Non-Technical Summary:
Previous research has found that refugee migrants integrate slowly into the labor market and have lower wages than natives during the adjustment period, indicating a problem of both productivity and inequality. In this study, we seek to understand why established refugee workers have a lower salary than comparable native-born workers. Sweden is a good case study for the topic. As a consequence of the country’s refugee-friendly migration policy in recent decades, Sweden has the largest share of the population with a refugee background of any European nation. Sweden also allows asylum seekers to work immediately after the application process for refugee status is lodged while most other European countries have substantially longer waiting periods.
In this study, we adopt an innovative approach using unique high-quality Swedish employer-employee data to compare the wage income of established refugee workers to that of comparable (matched) Swedish-born workers. Our study is restricted to about 100,000 refugee workers born between 1954 and 1980 who entered Sweden before 1997 with their labor market performance followed from 2003-2013. Occupation is sorted into four categories indicating skill intensity based on two dimensions: routine vs. non-routine work and manual vs. cognitive tasks.
Our study shows that the observed wage gap between established refugees and comparable natives is mainly caused by occupational sorting into cognitive and manual tasks. Refugee workers are more likely to work in one of the two manual task groups, where they tend to remain. Within occupational categories, the wage gap can be largely explained by differences in work experience – on average, a four-year difference. However, a sizeable unexplained wage gap remains unexplained which might reflect unmeasured personal characteristics or institutional constraints on occupational mobility.
Our findings have important policy implications with respect to both income inequality and economic efficiency. First, occupational sorting is accompanied by increasing wage differentials for high-skilled and low-skilled workers while occupational mobility is limited. This may counteract the long-run process of narrowing wage gaps due to reduced differences in work experience. Second, as many companies are raising concerns about the difficulties of recruiting competent and qualified personnel, refugee workers might have unexploited skill potentials that could be used to reduce the observed shortage of skilled labor in many developed economies.