Largely driven by emigration from Eastern Europe and the former Soviet Union, immigration into Western Europe has recently increased to 1.7 million immigrants per year. In this paper, we analyze the labor market and macroeconomic effects of immigration of 3.5 and 7 million workers from Eastern Europe and the former Soviet Union into the European Community (EC) in a six-region, 14-sector computable general equilibrium model. Our experiments show that labor immigration does not lead to the catastrophic conditions in EC labor markets feared by EC citizens. This result holds even when ignoring capital stock growth. Experiments that include capital stock and labor force growth in the EC show that the EC can absorb 3.5 million immigrants. Seven million immigrants, however, cause some unemployment and a small loss in per capita income. Other experiments show that cuts in the order of 1 percent in fixed urban wages contribute to easing adjustment problems on EC labor markets substantially. The EC is found to benefit from immigration if wages are flexible.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics