Labor Mobility and the Integration of European Labor Markets

EU Labor Markets after Post-Enlargement Migration

Prof. Dr. Klaus F. ZimmermannIZA, DIW Berlin und Bonn University

Higher School of Economics (HSE), Moscow April 7, 2010

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3

Background

• Migration is an integral part of Europe’s past and present• EU Enlargement

– May 2004: Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia joined the EU (EU10)

– January 2007: Bulgaria and Romania (EU2)

• The EU eastern enlargements were unprecedented in several ways:– CEECs: political and economic transformation

– In general, no free migration to the West after the WWII until the fall of the Iron Curtain

– Significant income and unemployment differentials

– Substantial population size

• This all contributed to the sensitivity of the migration topic in the European public and policy discourse

4

Policy reaction: Transitional arrangements

• Pre-enlargement fears: mass migration, “welfare tourism” and displacement effects in the labor markets

• Transitional arrangements on the free movement of workers from CEECs for up to 7 years based on the “2+3+2” formula adopted

• 2004 Enlargement: – In 2004: only Ireland, the UK and Sweden opened up their LMs– Currently: France, Spain, Finland, Greece, Portugal, Italy, the

Netherlands, Luxembourg, Belgium and Denmark provide free access to EU8

– Austria and Germany have simplified the procedures but announced that the will apply transitional measures until 2011

• 2007 Enlargement: – Only Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Poland,

Slovenia, Slovakia, Finland and Sweden have opened up their LMs for EU2

– Spain, Greece, Hungary and Portugal opened up in the second phase, Denmark followed the suit on May 1, 2009

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Theory: Should we fear migration?

• Migration generally benefits the economy:– Improves the allocative efficiency of labor markets

– Brain circulation facilitates international trade, transfer of technologies and knowledge, and eliminates bottlenecks to economic development

• Free movement benefits the migrants themselves• Redistributive effects

– Skilled immigration benefits unskilled and may hurt skilled native workers

– Unskilled immigration hurts unskilled and may benefit skilled native labor

– Correspondingly for skilled and unskilled emigration

– Skilled immigration reduces inequality

• Effects on public finance• A priori: No fear, but let us look at the empirics!

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Post-enlargement migration: The receiving countries

• In general, we observe an increase in migrant inflows from both EU10 and EU2 after EU enlargement ...

• ... but there is substantial heterogeneity:

– Share of EU10 increased remarkable in Ireland, UK and Luxembourg due to free mobility

– Migrants from the EU2 continued to go predominantly to Italy and Spain

• Nonetheless, the proportion of non-EU27 nationals in the EU15 remains larger than that of migrants from the new member states

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0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Austri

a

Belgiu

m

Denm

ark

Finlan

d

Franc

e

Ger

man

y

Gre

ece

Irelan

dIta

ly

Luxe

mbo

urg

Nethe

rland

s

Spain

Sweden UK

EU15

2000

2003

2007

Share of EU8 foreign nationals resident in the EU15

Source: Brücker and Damelang (2009).

EU8: Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia

Share increased remarkable in Ireland, UK and Luxembourg due to free mobility

8

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

2000

2003

2007

Share of EU2 foreign nationals resident in the EU15

Source: Brücker and Damelang (2009).

EU2: Bulgaria and Romania

Migrants from the EU2 continued to go predominantly to Italy and Spain

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Share of foreign nationals resident in the EU15

0

2

4

6

8

10

12

14

Belgiu

m 1

)

Denm

ark 2

)

Ger

man

y 3)

Irelan

d 4)

Gre

ece 1

)

Spain

3)

Franc

e 1)

Italy

2)

Nethe

rland

s 3)

Austri

a 2)

Portu

gal 1

)

Finlan

d 2)

Sweden

3)

UK 1)

EU15 6

)

Non-EU27

EU2

EU10

EU15

Note:

EU10 = EU8 + Cyprus and Malta.

Source:

European Commission (2008).

The proportion of non-EU27 nationals in the EU15 remains larger than that of migrants from the new member states

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Post-enlargement migration: The sending countries

• Increase in emigration between 2000 and 2007 in both EU8 and EU2 countries

• Emigration rates– Highest: Romania, Bulgaria, Lithuania, Poland, Estonia, Slovakia– Lowest: Czech Republic and Hungary

• Poland– Increased emigration, relative shift from Germany to the UK– The number of Poles who stayed abroad for at least two months

has tripled since early 2004 till early 2007 from around 180,000 to around 540,000

– Emergence of two distinct emigrant groups – low-skilled individuals from the periphery and highly-skilled ones from the cores

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Post-enlargement migration: The sending countries

0

1

2

3

4

5

6

7

8

Czech

R.

