Competing for Talents – Can Europe Outrun the U.S.?

We develop a model of cross-country migration on the labor markets in Europe and the U.S. In both federations, individuals differ in human capital, and countries differ with regard to the state of the economy. Individuals are more productive in the countries with the better state of the economy. In the U.S., human capital is fully transferable across borders; and the most talented individuals migrate into the country with the best state of the economy. In Europe, however, human capital cannot be fully transferred across countries as long as migration is low. Only if migration becomes highly intensive, human capital will become fully transferable. Thus, the low level of migration on the European labor market is the result of a coordination failure. A high level of migration within Europe can be achieved if the European firms are willing to pay for a migration fund which lowers migration costs in Europe. High migration within Europe, once achieved, will lead to a high inflow of talents from other parts of the world, like Asia. Thus, Europe can draw level with the U.S. in the global competition for talents if – and only if – the necessary policy is implemented.