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«Amelie Constant Klaus F. Zimmermann Measuring Ethnic Identity and Its Impact on Economic Behavior Berlin, September 2007 SOEPpapers on ...»

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on Multidisciplinary

Panel Data Research

Amelie Constant

Klaus F. Zimmermann

Measuring Ethnic Identity and

Its Impact on Economic Behavior

Berlin, September 2007

SOEPpapers on Multidisciplinary Panel Data Research at DIW Berlin

This series presents research findings based either directly on data from the German SocioEconomic Panel Study (SOEP) or using SOEP data as part of an internationally comparable

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Georg Meran (Vice President DIW Berlin) Gert G. Wagner (Social Sciences) Joachim R. Frick (Empirical Economics) Jürgen Schupp (Sociology) Conchita D’Ambrosio (Welfare Economics) Christoph Breuer (Sport Science, DIW Research Professor) Anita I. Drever (Geography) Frieder R. Lang (Psychology, DIW Research Professor) Jörg-Peter Schräpler (Survey Methodology) C. Katharina Spieß (Educational Science) Martin Spieß (Statistical Modelling) Viktor Steiner (Public Economics, Department Head DIW Berlin) Alan S. Zuckerman (Political Science, DIW Research Professor) ISSN: 1864-6689 German Socio-Economic Panel Study (SOEP) DIW Berlin Mohrenstrasse 58 10117 Berlin, Germany Contact: Uta Rahmann | urahmann@diw.de Measuring Ethnic Identity and Its Impact on Economic Behavior Amelie Constant Georgetown University, DIW DC and IZA and Klaus F. Zimmermann IZA, Bonn University and DIW Berlin September 2007 Abstract The paper advocates for a new measure of the ethnic identity of migrants, models its determinants and explores its explanatory power for various types of their economic performance. The ethnosizer, a measure of the intensity of a person's ethnic identity, is constructed from information on the following elements: language, culture, societal interaction, history of migration, and ethnic self-identification. A two-dimensional concept of the ethnosizer classifies migrants into four states: integration, assimilation, separation and marginalization. The ethnosizer largely depends on pre-migration characteristics. Empirical evidence studying economic behavior like work participation, earnings and housing decisions demonstrates the significant relevance of ethnic identity for economic outcomes.

JEL classification: F22; J15; J16; Z10 Keywords: Ethnicity, ethnic identity, acculturation, migrant assimilation, migrant integration, work, cultural economics * Contribution to the invited paper session on "Cultural Identity, Ethnicity and Markets" at the 2007 meeting of the European Economic Association in Budapest. Financial support from Volkswagen Foundation for the IZA research program on “The Economics and Persistence of Migrant Ethnicity” is gratefully acknowledged. We thank Lilya Gataullina for able research assistance.

Corresponding author:

Klaus F. Zimmermann IZA, P.O. Box 7240 D-53072 Bonn, Germany Phone: +49 228 3894 200 Fax: +49 228 3894 210 Zimmermann@iza.org

1. Introduction Personal identity is what makes individuals unique and different from others, including the selfdefinition of one’s self.1 Likewise, ethnic identity is whatever makes individuals the same or different in comparison to other ethnic groups. But, it may also encompass a network of strong beliefs, values, and what people hold dear; it builds and shapes peoples’ lives. Ethnic identity surfaces and becomes a strong part of the migrants’ persona when they arrive in a host country that is dominated by a different ethnicity, culture, language, etc. Ethnic identity is then like a property that a person can have for some time, can lose it and acquire a new one, or lose it and never take on or assume another one.

It is widely accepted and documented in the economics scholarly literature that ethnicity as well as the racial and ethnic characteristics of migrants affect demographics and have an impact on the growth and development of the host country. Ethnicity, as assigned by birth, usually coincides with economic and social inequality between the dominant and minority groups, with political and social repercussions. On the other hand, ethnicity and ethnic capital are acknowledged to be the impetus of entrepreneurial spirit. The role of culture and ethnic identity on economic outcomes is less acceptable. Recently, there is a growing literature on the effects of culture on economic outcomes. Constant, Gataullina and Zimmermann (2006a) include useful references on ethnic identity from the social sciences and psychology. Guiso, Sapienza, and Zingales (using beliefs about trust) show a pervasive impact of culture in many economic choices (2006). The value of cultural diversity is evidenced in US cities through its net positive effect on the productivity of natives (Ottaviano and Peri 2006). Zimmermann (2007a) and a special issue of the Journal of Population Economics (volume 20, issue 3, 2007) documents the rising interest of economists into the field of ethnicity and identity.

1. The economics of identity has found strong theoretical interest recently, see Kuran (1998), Akerlof and Kranton (2000) and Bénabou and Tirole (2007), for instance.

