Immigrants smooth eurozone labour market shocks – Bank of Italy paper

Growing immigrant populations have greatly increased the eurozone’s elasticity when it comes to labour market shocks, a working paper published by the Bank of Italy finds.

In Immigrants, labour market dynamics and adjustment to shocks in the euro area, Gaetano Basso, Francesco D’Amuri and Giovanni Peri use data from the European Labor Force Survey from 2007 to 2016. The authors note that the proportion of immigrants in the eurozone countries has grown from approximately 4.5% of the currency area’s population in 1999 to around 9% now.

The paper estimates the elasticity of population changes in the eurozone in the face of employment downturns and upturns.

They then test whether foreign-born workers in the eurozone are more mobile than natives, as immigrants are in the US. The authors also test “whether this elasticity differs between EU-born (residing outside of their country of birth) and extra-EU born workers”.  “We find that foreign-born workers’ mobility is strongly cyclical, while this is not the case for natives,” they say.

Immigrants’ higher mobility significantly decreases the impact of labour market shocks, the authors find. They find however that immigrants born inside the European Union have lower mobility than both immigrants born outside it, and US citizens. This implies that “encouraging extra-EU immigrants could improve and smooth the functioning of the EU labor markets”, the authors write.