Naturalization and citizenship: Who benefits?

An overview of the estimated returns to citizenship

The empirical literature on the consequences of citizenship has studied traditional “immigration countries” (such as the US or Canada) as well as several continental European countries that have had a more recent history of immigration, particularly since the 1960s (such as France, Germany, the Netherlands, Norway, Sweden, and Switzerland). In contrast, however, empirical evidence for other parts of the world is very limited.

Studies undertaken prior to 2000 used cross-sectional data (i.e., data in which immigrants are only observed once) to compare the labor market outcomes of naturalized immigrants with those of non-naturalized immigrants. A key empirical challenge of one-time studies is that a simple comparison of naturalized and non-naturalized immigrants is likely to overstate the actual benefits of citizenship. Migrants applying for citizenship might well be those with the highest motivation to integrate and those with the most suitable prerequisites and characteristics to perform well in the host country. Previous studies from Canada and the US, for example, suggest that naturalized citizens do indeed have better educational qualifications, which are associated with higher earnings, than non-naturalized immigrants [1], [2], [3]. The observation that naturalized immigrants perform better in the labor market than non-naturalized immigrants might therefore simply reflect the fact that naturalized citizens possess characteristics that make them more likely to succeed in the labor market.

The key question for policy, therefore, is whether naturalization causes labor market success or whether citizenship is merely taken up by the subset of immigrants with the highest likelihood to succeed in the labor market anyway. If naturalization is the cause of success in the labor market, then liberalizing citizenship laws will improve the labor market position of immigrants who become eligible following the reform. However, if that is not the case, then liberalizing citizenship laws will have no impact on the labor market performance of eligible immigrants, and might even be potentially negative if it results in a greater number of naturalized immigrants becoming dependent on welfare benefits.

In order to detect causality, recent studies (since 2002) have used panel data, which observe immigrants over several years [1], [4], [5], [6], [7], [8], [9]. The key advantage of this type of data is that it allows for observation of the same immigrant both before and after becoming eligible for naturalizing in the host country. A few studies exploit reforms in citizenship law that changed eligibility criteria in combination with panel data in order to analyze the effects of citizenship and the option to naturalize [6], [10]. In these cases, the studies can take into account immigrants’ characteristics and therefore tease out whether citizenship actually causes labor market success.

This contribution considers three key measures of labor market success. First, employment in the labor force; second, immigrant earnings; and third, the self-sufficiency of immigrants, i.e., whether he or she receives public transfers, such as welfare or unemployment insurance benefits.

Existing evidence of the effect of citizenship on employment

Evidence for immigrants in the Netherlands and Germany suggests that there are no effects of citizenship on employment. In contrast, the effects of citizenship on employment for Sweden are positive [6], [10], [11]. There is also a positive employment effect for immigrants in France, particularly amongst men. However, this study does not take into account the fact that most immigrants improve their economic position relative to natives over time in the host country—which is not necessarily related to the acquisition of citizenship. It is likely, therefore, that the French study overstates the effects of citizenship on 
employment [5].

For both Canada and the US, there is a significant employment effect following naturalization. Accordingly, naturalized immigrants are particularly more likely to work in the public sector, although they also do go on to work in the private sector and as self-employed workers [7], [10].

A concern often associated with immigration is that immigrants overuse the welfare state and therefore impose a fiscal burden for the host country. Evidence from Germany and Norway suggests that there are few effects of citizenship on the probability of receiving public transfers. In Germany, immigrants are approximately 2% more likely to receive welfare transfers or unemployment benefits following citizenship, though there is no effect for Norway. Given that in many countries access to welfare benefits is restricted for non-citizens (the specific rules vary considerably across countries), these results suggest that granting access to citizenship has only a small number of consequences for the welfare state.

However, citizenship does have important implications for those already attached to the labor market. Following naturalization, the job distribution of immigrants, both in Germany and the US, improves and their wage growth accelerates. In the US, the wages of naturalized men grow 25% more relative to non-naturalized immigrants over a period of ten years [1]. These large wage gains imply that naturalized immigrants “catch up” relative to non-naturalized immigrants.

