Economic Consequences of the Posted Workers Directive

The consequences of an increase in the minimum wage for foreign workers in the construction sector, implied by the EU Posted Workers Directive, are analyzed. Due to the rising price of construction services, the factor demand for both construction services and capital in the tradable good sector falls, and the wage rate in this sector declines. While the share of domestic workers increases with respect to both foreign workers and capital in the construction sector, this need not suffice to reduce unemployment. A possible higher level of employment of natives is not sufficient to raise natives' welfare