The returns to occupational foreign language use: Evidence from Germany

Abstract

This paper analyzes the wage premia associated with workers' occupational use of foreign languages in Germany. After eliminating time-invariant unobserved heterogeneity and other confounding factors, sizable returns of about 0.12 log points to applying fluent English skills are found in the general population, while the point estimate for immigrants is 0.26 log points. Returns to occupational use of other foreign languages are, if anything, restricted to a few specialized occupations. I find evidence that the particularly large returns of immigrants originate in parts of the service sector that are linked to imports and exports. As immigrants do not earn significant wage premia for applying their native language on the job in addition to those for English, any trade-fostering potential of immigrants is more likely to be unlocked by complementary fluency in the two business languages German and English.