Commuters, residents and job competition

The mobility of labor across borders is an issue of increasing importance. The goal of this paper is to propose a simple model, in the spirit of the search unemployment literature, to better understand the effect of foreign commuters on domestic unemployment. We analytically show that the decision to commute depends on workers' productivity and employment perspectives. Under certain conditions, increasing competition from cross-border commuters may even generate positive externalities on domestic unemployment. The model is then applied to understand the case of Luxembourg where, in recent years, domestic unemployment has risen at the same time that the share of commuters increased.