IMF Working Papers

This paper develops a structural model of interconnected European labor markets to examine how further EU integration would impact the Western Balkan economies and how policy can improve output and employment in these countries. Risks of increased emigration from further integration can be managed through promoting faster productivity growth, including through structural reforms. Model simulations show that productivity increases of 30 percent, similar to previous EU accession cases, would results in wage growth, help close the unemployment gap, and offset increased emigration through higher immigration and labor participation. Policies to improve the efficiency of the labor market (participation, job search, production) are essential to boost employment and support output.