Working Paper: CEPR ID: DP17854
Authors: Lorenzo Caliendo; Luca David Opromolla; Fernando Parro; Alessandro Sforza
Abstract: European countries experienced a large increase in labor supply due to the influx of Ukrainian refugees after the 2022 Russia invasion. We study its dynamic effects in a spatial model with forward-looking households of different skills, trade, and endogenous capital accumulation. We find that real GDP increases in Europe in the long term, with large distributional effects across countries and skill groups. In the short run, an increase in the supply of labor strains the use of capital structures that takes time to build. Over time, countries that build capital structures increase output, resulting in potential long run benefits.
Keywords: labor supply shocks; capital accumulation; refugee crisis; Europe
JEL Codes: F1; F16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| influx of Ukrainian refugees (F22) | increase in labor supply (J20) |
| increase in labor supply (J20) | strain existing capital structures (G32) |
| strain existing capital structures (G32) | impact return to capital and price index (E30) |
| increase in labor supply (J20) | decrease in effectiveness of capital (E22) |
| decrease in effectiveness of capital (E22) | reduced output in countries unable to adapt quickly (F66) |
| capital accumulation (E22) | increase output (E23) |
| increase in high-skilled labor (J24) | reduced income inequality across European countries (F62) |
| ability to build capital structures (G32) | mitigate welfare losses among high-skilled households (J68) |
| ability to build capital structures (G32) | enhance gains for low-skilled households (J24) |