A working paper with Thomas de Graaff and Peter Nijkamp.
Language skills are considered to be major economic assets for individuals. But very little is known about the labor market return to using a foreign language (other than the local language) at work. This study examines in particular the heterogeneous impacts of foreign language use at work on earnings of both native-born workers and foreign-born workers, using a longitudinal survey, viz. the European Community Household Panel (ECHP) running from 1994 to 2001. Our findings are the following. First, for native-born workers with a tertiary diploma, using a foreign language at work is found to have an unambiguously positive impact on their earnings (2% on average). Second, for foreign-born workers, however, foreign language use at work is highly complementary to their educational level. Foreign language users below the upper secondary educational level earned significantly less (-8%) than those who use local language at work. Third, with regard to language types, a linguistically distant foreign language gives native-born workers the highest wage premium, and EU official languages pays off the most for foreign-born workers. Fourth, our results do not show that lack of local language knowledge of low-educated migrants causes these results, as immigrants for whom the mother tongue is similar to the native language show a similar pattern.