Ethnic identity, much like personality2 and other individual characteristics, influences labor market outcomes. Constant, Gataullina, and Zimmermann (2006b) find that ethnic identity varies between the sexes and has a significant impact on their working behavior. Darity, Mason, and Stewart (2006) provide a secular theory of racial (or ethnic) identification formation. Their evolutionary game theory model may result in an equilibrium, where all persons follow an individualist identity strategy, another where all persons pursue a racialist (or ethnic) identity strategy, or a mixture of both. Consequently, race or ethnicity may be more or less significant for both market and non-market social interactions. A positive impact of racial identity on economic outcomes, that is, the productivity of social interactions, is the cornerstone of the theory. This also explains the persistence of racial or ethnic privileges in market economies. Fearon and Laitin (2000) argue that ethnic identities are socially constructed, either by individual actions or by supra-individual discourses of ethnicity. They also may take the form of oppositional identities, which imply a rejection of the dominant, typically white behavioral norms (AustenSmith and Fryer, 2005; Battu, Mwale and Zenou, 2007).

Mason (2004) establishes a stable identity formation among Mexican-Americans and other Hispanics. He shows that these ethnicities are able to increase their income substantially through acculturating into a non-Hispanic white racial identity. Bisin, Patacchini, Verdier, and Zenou (2006) find that, in line with their theoretical analysis, identity with and socialization to an ethnic minority are more pronounced in mixed than in segregated neighborhoods. The strength of identification with the majority culture regardless of strength of (ethnic) minority identity is very important for labor market outcomes (Nekby and Rödin 2007). Expanding on the concept of ethnic human capital, Chiswick (2006) shows that economic determinants of “successful” and “disadvantaged” group outcomes are sensitive to the relationship between ethnic and general human capital, especially with regard to externalities in the processes by which they are formed.

2. Recently, personality and behavior traits have been considered as part of the individual human capital, which counts differentially for men and women and for different ethnic groups (Bowles, Gintis, and Osborne 2001).

In this paper, we summarize and extend previous research on ethnic identity and economic outcomes. Using the German Socio-economic Panel, we test the robustness of the ethnosizer as we contrast it to direct measures of self-identification and estimate it with Poisson regressions. We proceed in the next section by laying the grounds of the theoretical conception of what a migrant’s ethnic identity is. In section 3 we quantify and measure the ethnic identity of migrants in Germany. In section 4 we analyze the causality of working hours on ethnic identity.

In a simulation exercise in section 5, we evaluate the economic consequences of the ethnosizer, especially on labor force participation, earnings and homeownership. Lastly, we conclude.

2. A Theory of Ethnic Identity We follow the concept of ethnic identity as formulated in the economics of immigration literature by Constant, Gataullina, and Zimmermann (2006a). They perceive ethnic identity to be different than ethnicity, which denotes where people come from, and it is an ascribed status. Ethnic identity becomes pertinent upon arrival in the host country, given that there is a sufficient cultural distance between home and host countries. Ethnic identity is how individuals perceive themselves within an environment as they categorize and compare themselves to others of the same or a different ethnicity. It is the closeness or distance one feels from one’s own ethnicity or from other ethnicities, as one tries to fit into the society. As such, it can differ among migrants of the same origin, or be comparable among migrants of different ethnic backgrounds. We consider the generality of ethnic identity to be one of the most important characteristics of our conception of identity, because it makes it possible to compare migrants within an ethnic group, and to draw parallels between representatives of different ethnicities. As such, ethnic identity is the balance between commitment to, affinity to, or self-identification with the culture, norms, and society of origin and commitment to or self-identification with the host culture and society. We do not restrict ethnic identity, however, to any specific type of relationships between commitment to the origin and commitment to the host country.

While Constant, Gataullina, and Zimmermann (2006a) focused on ethnic identity related to positive commitments, here, we augment the theoretical possibilities of the formation and manifestation of ethnic identity. The balance of commitments could be stable, but the commitments could turn negative. A complete notion of ethnic identity, thus, includes the extreme cases of “subvert”, negative or undermining revealment of the ethnic identity of migrants. We conjecture that a migrant who arrives in the host country moves along a plane formed by two axes representing commitment to the home and host countries. On the horizontal axis we measure commitment to and self-identification with the country of origin, and on the vertical axis we measure commitment to and self-identification with the host country. As we allow for the trade-off between commitment to one or the other country in any possible combination, the formed plane has four quadrants.

In Figure 1 we illustrate our theoretical model of a complete multidimensional ethnic identity. A migrant who is at point (0,0) has lost all ethnic identity related to the country of origin.

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