Transcript BW chp 8 slides

Chapter 8
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3rd Edition
Chapter 8
Economic Integration,
Labour Markets and
Migration
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© Baldwin&Wyplosz 2009 The Economics of European Integration, 3rd Edition
Why Labour Markets Matter
• Economic and Labour Market Integration encourages labour
market flexibility
• Social Protection results in labour market rigidities
• Labour migration is another form of integration
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Controversies Abound
• Economic logic sometimes clashes with social logic
• Effectiveness sometimes clashes with equity
• Solidarity clashes with individualism
• Acquired advantages under threat
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Plan
• Unemployment
• Economic integration and the Labour markets
• Migration
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Unemployment
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3rd Edition
Supply and Demand of Labour
• Labour demand: employment by firms
• The cost of labour is the wage per hour plus contributions
• The benefit of hiring workers is the additional output they produce,
or the marginal productivity of labour
• Labour supply:
– offered by people in exchange for a wage
– Represented by an upwards sloping curve
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Labour Market Rigidities: the Simplest Interpretation
Flexible wages deliver “full
employment”
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© Baldwin&Wyplosz 2009 The Economics of European Integration, 3rd Edition
Labour Market Rigidities: the Simplest
Interpretation
Rigid wages result
in unemployment
Flexible wages deliver “full
employment”
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© Baldwin&Wyplosz 2009 The Economics of European Integration, 3rd Edition
Why wage rigidity?
• Labour markets are different from goods markets; paying
attention to social imperatives.
• Characteristics:
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–
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Collective wage bargaining
Negotiations at more or less regular intervals
Regulations such as minimum wage
Conditions of hiring and dismissal regulated
The issue of unemployment benefits
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The Standard Response: Collective Negotiations
Real wage
Collective negotiations
lead to higher wages
Sc
S
Individual supply
w’
B

C

 A
w
D
L’
L
L”
Employment
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© Baldwin&Wyplosz 2009 The Economics of European Integration, 3rd Edition
The Standard Response: Collective Negotiations
Collective negotiations
lead to higher wages
Real wage and to unemployment
Sc
S
Individual supply
w’
B

C

 A
w
D
L’
L
L”
Employment
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Economic Integration
and Labour Markets
A two-way relationship
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3rd Edition
Effects of economic integration on the labour
markets
• More competition on the goods market means that labour
costs are a strategic issue
• Goods market integration indirectly leads to labour market
integration
• It also calls for faster reaction to shocks: flexibility is at a
premium
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Effects of the labour markets on economic
integration
• Economic integration creates winners and losers
• Willingness to undertake economic integration depends on the
winners readiness to compensate the losers
• This calls for safety nets that make labour markets more rigid
and less able to face competition
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The case of social dumping
Median Wages and productivity in 2008
(Germany = 100)
Weekly pay in euros
Index: Germany = 100
Bulgaria
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6
Croatia
205
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Czech Republic
204
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Estonia
150
19
Hungary
152
19
Latvia
97
12
Lithuania
107
14
Poland
197
25
Romania
89
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Slovakia
120
15
Slovenia
235
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Country
Source: FedEE, Pay in Europe, February 2008
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Migration
Facts and Theory
© Baldwin&Wyplosz 2009 The Economics of European Integration, 3rd Edition
Immigration: Facts
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Migration: The Simplest Framework
Initial situation
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Migration: The Simplest Framework
Post-migration
situation
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Migration: The Simplest Framework
Loss of
home workers
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Migration: The Simplest Framework
Gain of home
capital-owners
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Migration: The Simplest Framework
Loss of foreign
capital-owners
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Migration: The Simplest Framework
Gain of
foreign-workers
staying abroad
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© Baldwin&Wyplosz 2009 The Economics of European Integration, 3rd Edition
Migration: The Simplest Framework
Gain of migrant
workers
Gain of
foreign-workers
staying abroad
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Migration: The Simplest Framework
Home gains
Foreign gains
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Complementarity vs Substitution
• Consideration: unskilled workers complements to skilled workers
and capital
– Complementarity of migrants and native factors of production
provides a win-win situation
• Empirical findings inconclusive:
– 1% rise in supply of migrant labour changes native wages by +/-1%
– Increase or decrease of risk to unemployment, depending on type of
workers, or no link
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Immigration and skills
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Barriers to mobility
• Labour mobility in the EU as fundamental freedom of movement
• Low mobility within European Union
• Barriers to mobility:
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Restrictions for new EU members’ nationals mobility
Differing Pensions systems
Unemployment benefits
Regulated professions
Language, housing, health systems, etc.
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