Chanwoo Kim (Toulouse School of Economics)

Learning-by-Hiring New Immigrants in a Frictional Labor Market

Chanwoo Kim  
Toulouse School of Economics

Abstract

Large-scale migration to distant societies is a common phenomenon, historically and today. Yet, what if local firms lack information about the productivity of new immigrant groups? Leveraging the Central and East European (CEE) immigration into Germany, I document a positive correlation between the positive experience with CEE immigrants and the propensity to hire them. However, this pattern is not found in native German hiring. To rationalize my findings, I build a model where firms learn about not only their workers' match quality but also the distribution that generates match qualities with immigrants. While immigrants face statistical discrimination due to incorrect beliefs about their group, natives face externalities as firms make decisions misjudging the new workforce's productivity. Calibrated to the West German labor market, I find that CEE immigrants have better match quality with local firms on average but experience initial wage losses due to inaccurate beliefs. Without this informational problem, both groups could have one percentage point higher annual job-finding probability, and the daily wage gap would decrease by 6% for the immigrants. This significant improvement suggests the limited role of learning by hiring to rectify inaccurate beliefs, which stems from local firms' high reliance on external sources of information and immigrants' low job security that interrupts the learning process midway. 

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