Unpacking migration costs: Heterogeneous effects in EU labor markets

Abstract

I employ a tractable two-country search model of unemployment with endogenous migration decisions for workers and apply the model to the context of the European Union. I find that migration costs for workers are important factors in determining migration, unemployment and wages. Increasing migration costs increase unemployment and decrease migration, wages and welfare. This headline result is disaggregated into heterogeneous effects across workers with different countries of origin and migration histories. Workers who move more times, or for longer spells, are more affected by costs than workers who move less or not at all, though non-migrating workers experience changes to their labor market outcomes due to the externalities imposed by migrant workers. Using EU data, I find that costly migration lowers welfare by 11%–60% relative to free mobility.