EaP workers in EU Labour Markets: Unleashing potentials for mutual gains

Martin KahanecCentral European University, Budapest Institute for the Study of Labor, Bonn Central European Labour Studies Institute, Bratislava

1

Based on

Labour Migration from EaP Countries to the EU – Assessment of Costs and Benefits and Proposals for Better Labor Market Matching

CEU team IZA team:

Martin Kahanec Klaus F. Zimmermann

Lucia Kurekova Costanza Biavaschi

2

• Country experts

• Germany country study

• Costanza Biavaschi and Klaus F. Zimmermann

• Italy country study

• Sabrina Marchetti, Daniela Piazzalunga and Alessandra Venturini

• Poland country study

• Maciej Duszczyk, Marek Góra, and Paweł Kaczmarczyk

• Spain country study

• Lídia Farré and Núria Rodríguez-Planas

• UK country study

• Stephen Drinkwater and Ken Clark

• Topic experts

• Olena Fedyuk, Michael Fertig, Tatiana Fic, Claire Gordon, Martin Guzi, Marta Kahancová, Simona Milio, Mariola Pytlikova and Imre Szabó

• Advising

• Ayse Caglar, Irina Molodikova and Luicy Pedroza

3

Outline

• Goals, objectives and approach

• EaP Migration in the EU

• EU Labor Market Needs and Skill Matching

• Legal frameworks

• Projections of migration and estimation of costs

• Conclusions

4

Project objectives (EU perspective)• Measure and evaluate the costs and benefits of migration

from Eastern Partnership countries to Europe currently and in the medium-term future (up to 2020)

• Estimate flows of EaP migrants under different economic performance and migration policy alternatives

• Quantitatively evaluate the economic impact of different labour market liberalisation scenarios in the time period up to 2020

• Develop policy recommendations on labour migration management framework between the EU and EaP regionconsidering different scenarios of economic development and alternative migration frameworks

5

• Europe needs mobility and migration (aging, skill shortages)

• It is reasonable to expect steady, modest migration flows from EaP countries (mostly Ukraine) to the EU over the next decade

• Moderately, and temporarily, increased flows can be expected if a more liberal migration framework is put in place

• The effects of past and projected mobility generally positive

• More transparent and liberal migration framework provides for better matching and more favourable impacts on sending and receiving countries, and on migrants

Key argument

6Potential for Win – Win – Win outcomes

Building blocks• EU country studies: Italy, Germany, Spain, Poland and

United Kingdom

• Original inquiries from various perspectives Review of the existing legal frameworks for migration EU’s (past) experience with the EaP migration so far, and

comparisons with the Eastern enlargement Potential (future) flows of migrants under different

scenarios Potential effects (costs and benefits) of flows under

various scenarios Study on labor market matching based on past experience Role of industrial relations for migration and matching Household level costs and benefits of EaP migration An Expert Opinion Survey to gauge stakeholders’ views

7

Costs and Benefits Approach

• Direct economic effects e.g. GDP, employment, purchasing power and the size and diversity of consumer demand

• Indirect economic effects mainly channelled through the labour market and welfare state arrangements - increased output and employment through increased labour supply and possible effects on wages.

• Externalities of migration in general refer to social networks that migrants develop, secondary migration flows of families and children and their demand for housing, healthcare and education in the receiving countries

8

Data• A range of analytical strategies and

methodologies, multidisciplinary approach

• Large scale survey data: EU LFS and EU SILC

• A multitude of national datasets

• Dataset of migration flows and stock (Pytlikova et al)

• Own data collection efforts Comparative qualitative small-scale research on costs and

benefits at the household and individual level from the point of view of migrants

Online IZA Expert Opinion Survey9

IZA Expert Opinion Survey• Timeframe: November 2012-January 2013;

• Objectives: investigate attitudes and perceptions of EaPmigration; analyze integration, existing barriers to labourmarket participation; evaluate costs and benefits andpreferential policy changes;

• Participants: NGOs, think thanks, international organisations,migrant organisations, employers and employees associationsand other expert and practitioner groups dealing withmigration and immigrant integration in EU27 countries;

• Questionnaires filled by more than 80 experts: 72% from organisations in EU15 countries; the rest - from EU12

countries;

40% - NGOs, 14% each – governments, employers’ associations andtrade unions;

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EaP Migrants in the EU

General overview, lessons from EU enlargement analysis of costs and benefits,

country studies, downskilling

Migration flows to EU27 destination countries from Europe, by European regions of origin, 1990-2010

Source: Own calculations using collected migration flows and stock database by Pytliková (2012).

0

100000

200000

300000

400000

500000

600000

700000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

EU15+ EU10 EU2 EaP Other Europe

12

Foreign population stocks living in the EU27 destination countries from Europe, by European

regions of origin, 1990-2010

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

8000000

9000000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

EU15+ EU10 EU2 EaP Other Europe

Source: Own calculations using collected migration flows and stock database by Pytliková (2012).

13

Scale of EaP Migration

• Only 3.68% of total immigration to EU25countries (about 1.5 million in 2010), mainlyfrom Ukraine

• Most popular EU destinations:

– Poland, Italy, Czech Republic, Spain, Germany, UK

• Historically relatively larger EaP migrantpresence in EU8 than in the EU15

Current EaP migration not sizeable, but has grown14

EaP migrant profiles

• EaP migrants are well educated - often exceeding educationattainment levels of natives and other immigrants, andtypically young

• Downskilling - predominantly employed in low-skilled sectors;

• Temporary employment motives prevail:

Males: construction and agriculture

Females: domestic and care sectors

High-skilled sectors: IT (Poland), financial services (UK)

• EaP migration is gendered along sectors of employment

• Employment rates above immigrant average (60-70% in Spain,Italy, Poland)

EaP migrants are well educated, but barriers limit the potentials

15

Impact of EaP migration on the EU

• Effects are relatively limited due to small scale of migration

• Occupational distribution – complementary rather than substitutive

• Welfare take-up – lower than of natives, but more unemployment support in Spain and Germany

• Access to welfare rather limited – pensions and health care

• EaP female migrants – welfare providers, increase native females’ labour market participation (ES, IT)

16

Benefits of EaP migration

• Provide much needed productive capacity and human capital

• Help to mobilise internal capacities

• Do not negatively affect wages

• Do not abuse welfare

• May serve as a channel for further human capital development in the EU

• Might alleviate the increased demand in engineering occupations as well as health care, legal, management and business administration

17Impact is generally positive or neutral

Downskilling as a key obstacle• Structural: type of labour demand

• Institutional:

Recognition of qualifications

Legal frameworks• Restrictions on transition to other jobs

• Temporary migration frameworks

• Individual:

Poor language proficiency

Migration strategy and preferences

• Costs of downskilling: brain waste, vulnerability, inefficient use of human capital

Factors of downskilling are diverse18

IZA Expert Opinion Survey:Factors of immigrant downskilling

Own calculations based on IZA Expert Opinion Survey 2012. Percentages do not sum up to 100. N= 83

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IZA Expert Opinion Survey: Why are some immigrant groups successful?

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20

EU Labour Market Needs and Matching

Skill gaps in the EU, need for migrants, EaP migrants filling the

gaps

Share of labour force aged over 45 by country, 2010 and 2020

0

5

10

15

20

25

30

35

40

45

50

DE IT PT

GR FR BG NL

SE

EU 2

7+

EU 2

7 EE FI ES LV LT CZ

AT

DK IE SI RO BE

LU HU SK PL

MT

2010

2020

Note: Countries are sorted by the highest share of aged labour force in 2020. The figures for 2020 represent projections. Source: CEDEFOP, 2012

Europe needs labour migrants

22

Skill needs• Replacement jobs and newly emerging jobs

• Over late 2010s: skill shortages highest in skilled-manual occupations in agriculture, health and education sectors

• Up to 2020:

Top bottleneck occupations– medium to high skills: health professionals, IT staff, engineers, sales representatives, accounting and finance staff

Shortages due to inefficiencies in job matching and skill deficiencies also in sales, services and elementary occupations ,not attractive to native workers;

Low skills and high skills to be in demand23

Skill gaps costs

• Costs generated by skill gaps are quite remarkable and range around 7 per cent of GDP;

• Key consequence - the impact on wages, as firms are forced to raise wages in order to attract relatively scarce skilled labour;

• Increased wages may affect trade and competitive capacity of export oriented sectors (indirect effect), and have inflationary pressures (direct effect)

• Additional consequences: lowered productivity; decreased innovation potential

Skill gaps costs are high 24

IZA Expert Survey on High-Skilled Labor Immigration (2009)

• A survey of 234 labor market experts from Europe;

• 89.0% - the EU needs at least as many immigrants asit has now, and 57.7% - the EU needs more or manymore immigrants

