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Immigrants, Labor Market Dynamics and Adjustment to Shocks in the Euro Area

  • Gaetano BassoEmail author
  • Francesco D’Amuri
  • Giovanni Peri
Research Article
  • 16 Downloads

Abstract

We analyse the role of inter-regional labor mobility in absorbing labor demand shocks in the Euro Area (EA). We find that mobility of foreign-born workers is strongly cyclical, while this is not the case for natives. Foreigners’ higher population-to-employment elasticity reduces the variation of overall employment rates over the business cycle: because of them, the impact of a one standard deviation change in employment on employment rates is six percent lower at the country level and seven percent lower at the regional level. Additionally, we compare Euro Area mobility to that of another currency union, the United States. We find that the population-to-employment elasticity estimated for foreign-born individuals is similar in the EA and the United States, while EA natives are significantly less mobile across countries than US natives are across states in response to labor demand shocks. This last result confirms that in the Euro Area there is room for improving country-specific shock absorption through higher labor mobility. It also suggests that immigration helps labor market adjustments.

JEL Classification

F22 J61 

Notes

Acknowledgements

Prepared for the Central Bank of Ireland (CBI) and the International Monetary Fund (IMF) Conference “Euro at 20,” and for the IMF Economic Review. We thank two anonymous referees, Alan Barrett, Olivier Blanchard, Emine Boz, Matteo Bugamelli, Federico Cingano, Giovanni dell’Ariccia, Pierre-Olivier Gourinchas, Mathias Hoffmann, Philip Lane, Juri Marcucci, Gian Maria Milesi-Ferretti, Doug Miller, Marianna Riggi, Paolo Sestito, Luigi Federico Signorini, and the IMF Economic Review guest editors Philippe Martin and Sebnem Kalemli-Ozcan for their comments on previous drafts. The views expressed in this paper do not necessarily reflect those of the Bank of Italy.

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Copyright information

© International Monetary Fund 2019

Authors and Affiliations

  • Gaetano Basso
    • 1
    Email author
  • Francesco D’Amuri
    • 1
  • Giovanni Peri
    • 2
  1. 1.Bank of ItalyRomeItaly
  2. 2.University of California, DavisDavisUSA

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