Wage Inequality and Immigration: Western-Europe in the Sixties

Abstract

We analyse the immigration flows to Western Europe in the sixties. We develop a theoretical model tailored to account for some of the key features of this period, i.e., trade in manufacturing that essentially involved advanced countries, the growing administration of labour markets in Western Europe and the huge inflow of low skilled immigrants from the South (less advanced countries) into Western Europe. Two propositions are subsequently derived from this model. First, the immigration flow increases with the skill premium in the country of destination. Second, for a given skill premium, immigration is an increasing function of both the host country’s working population and its relative endowment in skilled labour. The first proposition reflects a demand side effect that diverges from the result of the traditional self-selecting approach to migration, i.e., that a higher skill premium in the country of destination tends to discourage potential low-skilled migrants. Estimations implemented for a panel of four European countries (Belgium, France, Sweden and West Germany) over the period 1960-1975 corroborate to a large extent our propositions. We also find that none of the supply determinants are individually significant at equilibrium. These results confirm the hypothesis that immigration to Western Europe in the sixties was primarily demand driven.