Eston

ia

Hunga

ry

Latv

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Lith

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Polan

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Slova

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Slove

nia

Bulga

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Roman

iaEU8

EU2

2000

2003

2007

EU10: LT, PL, EE, SKEU2: RO, BG

Share of sending countries foreign nationals resident in the EU15

12

How do the post-enlargement migrants fare? (I)

• Greater labor market participation and higher employment rates than the populations in either the sending or receiving countries– Exceptions: recent EU8 immigrants in Germany exhibit lower

employment and participation rates

• After enlargement among EU8 migrants– Higher employment rate

– Lower unemployment and inactivity rates

– Exception: Germany

• Self-employment rate – Low among recent EU10 immigrants in the UK

– High among EU2 immigrants in the UK (50%) and among recent EU10 migrants in Germany (40%)

– => self-employment a way to circumvent transitional arrangements!

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How do the post-enlargement migrants fare? (II)

• NMS immigrants overrepresented in low and medium-skilled sectors and occupations

• But relatively well educated– Almost a quarter of EU8 immigrants have high education,

majority medium– EU2 immigrants less educated than EU8 immigrants– The proportion of highly educated migrants from the EU8 is

lower for post-enlargement arrivals; but also the share of the less-skilled has declined. Improvement on average

• Transitional arrangements imply negative selection– In the UK post-enlargement EU8 immigrants MORE educated– In Germany post-enlargement EU8 immigrants LESS educated

• Predominantly temporary (self-reported), males (but females in Germany), young

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• Unemploymentrates:

• Labor cost index:

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2003

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Germany Ireland UK

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EU15 Germany Ireland Sweden UK

The effects of migration: Any disruptions in EU15?

No disruptions

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The effects of migration: Any negative effects in EU15?

• In general, no negative impact on receiving countries’ wages, unemployment or employment, or the welfare systems

• The UK– No impact on unemployment rate or wages, even after controlling for

potential observable and unobservable confounding factors – Perhaps some negative effect on the relative wages of the least skilled – It is rather the “fear of unemployment” that has risen in response to

immigration from the new member states and that may suppress inflationary pressures

– The number of EU8 nationals applying for UK social benefits is low, and child benefits constitute the largest category.

– Immigrants generally fill gaps in labor supply

• Ireland– Similarly no negative effects, no “welfare tourism”, even if displacement

took place in some sectors, since no rise in aggregate unemployment, “upgrade” jobs for nationals

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The effects of migration: Models using calibrations

• EU as a whole– Substantial positive effects in terms of GDP, GDP per capita, productivity and

wages; and a somewhat smaller effect for employment in the long run – GDP (and GDP per capita) will increase by about 0.1 percent in the short run

and by about 0.2 percent in the long run– Long-run impact corresponds to a sum of 24 billion Euros

(i.e., 28,571 Euros per post enlargement migrant)

• EU15– A decline in wages by 0.08-0.09 percent and an increase in unemployment

by 0.04-0.06 percent in the EU15 in the short run, but no significant effects in the long run

– Increase in GDP and small increase in employment, but GDP per capita decreases

• EU8 (EU2)– GDP declines (people leave), but there are gains for real wages, productivity and

GDP per capita as well as a decrease in employment

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• Unemploymentrates:

• Labor cost index:

No disruptions

0

2

4

6

8

10

12

14

16

18

20

EU15

Bulga

ria

Czech

Rep

ublic

Eston

ia

Cypru

s

Latv

ia

Lith

uani

a

Hunga

ryM

alta

Polan

d

Roman

ia

Slove

nia

Slova

kia

2004 2007

050

100

150200250300350

400450500

2004 2007

The effects of migration: Any disruptions in NMS?

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The effects of migration: Any negative effects in NMS?

• Generally, aggregate data document decreasing unemployment, increasing number of vacancies, and employment growth, as well as increasing wages in the post-enlargement period

• Outflow of skilled migrants generates shortages and may put strain on social security

• There was no incidence of massive “brain-drain” from the new member states, although in some sectors (such as health care) the emigration of highly skilled specialists was relatively large. Brain circulation expected in the long run

Some risks, but positive developments and outlook

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Remittances

• Remittances constitute a significant part in Bulgaria’ and Romania’s GDPs and are also important in the Baltic States.

• Mostly of seasonal nature in Poland and the Baltic states

• Largely used for household consumption and purchase of durable goods with a recent tendency to invest in human capital, particularly tertiary education

• The impact of these remittances on the economic development so far is rather limited

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The Case of Germany

• Pre-enlargement fears: mass migration, “welfare tourism” and displacement effects in the labor market

• Transitional arrangements: – Germany has not opened up its labor market to workers from new member states

– Self-employed workers from the EU8 are allowed to settle in Germany and run a business. However, they may not employ workers from their home country.

• January 1, 2009: Opening to high-skilled workers, but the generally strong negative signals may nullify its effectiveness

• Despite these arrangements, the numbers of migrants from the accession countries have clearly increased in Germany since the 2004 enlargement

• The net flow of EU8 immigrants has become 2.5 times larger than in the four-year period before enlargement

• Without the immigration from the EU8, Germany would have had a net loss of migration

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Net annual immigration to Germany by region of origin

-60000

-40000

-20000

0

20000

40000

60000

80000

100000

120000

140000

2000 2001 2002 2003 2004 2005 2006

EU accession countries 2004

EU accession countries 2007

Old EU member states

Non-EU countries

Germany

Immigration from EU8 has increased after EU enlargement

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Composition of immigrants in 2007

• The total number of immigrants between the age of 15 and 65 in Germany at the end of 2007 was close to 5.5 million, or approximately 10% of the total population in that age group.

• Immigrants from EU8 countries constituted only 9.3% of all immigrants at the end of 2007 (24.6% of the 5.5 million are from EU15 countries, 24.1% from Turkey, 13.2% from the former Yugoslavia, 5% from the ex-Soviet Union, 20.1% from outside of Europe)

• Among EU8 immigrants, Poles constitute the largest net immigrant group: after enlargement, 71% of EU8 immigrants and 63% of all immigrants came from Poland

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The stock of EU8 immigrants in 2006 by year of arrival and gender

0.020.01 0.01

0.03 0.03

0.12

0.17

0.05 0.040.06

0.07

0.13

0.01 0.010.01

0.040.03

0.13

0.19

0.10

0.12

0.14

0.17

0.19

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

0.18

0.2019

71-1

973

1974

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6

1977

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9

1980

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2

1983

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5

1986

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8

1989

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1

1992

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4

1995

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7

1998

-200

0

2001

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3

2004

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6

Year of Arrival

Perc

enta

ge o

f Pop

ulati

on b

y G

ende

r

EU8-male

EU8-female

Mostly female, but difference has decreased

after the EU enlargement

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Average years of schooling of male immigrants by year of arrival and country of origin

11.80

12.32

11.87

13.45

13.88

13.39

12.8012.42

13.56

12.80

13.3813.33

11

11.5

12

12.5

13

13.5

14

14.5

15

15.519

71-1

973

1974

-197

6

1977

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9

1980

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2

1983

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1986

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8

1989

-199

1

1992

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4

1995

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7

1998

-200

0

2001

-200

3

2004

-200

6

Year of Arrival

Year

s of

Sch

oolin

g

EU8-male

NonEU-male

EU15-male

EU8-males’ education

declines after the EU enlargement

(absolutely and relatively)

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Average years of schooling of female immigrantsby year of arrival and country of origin

13.71

13.2813.3513.60

13.4113.10

13.52 13.4413.5113.6913.77

11

11.5

12

12.5

13

13.5

14

14.5

15

15.519

71-1

973

1974

-197

6

1977

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9

1980

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2

1983

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5

1986

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8

1989

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1

1992

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4

1995

-199

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1998

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2001

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3

2004

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6

Year of Arrival

Year

s of

Sch

oolin

g

EU8-female

NonEU- female

EU15-female

EU8-females’ education

declines after the EU enlargement

(relatively)

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Changes in the composition and labor market outcomes of EU8 immigrants since the EU enlargement

