The persistence of ethnic inequality in the German labor market. Discrimination or under-investment in human capital?

In the German labor market former labor immigrants and their descendents st ill occupy lower positions. In contrast to the early phase of in-migration nowadays most of the obvious structural reasons for ethnic stratification h ave vanished. Therefore, remaining inequalities could either be due to proc esses of discrimination or may result from immigrants' permanent under-inve stment in human capital. In this contribution we present theoretical argume nts and empirical results why the latter mechanism seems to be more importa nt for the situation in the German labor market. Using data of the micro-ce nsus 1996 we analyze, whether labor market positions of immigrants are stil l lower controlling for generation and education. The findings are rather c lear-cut: nearly all labor market disadvantages of the second generation ca n be traced back to educational differences.