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Labor Mobility Within Currency Unions

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  • Emmanuel Farhi
  • Iván Werning

Abstract

We study the effects of labor mobility within a currency union suffering from nominal rigidities. When the demand shortfall in depressed region is mostly internal, migration may not help regional macroeconomic adjustment. When external demand is also at the root of the problem, migration out of depressed regions may produce a positive spillover for stayers. We consider a planning problem and compare its solution to the equilibrium. We find that the equilibrium is generally constrained inefficient, although the welfare losses may be small if the economy suffers mainly from internal demand imbalances.

Suggested Citation

  • Emmanuel Farhi & Iván Werning, 2014. "Labor Mobility Within Currency Unions," NBER Working Papers 20105, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:20105
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    References listed on IDEAS

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    1. Dellas, Harris & Tavlas, George S., 2009. "An optimum-currency-area odyssey," Journal of International Money and Finance, Elsevier, vol. 28(7), pages 1117-1137, November.
    2. Bonin, Holger & Eichhorst, Werner & Florman, Christer & Hansen, Mette Okkels & Skiöld, Lena & Stuhler, Jan & Tatsiramos, Konstantinos & Thomasen, Henrik & Zimmermann, Klaus F., 2008. "Geographic Mobility in the European Union: Optimising its Economic and Social Benefits," IZA Research Reports 19, Institute of Labor Economics (IZA).
    3. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 624-660, June.
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    Cited by:

    1. Hauser, Daniela & Seneca, Martin, 2022. "Labor mobility in a monetary union," Journal of International Economics, Elsevier, vol. 137(C).
    2. Gaetano Basso & Francesco D’Amuri & Giovanni Peri, 2019. "Immigrants, Labor Market Dynamics and Adjustment to Shocks in the Euro Area," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(3), pages 528-572, September.
    3. Gordon, Grey & Guerron-Quintana, Pablo, 2024. "On regional borrowing, default, and migration," Journal of International Economics, Elsevier, vol. 150(C).
    4. Guilherme Bandeira & Jordi Caballe & Eugenia Vella, 2019. "Fiscal Austerity and Migration: A Missing Link," Working Papers 2019009, The University of Sheffield, Department of Economics.
    5. Kondo, Illenin O., 2018. "Trade-induced displacements and local labor market adjustments in the U.S," Journal of International Economics, Elsevier, vol. 114(C), pages 180-202.
    6. Grey Gordon & Pablo Guerron-Quintana, 2018. "On Regional Borrowing, Migration, and Default," 2018 Meeting Papers 305, Society for Economic Dynamics.
    7. Fornaro, Luca, 2019. "Monetary Union and Financial Integration," CEPR Discussion Papers 14216, C.E.P.R. Discussion Papers.
    8. Dr. Matthias Burgert & Philipp Pfeiffer & Werner Roeger, 2021. "Fiscal policy in a monetary union with downward nominal wage rigidity," Working Papers 2021-16, Swiss National Bank.
    9. Lozej, Matija, 2019. "Economic migration and business cycles in a small open economy with matching frictions," Economic Modelling, Elsevier, vol. 81(C), pages 604-620.
    10. Florence Huart & Médédé Tchakpalla, 2019. "Labor Market Conditions and Geographic Mobility in the Eurozone," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 61(2), pages 263-284, June.
    11. Luca Fornaro, 2022. "A Theory of Monetary Union and Financial Integration," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(4), pages 1911-1947.
    12. Vasco Curdia & Fernanda Nechio, 2024. "Would the Euro Area Benefit from Greater Labor Mobility?," Working Paper Series 2024-06, Federal Reserve Bank of San Francisco.
    13. Matthew J. Bloomfield & Ulf Brüggemann & Hans B. Christensen & Christian Leuz, 2017. "The Effect of Regulatory Harmonization on Cross‐Border Labor Migration: Evidence from the Accounting Profession," Journal of Accounting Research, Wiley Blackwell, vol. 55(1), pages 35-78, March.
    14. Kohler, Wilhelm & Müller, Gernot J. & Wellmann, Susanne, 2023. "Risk sharing in currency unions: The migration channel," European Economic Review, Elsevier, vol. 158(C).
    15. Grey Gordon & Pablo Guerrón-Quintana, 2021. "Public Debt, Private Pain: Regional Borrowing, Default, and Migration," Working Paper 21-13, Federal Reserve Bank of Richmond.
    16. Gregory Howard, 2017. "The Migration Accelerator: Labor Mobility, Housing, and Aggregate Demand," 2017 Meeting Papers 563, Society for Economic Dynamics.
    17. Chen, Yao & Ward, Felix, 2019. "When do fixed exchange rates work? Evidence from the Gold Standard," Journal of International Economics, Elsevier, vol. 116(C), pages 158-172.
    18. Guilherme Bandeira & Jordi Caballé & Eugenia Vella, 2018. "Should I stay or should I go? Austerity, unemployment and migration," Working Papers 1839, Banco de España.
    19. Veronica Guerrieri, 2021. "Monetary Policy and Uneven Shocks," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, August.

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    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • F0 - International Economics - - General

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