• The composition of EU8 immigrants to Germany has changedsince the EU enlargement: – Recent immigrants are comparably older and have lower levels of

education– The migration flow after the EU enlargement has consisted mostly of

Polish migrants, especially men, who have moved to Germany, and migrants from the EU8, which have exhibited large fluctuations

– The most significant group is aged between 25 and 45• But also the labor market outcomes of EU8 immigrants have

changed since the EU enlargement:– They work in low-paid jobs and work longer hours– Their net monthly income is the lowest on average among all immigrant

groups except recent non-EU immigrants– They are 23.1% less likely to be employed than natives– They have the lowest labor force participation rate among

all immigrant groups except recent non-EU immigrants– However, they are 15.7% more likely to be self-employed than natives

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Net effects of being an immigrant(before and after the enlargement)

Recent EU8 immigrants:- lower income,- lower wages,- and lower employment probability,- but more likely to be self-employed

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Consequences: The failure of continued mobility restrictions in Germany

• The analysis of the immigrants’ composition suggests that recent EU8 immigrants are more likely to compete with immigrants from outside Europe for low-skilled jobs than with natives in Germany

• Self-employment seems to have been used as a means to circumvent transitory arrangements in Germany

• Although Germany needs high-skilled immigrants, recent immigrants from the EU8 only replace non-EU immigrants in low-skilled jobs

• This underlines the importance of more open immigration policies targeting high-skilled immigrants

• The current German policy not only fails to attract the required

high-skilled workforce, but is also unable to avoid the attraction of low-skilled immigrants A missed opportunity!

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The current economic crisis

• Deterioration of most aggregate variables• Slow down of migration flows• Many migrants may return home

– Economic reasons (job loss)– No restrictions on movement– Temporary intentions– Social pressure fuelled by economic difficulties in the destination

countries– Shrinking social (ethnic) networks– Overqualified workers may prefer returning home

• However:– Crisis hits both destination and source countries, and some source

countries possibly even harder– East-west migration flows may thus continue despite the crisis,

but their composition might change

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Concluding remarks: Receiving countries

• Migration from the new member states to the old EU15 has increased after the 2004 and 2007 enlargements

• “Migration diversion” effect into countries that opened labor markets (UK, IRL, ES, IT)

• But “closed” economies also experienced increased immigration after the enlargement (AT, DE)

• Some evidence that migration diversion occurred through migrants’ characteristics.

• No evidence on negative impact on the receiving countries’ labor markets in terms of wages, employment, or unemployment

• No evidence on negative impact of post-enlargement migration on public budgets or “welfare tourism”

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Concluding remarks: Sending countries

• In the long-run: – Large outflows of young and skilled individuals may have

negative impacts on countries’ economic growth, demographic situation and public budget

– However, the temporary nature of these flows implies brain-circulation and thus positive effects overall

• In the short-run: – Decreased unemployment– Labor shortages and increasing number of vacancies (mismatch

between vacancies and workers)– Employment growth– Upward pressure on wages– Remittances large but their effect so far limited

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Future challenges

• Will many more people decide to leave new member states for the old ones, or will the numbers stabilize at much lower figures than current?

• What will the composition of migration flows be like?• What will be the timing, duration and frequency of migrants’

stays abroad?• How the transitory arrangements have affected the post-

enlargement migration flows and their repercussions? • How to ensure that free mobility in the EU it is upheld in all

aspects, that it contributes to economic prosperity as well as the well-being of the individual and the society, and that it helps to alleviate economic and financial disturbances such as the ongoing economic crisis, is a major policy task for the present and future

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Recent publications on the topic

• Klaus F. Zimmermann and Martin Kahanec (eds.):EU Labor Markets after Post-Enlargement Migration,Berlin et al.: Springer, 2009

• Klaus F. Zimmermann and Martin Kahanec (2009): International Migration, Ethnicity and Economic Inequality, in: Salverda, Nolan and Smeeding (eds.), The Oxford Handbook of Economic Inequality, Oxford University Press

• Klaus F. Zimmermann (2009): Labor Mobility and the Integration of European Labor Markets, IZA Discussion Paper No. 3999, Bonn

Prof. Dr. Klaus F. ZimmermannIZA, DIW Berlin und Universität Bonn

IZA, Postfach 7240, 53072 Bonn

Telefon: +49 (0) 228 - 38 94 -0Fax: +49 (0) 228 - 38 94 180E-Mail: zimmermann@iza.org

www.iza.org