project studies these responses by focusing on the labour supply shock induced by the mass migration of relatively skilled East Germans to West Germany after the fall of the Berlin Wall in 1989. The insights from this research have important implications for policies on wages, employment, skills and competitiveness in response to structural economic transformations, not only for Germany but for most other countries.

Philip Leverhulme Prizes have been offered since 2001 in commemoration of the contribution to the work of the Trust made by Philip Leverhulme, the Third Viscount Leverhulme and grandson of William Hesketh Lever, the founder of the Trust. The Prizes are offered to researchers at an early stage of their careers whose work has had international impact and whose future research career is exceptionally promising.

My first chapter asks whether financial incentives can induce inventors to innovate more. For this analysis I exploit a large reduction in the patent fee in the United Kingdom in 1884 and created a detailed new dataset of 54,000 British inventors in an extensive data collection effort. The results indicate efficiency gains from decreasing the cost of inventing and in addition, from relaxing credit constraints.

The second PhD paper investigates the effects of changes in ethnic neighbourhood composition in England and Wales. The findings imply that an exogenous increase in a neighbourhood's social housing minority share by 10 percentage points raises the minority share in private housing by 1.2 percentage points. It also leads to higher local population growth and a small decrease in house prices in the longer run.

In the third PhD paper we assess the effects of comprehensive labour market reforms on employment and wages in Germany from 2003-2005. Contrary to previous findings, our analysis shows that the reforms marginally reduced unemployment at the cost of a pronounced decline in wages. Low-skilled workers suffered the largest wage losses.

The research proposed here is concerned with the dynamics of immigrant impacts and the process of economic adaptation in receiving societies. The immigration process is inherently dynamic: many new immigrants return home within a short time; and those that remain undergo a long term series of investments and behavioural changes that gradually alter the way that they interact with the economy of the receiving country. Moreover, in the longer run the presence of immigrants affects the choices of firms over new technology investments, and the choices of native workers over schooling and occupations. Thus simple static frameworks provide an incomplete and even potentially misleading perspective for understanding modern immigration patterns. The point of departure for this proposed research is the recognition that we need to reformulate the analysis of immigrant impacts in a fully dynamic framework, acknowledging the inter-temporal choices of immigrants, firms, and native workers and the ways that these three groups of agents interact over a longer horizon. Our approach involves treating immigration as a dynamic shock, where the dynamics relates to the different agents involved: immigrants, who change their position in the native skill distribution over time as a result of their life-cycle decisions; firms, who react by adjusting their technologies, product mix, and their involvement with institutions and regulatory environment; and native workers, who adjust by changing their career plans. Our work will combine highly innovative theoretical perspectives with state-of-the-art empirical analyses exploiting unique policy experiments and exceptional data sources, merging longitudinal administrative population data with data from firm and individual surveys. This agenda will enable us to construct a comprehensive picture of the adjustment process in response to immigration and open new horizons for future research on the impact of immigration in a dynamic framework.

The impact of immigration in receiving societies is a fundamental question in economics. Most existing research focuses on the very narrow question of how a one time increase in immigrants affects native wages. Even here, despite a large body of research, there is no clear consensus. However, in most cases the immigration process is inherently dynamic: new immigrants undergo a long term series of investments and behavioural changes, that gradually alter the way that they interact with the economy of the receiving country. In the longer run the presence of immigrants affects the choices of firms over new technology investments, and the choices of native workers over schooling and occupations. This dynamic adaptation process by new immigrants, firms, and native workers means that a simple static framework provides an incomplete and even potentially misleading perspective for understanding modern immigration patterns. In this proposed research we will seek to analyse the impact of immigration on wages, employment, technology and innovation in the receiving country, fully recognizing the inter-temporal nature of the choices of immigrants, firms, and native workers, and the ways that these three groups of agents interact over a longer horizon. We will combine highly innovative theoretical perspectives with state-of-the-art empirical analyses exploiting previously unexplored data sources to push the frontiers of this literature in two directions. First, by analysing the interplay between the skill upgrading of immigrants after arrival and the implied effects this has on native workers along the distribution of wages, we explicitly study a key aspect of the dynamics of the impact immigration has on native wages while - at the same time - combining the literature on immigrants earnings assimilation and the impact immigration has on native workers in one over-arching framework. Second, by explicitly studying the effects immigration has on technology adaptation, and the dynamics of this process, we significantly extend the literature on alternative adjustment mechanisms to immigration. Our project therefore adds a significant component to our understanding of the challenges to the German labour market in a globalised world, by providing analysis on the dynamic effects of labour movements on factor prices and technology, and how these processes interact with trade.

