The European Central Bank has published a Working Paper Series study on the macroeconomic role of temporary labour migration in the European Union, while noting that the paper reflects the author’s views rather than official ECB positions. Using a two-country DSGE model calibrated to the EU15 and the 12 new Member States that joined in 2004 and 2007, the paper finds that migration responds jointly to labour market conditions and exchange rate movements and becomes an important channel through which shocks are absorbed and transmitted across countries. In the model, labour mobility smooths output fluctuations in receiving economies, has more mixed effects in sending economies, reduces the output costs of monetary tightening, and mitigates the crowding-out of private investment during fiscal expansions. The paper compares open- and closed-border labour market regimes and concludes that migration is not a neutral adjustment margin. It redistributes the effects of productivity, labour market, monetary policy and fiscal shocks across regions, often shifting part of the adjustment burden abroad. In receiving economies, migration tends to support production by expanding labour supply. In sending economies, its effects vary by shock type, stabilising outcomes after total factor productivity shocks but playing a more limited role for investment productivity shocks. The analysis also finds that labour mobility strengthens cross-country spillovers, especially for labour market disturbances such as changes in matching efficiency or job destruction, and can make labour market slack and wage effects more pronounced even when output losses are smaller.
European Central Bank2026-07-08
European Central Bank publishes working paper finding temporary migration reshapes shock transmission and policy trade offs in the European Union
The European Central Bank published a working paper, not an official policy statement, examining how temporary migration affects macroeconomic adjustment in the European Union. The paper finds that labour mobility changes how shocks and policy actions are transmitted across countries, often smoothing output in receiving economies, altering monetary and fiscal policy trade-offs, and increasing cross-border spillovers. In the model, migration can reduce output losses from tighter monetary policy and lessen investment crowding out during fiscal expansions.