Migration, labor markets, and welfare states in the EU

Abstract

The paper analyzes the effects of migration on the EU labor market and the sustainability of the welfare state through the institutional context. It measures the connection between migration exposure (migrant stocks and inflow intensity) and both labor-market outcomes (employment, unemployment, participation, wages) and welfare outcomes (social protection and fiscal proxies) on a comparative country-level panel framework. These results indicate that the overall effect on aggregate employment and wages is not high but migration results in sectoral adjustment to labor intensive non-tradable services. Institutional considerations are influential: better absorption of the labor-market and policy activation yield better results. The demographic aging, and not migration per se, posed more fiscal challenges and underlines that the sustainability of the welfare systems can be achieved through efficient labor-market integration. The paper presents the major policy interaction towards the EU governance and national reform.