Wage differences between immigrants and natives: the role of literacy skills

This paper analyses the impact of literacy skills on wage differences between natives and immigrants, using Austria as a case study. We show that, for both groups, literacy skills are an important determinant of the hourly wage. In the second step, we show that differences in proficiency with respect to literacy can explain more than 30% of the total wage gap of 11 log points between natives and immigrants. When adding literacy skills to the wage decomposition, the unexplained part vanishes almost completely, suggesting that the wage difference between immigrants and natives can, to a large extent, be explained. The importance of literacy skills in explaining wage differences between natives and immigrants is robust across several sensitivity tests.