Labor Market Effects of Open Borders: Lessons from EU Enlargement

87 Pages Posted: 7 Oct 2020

See all articles by Isa Kuosmanen

Isa Kuosmanen

University of Geneva - Geneva School of Economics and Management

Jaakko Meriläinen

Instituto Tecnológico Autónomo de México (ITAM) - Centro de Investigacion Economica

Date Written: August 18, 2020

Abstract

We exploit the expansion of the European Union as a natural experiment to study the labor market consequences of open borders. The eastern enlargement of the EU differentially exposed workers in different regions and occupations in Finland to foreign workforce. Using a triple-differences strategy and detailed individual-level administrative data, we provide robust evidence that the entry of new EU countries decreased the annual earnings of vulnerable workers persistently relative to less vulnerable workers in the construction sector. This decrease was about 1,700 euros per year, on average, which corresponds roughly to a month's salary. The vulnerable workers were not able to close the wage gap even ten years after the EU enlargement. Most estimates suggest that the workforce nearly doubled in size after the EU enlargement, which would imply an elasticity close to zero. We also find a small increase in unemployment. The effect on earnings is predominantly driven by workers below 30 years old, who became more likely to switch to other sectors of employment or establishments of work, and workers over 50 years old, who became more likely to retire.

Keywords: European Union, Labor Mobility, Migrant Workers, Open Borders, Temporary Migration

JEL Classification: C23, J61, J62, J82

Suggested Citation

Kuosmanen, Isa and Meriläinen, Jaakko, Labor Market Effects of Open Borders: Lessons from EU Enlargement (August 18, 2020). Available at SSRN: https://ssrn.com/abstract=3676510 or http://dx.doi.org/10.2139/ssrn.3676510

Isa Kuosmanen (Contact Author)

University of Geneva - Geneva School of Economics and Management ( email )

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Jaakko Meriläinen

Instituto Tecnológico Autónomo de México (ITAM) - Centro de Investigacion Economica ( email )

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Col. Heroes de Padierna
Mexico City, D.F. 10370
Mexico

HOME PAGE: http://sites.google.com/view/jaakkomerilainen/

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