HOW DOES FREE LABOR MOBILITY WITHIN THE EU INFLUENCE AGGREGATE LABOR PRODUCTIVITY DYNAMICS

This dissertation investigates the intra-EU labor mobility and its impact, particularly towards the aggregate EU productivity, considering relevant variables like employment level, wages, capital stock and education levels. The principle of a single market with freedom of movement has been a cornerstone for the EU since its inception. Recent economic turmoil, productivity stagnation and polarization have renewed interest in mobility and its practical consequences towards productivity. A time-series econometric model is used in this dissertation for annual EU-level data spanning from 2002 till 2023 to evaluate the short-term and long-term effects on the total factor productivity. The model included stationarity and cointegration checks through the Augmented Dickey-Fuller and Engle Granger methods, respectively. Results of first-difference regression suggest a statistically significant negative effect of mobility on productivity, possibly attributed to temporary market frictions and skill mismatch. While the Error Correction Model (ECM) confirmed the existence of a long-run relationship among variables, the coefficients on mobility, capital stock and educations remained statistically insignificant in this data scope and setting. Further log-transformation of the mobility variable as well as adding dummy variables representing major outlier years (2009 & 2020) have improved the robustness of the model yet did not substantially change the results. The analysis highlights a nuanced relationship between mobility and productivity. While pointing out the short-term market disruptions, the less-conclusive long-term results suggest a need for more country-specific analyses and complementary policies to reap the benefits of mobility. This study concludes by highlighting the importance of refining EU mobility to focus on harmonizing laws and qualifications to unlock the potential of cross-border mobility. These findings contribute to the ongoing debate of the EU competitiveness and productivity and suggest directions for future research and policy.