lecture 6

• immigration is likely to raise employment and national income, but is unlikely to affect unemployment in either direction
• while free movement within the EU is theoretically a beneficial thing to both nationals and immigrants, mobility is still low
• there is low mobility within the EU because there are different pensions systems and unemployment benefits
• regulated professions (where a qualification is only valid for one country) reduces mobility within the EU
• cultural differences reduce mobility within the EU
• working age population (N) = employed (E) + unemployed (U) + out of labour force (O)
• labour force (L) = employed(E) + unemployed (U)
• unemployment rate (u)= U/L = the percentage of active labour force that are unemployed
• participation rate (p) = L/N = 1-(O/N) = percentage of the population that is active
• employment rate = E/N
• the dependency ratio is the number of children (0 - 14) and over 65s to the working age population
• national labour markets within the EU are largely independent, with limited migration and different legislations and practices across countries
• there are big differences between the unemployment rate in the EU and the USA, where on average the EU is doing much worse than the USA
• during recessions, the difference in unemployment levels between the EU and USA reduces. with the USA increasing unemployment levels to join the EU
• during covid, the USA increased unemployment levels to become similar to the EU, because the EU promoted part-time working, and the USA encouraged layoffs
• during covid, the USA increased unemployment benefits (encouraging layoffs), while the EU helped firms pay workers and promoted part-time working to prevent the workers being made unemployed
• the Netherlands and Germany have the highest employment rates in the EU of just over 80% as a result of lots of people working part-time
• most of the EU have employment rates less than 75%, which is less than many non-EU countries, such as Japan and Switzerland
• labour is a derived demand, where firms balance the cost of hiring someone (wage) and their benefit (marginal product of labour, MPL)
• the marginal product of labour (MPL) has diminishing marginal returns, due to sharing equipment, fatigue, and tools wearing out quicker
• the supply of labour comes from workers balancing the cost (disutility) and benefit (wage)
• the equilibrium of the labour supply and demand will have no involuntary unemployment, but there may be voluntary unemployment from people deciding not to work because of the wage
• labour markets with rigidities leads to involuntary unemployment
• labour markets may experience involuntary unemployment through long-term job contracts, which slows the reaction to changing conditions
• labour markers may experience involuntary unemployment through conditions for hiring and firing that protects workers
• labour markets may experience voluntary unemployment due to unemployment benefits, which creates incentives for unemployment if the benefits are similar to the equilibrium wage or are offered as a long-term option
• labour markets may experience involuntary unemployment due to collective salary negotiations
• the EU may also experience poor labour market performance due to longer term unemployment benefits which cause very variable long-term unemployment levels
• the EU experiences poor labour market performance due differences in approach to the economic efficiency vs social protection tradeoff
• Free movement of workers was introduced in the Treaty of Rome, while movement of citizenship was introduced in the Maastricht treaty
• enlargements of the EU created expectations of en masse migration
• emigration out of Europe as a whole has been stable and low over the last 10 years
• migration from outside the EU compensates for smaller and ageing national populations
• internal migration is significant east to west
• in 2015 there was mass migration into Europe from Syria, which highlighted issues with the asylum system
• in the whole EU, only 5% inhabitants are non-EU citizens
• the Common European Asylum System should provide standards for treatment of asylum seekers, however the burden is unevenly spread across the EU
• migration creates an overall net gain to the economy, however home workers loose out, as their wages fall
• when studying migration, capital involves human capital (highly skilled workers)
• immigrants often have a different skill mix to domestic workers, so fill roles otherwise left unfulfilled