The Unassuming Economist

From a new VOX post on the role of immigrants:

“The response of labour supply to negative shocks is different across regions due to varying levels of labour mobility. This column shows that the elasticity of labour supply in response to economic shocks is lower in the euro area than in the US, suggesting that a lack of labour mobility may be an obstacle to labour market adjustments in the euro area. Policies aimed at reducing the complexities of migrating for jobs could help ease this mobility gap.”

“The higher mobility of migrants implies that they can act as a buffer and reduce the fluctuations of the employment rate in response to regional shocks to employment. A simple counterfactual exercise can help appreciate the magnitude of such contribution. We first simulate the impact of a 1.9% decrease in the level of employment on the employment rate in each euro area country using the elasticities estimated for natives and foreign-born (the value is equal to one standard deviation of the series of overall employment variations). In this status quo scenario, the employment rate falls in all countries by 13% on average (the green dots in Figure 2). We then focus on two alternative scenarios, and simulate the same impact assuming that all individuals had the natives’ (low) elasticity or the foreigners’ (high) elasticity.

Comparing the first (lower bound) scenario to the status quo informs us on the current contribution of mobile foreign-born individuals in absorbing the shock – our estimates suggest that they help reduce its impact on employment rates at the country level by around 7% (to 1.4% on average, see the blue dots). And if all individuals had the same propensity to move as foreigners (as in the second, upper bound scenario), the impact of the negative employment shock would be halved (orange dots). These patterns are common to all euro area countries.”