Annual Journal of the Scientific Advisory Board 2026: "Rethinking Work: The Future of Germany as a Business Location"

The free movement of workers is a central legal pillar of the European Union's single market. Nevertheless, actual cross-border labour mobility within the EU remains well below expectations and has stagnated considerably over the past decade. This paper examines the current state of labour market integration, identifies key institutional and structural barriers, and assesses the economic consequences of insufficient mobility. The empirical analysis shows that, although formal mobility exists, real fragmentation of the EU labour market persists. Compared to more integrated economies, such as the USA, workers react significantly more slowly to regional labour market shocks. Key barriers are identified as divergent social security and tax systems with limited portability, difficulties in recognising professional qualifications, and scarce and expensive housing in high-growth regions. These obstacles result in static efficiency losses in the matching of workers and jobs, reduce adaptability to shocks and diminish innovation and productivity gains. The paper then discusses policy options, including developing a Single Market for Skills, improving the portability of social benefits, creating EU-wide matching and information tools, and taking complementary reform approaches to mobility in the "knowledge" and innovation economy.