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Labor Supply Shocks and the Beveridge Curve
WIFO Working Papers, 2018, (568), 29 Seiten
Online seit: 19.07.2018 0:00
The accession of twelve Eastern European countries to the European Union between 2004 and 2007 provided their citizens with the right of free movement of labour within the EU. This led to an increase of (foreign) labour supply in some incumbent countries, among them Austria, which was particularly affected due to its geographical position and a high wage gap. I quantify the effects of labour supply shocks by means of a structural VAR with sign restrictions, distinguish domestic-worker from foreign-worker shocks and find that the latter contributed considerably to the counter-clockwise outward movement of the Beveridge curve in Austria. On impact, the arrival of additional job seekers facilitates matching, but it lowers the chance for existing job seekers to be matched. In the medium run rising labour demand offsets these effects to some extent; the initial substitution of domestic workers is fully compensated. On a regional level, only the east of the country was exposed to the labour immigration boom. The west experienced an overall decrease of unemployment, because it was only affected by the induced economy-wide rise of labour demand. Moreover, I find that, contrary to standard assumptions, labour supply shocks are predominantly inflationary, especially when immigration expands the total population.
Forschungsbereich:Makroökonomie und europäische Wirtschaftspolitik
Sprache:Englisch