Unifying Europe: A Progress Report

Presentation and discussion of the text “Unifying Europe: A Progress Report” (Head K. and T. Mayer, 2020), in preparation for Journal of Economic Perspectives Symposium of the European Union.

• Speaker: Thierry Mayer, Sciences Po, Department of Economics
• Discussion: Cornelia Woll, Sciences Po Center for European Studies and Comparative Politics.

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Abstract
In terms of formal institutions, the European Union is little closer to being a “United States of Europe” than it was 16 years ago when Alesina and Perotti (2004) dismissed the idea. Yet a perspective based on economic and political outcomes delivers a more upbeat assessment. On multiple fronts, EU integration now matches or even beats the equivalent measurement for states. The most relevant comparison to the US is the EU6, since both have constant membership during the period for which we have data. When measuring integration as convergence in price levels, the EU6 now appears to be more integrated than the US with the EU15 not far behind. 
Regarding the most sensitive of the four movements, migration, our estimates suggest that barriers remain considerably higher in Europe. Movement of people is still very low. On the other hand, the incentives to move have fallen substantially within the EU6, with dispersion in real incomes now essentially the same as that in core Eastern states of the US. Real income variation is three times as high in the EU as a whole, but enlargement has been followed by a trend towards equalization so there is no reason to think the EU28 has reached a steady state in terms of income disparities across its members. 
A potential objection to the rosy view of integration depicted above is that rising inward orientation could arise from construction of higher barriers imposed on flows from the rest of the world—unification via “Fortress Europe.” Adapting the gravity equation to allow for such a possibility, we find the opposite tendency prevails in the data. With respect to goods, services, and migration the EU is increasingly open to the rest of the world. Rising intra-EU flow shares have come from falling intra-national shares, precisely the pattern needed for welfare to rise in standard trade models.