Foreign Workers and the Wage Distribution: What Does the Influence Function Reveal?

This paper draws upon influence function regression methods to determine where foreign workers stand in the distribution of private sector wages in Luxembourg, and assess whether and how much their wages contribute to wage inequality. This is quantified by measuring the effect that a marginal increase in the proportion of foreign workers—foreign residents or cross-border workers—would have on selected quantiles and measures of inequality. Analysis of the 2006 Structure of Earnings Survey reveals that foreign workers have generally lower wages than natives and therefore tend to haul the overall wage distribution downwards. Yet, their influence on wage inequality reveals small and negative. All impacts are further muted when accounting for human capital and, especially, job characteristics. Not observing any large positive inequality contribution on the Luxembourg labour market is a striking result given the sheer size of the foreign workforce and its polarization at both ends of the skill distribution. © 2018 by the authors. Licensee MDPI, Basel, Switzerland.This research was part of the InWIn project (Information and wage inequality: Evidence on wage differences between natives, immigrants and cross-border workers in Luxembourg) supported by the Luxembourg ‘Fonds National de la Recherche’ (contract C10/LM/785657). The 2006 Luxembourg Structure of Earnings Survey data were provided by STATEC—Institut national de la statistique et des études économiques. Comments by Michela Bia, Jacques Brosius, Alessio Fusco, Stephen Jenkins, Jean Ries and participants to the BCL Household Finance and Consumption Workshop, ECINEQ 2017 and seminar participants at ISER (University of Essex) are gratefully acknowledged