October 2014

IZA DP No. 8572: Language and Labor Market Success

published in: International Encyclopedia of the Social & Behavioral Sciences (Second Edition), 2015, Pages 260-265

This article summarizes three different strands of the literature that address the labor market effects of language-related human capital. (1) A general importance is demonstrated in the empirical evidence on earnings and employment effects of literacy as the ability to productively use written information. Significant effects are found for developed and developing countries, leading on an aggregated macro level to a positive relationship between literacy and economic development. (2) The ongoing globalization leads to an increased demand for foreign language proficiency to reduce search and information costs and overcome cultural barriers in the trade of services and goods and tourism. Against the background of scarce skill supply, employers are willing to pay significant wage premia, especially for global and local lingua franca. (3) For international migrants, destination language skills display both a prerequisite for and outcome of successful integration. Investments into destination language skills are highly rewarded by wage returns and higher employment probabilities and act as the medium of translation to apply pre-migration human capital in the destination country labor market.