Economic migration with matching frictions and business cycle amplification

Migration interacts with the domestic labour market through the increase in labour supply from immigration when labour market conditions improve and labour market tightness increases. Lozej studies the amplification mechanism that arises when there are search frictions, as it becomes more profitable for firms to post vacancies when labour supply is abundant. Unlike in the standard Beveridge curve relationship, the number of searching workers in the labour market and the number of vacancies can move in the same direction, which leads to a sharp increase in employment and aggregate output. Compared to an economy where there is no migration, such mechanism can lead to a substantial amplification of business cycle fluctuations, which can also become more persistent.