Improving cross-border mobility: Evidence from accountancy

Matthew Bloomfield, Ulf Brüggemann, Hans Christensen, Christian Leuz 17 December 2015



The 1993 Maastricht Treaty set out to achieve “four freedoms”: the free movement of goods, services, people, and money across the continent. More than 20 years later, there’s still relatively little movement of people, and in particular of workers, with the EU. Some 7 million EU citizens are working and living in a member country other than their country of citizenship, according to László Andor, commissioner for Employment, Social Affairs and Inclusion in the European Commission, while another 1.1 million cross-border workers are employed in one country but live in another (Andor 2014). While these numbers may sound impressive, the 7 million ‘mobile workers’ only account for about 3.3% of the EU’s total labour force.

Labour mobility is an important prerequisite for the efficiency of labour markets. It can, among other things, help regions adjust to asymmetric economic shocks, especially in a currency union such as the Eurozone (Mundell 1961). Recognising the importance of labour mobility, the EU has taken various steps in recent years to increase it by harmonising social security policies and providing ways for citizens from one EU country to have their foreign professional qualifications recognised in another (Directive 2013/55/EU). Such efforts can reduce the costs of migration, according to Kahanec (2012). However, many professional rules and standards remain national – and for a professional, having to meet national standards likely makes it difficult to migrate across borders. The existence of different national standards therefore could constitute an implicit economic barrier.

The accounting profession is an interesting case in this regard. Over the past decade, national accounting and auditing standards have to a large extent been replaced by international standards now common across the EU member states. This change provides us with an opportunity to study the extent to which professional standards constitute an economically significant barrier to cross-border migration. It also allows us to examine whether harmonising standards can have a meaningful effect on cross-border mobility. If we find such an effect, it would suggest that regulatory harmonisation could potentially be an important policy lever to spur cross-border migration by professionals.

The accounting profession as a test bed

Despite the potential importance of harmonisation, its effect on cross-border labour mobility has been little studied. Much of the prior literature on labour migration has focused on the effects of wage and unemployment differentials, immigration laws (Skupnik 2013), or occupational-licensing rules (Kleiner et al 1982). The latter two are explicit, government-enforced rules that restrict who can move into a particular country or who can offer services in a market. The prior literature (see Kleiner 2000 for an overview) finds that such explicit restrictions create mobility barriers.

Our study in turn examines differences in national standards, and whether they can also create indirect and perhaps more subtle barriers to cross-border mobility. The focus on labour mobility also distinguishes our research from the existing literature on harmonisation of accounting standards, which focuses almost exclusively on informational effects in capital markets (see, for example, Soderstrom and Sun 2007, Hail et al. 2010, and Brüggemann et al. 2013).

In our analysis, we examine how the recent EU harmonisation of professional standards in accounting and auditing affected cross-border migration of accountants relative to other professionals and comparable workers. The accounting profession provides a powerful test bed for cross-border labour-migration patterns because it generally has a much higher level of standardisation than comparable occupations (Madsen 2011), and regulatory harmonisation has taken the form of adopting identical rules or standards across EU countries. Both factors make it easier to detect any effect that harmonisation might have on the migration of accountants. The EU also provides a good setting because it, in principle, allows professionals to move freely, so our analysis is not constrained by immigration policies.

Generally speaking, regulatory harmonisation should make it easier for workers to move to another country – but it is not obvious how large the effect is, for several reasons. The benefits from harmonised standards could be too small relative to other costs involved in international migration to have a meaningful effect. It is conceivable that factors such as language and cultural differences swamp any effects of regulatory harmonisation. Moreover, Kvaal and Nobes (2010, 2012) provide evidence that local accounting practices often persist after countries formally harmonise their standards. These local accounting practices and traditions could continue to act as an implicit economic barrier after the formal harmonisation of rules, in essence mitigating or perhaps even thwarting positive effects.

Harmonisation increases mobility

In the end, the magnitude of the harmonisation effect is an empirical question. To estimate it, we use data based on the EU’s annual Labour Force Survey, which includes approximately 32.7 million individuals from 29 countries over the 2002 to 2010 sample period. To identify the effects of regulatory harmonisation on cross-border migration, we compare changes in the mobility of accounting professionals with changes in the mobility of control groups consisting of comparable professionals (e.g. lawyers).

We estimate the effects within country and year to account for any unrelated changes and shocks that could affect the mobility of all professionals, such as changes in economic growth, unemployment benefits, and national adjustments to survey methodology. Furthermore, we control for changes in the domestic job mobility of accountants and other professionals to ensure that our results do not reflect increases in the demand for accounting services during the implementation of the rule changes. And we account for demographic characteristics known to influence migration – including gender, marital status, age, education level, and the presence of children. While the dataset does not allow us to follow individuals through time, we can construct bins of individuals who share the same demographic characteristics and estimate the effects within each bin – to make sure the effects are not driven by changes in the composition of the survey sample through time. We also adopt a double-matched approach for which we combine workers with the exact same characteristics in treatment and control group before and after harmonisation. The results are very similar across approaches.

We find that the EU’s regulatory harmonisation had strong cross-border migration effects. After accounting and auditing standards were harmonised, there was a 17-24% increase in the movement of accountants relative to comparable professions, relative to pre-harmonisation mobility rate. This percentage increase implies that regulatory harmonisation increased the total number of migrants by 11,000 to 13,000 accounting professionals. Interestingly, we also observe significant migration effects when we limit the analysis to the EU15 countries, for which cross-border mobility has been particularly low, also indicating that the effects are not simply a result of EU enlargement.

Overall, the findings show that accounting harmonisation can have a meaningful effect on cross-border migration. Professional rules, when they differ from country to country, constitute a substantial mobility barrier, consistent with the notion that the costs of learning and practicing other professional standards are economically significant. Recognising this, policymakers could consider using the harmonisation of national rules and standards as an instrument to encourage professional cross-border mobility and improve the efficiency of the labour market.


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Topics:  EU policies Labour markets Migration

Tags:  labour market, labour mobility, harmonisation, social security policies, professional standards, EU, accountants, accountancy, professionals, migration, borders, barriers

PhD Student in Accounting, University of Chicago Booth School of Business

Post-Doc at the Institute of Accounting and Auditing, Humboldt University of Berlin

Associate Professor of Accounting, University of Chicago Booth School of Business

Joseph Sondheimer Professor of International Economics, Finance and Accounting, University of Chicago's Booth School of Business