Unemployment of foreign-born people in Europe : A study of the Beveridge Curve between 2012 and 2021

Abstract: Migration has heavily increased in the past decade. The freedom of movement of labor is an important economic strength of Europe. A labor supply shock happened in 2015 when the “refugee crisis” brought many foreign-born people to Europe. Even though unemployment rates have been very low in the last couple of years, migrants have been affected more often by unemployment. It is therefore of relevance to study how the labor market reacted to increased labor supply caused by increased migration. The purpose of this study is to study how the labor market for migrants has developed. I will research if there are differences in labor market conditions between countries, in different seasons or for foreign-born women. To study this development the model of the Beveridge Curve is used. It analyses the relationship between the unemployment rate and the job vacancy rate. Long-lasting shifts of the curve mean that there have been structural changes in the market. Specifically, how the efficiency of matching open job positions and job seekers has changed. The analysis is conducted with a fixed effects OLS regression. Included variables are the logged unemployment rate for migrants, the logged job vacancy rate, the ratio of foreign-born people in a population and dummy variables for different periods. This log-linear model explains panel data which was provided by Eurostat. After running five different versions of the regression following was found: The matching efficiency for migrants has improved significantly between 2012 and 2021. The biggest improvements happened after 2015. This was the year of the “refugee crisis” where the European Union aimed to improve the integration of migrants. This commitment could be the reason for improved, lasting conditions for foreign-born workers. The bigger the ratio of foreign-born people in a country the higher the unemployment rate for migrants. The substitutability of workers and flexibility of the labor markets determine how successful a labor supply shock can be used in an economy. The positive influence of the ratio of foreign-born people indicates that the markets are not as flexible as they should be for successful integration. A skill mismatch can also cause this outcome. While Germany and Luxembourg have a higher matching efficiency than Czechia, Finland´s market is less efficient in that aspect. Reasons for that could be the influence of labor unions on the markets. More powerful labor unions can improve work and negotiation processes. Even higher power, as in Finland, can be too costly for firms leading to fewer vacancies. Because of increased aggregated demand in the last quarter of the year, the Beveridge Curve shifts inward, improving market conditions temporarily. Lastly, female migrants have also seen an improvement in matching efficiency but to a smaller extent than the general foreign-born workforce. Mismatches due to gender norms and lower participation rates of women explain this difference. Further studies should include more variables to analyze skill mismatches. When discussing country differences more ways of assessing these should be identified