Local labor market flexibility in a perceived low migration country: The case of French labor markets

• As in the US, new jobs in France are essentially taken by migrants or outside commuters.
• French local labor markets are about as flexible as those in the US.
• Low migration levels may not be the negative factor that some have hypothesized.
• Alternative to Bartik instrument is useful when national trends are relatively weak.

Local labor markets are most flexible and aggregate natural unemployment is reduced when there is sufficient interregional economic migration to ensure that workers are reallocated from declining to expanding regions. Local European labor markets have generally been viewed as not as flexible as those in North America, leading to greater fluctuations in local wages, labor force participation and unemployment rates, and smaller changes in local employment as economic shocks are primarily experienced by the local area's original residents. France is an interesting case. French gross migration rates—though perhaps relatively low—are higher today than a generation ago. Using a host of novel identification approaches and French employment zone data dating back to the early 1980s, we investigate whether these changes correspond to economic migration that would increase labor market flexibility. Our results detect surprising amounts of economic migration in that most new jobs are eventually taken by new migrants or outside commuters. We then reconcile these somewhat surprising findings with the still relatively low contemporary French interregional gross migration rates, concluding that other structural impediments besides relative local labor market inflexibility are behind relatively poor labor market performance.