Search Equilibrium with Migration: The Case of Poland

Abstract

The EU enlargement has facilitated labour force movements between the former EU member countries and the accession countries. Foremost, the outflow of workers from the new member countries to countries which introduced open-door policy has magnified. The aim of the paper is to shed some light on the possible effects of reinforced emigration from Poland on its labour market. In particular, it focuses on the impact of the migration flows on wages. The wage equation derived from the search and matching model augmented with migration flows (emigration and the return migration) was estimated employing Bayesian inference. It allowed calculating an approximate magnitude of emigration of workers and describing the impact the labour movements should have had on the real wage in Poland. From 2002 to 2006 the number of temporary emigrants increased by roughly 4.5% of the Polish population whereas the resulting increase in the real wage was moderate and amounted to over 1%. The implied elasticity of wages to reduction of the workforce due to emigration between 2003 and 2006 was in the range of 0.2-0.3. Mediocre response of wages to emigration corresponds well with earlier studies on the impact of emigration on the source country wage rate. Yet, the explanation of the limited impact of emigration on wages lies in the adjustment of the demand for labour in the steady-state and substantial intensity of the return migration predominantly to employment found in the data.