European Immigration and the Labor Market

In this report, the author attempts to debunk the widespread public perception—as indicated by Eurobarometer opinion polls—that “the presence of minority groups causes unemployment to rise.” The report seeks to untangle the economic consequences of immigration from the intricate web of influences that affect the labor market by examining the role of various non-immigration factors in determining labor supply and demand. It contends that the political discourse on immigration masks fundamental flaws in the European labor market system—workforce immobility fueled by government social insurance policies that enable labor market inactivity and collective bargaining practices that inflate wages above labor productivity levels.

The author argues that the resulting corruption of competitive market mechanisms, rather than the effects of immigration, is the underlying cause of chronic unemployment in some regions and labor market shortages in others.

Citing natural experiments and econometric models, the author proffers that rapid immigrant inflows likely impart some short-term consequences on the labor market—a slight increase in unemployment and depressed wages for earlier migrants—but generally contribute to economic growth in the long-term by offsetting the effects of native workforce immobility and stunted labor force participation rates among welfare and pension eligible working-age natives. Immigrants are more inclined to relocate to areas with more job opportunities and fill labor market gaps in “dirty, dangerous, and ill-paid” occupations shunned by E.U. citizens. The report also points to the job creation potential of a robust immigration policy; an influx of newcomers could increase consumer demand and support high-skilled job growth by augmenting the low-skilled labor pool.