Is There A Stable Migration Equation For Ireland?
In this paper we search for a stable migration equation for Ireland over the period 1951-1995. Given the integration of the Irish and UK labour markets through a long-standing migration link we model net migration as being driven by labour market conditions in Ireland relative to the UK. As in previous macroeconomic models of net migration we find evidence of instability in the basic equation. We adopt the general-to-specific econometric methodology to search for an equation that is sufficiently general to be congruent with the data set. This allows us to identify and parameterise the source of instability in the basic equation. From there we proceed to search for a parsimonious reduction of this general equation. Our preferred equation models net migration in the current year as a function of relative wages and relative employment in Ireland and the UK in the previous year. The results indicate that on average net migration increases by 7,695 (0.64% of the labour force) given a one percentage point increase in the Irish unemployment rate while a one percentage point convergence of Irish wages on UK wages reduces net migration by 1,344 (0.11% of the labour force). We identify two sub-periods that fully parameterise the instability detected over the full sample. In the sub-period 1978-1989 the average propensity to migrate rose (by annual rate of 1.71% of the labour force) while in the more recent sub-period, 1990-1995, the average propensity to migrate fell (by an annual equivalent of 0.96% of the labour force) relative to the rest of the sample. This responsiveness of labour supply to changing labour market conditions through the migration mechanism, and the consequent weakening of the Phillips Curve effect, are fundamental to our understanding of the functioning of the Irish labour market. These characteristics imply that, ceteris paribus, unemployment rates are lower than in a ?no migration? scenario.
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