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IAB Discussion Paper 3/2008
Timo Baas
Herbert Brücker
Macroeconomic consequences
of migration diversion
A CGE simulation for Germany and the UK
Beiträge zum wissenschaftlichen Dialog aus dem Institut für Arbeitsmarkt- und BerufsforschungIAB-Discussion Paper 3/2008
Macroeconomic consequences of migrationdiversion
A CGE simulation for Germany and the UK
Timo Baas (IAB)
Herber Brücker (IAB)
Mit der Reihe „IAB-Discussion Paper“ will das Forschungsinstitut der Bundesagenturfür Arbeit den Dialog mit der externen Wissenschaft intensivieren. Durch die rasche
Verbreitung von Forschungsergebnissen über das Internet soll noch vor DrucklegungKritik angeregt und Qualität gesichert werden.
The “IAB Discussion Paper” is published by the research institute of the German FederalEmployment Agency in order to intensify the dialogue with the scientific community.The prompt publication of the latest research results via the internet intends to stimulatecriticism and to ensure research quality at an early stage before printing.Macroeconomic consequences of migration
diversion: a CGE simulation for Germany and the
UK
Timo Baas Herbert Bruckery
July 2007
Abstract
This paper examines the macroeconomic consequences of the diversion
of migration ows away from Germany towards the UK in the
course of the EU Eastern Enlargement. The EU has agreed with the
new member states from Central and Eastern Europe transitional periods
for the free movement of workers. The selective application of
migration restrictions during the transitional periods has resulted in
a reversal of the pre-enlargement allocation of migration
ows fromthe new member states across the EU: Germany as the main destinationbefore enlargement attracts only modest immigration ows since
2004, while the UK and Ireland which have been only marginally affected
by immigration prior to enlargement absorb about 60% of the
inows in the post-enlargement period. The macroeconomic e ects of
this diversion process is analysed in this paper on the basis of a CGE
model which considers wage rigidities. We nd that higher migration
is associated with larger GDP and employment gains, but also with
a smaller wage increase and a smaller decline of the unemployment
rate. The diversion of migration
ows away from Germany towardsthe UK yields thus a higher GDP and employment growth in the UK.
The joint GDP of Germany and the UK declines by 0.1 per cent as aconsequence of the migration restrictions.
Keywords: EU Eastern enlargement, international migration, computable
equilibrium model, wage curve.
JEL code: F15, F22, C68, J61, J30.
IAB, Nuremberg and University of Potsdam.
yIAB, Nuremberg, University of Bamberg and IZA, Bonn.
Acknowledgements: The authors gratefully acknowledge nancial support from the GermanMinistry of Economic A airs and Technology, research project 33/05.
11 Introduction
This paper examines the macroeconomic consequences of the diversion of
migration ows during the transitional periods for the free movement of
workers in the course of the Eastern Enlargement of the European Union
(EU). The EU has admitted eight new member states from Central and
Eastern Europe in 20041 and another two countries in 2007.2 The income
gap between the incumbent and the new member states is in case of the EU
Eastern enlargement larger than in previous accession rounds. At