Department of Economics

The rapid decline of German emigration before World War I constitutes a puzzle that traditional explanations (decrease in the international wage gap, growing industrialization, fall in the fertility or international competition with other migrants) can only partly solve. It therefore seems necessary to go more deeply into the question, in particular by looking into the social legislation implemented by Bismarck during the 1880s. Actually, the German insurance system was one of the most developed in the pre-1914 world and it probably contributed to deterring labor outflows. The main explanation is that candidates for migration consider not only the gap between direct wages in sending and receiving countries, but also the differential in “indirect wages”, that is, social benefits. As a matter of fact, the existence of such benefits constitutes a form of social remuneration that partly offsets low levels of wage rates in sending countries. In that perspective, the econometric tests run in the paper show that the increase in German indirect wages after 1885 was accompanied by a significant decrease in emigration rates.