Academic journal article The European Journal of Comparative Economics

European Integration, Labour Market Dynamics and Migration Flows

Academic journal article The European Journal of Comparative Economics

European Integration, Labour Market Dynamics and Migration Flows

Article excerpt

Abstract

The paper has two objectives. Firstly, we wish to evaluate whether a greater economic integration has effects, and of what type, on migration flows from Central and Eastern Europe (New Member States of the EU, NMS) towards the fifteen countries of the European Union (EU-15). Secondly, we wish to understand what effect the migration flows from the NMS have on the labour market of the receiving countries in the EU-15. The most suitable theoretical context that seems to summarise European labour market characteristics is that of the insider/outsider model by Layard, Nickell and Jackman (Layard et al., 1991). We have modified the above mentioned model by introducing two innovations. Firstly, we constructed three measures that act as a proxy for economic integration: the Intra Regional Trade Index (IRTI), Global Trade Index (GTI) and Financial Market Integration (FMI). Then we placed the three indicators into the insider/outsider model to arrive at a modified version of Layard, Nickell and Jackman (Layard et al., 1991). The second innovative contribution was the introduction of an equation modelling migration flows. The creation of this equation is inspired by the neo-classical approach to migration theory (Harris-Todaro, 1970). The theoretical model, based on rational expectations, has been solved to find the equilibrium solution and the impact multipliers. We then carried out an empirical analysis, which involved estimating a Structural Vector Autoregression Model (SVAR). The aim of this estimation was to evaluate, on the one hand, the effect that greater European integration (a positive shock to the integration indicators) has on migration flows, and, on the other, to measure the type of effect that migration flows could have on the labour market of the EU-15 countries, considered as a single entity. The results of our empirical evidence show that economic integration does generate significant effects on migration flows from the enlargement countries towards the EU-15 countries. It also emerges that migration flows do generate an effect on the European labour market.

JEL Classification: B22, F15, J61

Keywords: European economic integration, labour market effects, migration

(ProQuest: ... denotes formulae omitted.)

1. Introduction

During the last few decades, trends in the Western European labour market have been characterised by two factors. The first is the high level of unemployment persistence, while the second is the sluggish disinflation process that accompanies rising unemployment. On the contrary, the US and UK have experienced a more cyclical evolution of unemployment and a lower price stickiness. These facts have stimulated an intense debate amongst economists on the causes of unemployment, its persistence and on its cross-country differentials. The problem of persistence can be interpreted, together with inflation stickiness, as signalling a shift in the NAIRU. Consistent with this view, many studies have interpreted unemployment as being structural, underlining the relevance of labour market rigidities and the intrusive role of institutions. A natural evolution of this phenomenon (defined as Eurosclerosis) emphasizes the relevance of long run unemployment and considers institutional rigidities and trade union activities as a cause of the hysteresis mechanisms that can prolong indefinitely the effects, that would otherwise be temporary, of aggregate demand shocks2. This work lays inside this extensive literature. The objective is to analyse the type of effect that a greater economic integration of the EU-15 countries generates on migration flows from the enlargement countries. The question we want to address is whether greater economic integration renders the countries of the EU-15 more attractive for the populations of the NMS. Furthermore, we want to evaluate what effect migration has on the labour market of the EU-15 countries, considering them, however, as a single, combined entity. …

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