Migration as an Adjustment Mechanism in a Crisis-Stricken Europe

Martin Kahanec Central European University (CEU), Budapest Institute for the Study of Labor (IZA), Bonn Central European Labour Studies Institute (CELSI), Bratislava EMN Dublin, June 14, 2013

• The demographic context and the demographic imbalances

• Mobility in Europe • Crisis and adjustment

• Lessons

Four themes

The demographic background

• Demographic change presents nearly all EU states with formidable challenges: – Ageing populations – Scarcity of skilled labor – Dynamic loss in the economy (innovation deficits) – Financial risks in social security systems

• Financial and economic crisis adds to the difficulties: – Rising risk aversion – Economic decline – Negative attitudes toward immigration and new Fortress Europe?

Ageing (2005-2020) Old-Age Dependency Ratios – Projection 2005/2020

Source: Eurostat, EuroPOP2004 (No migration variant), calculations by IZA staff; IZA, AMS, Niras (2008), Geographic Mobility in the European Union: Optimising its Social and Economic Benefits. Report to the EC

Share of old people relative to working age population will increase

40% of workers aged over 45 and expected to grow

The share of labor force aged 20-29 is to decrease by 20% by 2020

Inevitably, the share of young mobile workers will decrease

Hence, EU societies have to cope with declining innovation dynamics

0,15 0,2 0,25 0,3 0,35 0,4 0,45

Bulgaria

Czech Republic

Estonia

Hungary

Latvia

Lithuania

Poland

Romania

Slovakia

Slovenia

Cyprus

Greece

Italy

Malta

Portugal

Spain

Austria

Belgium

France

Germany

Luxembourg

Netherlands

Denmark

Finland

Ireland

Sweden

United Kingdom

Old-Age Dependency Ratios in 20200 0,05 0,1 0,15 0,2

Development 2005 - 2020

Skill gaps and demand for migrants in the EU:

• Especially in the EU-15 in order to fill in replacement and newly emerging jobs (both high skilled and low skilled)

• Shortages due to inefficiencies in job matching and skill deficiencies; sales, services and elementary occupations will be most in demand by 2020 and not attractive to native workers;

IZA Expert Survey on High-Skilled Labor Immigration: • A survey of 234 labor market experts from Europe; • 89.0% - the EU needs at least as many immigrants as it has now, and 57.7% -

the EU needs more or many more immigrants • Less conviction that the EU needs low-skilled immigration (60.7 and 27.3%) • However, 96.7% - the EU needs at least as many high-skilled migrants, and

80.3 % - the EU needs more or many more high-skilled migrants

…so there is need for mobility and immigration. … do we have any?

Intra-EU Mobility Mobile EU-27 Citizens by Country of Origin (2006)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

% 13.3 9.6 8.2 7.4 7.2 5.3 3.4 2.9 2.7 2.6 1.9 1.9 1.8 1.6 1.6 1.4 1.2 1.1 1.0 1.0 0.9 0.8 0.8 0.7 0.7 0.6 0.4

CY LU IE PT MT RO BG FI SK BE SI LT LV PL DE NL FR DK EE SE CZ IT UK ES EL HU AT

Source: Eurostat, LFS, spring data for available countries; IZA Research Report No. 19 (2008).

• EU mobility low: 1%, compared to 3% in the US and 1.7% in RF

• In Southern Europe mobility even lower: 0.5%

• But given widespread demographic imbalances, even growing intra-EU mobility will not offset ageing

Immigrants across the EU

Highest shares CY, IE, BE, AT, SE, UK; lowest RO, BG, PL, SK, HU, CZ.

0

5

10

15

20

25

RO

BG PL

SK

HU

CZ FI LT PT

DK

ES SI

NL

GR IT EE LV FR UK

SE AT

BE IE CY

OtherEUNEU12EU15+EFTA

Source: Kahanec, 2012. EU LFS 2010

…so mobility in Europe is low (bad), but we have some immigrants in Europe (good), and their numbers are growing (good)

… so are there any problems?

