Working Paper: CEPR ID: DP12213
Authors: Lorenzo Caliendo; Luca David Opromolla; Fernando Parro; Alessandro Sforza
Abstract: The economic effects from labor market integration are crucially affected by the extent to which countries are open to trade. In this paper we build a multi-country dynamic general equilibrium model with trade in goods and labor mobility across countries to study and quantify the economic effects of trade and labor market integration. In our model trade is costly and features households of different skills and nationalities facing costly forward-looking relocation decisions. We use the EU Labour Force Survey to construct migration flows by skill and nationality across 17 countries for the period 2002-2007. We then exploit the timing variation of the 2004 EU enlargement to estimate the elasticity of migration flows to labor mobility costs, and to identify the change in labor mobility costs associated to the actual change in policy. We apply our model and use these estimates, as well as the observed changes in tariffs, to quantify the effects from the EU enlargement. We find that new member state countries are the largest winners from the EU enlargement, and in particular unskilled labor. We find smaller welfare gains for EU-15 countries. However, in the absence of changes to trade policy, the EU-15 would have been worse off after the enlargement. We study even further the interaction effects between trade and migration policies and the role of different mechanisms in shaping our results. Our results highlight the importance of trade for the quantification of the welfare and migration effects from labor market integration.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 2004 EU enlargement (F55) | increased migration from new member states (NMS) to EU15 countries (F22) |
| increased migration from new member states (NMS) to EU15 countries (F22) | welfare gains for unskilled workers in NMS (F66) |
| increased migration from new member states (NMS) to EU15 countries (F22) | welfare gains for skilled workers in NMS (J68) |
| 2004 EU enlargement (F55) | welfare gains for EU15 countries (D69) |
| changes to trade policy (F13) | welfare effects of migration policy changes in EU15 countries (J68) |
| public goods congestion (H49) | dampens migration effects from the enlargement (F22) |