Brain drain, skills mismatch and the fiscal multiplier

We study how international labor mobility interacts with fiscal policy and skills mismatch. We develop a small open economy model featuring heterogeneous households, endogenous migration decisions, search frictions, skills mismatch, and capital–skill complementarity (CSC) in production. Following a fiscal contraction, the economy experiences predominantly high-skilled emigration (“brain drain”) that amplifies the recession, while mitigating the rise in skills mismatch. We apply the framework to the case of the emigration wave during the Greek Depression. Quantitatively, we find that without the "brain drain", Greece’s mismatch rate would have been around 3 percentage points higher in 2016. These findings advance our understanding of the joint dynamics of labor mobility, fiscal policy, and skills mismatch, with important implications for the design of stabilization tools in open economies.

Meet our speaker and chair

Aristeidis Grivokostopoulos is a Doctoral Affiliate at the Hellenic Observatory and PhD candidate in Economic History.

Professor Vassilis Monastiriotis is Director of the LSE Centre for Research on Contemporary Greece and Cyprus - Hellenic Observatory, Professor in Political Economy and Eleftherios Venizelos Chair of Contemporary Greek Studies at the European Institute, LSE.

The Hellenic Observatory (@HO_LSE) is internationally recognised as one of the premier research centres on contemporary Greece and Cyprus. It engages in a range of activities, including developing and supporting academic and policy-related research; organisation of conferences, seminars and workshops; academic exchange through visiting fellowships and internships; as well as teaching at the graduate level through LSE's European Institute.

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LSE holds a wide range of events, covering many of the most controversial issues of the day, and speakers at our events may express views that cause offence. The views expressed by speakers at LSE events do not reflect the position or views of the London School of Economics and Political Science.