Trading Nontradables: The Implications of Europe’s Job-Posting Policy

Abstract

Abstract This article examines the labor market implications of the EU posting policy, a large temporary migration program facilitated by the liberalization of the free provision of services in Europe. Posting allows EU firms to send (post) their employees abroad to export customer-facing services. Combining administrative data and quasi-experimental policy variation, I find that the policy permanently increased total factor mobility in Europe without crowding out traditional migration. This result suggests that unrealized gains from trade in factor services remained despite the absence of regulatory barriers to trade and migration in the EU. Furthermore, posted workers are mostly sent from low-wage countries to perform manual tasks in sectors formerly insulated from trade, and they represent a substantial share of EU migrant workers. In receiving countries, posting had persistent negative effects on employment for domestic workers in the more exposed sectors and local labor markets, but it had no effects on domestic wages. In low-wage sending countries, firms in formerly “nontradable” sectors experienced increased sales, profits, and tax payments when exporting services through posting. Posted workers earn more once sent abroad but remain paid at lower wages than comparable domestic workers in the receiving country. Wage gains for posted workers are mostly explained by minimum wages enforced by the EU policy, highlighting the role of labor market regulations in shaping the way gains from globalization are shared between labor and capital owners in origin countries.