• Less conviction that the EU needs low-skilledimmigration (60.7 and 27.3%)

• However, 96.7% - the EU needs at least as manyhigh-skilled migrants, and 80.3 % - the EU needsmore or many more high-skilled migrants

EU needs non-EU migrants25

Relevance of EaP Migration for the EU Labour Needs

• EaP migrants have been filling existing gaps in host countries’ labour markets– agriculture, household services and personal care,

construction, retail and hospitality

• Contribution to female labour market participation in Italy and Spain

• EaP migrants are generally well educated and so suited to fill high-skilled occupations

EaP potential to fill EU skill needs at all levels is high, but better matching and integration is essential

26

Better matching under more conducive migration framework

• Immigrants generally provide for a more efficient allocation of workers

• Comparing EU8+EU2 migrants with EaP migration to EU15 shows that benefits of migration are higher and costs are lower under more liberal framework

• Key reasons behind are inefficient matching to jobs and negative selection under more restrictive framework, which hamper better realization of benefits

Improved management is imperative

27

Lessons from EU Eastern enlargement I

• Liberalisation of entry and access to the labour market leads to higher migration flows, but these adapt to economic conditions across Europe

• Transitional arrangements divert migration flows quantitatively and qualitatively; even countries applying such arrangements witnessed increased flows, however

• Except for micro-level substitution effects in some local labour markets, the aggregate effects of post-enlargement migration are relatively small, and positive if present

28

Lessons from EU Eastern enlargement II

• Post-enlargement migrants actively participate in the labour market

• Intra-EU migrants do not abuse or shop for welfare, they rather lack adequate access to welfare

• There is a degree of downgrading into lower-skilled occupations. This may signify brain waste, but it may also be part of an optimal migration strategy, lead to a more efficient utilisation of labour force, and be just a temporary phenomenon

• Outflows of skilled workers pose a challenge for sending countries, but brain circulation provides for convergence and prosperity. Remittances compensate some of the short-term costs

29

EU Migration and Employment Policies towards third country

migrants

Key policy issues, proposed changes

Key policy bottlenecks

• National level migration frameworks and policies vary significantly in scope and EaP targeting

• This effectively results in very complex system of regulations

• Key bottleneck in: Lack of harmonization Lack of transparency of immigration procedures High pecuniary and non-pecuniary costs of immigration

procedures for migrants and administrators Lack of provisions for tied migrants Insufficient capacity of the administration to deal with

contingencies Poor access to social rights and their transferability Generally reserved approach towards migrants

Diverse national frameworks create complex system

31

Policies towards third country nationals in

five EU counties: general overview

CountryVisas

Work permi

ts

Occupational quotas

and/or shortage

list

Blue/

green

card

Points

system

Self-employme

nt

Provisions for

staying students

Other

Italy + + + +/- + + - -

Germany

+ + - +/* - + + -

Poland + + + +/- - + +

Local border

agreements; Card of a Pole

Spain + + + +/- - + + -

UK + * + -/- + + + -

Note: As of 2012: (+) currently operating, (*) previously applied, but not anymore, (-) not applied in the country. Source: Owncompilation based on the websites of relevant national Ministries (Ministry of Interior/Labour Policy), IOM (2009) and EMN (2011).UK Border Agency, Kahanec and Zimmermann (2011), Deloitte Comparative Study. Immigration 2010-2011.

32

Policies for high-skilled migrantsCountry Policy description

Germany

- Special provisions for researchers (Implementation of the Directive 2005/71/EC);

- Permanent residence and exemption of Federal Employment Agency Assessment for highly-qualified workers and their family members (job offer, salary criteria);

- Green Card for professionals in IT sector/engineers was used in 2000-2004

Italy

- Special provisions for researchers (Implementation of the Directive 2005/71/EC);

- Quotas for highly skilled (except nurses)

- Fast track procedures for managers (intra-corporate transferees) and highly qualified personnel (professional and education criteria);

Poland

- Special provisions for researchers (Implementation of the Directive 2005/71/EC);

- Draft new immigration policy adopted by Cabinet of Ministers (July 2012) lists special treatment for highly skilled migrants (to be further elaborated in procedures)

Spain

- Special provisions for researchers (Implementation of the Directive 2005/71/EC);

- Fast track procedure for highly qualified migrants (exemption of the market test, however, certain limitations exist concerning Spanish employers; salary and education criteria)

UK

- Tier 1 – several categories for high value migrants

+ Exceptional Talent; General for highly skilled (currently closed to outside applicants); Graduate Entrepreneurs (subject to quotas);

- Tier 2 - for skilled migrants:

+ General; Ministers; Sportspersons; Intra-Corporate Transferees 33

Legal frameworks implications• Legal frameworks shape patterns of migration by

influencing length of stay, routes of entry and sectoral allocation

• Visa instruments:

– Complex, administratively burdensome, lack of information

– Disincentivize migrants from legal modes of entry

– Opportunities for rent-seeking by migration intermediaries

• High-skilled national level policies – limited success so far, also Blue Card

34

Positive improvements in legal frameworks

• Single Application Procedure for a Single Permit (2011/98/EU):simplifies administrative procedures; migrants are granted equaltreatment, but MS can still decide on limiting some benefits; yet tobe transposed;

• Entry and Residence of Third-Country Nationals in the Frameworkof an Intra-Corporate Transfer (2010/0209): abolition of markettest and fast track application procedure for residence permit;under discussion;

• Common Entry and Residence Conditions for Third-CountrySeasonal Workers (2010/0210) aimed at promoting circularmigration and intends to establish fast track procedure for seasonalworkers; under discussion;

• Blue Card Directive targets high skilled migrants equal access toemployment, pensions and social security schemes as well as equalrights concerning recognition of qualifications and freedom ofassociation, though strict eligibility criteria; no statistics availableyet

Implementation and evaluation will be crucial35

IZA Expert Opinion Survey 2012: Preferred immigration policies

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36

Positive attitudes and greatest benefits from more liberalized policy

0%

10%

20%

30%

40%

50%

60%

70%

80%

Public Employers Workers Government Universitiesand

researech

EUinstitutions

Other

Most in favour Benefit the most

37

Negative attitudes and least benefits from more liberalized policy

0%

10%

20%

30%

40%

50%

60%

70%

Public Employers Workers Government Universitiesand

researech

EUinstitutions

Other

Least in favour Benefit the least

Scope for informing public opinion and engaging stakeholders is large

38

Projections

How many will come (under three scenarios), and what will they do to

EU labour markets?

Preliminaries• Declining demographic potential for migration

in the EaP region

• Russia as a major alternative destination

• Nevertheless, latent potential for increased migration exists

• It is currently suppressed by restrictive migration policies 40

Scenario approach

• Predictions up to 2020

• Different sets of variables:

– Demographic

– Economic

– Policy

– Network effects (diaspora)

• Variations in assumed growth in the EU and in EaP countries

41

Modeled policy options• Closed Europe Fortress

No liberalization / status quo

• Cautious Europe Selective liberalization - eased assess of specific categories

of workers, Eased access based on shortage occupation list, Preferential schemes for temporary workers from specific countries of origin, etc.

Visa liberalization - cancelation of short-term visa

• Progressive Europe Full liberalization - free movement of workers allowed – no

visa, no work permit needed

42

Projected cumulative inflow of EaP nationals to EU25 under three scenarios

EU14 and EU8 as a whole, stock, in million

0

1

2

3

4

5

6

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

201

5Q

3

2015

Q4

2016

Q1

2016

Q2

2016

Q3

2016

Q4

2017

Q1

2017

Q2

2017

Q3

201

7Q

4

2018

Q1

2018

Q2

2018

Q3

2018

Q4

2019

Q1

2019

Q2

2019

Q3

2019

Q4

2020

Q1

2020

Q2

2020

Q3

2020

Q4

Closed Cautious Progressive

43

Projected yearly stock of EaP nationals to EU25 under three scenarios

EU14 and EU8 as a whole, flows, in million

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9

1

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

Closed Cautious Progressive

44

EU14 projections: 2011-2020

• No policy change: on average about 100 thousand migrants per annum (1.03 million migrants over 2011-2020)

• Liberalisation of short-stay visa leads to essentially no additional migration,

• Labour market liberalisation is projected to result in on average 100 to 300 thousand additional migrants per annum

Labour market liberalization would lead to 0.96 to 3.03 million

additional migrants over 2011-2020, depending on economic conditions as well as migration policies

45

EU8 projections: 2011-2020

• No policy change: on average about 40 thousand net migrants from the EaP per annum (0.4 million migrants over 2011-2020),

• Essentially no additional migrants if short-stay visa is liberalised

• Selective labour market liberalisation is projected to result in little additional migration, up to 8 thousand migrants per annum; full liberalisation is projected to result in on average 37 thousand additional migrants per annum