In Germany, immigrants also experience large and persistent wage gains after they become eligible for citizenship. Figure 1 shows earnings before and after an immigrant becomes eligible for citizenship following Germany’s 2000 immigration reform, which reduced the residency requirements for immigrants to eight years [6] (see Germany’s citizenship law reforms). The earnings measure in Figure 1 is adjusted for macroeconomic conditions (after adjusting gross monthly earnings for aggregate business cycle influences, state-level differences, and state-specific time trends). Figure 1 shows that for the first seven years in Germany, immigrant wages are relatively flat. Following the 2000 reform, once immigrants become eligible for citizenship after eight years of residency, wages grow at a faster rate than during the first seven years. In addition, the post-reform earnings gains of citizenship are larger for more recent immigrants who arrived in Germany after the fall of the Berlin Wall but close to zero for traditional guest workers.

Take-up of citizenship

The most credible empirical evidence on the labor market effects of citizenship suggests that the wage returns for immigrants can be substantial, even in countries such as Germany, which has a traditionally weak record of assimilation. These gains are all the more remarkable because it is often the immigrants from poorer countries, or those with less educational credentials, that are more likely to naturalize.

In “traditional” immigration countries, such as Canada and the US, for example, immigrants who naturalize are younger, have more educational credentials, and are more likely to originate from developing countries than non-naturalized immigrants [2], [3]. In contrast, in Germany naturalized immigrants are younger and more likely to originate from outside the EU, but they are often less, rather than more, skilled than non-naturalized immigrants. Yet even when they are less educated, immigrants who are eligible for citizenship in Germany improve their labor market position with higher earnings and better jobs.

A second important result is that the take-up of citizenship is quite low in many of the countries that have little tradition of large-scale immigration. Figure 2 shows the share of naturalized immigrants relative to the foreign-born population with at least ten years of residency in Organisation for Economic Co-operation and Development (OECD) countries. The average naturalization rate in the OECD is around 55%, but there is considerable variation across countries. In Canada, Sweden, and Norway, more than 70% of foreign-born individuals have acquired the citizenship of the host country. The corresponding share in Germany or Switzerland is between 30% and 40%. Countries such as the US, Spain, and France have intermediate naturalization rates of between 40% and 50% (Figure 2).

The take-up rate of citizenship is often considered to be an indication of whether host countries can successfully absorb immigrants. Or, from the immigrants’ perspective, whether immigrants are willing to become an integral part of the host country. Low take-up rates of citizenship are an indication that the costs of naturalizing may be substantial in some countries. One reason for this could be that immigrants only want to stay temporarily in the host country. Or, alternatively, that naturalized immigrants would face restrictions with respect to land ownership or inheritance, for example, in their country of origin. These costs could be considerable, particularly when destination countries require immigrants to give up their original citizenship upon naturalizing in the host country or, in other words, when they do not allow dual citizenship.

A second set of reasons might be that substantial barriers to naturalization are still in place in some countries. Traditional immigration countries require just three years of residency (Australia and Canada) or five years (US) before immigrants become eligible for citizenship. Residency requirements in many continental European countries are substantially higher. Germany required 15 years of residency for adults until 2000 and still currently requires eight years of residency. Austria, Italy, and Spain require ten years, while Switzerland requires 12 years of residency before immigrants can naturalize.

Both Switzerland and Germany also impose a number of additional restrictions. Immigrants have to demonstrate sufficient knowledge of the official language as well as economic self-sufficiency, among other things. The open question here is whether language skills, for example, should be a prerequisite for citizenship acquisition or are more the result of citizenship.

Evidence for Germany, where language requirements have been a precondition for applying for citizenship since 2005, suggests that knowledge of the native language improves with time spent in Germany. However, language skills do not improve automatically with citizenship acquisition, once the number of years spent in Germany is taken into consideration. More research is needed on whether citizenship that is tied to language requirements improves labor market outcomes, or whether it simply deters immigrants from applying for citizenship.

