Abstract

An international migration union is a form of coordination guaranteeing free labor mobility between member countries. To study the sustainability of migration unions, I extend the gravity model to a dynamic game where countries control migration policy. I find that a non-cooperative game exhibits multiple corner Nash equilibria in the long run. High migration costs imposed by other countries and distortion of location preferences support the optimality of a closed border regime. I show how the coordination of migration policies improves welfare and how related effects depend on the size of the migration unions. I find that coordination benefits are accrued mostly through the long-term option of switching to adjunct labor markets and they grow with the agglomeration. I linearize the model to provide analytics of the economy’s transition path after a temporary migration policy shock. I find that unilateral restriction is beneficial only for economies with strong congestion forces, while the symmetric bilateral restriction is never beneficial. Additionally, I examine the efficiency and political viability of new migration unions among OECD countries. I argue how redistribution, voting mechanism, and the taste for freedom mutually determine the welfare gains and political viability of migration unions. ?