Working Paper: CEPR ID: DP2531
Authors: Fredrik Andersson; Rikard Forslid
Abstract: A simple N-country specific-factor type model with imperfectly mobile labour is developed. It is shown that the effects of country-specific productivity shocks hitting a small country are fundamentally asymmetric. A positive shock will be accommodated by a moderate wage increase and sizeable in-migration, whereas a negative shock will be accommodated by a significant decrease in wages and moderate out-migration. The effects of shocks in a monetary union are discussed, and it is argued that the results are consistent with the recent Irish experience. The welfare effects of small economic fluctuations are also discussed.
Keywords: asymmetric shocks; migration
JEL Codes: E24; F16; F22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| positive productivity shock (O49) | moderate wage increase (J38) |
| positive productivity shock (O49) | significant immigration (F22) |
| negative productivity shock (O49) | significant wage decrease (J31) |
| negative productivity shock (O49) | moderate outmigration (F22) |