The labor market impacts of Brexit: Migration and the European union

Abstract

Given the uncertainty over the post-Brexit immigration system between the UK and EU, how are new migration regulations affecting labor markets? Existing studies indicate that the details of migration policies are pivotal in determining whether workers and aggregate labor market conditions are harmed by restrictions on cross-border movement. This paper builds a two-country model with costly, endogenous migration and frictional labor markets to better understand the effects of migration restrictions over the long-run. The importance of understanding these effects is highlighted by model predictions for heterogeneous impacts on labor market outcomes for workers based on their migration history. A Brexit calibration exercise shows that under model assumptions, increasing migration restrictions is associated with higher unemployment, lower wages, and welfare loss in aggregate, largely through lowering job surplus. Lower migration costs results in better outcomes for workers: keeping visa costs to a minimum is an important channel for maintaining mutually beneficial migration intact.