Labor Market Effects of Migration: Evidence from EU Enlargement and Application of Search-and-Matching Framework

The existence and the direction of labor market effects of migration has been subject to long and extensive debates among both economists and policy makers. This study provides a theoretical rationale as well as empirical evidence for the existence of welfare-improving migration outcomes. The first paper examines how emigration affects labor markets in migrant-sending countries. Following EU enlargement in 2004, Central and Eastern Europe experienced large waves of emigration. Given the magnitude and the speed of migration flows, I explore to what extend the migration waves had an impact on the distribution of wages, employment opportunities and the structure of production in migrant-sending countries. The second paper contributes to the debate about economic determinants of international migration flows and the consequential effects of migration on wages and unemployment rates. The analysis is carried out within a two-country model that belongs to a general family of search-and-matching models (e.g., Diamond, 1982 and Mortensen and Pissarides, 1994). The central idea of this setting is that both firms (labor demand side) and workers (labor supply side) have to spend resources before job creation and production can take place. A larger number of unemployed workers searching for a job makes it relatively cheaper for a firm to create a new vacancy. An increase in the number of vacancies, in turn, strengthens the bargaining position of unemployed workers. Therefore, immigration does not necessarily lead to a dramatic reduction of wages and increased unemployment, as in a Walrasian paradigm. I show that under the search and matching framework a broad range of possible migration effects can be generated. This is in line with the mixed evidence provided by the empirical literature, which documents that the impact of migration on labor markets varies with time and location, and that it can be either positive or negative. In order to provide a theoretical rationale for the existence of diverse effects of migration on wages and unemployment, I develop two models with fully integrated migration decisions and non-linear costs of migration. This last paper presents an application of the theoretical framework developed above to the migration between Switzerland and the EU. Migration effects on the Swiss labor market are derived. In order to obtain structural parameters characterising the Swiss labor market, I first calibrate the standard one-country search model to generate the observed fluctuations in unemployment and job vacancies in Switzerland. I then use the parameters obtained from calibration for simulating the steady state versions of two two-country models for Switzerland and the EU. The results show, that the models can adequately predict observed percentage changes in unemployment rates in response to the immigration wave and resulting wage differences between immigrants and native workers.