Labour Market Adjustments in Europe and the US: How Different?

34 Pages Posted: 25 Mar 2015

See all articles by Robert Beyer

Robert Beyer

World Bank - South Asia Chief Economist Office

Frank Smets

European Central Bank (ECB); KU Leuven - Center for Economic Studies

Date Written: March 23, 2015

Abstract

We compare the labour market response to region-specific shocks in Europe and the US and to national shocks in Europe and investigate changes over time. We employ a multi-level factor model to decompose regional labour market variables and then estimate the dynamic response of the employment level, the employment rate and the participation rate using the region-specific variables and the country factors. We find that both in Europe and the US labour mobility accounts for about 50% of the long run adjustment to region-specific labour demand shocks and only a little more in the US than in Europe, where adjustment takes twice as long. In Europe labour mobility is a less important adjustment mechanism in response to country-specific labour demand shocks that cause stronger and more persistent reactions of the employment and the participation rate. However, we detect a convergence of the adjustment processes in Europe and the US, reflecting both a fall in interstate migration in the US and a rise in the role of migration in Europe. Finally, we show that part of the difference between Europe and the US in previous studies may be due to the use of different data sources.

Keywords: labour mobility, regional labour markets, migration, European integration

JEL Classification: F2, J6, R23, R30

Suggested Citation

Beyer, Robert and Smets, Frank, Labour Market Adjustments in Europe and the US: How Different? (March 23, 2015). ECB Working Paper No. 1767, Available at SSRN: https://ssrn.com/abstract=2583759

Robert Beyer (Contact Author)

World Bank - South Asia Chief Economist Office ( email )

1818 H Street, NW
Washington, DC 20433
United States

Frank Smets

European Central Bank (ECB) ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
+49 69 1344 6550 (Phone)
+49 69 1344 6575 (Fax)

KU Leuven - Center for Economic Studies ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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