Migration, Search and Skill Heterogeneity

June 30, 2023

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Format: Chicago

Myrto Oikonomou. Migration, Search and Skill Heterogeneity, (USA: International Monetary Fund, 2023) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Cross-border migration can act as an important adjustment mechanism to country-specific shocks. Yet, depending on who moves, it can have unintended consequences for business cycle stability. This paper argues that the skill composition of migration plays a critical role. When migration flows become more concentrated in skilled labor an important trade-off arises. On the one hand, migration releases unemployment pressures for the origin countries. On the other hand, it generates negative compositional effects (the so-called “brain drain” effects) and skill imbalances, which reduce supply capacity in origin countries. This paper analyses quantitatively the impact of cyclical migration in an open-economy Dynamic Stochastic General Equilibrium (DSGE) model with endogenous migration flows, trade linkages, search and matching frictions, and skill heterogeneity. I apply this framework to the case of the Greek emigration wave following the European Debt Crisis. What I find is that emigration flows implied strong negative effects for capital formation, leading to more than a 15 percentage point drop in investment. Rather than stabilizing the Greek business cycle, labor mobility led to a deeper and more protracted recession.

Subject: Labor, Labor market frictions, Labor markets, Labor mobility, Migration, Population and demographics, Skilled labor

Keywords: Cross-border migration, Emigration flow, Labor market frictions, Labor markets, Labor mobility, Matching Frictions, Migration, Net emigration, Risk-premium shock, Skill Heterogeneity, Skilled labor, Southern Europe

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/136
Stock No:

WPIEA2023136
ISBN:

9798400247927
ISSN:

1018-5941

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