International Labour Mobility and Unemployment

We develop a two-country labour-market model characterised by union wage-bargaining, in which the unemployed incur individual-specific costs of seeking work abroad. We explore the effects on equilibrium unemployment and population in each country of changes in union bargaining strength, taxation, and employers’ willingness to hire foreign workers. Weaker unions and lower taxation reduce both local and foreign unemployment and induce net immigration. If unions take account only of local (and not foreign) job opportunities of unemployed workers, symmetrical opening of labour markets to foreigners reduces global unemployment...