Policy paper 159

Labour mobility in the euro area: cure or curse?

The unemployment dispersion between EU member states has peaked in 2013. Labour mobility did play a role in reducing these macroeconomic imbalances but was insufficient. Policy options towards higher mobility should be derived from this analysis.

The euro area has to address its imbalances and instability. Labour mobility in a currency union can be both a curse or a cure in this context. When job seekers move from areas with high employment to regions with many vacancies, they act effectively as shock absorbers. However, when young and better educated individuals move from structurally weak regions to dynamic ones, they can contribute to imbalances.
In this Policy paper, Anna auf dem Brinke and Paul-Jasper Dittrich from our office in Germany, the Jacques Delors Institut – Berlin, look at the years following the crisis of 2008. Did labour mobility increase or decrease imbalances in the euro area? In times of low growth, the data suggest that labour mobility is rather a cure than a curse. However, its potential for the citizens of the currency area is not fully exploited yet. For labour mobility to play a role in the stabilization of the euro area against future asymmetric shocks much more policy action is needed. This is true for the national as well as the European level.
To this end they discuss three complementary strategies. First, there is a need to facilitate more flexible working conditions and invest more in infrastructure that allows people to work and live in different countries. Second, there is a need to take measures to fully integrate the national labour markets into one European labour market. Third, there is a need for complementary institutions such as a permanent adjustment mechanism to further reduce the effect of asymmetric shocks. Labour mobility is a necessary but not sufficient ingredient for reducing imbalances in the euro area. The data show clearly that in the wake of the Great Recession, increasing labour mobility has the potential to lower unemployment and stabilize the euro area.

The Policy paper is not available in French but is in German.