Labor Mobility within Currency Unions

28 Pages Posted: 14 May 2014

See all articles by Emmanuel Farhi

Emmanuel Farhi

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Iván Werning

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: May 2014

Abstract

We study the effects of labor mobility within a currency union suffering from nominal rigidities. When the demand shortfall in depressed region is mostly internal, migration may not help regional macroeconomic adjustment. When external demand is also at the root of the problem, migration out of depressed regions may produce a positive spillover for stayers. We consider a planning problem and compare its solution to the equilibrium. We find that the equilibrium is generally constrained inefficient, although the welfare losses may be small if the economy suffers mainly from internal demand imbalances.

Suggested Citation

Farhi, Emmanuel and Werning, Ivan, Labor Mobility within Currency Unions (May 2014). NBER Working Paper No. w20105, Available at SSRN: https://ssrn.com/abstract=2436714

Emmanuel Farhi (Contact Author)

Harvard University - Department of Economics ( email )

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Ivan Werning

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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HOME PAGE: http://econ-www.mit.edu/faculty/iwerning

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