The Inflow of Eastern European Workers to the German Labor Market: Consequences and Policy Issues

 

Master Thesis by Sigitas Karpavicius
August 26, 2005

Abstract:

In this paper the framework for analyzing the impact of the immigration on the labor market (e.g. unemployment, wages) and main economic variables as total output, output per capita etc. is developed. I will apply this model to German economy and draw the outcomes and conclusions. In order to check whether model works properly, I will calibrate it also for the UK economy and compare the results with known data. The model predicts that the prospective immigration to Germany due to the enlargement of the European Union will reduce slightly the welfare of high- and low-skilled labor in the short-run, while in the long-run high-skilled agents will be a little bit better off and low-skilled households will be slightly worse off comparing to the situation before the immigration. The model presupposes the negligible increase of unemployment rate of both types of agents and wages of high-skilled labor, but wages of unskilled labor is forecasted tenuously to fall. Output per capita declines due to the unskilled workers dominant immigration. Total output in the short-run decreases, but in the long-run exceeds its initial steady state value, since the total employment increases.