Wednesday, February 23, 2022 at 11:00-12:30 Vienna time (CET) 

Introduction
Hervé Joly, JVI Director

Presenter
Donal Smith, Economist/Policy Analyst, Smart Data and Modelling Unit, Trade and Agriculture Directorate and the Macroeconomic Policy Division, Economics Department, OECD

Moderator
Zuzana Zavarska, Economist, the Vienna Institute for International Economic Studies

The COVID-19 crisis has caused significant frictions in the global flow of goods, resulting in supply chain bottlenecks and shortages of intermediate inputs. While this issue has been subject to extensive public attention and debate, another critical factor in global trade flows cannot be overlooked. Namely, the pandemic has underscored the economic importance of cross-border labour mobility, raising the question of what impacts pandemic-induced long-term frictions in international mobility might have on economies.  

As highlighted in this lecture, with the onset of the pandemic, all OECD countries put up greater barriers to entry of foreign nationals. At the same time, the post-pandemic world puts up new obstacles to migration, as transportation costs rise, foregone earnings from unemployment become notable during a potentially longer transition between markets, and travel restrictions and social distancing measures make relocation psychologically more demanding. In this light, Donal Smith (OECD) presented the latest OECD study prepared with his co-authors (Przemyslaw Kowalski, Frank van Tongeren and Sophie Guilloux-Nefussi), in which they estimate the anticipated impacts of a long-term decrease in cross-border mobility on the labour supply and trade and production patterns. This is done based on a stylised general decrease in net migration flows by 20%. They use two models to quantify the scenario: a general equilibrium trade model (METRO), and a global macroeconomic model (NiGEM). The analysis is also carried out at the sectoral level, to account for possible differentiated impacts across sectors, and considers different skill categories.

The study finds that OECD economies would be most adversely impacted from reduced labour mobility in the post-pandemic world. At the same time, they find signs of redistribution of economic activity from OECD to non-OECD countries: Eastern Europe, for example, finds itself on the positive end of this spectrum (see Figure 1). In OECD economies which are characterised by particularly high shares of a foreign-born workforce in the labour market (such as Australia, Germany and Canada), the fall in potential output is estimated to range between 0.4% to 0.6%. There is some variation in the scale of the impact if labour and capital are considered simultaneously— the impact on the United Kingdom is much more pronounced when capital is also considered.