DP1189 | On Measuring the Costs of Labour Immobility and Market Heterogeneity in Europe

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In this paper we evaluate the deterioration in the European sacrifice ratio implied (both in terms of inflation and unemployment) by the fact that labour markets are structurally different and there is very little labour mobility between the European Union countries. We also consider a wage transfer effect implied by Germany's dominance. We discover that the maldistribution of unemployment rates and Germany's leadership role impose a great cost on the real side. Germany and Spain are the two countries that contribute the largest costs since they represent the two opposite extremes of the unemployment distribution.