Focussing on the global changes since 1989, the objective of GIWeS is to produce first class research on how trade, technology and the welfare state interact; on the challenges to national welfare states in an integrated European labour market, and on the political support for reform. The project is unique in several dimensions: It is comparative, focussing on Austria, Germany, Norway, and the UK, countries that differ in their industry base, skill structure, and welfare institutions. It is relevant, addressing the current crisis, migration and the support for welfare spending. It is dynamic, drawing on unique longitudinal information that allows us to explore long term impacts of global shocks down to the individual firm and the individual worker. It is innovative, linking – for the first time – administrative longitudinal data covering entire populations across countries allowing us to follow individuals across national borders, investigating their choices in work environments and welfare institutions. It is wide-ranging, capturing how globalization makes competition more dynamic, speeding up innovation, and the process of creative destruction, and how wide-ranging changes may give rise to a new political and economic equilibrium. It is institutional, asking whether the European welfare state survives the transformation, and what will happen to its different incarnations such as the Scandinavian, the German and the British model. It is spot on all five themes of the call, organized around international research groups in London, Linz and Oslo, with additional partners. It is enlightening, adding unique and novel insight into the interplay of the Welfare State and economic prosperity in Europe.

Why are firms willing to locate in dense areas although production costs are much higher in metropolitan than in rural areas? As first hypothesized by Marshall (1890), this may be explained by cost or productivity advantages enjoyed by firms when they locate near other firms. The goal of this project is to provide novel evidence on the existence and sources of such agglomeration effects.

In the first part of the project, I use job creations and job destructions at a large scale (like the opening or closing of a large plant) to identify agglomeration effects in the local labour market. Local governments are often willing to substantially subsidise plants that may locate within their jurisdiction or loss-making plants that are at risk of failing. The main rational behind these incentives is that the opening of a new plant may lead to additional job creations, while the closing of an existing plant may trigger additional job destructions in the area. The questions I address in this project include: May a plant closing trigger a region’s decline? Can the opening of a large plant create regional prosperity?

In the second part of the project, I focus on knowledge spillovers in the labour market as one source of agglomeration effects. While most of the existing literature investigates knowledge spillovers at the city or state level, I investigate knowledge spillovers at the level of the firm where, through face-to-face interactions, they are likely to originate. The questions I address include: do workers learn from their co-workers? How do workers learn from their peers? Is it the quality of human capital, the similarity of skills or the skill diversity among peers that matter?

My data are uniquely suited to address these questions, and cover the universe of all workers and establishments in Germany for more than three decades.

This grant was for the scientific coordination of the NORFACE Research Programme “Migration in Europe: Social, economic, cultural and policy dimensions”

Rising immigration is one of the most significant issues to have captured the public interest and public-policy debates in recent years. Yet despite awareness of the issue there has been surprisingly little economic analysis of immigration’s effects and its consequences. While there has been some advancement gauging its impacts in the labour market, there are still major gaps in our understanding in this area, while many other areas of the economy, notably crime, housing, poverty, health, welfare and education remain simply bereft of economic analysis. The studies outlined here will address this lacuna and so help bring much needed information and clarity to this important debate, extending the frontier of analysis into various new directions.

The programme will use a combination of perhaps the best administrative and novel survey data sources in Europe and beyond, which allows us to address key issues at the frontier of migration research that hitherto could not be analysed. The programme offers a highly innovative research agenda, carried out by research teams from 6 NORFACE countries, all with an excellent academic track record and unique experience working with administrative and survey data. The proposal involves many new ideas that have not yet been pursued in the migration literature. Embedded within economic theoretical rigour, the research designs we propose will allow us to use innovative techniques and ideas to identify causal effects of immigration rather than associations