Unskilled immigrants? No, rather educated!

Non-EU immigrants well-educated, especially in NMSs. Less skilled than natives are EUNs in the EU15, other immigrants in eg ES and FI.

c) Percent high-educated EUN immigrants and natives

d) Percent high-educated other immigrants and natives

DEIT

SK

PT

NL

UKLV

PL LT

SIFR

CY

BE

DK

HU

CZ

EE

AT

FI

IE

GR

ES

RO

SE

0

10

20

30

40

50

60

0 10 20 30 40 50 60

Percent high skilled, natives

Perc

ent h

igh

skill

ed, E

UN

DE

IT

SK

PTNL

UK

LVPL

LTSI

FR

CY

BE

DKHU

BG

CZ

EE

ATFI

IE

GRES

RO

SE

0

10

20

30

40

50

60

0 10 20 30 40 50 60

Percent high skilled, natives

Perc

ent h

igh

skill

ed, o

ther

orig

in

Tertiary education. Source: Kahanec, 2012. EU LFS 2010

Educated…but brain waste!

Non-EU immigrants more often work in less-skilled occupations (especially ES, IT, AT, DE, SE, NL), except for some NMSs.

c) Percent high-skilled EUN immigrants and natives

d) Percent high-skilled other immigrants and natives

SE

RO

ES

GR

IE

FI

AT

EECZ

BGHU

DK

BE

CYFR

SI

LT

PLLV

UKNL

PT

SK

ITDE

05

10152025303540455055606570

10 15 20 25 30 35 40

High-skilled share, natives

Hig

h-sk

iled

shar

e, E

UN

SE

RO

ES

GR

IE

FI

AT

EE

CZ

BG

HU

DKBE

CY

FR

SI

LTPL

LV

UK NL

PT

SK

IT

DE

05

10152025303540455055606570

10 15 20 25 30 35 40

High-skilled share, natives

Hig

h-sk

iled

shar

e, o

ther

orig

in

ISCO 1-3. Source: Kahanec, 2012. EU LFS 2010

…and unemployment Country Nationality Country of birth Non-EU foreign-born

Nationals Non-EU Nationals

Native-born Total Reside

>5 years Reside ≤5 years

France 8.77 21.78 8.46 17.36 14.90 32.28 Men 8.16 17.72 7.94 14.57 12.87 23.85 Women 9.45 28.33 9.02 21.17 17.58 46.71 N 30 012 1 235 28 006 2 915 2 503 412 Germany 8.13 19.24 7.76 n.a. n.a. n.a. Men 7.74 19.26 7.30 n.a. n.a. n.a. Women 8.56 19.22 8.28 n.a. n.a. n.a. N 21 028 951 19 492 n.a. n.a. n.a. Italy 5.89 8.88 5.85 8.05 7.20 11.39 Men 4.86 5.47 4.85 5.11 4.66 7.03 Women 7.38 14.46 7.32 12.28 10.99 16.88 N 235 719 10 145 229 186 14 279 11 391 2 888 Sweden 4.16 14.04 3.72 11.74 11.00 17.79 Men 4.15 15.43 3.74 11.63 11.04 15.78 Women 4.16 12.15 3.70 11.86 10.97 20.92 N 144 190 2 186 132 871 10 327 9 214 1 113 UK 4.42 7.00 4.33 7.06 6.72 8.17 Men 4.79 6.57 4.74 6.63 6.66 6.54 Women 3.99 7.56 3.88 7.61 6.80 10.39 N 48 065 1 700 45 814 3 582 2 737 845

Source:

Kahanec and Zimmermann, 2010.

Therefore rather: mobility in Europe is low and the potential benefits of immigration are not fully utilized … but what benefits, and any costs?

Is immigration a threat? No, rather opportunity! • Labor markets absorb immigrants well (no negative effects on

wages or unemployment on aggregate. Micro adjustment)

• Macro: positive effects on total and per capita GDP and employment rate

• Immigrants – especially regular ones – contribute to taxes.

