DP8987 The Role of Borders, Languages, and Currencies as Obstacles to Labor Market Integration

Author(s): Kevin Bartz, Nicola Fuchs-Sch√ľndeln
Publication Date: May 2012
Keyword(s): European integration, labor market integration, spatial econometrics
JEL(s): C4, J4, J6
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8987

Based on a modified Spatiotemporal Autoregressive Model (STAR), we analyze whether borders still constitute significant impediments to labor market integration in the European Union, despite the formal law of free movement of labor. Using regional data from the EU-15 countries over 21 years, we find that this is the case. We further investigate whether the abolishment of border checks through the Schengen agreement or the introduction of the Euro improved our measure of labor market integration across borders, and do not find evidence in favor. Last, we investigate the role of languages, and potentially cultures, as obstacles to labor market integration. We find that indeed language borders play a larger role than country borders in explaining the lack of labor market integration across borders.