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This paper analyses the effects of education signals for Ethnic Germans and Germans without a migration background (“Native Germans”). We base our analysis on a sorting model with productivity-enhancing effects of education. We compare whether the signalling value differs between a distinct group of migrants and non-migrants in the German labour market. Starting from the theoretical result that only a separating equilibrium can exist, in our econometric analysis we find substantial differences between Ethnic and Native Germans with the same education level. This empirical analysis is done with a new and rich dataset from the German Federal Employment Agency.