The labor market implications of unification between Albania and Kosovo

This paper estimates the impact that political unification between the currently independent states of Albania and Kosovo would have on the labor markets in each country. Specifically, it analyzes and quantifies by analogy the propensity of workers in Kosovo to migrate to Albania seeking employment as a direct result of differing unemployment rates in both countries. Recent data from two cases of European Union (EU) expansion are used to construct models that predict migration flows after legal barriers are removed. The first case is the 2004 EU expansion in which ten new states were incorporated into the union and three existing EU members (Sweden, the United Kingdom and Ireland) dropped their labor barriers while the second case examines the 2007 EU expansion in which Bulgaria and Romania were added to the union and ten existing EU states dropped labor barriers (Sweden, Finland and eight Eastern European countries). The statistical method used to predict migration flows from Kosovo to Albania once barriers are removed is a weighted least squares multivariate regression with the percentage change in residents from the sending country residing in the recipient country serving as the dependent variable and the respective unemployment rates serving as the focus independent variables. Results from the 2004 EU expansion case indicate that a positive relationship exists driving labor migration from high unemployment to low unemployment regions once barriers are removed. Despite noticeable labor migration in the 2007 EU expansion case, unemployment does not appear as a driving factor. There are two possible explanations for the difference in these two cases. The first is that the 2004 case was comprised of sending and receiving countries that differed significantly in their unemployment rates while in the 2007 case, both sending and receiving nations had comparable unemployment figures. The second explanation for the variance in the two models is that the normal patterns of migration due to differing levels of unemployment were disrupted by the effects of the Great Recession. Despite these differences, both cases confirm the existence of positive migration once labor barriers are removed. These results are used to assess whether and to what extent workers from Kosovo will migrate to Albania upon unification. The classical supply-and-demand model of the labor market is then utilized to explain the effects on employment and wages in both countries. Specifically, it describes that, holding other factors constant, lower aggregate wages and higher aggregate employment will result in Albania while higher aggregate wages but lower aggregate employment will result in Kosovo.