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Labor Mobility in a Monetary Union

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  • Daniela Hauser
  • Martin Seneca

Abstract

The optimal currency literature has stressed the importance of labor mobility as a precondition for the success of monetary unions. But only a few studies formally link labor mobility to macroeconomic adjustment and policy. In this paper, we study macroeconomic dynamics and optimal monetary policy in an economy with cyclical labor flows across two distinct regions that share trade links and a common monetary framework. In our New Keynesian dynamic, stochastic, general-equilibrium model calibrated to the United States, migration flows are driven by fluctuations in the relative labor market performance across the monetary union. While labor mobility can be an additional channel for cross-regional spillovers as well as a regional shock absorber, we find that a mobile labor force closes the efficiency gaps in the labor market and thus lessens the trade-off between inflation and labor market stabilization. As migration flows are generally inefficient, however, regionspecific disturbances introduce additional trade-offs with regional labor market conditions. Putting some weight on stabilizing fluctuations in the labor market enhances welfare when monetary policy follows a simple rule.

Suggested Citation

  • Daniela Hauser & Martin Seneca, 2019. "Labor Mobility in a Monetary Union," Staff Working Papers 19-15, Bank of Canada.
    • Handle: RePEc:bca:bocawp:19-15
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    1. Labor Mobility in a Monetary Union
      by Christian Zimmermann in NEP-DGE blog on 2019-04-27 12:48:16

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    Cited by:

    1. Guilherme Bandeira & Jordi Caballe & Eugenia Vella, 2020. "Emigration and Fiscal Austerity in a Depression," DEOS Working Papers 2035, Athens University of Economics and Business.
    2. George Liontos & Konstantinos Mavrigiannakis & Eugenia Vella, 2023. "The Macroeconomics of Skills Mismatch in the Presence of Emigration," DEOS Working Papers 2314, Athens University of Economics and Business.
    3. Francesco Furlanetto & Orjan Robstad, 2019. "Immigration and the macroeconomy: some new empirical evidence," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 34, pages 1-19, October.
    4. Christopher L. House & Christian Proebsting & Linda L. Tesar, 2018. "Quantifying the Benefits of Labor Mobility in a Currency Union," NBER Working Papers 25347, National Bureau of Economic Research, Inc.
    5. Francesco Furlanetto & Orjan Robstad, 2019. "Immigration and the macroeconomy: some new empirical evidence," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 34, pages 1-19, October.
    6. Bandeira, Guilherme & Caballé, Jordi & Vella, Eugenia, 2022. "Emigration and fiscal austerity in a depression," Journal of Economic Dynamics and Control, Elsevier, vol. 144(C).

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    More about this item

    Keywords

    Business fluctuations and cycles; Economic models; Labour markets; Monetary policy framework; Regional economic developments;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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