The Free Movement of Workers in an Enlarged European Union: Institutional Underpinnings of Economic Adjustment

The eastern enlargements of the European Union (EU) and the extension of the free movement of workers to the new member states' citizens unleashed significant east-west migration flows in a labor market with more than half a billion people. Although many old member states applied transitional arrangements temporarily restricting the free movement of new member states' citizens, the need for adjustment became ever more important during the Great Recession, which affected EU member states unevenly. This chapter studies whether and how east-west migration flows in an enlarged EU responded to institutional and economic factors. We first develop a simple framework of adjustment through migration of workers between labor markets affected by asymmetric economic shocks. Using a new migration dataset and treating the EU enlargement and labor market openings towards the new EU members as a natural experiment allows us to estimate the effects of the EU accession and economic opportunities on migration. Applying the difference-in-differences and triple differences empirical modeling framework, we subsequently find that east-west migration flows in the EU responded positively to the EU entry and economic opportunities in receiving labor markets. However, this potential through which migration helped to ease the imbalances across EU labor markets was hampered by transitional arrangements, which negatively affected the flows of east-west migrants. We conclude that the free movement of workers is an asset that the EU needs to nurture as a means of adjusting to structural economic asymmetries as well as to short-run shocks across EU member states.