Benefits of citizenship for women

A separate analysis by gender reveals that women in Germany appear to benefit more from a liberalized access to citizenship than men. Immigrant women who become eligible for citizenship have large and persistent gains, while eligible men appear to have much more modest earnings gains [6].

Accordingly, over a ten-year period, women earn 15% more on average, while men only gain about 6%. To put these estimates into perspective, women can close about 35% of the initial earnings gap between a recent immigrant to Germany and an immigrant who arrived 15 years earlier. Using the same comparison, men can close about 20% of the initial earnings gap. However, an earlier study from 2012 finds the opposite pattern, in that men employed in jobs covered by the social security system gain more than women [9].

There are three possible explanations for these differences. First, that there are differences in the estimation approach. Second, that the earlier study could not take into account the number of years spent in Germany and, therefore, the general assimilation effects that occur independently of naturalization. Third, that women in jobs covered by the social security system (considered in the earlier studies pre-2012) gain less than women who are self-employed or work in the public sector (who are included in the more recent study).

In Germany, at least 50% of the substantial gains for women are explained by increased labor mobility upwards into better-paid occupations and sectors. Following citizenship, women are less likely to be employed as blue-collar workers but more likely to be employed as white-collar workers.

There are three further mechanisms that contribute to women’s relatively better position in the labor market. First, women have more stable jobs with permanent contracts and they remain with a given firm for a longer period of time. Second, women gain because they work in larger firms after becoming eligible for citizenship, and larger firms pay higher wages. Finally, women work more hours following citizenship eligibility.

The more modest returns for men in Germany (which are less than 50% of the returns for women) are largely explained by women’s movement into higher-paying sectors and occupations. Men are less likely to be self-employed in low-paid jobs following citizenship and, like women, are more likely to have a permanent work contract and to keep a job in the same firm [6].

In contrast to Germany, in Norway there are only small wage returns for immigrant women, and essentially no returns for immigrant men [4], [12]. In Sweden, however, gains seem again to be substantial, particularly for women [10]. Though earnings gains are much more modest once repeated observations are used that take into account selection into citizenship [11]. For Canada, gains are substantial, but similarly distributed for men and women immigrants [10]. In the US, there are also substantial gains in labor earnings for naturalized men, though unfortunately the authors do not analyze immigrant women [1].

Why gains vary across countries is still subject to debate. But it is, in all likelihood, related to the flexibility of the labor market. It is also influenced by the characteristics and background of the immigrants moving to different destination countries. Overall, it is interesting to note that in several countries wage gains as a result of citizenship are more significant for immigrant women. Since immigrant women have typically much lower attachment to the labor force and lower earnings than native women, citizenship helps them to improve their relative economic situation. It also helps them to obtain more independence economically from the outset.

Who gains and why?

Researchers have sought to identify the determinants of the large earnings gains after obtaining citizenship. The underlying mechanisms show some commonalities but also differences across countries. This is not surprising given the large differences in their labor market institutions.

In the US, the most significant change following naturalization is that immigrant men are much more likely to work in white-collar jobs. Other changes, such as switching to public sector jobs, or to jobs with union coverage, occur more gradually following naturalization. After five years of holding the new citizenship, for example, an immigrant is 3.3 percentage points more likely to work in a public sector job and 9.0 percentage points more likely to work in a job that is covered by a union [1].

A further important result is that the gains from citizenship are not equally distributed across immigrants. Interestingly, the gains of citizenship are largest for immigrants from poorer countries. In the US, for example, an immigrant from relatively poor El Salvador earns 7.2% more following naturalization, while the gain is only 2.9% for an immigrant from comparatively rich Italy [1]. In Germany, an immigrant from poor Afghanistan has approximately 7% higher wages ten years later. In contrast, there is no return to citizenship for an Italian or EU citizen more generally [6]. Similar results are found for Canada and Sweden [10].

Since immigrants from poorer countries earn less than immigrants from more developed countries, the larger gains imply that citizenship helps immigrants from developing countries to catch up with immigrants from more developed countries over time.