• Migrants respond to labor market skill gaps more than natives

• Migrants respond to economic conditions

• No welfare abuse, no welfare tourism. Rather lack of access

• Relief for sending labor markets struggling with redundancies

“OK, but not during the crisis?” … precisely during the crisis!

Migration flows respond to economic shocks: Flows of Poles to the EU15

-100000

-50000

0

50000

100000

150000

200000

250000

300000

350000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

EU15

Germahy

UK

Ireland

Post enlargement increase, stymied by dearth of opportunities in EU15 in 2008-2010, then improvement in EU15 and continued push factors in EU12

Migration flows respond to destination economy: Flows of Slovaks

61.4 65.4

69.5 72.1 70.1 49.9 52.4 43.9 44.9

7.0 13.0

22.6 29.0 20.2

14.1 10.6 9.9 7.5

6.7 11.8 16.6 19.5

18.9 14.5 11.6

10.0 7.3

7.0 9.7 11.6 15.1

17.6 19.9 23.9 26.0 29.3

7.6 6.3

7.9 8.8 9.3 8.5 6.3 5.8 9.8

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2004 2005 2006 2007 2008 2009 2010 2011 2012

Working abroad by destination country

IT

DE

IR

AT

HU

UK

CZ

After 2008 diversion away from the UK, IE and HU to DE and AT. Precisely what is needed.

Return migration • Post-enlargement migration primarily temporary (self-reported)

• Slow down in receiving countries may lead to return migration • However, similar or even more severe slow down, or persistent

gaps, may lead to postponement of the decision to return.

• Recent evidence (Zaiceva and Zimmermann, forthcoming) • Brain circulation emerging • High educated more likely to return • Returnees more likely to migrate again • The proportion of potential movers is larger in countries

most affected by the crisis.

• Emerging mobile stratum in the population cushioning the asymmetric shocks and providing for a better allocation of resources.

Migration and the Great Recession – which common sense? • Common sense 1: Migrants take our jobs and compete for zero-

sum welfare. Seems to be more appealing with high unemployment during the recession

• Common sense 2: In a monetary union (and no fiscal union) mobility of labor force is a powerful vehicle of economic adjustment especially in times of asymmetric shocks

• Painstaking analysis and hard data show that “Common sense 1” is rather common nonsense based on generalization fallacy. Generally: • No effects on wages • No welfare abuse/tourism • Positive effects on GDP and employment rate • Filling up skill gaps, relieving redundancies

…what should be done?

Key policy challenges • Adverse immigrant selection

– High costs of immigration procedures (pecuniary and non-pecuniary), intransparent and ill-defined entry procedures

– EU not attractive for skilled migrants • Labor market barriers

– Institutional barriers in legal framework, poor access to institutions, markets, etc.

– Poor transferability of qualifications and skills (issues with recognition of qualifications);

– Discrimination, negative attitudes; – Lack of information about market opportunities; taxation

issues; no grace period if job lost; language barriers; • Poor access to social rights • Lack of provisions for tied migrants • Lack of harmonization across the EU

Conclusions

• Europe needs efficient mobility and qualified immigrants • We have some, but due to inadequate policies we are also losing

the best • Those we have are educated but not integrated, so we are losing

talents, potentials are lost • The policy discourse needs to be well informed, not based on

myths -- mentally, we need a paradigm shift • Pragmatically, to improve the situation we need active policies

– Uphold free mobility – Provide for efficient labor migration, temporary and permanent – Improve integration, access to social rights/welfare

Thank you for your

attention!

Martin Kahanec Central European University (CEU)

Institute for the Study of Labor (IZA) Central European Labor Studies Institute

(CELSI)

Martin.Kahanec@celsi.sk

Martin Kahanec Tel/Fax: +36 1 235 3097 Email: kahanecm@ceu.hu Department of Public Policy Central European University Nador utca 9 Budapest 1051 Hungary www.publicpolicy.ceu.hu