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Chapter 8

Chapter 8. Chapter 8 Economic Integration, Labour Markets and Migration. 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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Chapter 8

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  1. Chapter 8

  2. Chapter 8 Economic Integration, Labour Markets and Migration

  3. 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

  4. Controversies Abound • Economic logic sometimes clashes with social logic • Effectiveness sometimes clashes with equity • Solidarity clashes with individualism • Acquired advantages under threat

  5. Plan • Unemployment • Economic integration and the Labour markets • Migration

  6. Unemployment

  7. 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

  8. Labour Market Rigidities: the Simplest Interpretation Flexible wages deliver “full employment”

  9. Labour Market Rigidities: the Simplest Interpretation Rigid wages result in unemployment Flexible wages deliver “full employment”

  10. Why wage rigidity? • Labour markets are different from goods markets; paying attention to social imperatives. • Characteristics: • 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

  11. The Standard Response: Collective Negotiations Collective negotiations lead to higher wages Individual supply

  12. The Standard Response: Collective Negotiations Collective negotiations lead to higher wages and to unemployment Individual supply

  13. Economic Integration and Labour Markets A two-way relationship

  14. 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

  15. 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

  16. The case of social dumping Median Wages and productivity in 2008 (Germany = 100) Source: FedEE, Pay in Europe, February 2008

  17. Migration Facts and Theory

  18. Immigration: Facts

  19. Migration: The Simplest Framework Initial situation

  20. Migration: The Simplest Framework Post-migration situation

  21. Migration: The Simplest Framework Loss of home workers

  22. Migration: The Simplest Framework Gain of home capital-owners

  23. Migration: The Simplest Framework Loss of foreign capital-owners

  24. Migration: The Simplest Framework Gain of foreign-workers staying abroad

  25. Migration: The Simplest Framework Gain of migrant workers Gain of foreign-workers staying abroad

  26. Migration: The Simplest Framework Home gains Foreign gains

  27. 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

  28. Immigration and skills

  29. Barriers to mobility • Labour mobility in the EU as fundamental freedom of movement • Low mobility within European Union • Barriers to mobility: • Restrictions for new EU members’ nationals mobility • Differing Pensions systems • Unemployment benefits • Regulated professions • Language, housing, health systems, etc.

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