Working Paper: NBER ID: w20105
Authors: Emmanuel Farhi; Ivn Werning
Abstract: We study the effects of labor mobility within a currency union suffering from nominal rigidities. When the demand shortfall in depressed region is mostly internal, migration may not help regional macroeconomic adjustment. When external demand is also at the root of the problem, migration out of depressed regions may produce a positive spillover for stayers. We consider a planning problem and compare its solution to the equilibrium. We find that the equilibrium is generally constrained inefficient, although the welfare losses may be small if the economy suffers mainly from internal demand imbalances.
Keywords: No keywords provided
JEL Codes: E0; F0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| labor mobility (J62) | stabilize macroeconomic conditions (E63) |
| internal demand shortfall (J23) | labor mobility does not help stabilize macroeconomic conditions (J60) |
| migration out of depressed regions (R23) | local labor supply and demand for non-tradable goods (J69) |
| migration out of depressed regions (R23) | unchanged conditions for stayers (C62) |
| external demand shortfall (J23) | migration out of depressed regions improves macroeconomic outcomes for stayers (R23) |
| migration out of depressed regions (R23) | increase employment income and consumption for stayers (J68) |
| degree of economic openness (F43) | macroeconomic spillover benefits from mobility (J61) |
| equilibrium mobility (J60) | social optimality (D61) |