A Search Model of Migration and Unemployment

I examine the role of migration in determining unemployment levels in a search model with migration. I build a theoretical model to follow workers’ employment status and location, and utilize differences in labor market institutions to show that capturing these worker flows across borders is an important aspect of migration and unemployment that has been largely ignored. This sheds light on the considerations workers take when moving, and highlights the role labor market structures play in equilibrium unemployment across countries. The motivating application of the model shows that the model is capable of generating migration flows observed between European countries. In particular, migration across national borders is not a costless endeavor for workers to undertake. They face fixed costs to move, and flow costs
while abroad. Workers report salience of language barriers, housing markets, and cultural distance in preventing them from making an otherwise desirable move across national borders. Under the context of costly migration, I provide evidence that at least one explanation for the insufficiency of a single labor market in the EU to ensure full convergence of labor market conditions lies in the costs workers face from living away from home, and not from a lack of migration. Policy implications include the need to aid new migrants in adjusting to their new homes, as well as policies to reduce the psychological and monetary costs of migration for workers. The divergence in labor market conditions prevents unification of European labor markets, and limits the formation of collective identities.