The persistence of ethnic inequality in the German labor market, i.e. the fact that the ‚classical labor migrants‘ and their descendants are still occupying lower positions, has been shown in many studies. However, theoretical discussions of the mechanisms through which ethnic inequality gains persistence and empirical testing of those mechanisms have been mostly neglected. In this contribution two basic theoretical arguments are considered: differences in educational attainment and labor market discrimination. Using data from the microcensus 1993 and 1997 our findings show that ethnic inequality in the German labor market is mainly a result of different human capital resources rather than of ‘ethnic penalties’ or different returns to those resources. Especially for the second generation of most immigrant groups ethnic disadvantages can hardly be found controlling adequately for educational qualifications.