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Cross-Country Labour Mobility in EU – Remains below what could be expected but has increased over time

Cross-country mobility flows in the EU are still much lower than those recorded in other highly integrated economic areas, notably the USA, and well below mobility within countries. The population of migrants from within the EU is also generally much lower than the population of migrants from outside the EU. Nevertheless, an upward trend in mobility is visible in the EU, not only as a result of the enlargement.

The analysis of the dynamic response of mobility flows to asymmetric shocks in the vein of Blanchard and Katz (1992) confirms previous findings that in Europe, unemployment and labour market participation absorb the largest fraction of asymmetric labour demand shocks in the short to medium term. Over the period 1970–2013, about one quarter of asymmetric labour demand shocks are absorbed by labour mobility within 1 year, while about 50 % of the shock is absorbed after 5 years, an estimate which is in line with that obtained in previous studies. The paper shows, in line with L’Angevin (2007a, b) and Dao et al (2014), that the importance of mobility as an adjustment mechanism has increased in the EU. In contrast to previous studies, this paper integrates wage developments into the analysis. It finds that the response of real wages to demand shocks has also strengthened after the inception of the euro.

Beyer and Smets (2015) found that the role of labour mobility as adjustment mechanism for the EU regions has fallen over the period 1994–2011; their analysis is however not in contradiction with that of this paper, which focuses on mobility across countries and not regions. The difference suggests that mobility adjustment within the EU is triggered more by country than by region-specific shocks.

Overall, the findings of this paper suggest that, although the magnitude of mobility flows in the EU remains below what could be expected in a fully integrated monetary union, the responsiveness of labour mobility to asymmetric demand shocks has increased over time.

Further analysis is needed to investigate the reasons underlying such increased responsiveness of mobility flows, notably the relative roles of enlargement (see, e.g. Jauer et al. 2014) and the loss of the exchange rate and an independent monetary policy as shock absorbers. The analysis also suggests that, in the coming years, the persistence of the large unemployment differentials observed after the crisis could entail cross-country labour mobility flows of a considerable magnitude, which could require in some cases supportive policy frameworks to ensure the effective integration of mobile workers.

Chosen excerpts by Job Market Monitor. Read the whole story at Labour mobility and labour market adjustment in the EU | IZA Journal of Migration | Full Text

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