CAN THE EUROPEAN-COMMUNITY ABSORB MORE IMMIGRANTS - A GENERAL EQUILIBRIUM-ANALYSIS OF THE LABOR-MARKET AND MACROECONOMIC EFFECTS OF EAST-WEST MIGRATION IN EUROPE

Largely driven by emigration from Eastern Europe and the former Soviet Union, immigration into Western Europe has recently increased to 1.7 million immigrants per year. In this paper, we analyze the labor marke t and macroeconomic effects of immigration of 3.5 and 7 million worker s from Eastern Europe and the former Soviet Union into the European Co mmunity (EC) in a six-region, 14-sector computable general equilibrium model, Our experiments show that labor immigration does not lead to t he catastrophic conditions in EC labor markets feared by EC citizens. This result holds even when ignoring capital stock growth. Experiments that include capital stock and labor force growth in the EC show that the EC can absorb 3.5 million immigrants. Seven million immigrants, h owever, cause some unemployment and a small loss in per capita income, Other experiments show that cuts in the order of 1 percent in fixed u rban wages contribute to easing adjustment problems on EC labor market s substantially. The EC is found to benefit from immigration if wages are flexible.