The effect of immigration on unemployment in Europe: Does the core-periphery dualism matter?

Abstract

The migrant crisis is one of the most challenging tasks the EU has ever faced. This paper uses a Panel Error Correction Model to assess the direction of the impact of immigration on domestic unemployment, in the short and in the long run, for a sample of 15 EU countries between 1997 and 2016. We test for different effects in core and periphery countries based on differences in macroeconomic fundamentals and labor market characteristics. In the long run, immigration is found to reduce unemployment in peripheral countries only, whereas in the short run, we find that immigration reduces unemployment for the whole sample. However, country-specific coefficients based on interactions with labour market characteristics indicate that short-run impacts are larger in Scandinavian and Anglo-Saxon countries. Conversely, Italy, Greece and Portugal show the smallest impacts. Our results suggest that negative sentiments toward immigration due to labour market competition are mostly unjustified.