Do foreigners cushion native jobs? the case of European regions in the 1990s

Abstract

This paper investigates whether foreign labour cushions native employment during the phases of the economic cycle. The theoretical model, based on the work of Blanchard and Katz (1992), assumes that foreigners supply labour with a higher wage elasticity than natives. The empirical analysis, based on a panel of 161 European regions during 1988-1997, shows that following a labour demand shock the variability of native employment growth is lower the higher the proportion of foreign citizens in the local labour force. These results suggest that foreigners absorb some of the effects of the shock, shielding natives from its full impact. Show more