Labour market liberalization likely to result to between 0.08 and

0.56 million additional migrants over 2011-2020, depending on economic conditions as well as migration policies

46

Estimated macro-level effects

of projected flows

(NiGEM simulation model)

47

‘Closed Europe’ simulated migration effects on GDP (%)

0

0,02

0,04

0,06

0,08

0,1

0,12

0,14

0,16

0,18

EU14 France Germany Italy Poland Spain UK

48

Positive and economically large

‘Closed Europe’ simulated migration effects on inflation (%)

-0,12

-0,1

-0,08

-0,06

-0,04

-0,02

0

0,02

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

EU14 France Germany Italy Poland Spain UK

49

Positive and economically large

‘Closed Europe’ simulated migration effects on unemployment (%)

0

0,002

0,004

0,006

0,008

0,01

0,012

0,014

0,016

0,018

0,02

20

10Q

12

010

Q2

201

0Q

32

010

Q4

20

11Q

12

011

Q2

20

11Q

320

11

Q4

20

12Q

12

012

Q2

20

12Q

32

012

Q4

201

3Q

12

013

Q2

20

13Q

32

013

Q4

20

14Q

120

14

Q2

20

14Q

32

014

Q4

20

15Q

12

015

Q2

201

5Q

32

015

Q4

20

16Q

12

016

Q2

20

16Q

320

16

Q4

20

17Q

12

017

Q2

20

17Q

32

017

Q4

201

8Q

12

018

Q2

20

18Q

32

018

Q4

20

19Q

120

19

Q2

20

19Q

32

019

Q4

20

20Q

1

EU15 France Germany Italy Poland Spain UK

50

Negligible

‘Closed Europe’ projected effects• Most migrants originate from UA and go to IT or DE

• Positive effects on GDP and GDP per capita, reaching 0.129 percentage points in the EU14 and 0.296 percentage points in EU8 above the no-migration benchmark by the end of 2020

• Anti-inflationary effects, attaining -0.15 percentage points in the EU14 and –0.297 percentage points in the EU8 by 2020

• Small effects on unemployment, increasing it by 0.009 percentage points in the EU14 and 0.058 percentage points in the EU8 by 2020. This is upper bound, complementarities ignored.

51

The role of migration policies towards the

EaP nationals for GDP in Europe

Magnitude of positive effects on GDP increases with more liberal scenario

52

The impact of migration policies towards the EaP

nationals on GDP in EU25 as a wholePercentage point deviations from no-migration benchmark

0

0,1

0,2

0,3

0,4

0,5

0,6

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Closed Cautious Progressive53

Summary of migration projections

• It is reasonable to expect modest migration flows from EaP countries (mostly from Ukraine) over the next decade if the policy status quo is maintained, and somewhat increased but still moderate flows if a more liberal migration framework is implemented

• Under the scenario with most liberalised labour markets strong economic performance in the EU, EU8 countries are projected to attract about 566 thousand additional migrants over 2011-2020.

• In all scenarios the bulk of migrants from the EaP-countries stem from Ukraine. The share of immigrants to the EU14 from this country in all EaP migrants varies between 68% and 82% depending on the respective scenario

• About 1.4 per cent of EaP countries’ populations to move to the EU14 during the period 2011-2020 in the baseline scenario.

54

Summary of estimated effects

• The projected migration from the EaP to the EU is likely to have a positive impact on host countries’ GDP in the medium-term horizon 2010-2020

• A more liberal migration framework with EaP countries is likely to bring greater benefits to host EU countries, especially as concerns host countries’ GDP and inflation.

55

Conclusions

• EaP migrants exhibit characteristics that make them well suited to address labour market shortages in the EU both at the high-skilled and low-skilled spectrum

• We consistently identify that the effects of migration are more positive in case of liberalisation which generates better matching and so more favourable impact for countries and migrants

• Based on assessment of EU’s labour market needs, migration potential in the EaP countries, and on finding generally positive effects of increased mobility to and within the EU, we see stable or moderately increased mobility as a positive and desirable outcome

• Policy improvements on multiple fronts should be considered in order to maximize benefits of EaP-EU mobility

56

Martin Kahanec

Tel/Fax: +36 1 235 3097Email: kahanecm@ceu.hu

Department of Public PolicyCentral European UniversityNador utca 9Budapest 1051Hungarywww.publicpolicy.ceu.hu

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