Working Paper: NBER ID: w25091
Authors: Gaetano Basso; Francesco Damuri; Giovanni Peri
Abstract: We analyze the role of labor mobility in cushioning labor demand shocks in the Euro Area. We find that foreign born workers’ mobility 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: thanks to them, the impact of a one standard deviation change in employment on employment rates decreases by 6 per cent at the country level and by 7 per cent at the regional level. Additionally, we compare Euro Area mobility to that of another currency union, the US. We find that the population to employment elasticity estimated for foreign-born persons is similar in the Euro Area and the US, while EA natives are definitely 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 shocks absorption through higher labor mobility. It also suggests that immigration helped labor market adjustments.
Keywords: Labor Mobility; Immigration; Labor Demand Shocks; Euro Area; Employment Rates
JEL Codes: E32; F22; F66; J6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| foreign-born individuals exhibit a strong cyclical mobility (J61) | overall employment rates during economic fluctuations (E24) |
| immigrants serve as a buffer for native employment rates (J68) | natives are more likely to migrate in response to employment shocks (J69) |
| immigration contributes to labor market adjustments (J61) | functioning of labor markets in the euro area (J48) |
| foreign-born workers' population to employment elasticity is similar for immigrants in both regions (J69) | migration response of US natives to employment shocks is significantly higher than that of euro area natives (J69) |
| higher historical presence of foreign-born individuals (J69) | natives experience less exposure to labor demand shocks (J69) |