Excess Churn in Integrated Labor Markets

39 Pages Posted: 28 Oct 2019

See all articles by Bernt Bratsberg

Bernt Bratsberg

Kansas State University - Department of Economics; University of Oslo - Ragnar Frisch Centre for Economic Research

Oddbjorn Raaum

University of Oslo - Ragnar Frisch Centre for Economic Research

Knut Røed

University of Oslo - Ragnar Frisch Centre for Economic Research

Abstract

The common European labor market encourages worker mobility that enhances allocative efficiency, but certain institutional features may trigger inefficient migration. As a job in one of Europe's high-income countries typically also entails coverage in a generous welfare and social insurance system, migrants' reservation wages may lie below their opportunity cost of labor. This represents an externality because employers and migrant workers can pass some of their remuneration costs onto the welfare state.Once welfare benefit entitlement is secured, the reservation wage of the migrant worker is expected to rise, giving the firm an incentive to replace the worker with a new migrant willing to accept lower pay. This leads to excess churn—the reallocation of labor within firms simultaneously involving the flow of employees to unemployment insurance and the hiring of similar workers. Based on Norwegian data, we present evidence of high excess churn rates in firms with many workers from the new EU member states.

Keywords: churning, Integrated labor markets, social dumping, EU enlargement

JEL Classification: F22, D62, E24

Suggested Citation

Bratsberg, Bernt and Raaum, Oddbjørn and Røed, Knut, Excess Churn in Integrated Labor Markets. IZA Discussion Paper No. 12697, Available at SSRN: https://ssrn.com/abstract=3475803

Bernt Bratsberg (Contact Author)

Kansas State University - Department of Economics ( email )

Manhattan, KS 66502-4001
United States

University of Oslo - Ragnar Frisch Centre for Economic Research

Gaustadalleen 21
N-0349 Oslo
Norway

Oddbjørn Raaum

University of Oslo - Ragnar Frisch Centre for Economic Research ( email )

Gaustadalleen 21
N-0317 Oslo
Norway

Knut Røed

University of Oslo - Ragnar Frisch Centre for Economic Research

Gaustadalleen 21
N-0317 Oslo
Norway

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