ABSTRACT
The theory of the optimum currency area (OCA) offers a technical explanation of the fact that a monetary union works well only if certain conditions are given and suggests what could compensate for their absence. The working of the labour markets is particularly important for the monetary union approaching an OCA. Price and wage rigidity makes adjustment processes difficult, lengthy and costly. The OCA theory highlights that a monetary union needs flexible wages and prices or, alternatively, labour mobility to adjust the effects of asymmetric shocks. Migration increased at an accelerated rate since the mid-1980s in coincidence with globalization. Migration to the European Union shares many of the features of migration to developed rich countries. Immigration within a monetary union is a politically sensitive issue, perhaps more than in a sovereign country. The role of high-skill immigrants is thus important for the host country’s domestic situation and for the viability of the common currency.
