Labour mobility is one of the main channels (with wage and price flexibility) through which currency areas can absorb asymmetric shocks, as it limits the impact of a labour? demand shock on the unemployment rate. This paper estimates the population elasticity to labour demand, a synthetic measure of mobility, in the euro area and in the US; it further shows how different this elasticity is among native and foreign-born workers in the two currency areas.
Population mobility in response to labour demand shocks in the euro area is, on average, four times smaller than in the US. However, such elasticity is comparable to that of the US if we just focus on foreign-born individuals. The paper shows that foreign-born workers' propensity to move in response to labour demand shocks can attenuate the effects of positive and negative business fluctuations on native workers' employment rates.
Published in 2019 in: IMF Economic Review, v. 67, 3, pp. 528-572
