CESifo Forum 3/20085

Introduction

Welcome and Introduction to the 7th Munich Economic Summit 2008 by

HANS-WERNER SINNPresident of the Ifo Institute and CESifo

Ladies and Gentlemen,

Europe is currently experiencing a huge east-westmigration wave that resembles the Great Migrations(Völkerwanderung) in the 4th to 6th centuries.Recently, hundreds of thousands of Romanians havemigrated to Italy and Spain. Eight hundred thousandeastern Europeans have been accepted as workers inBritain within the last four years, most of them com-ing from Poland. In the last two years, one and a halfmillion Poles have emigrated, and overall probablymore than two million since EU accession in 2004.On a smaller scale, the migration of Ukrainians tothe Czech Republic, of Bulgarians to Turkey and ofBritish citizens to Spain is worth mentioning, whichall range in the order of some tens of thousands per

year (Figure 1). Indeed the migration from EasternEurope has been largely triggered by the wage dif-ferences. Expressed in nominal term, wages inEastern European EU countries are currently ca.one sixth of the western German level.

There has also significant migration recently toGermany, in particular from Poland, Turkey andRomania. Since Germany still restricts the immigra-tion of dependent workers from eastern EU coun-tries, most immigrants come as self-employed or eco-nomically inactive people. In Munich, for example,the number of self-employed tilers increased in 2004and 2005, in the first two years after the first easternenlargement wave, from 119 to 970. By 2005, Ger-many had absorbed 37 percent of all migrants fromEastern Europe. In comparison, Italy had absorbed22, Greece 11 and Switzerland 8 percent, while theshare amounted to only 3 percent in the UnitedKingdom (see Figure 2). In the same year, 13 percentof the population living in Germany was foreignborn, more than that of Britain (10 percent), France(7 percent), Spain (5 percent) or Italy (3 percent), as

shown in Figure 3.

The immigration waves of thelast two years (especially fromEastern Europe) to Britain,Spain and Italy appear to havesignificantly changed these fig-ures, but the information neededto up-date the statistics is not yetavailable. People move fasterthan the statistical offices areable to count them. For example,Table 1 shows the statistics onthe accumulation of approvedapplicants to the UK workerregistration scheme in the peri-od between May 2004 andMarch 2008. The total numberreached more than 800,000 east-ern Europeans in this short peri-od. In particular, many Polishpeople went to Britain, since thiscountry has not banned workerimmigration. Yet, following the

19

20

21

22 24

18

32

42

59

50b)

62a)

112

164

19

19

24b)

Figure 1

EU rules applied for a transitionperiod, Germany and someother European countries havechosen a different immigrationstrategy: Eastern European jobseekers are not allowed to immi-grate.

Is there a brain gain for WesternEurope from these migrationwaves? What are the qualifica-tions of these immigrants? Figu-re 4 shows the education level ofthe foreign-born population. Forexample, the share of the for-eign-born population in Canadawith a tertiary education (i.e.with university degrees) amount-ed to around 46 percent in theyears 2003-2004. So Canada isexperiencing a high-skilled im-migration, followed by Ireland,Denmark, Norway, the UnitedStates and Britain. By contrast,France, Germany and Italy arefound at the bottom of the rank-ing: these three big continentalEuropean countries have mainlybeen the destination of low-skilled migrants.

We can also observe particularemployment groups of immi-grants. Table 2 compares theshare of foreign-trained physi-cians working in selected coun-tries. In Britain around 13 per-cent of doctors are from abroad,the share increases to 19 in

Switzerland, 20 in Canada, 21 in Australia and27 percent in the United States. For the UnitedStates, foreign doctors are typically from India,Pakistan and the Philippines. To be sure this is notgood for India, for example. Jagdish Bhagwati sug-gested already in the 1970s that there should be anemigration tax in India for people to repay theireducation costs to the state before they leave thecountry.

Another relevant statistic is the number of foreignstudents enrolled as a percentage share of the totalnumber of students in a country. According toFigure 5, Italy had a relatively small share of foreign

CESifo Forum 3/2008 6

Introduction

Figure 2

Figure 3

Table 1

Approved applicants to the UK worker registration

scheme (May 2004 to March 2008)

Country of origin

Number of applicants

(in thousands)

Poland

Slovakia

Lithuania

Latvia

Czech Republic

Hungary

Estonia

Slovenia

Total

541

84

76

39

36

28

7

1

812

Source: UK Border Agency, Accession Monitoring

Report May 2004 to March 2008, London.

CESifo Forum 3/20087

Introduction

students in 2005. In the United States the shareamounted to only 3.4 percent. At the same yearGermany and France had around 11 percent, com-pared to 17 percent for Britain, while the total rank-

ing was led by New Zealand. Inthis context we should bear inmind that Germany and France,for example, do get lots of skilledpeople and train them, but stillthe overall qualifications of theimmigrant population are low. Inother words, Germany andFrance have failed to keep thesewell-trained people.

Is there a brain drain away fromWestern Europe? Figure 6 re-veals the percentage share ofphysicians living abroad. A fewItalian, French and Germanphysicians operate in foreigncountries: in 2000 the shareamounted to 1.7, 2.1 and 3.1 per-cent in these countries, respec-tively. With approximately25 percent, Ireland positionedon the top of the ranking: thiscountry appears to be an immi-grating and emigrating countryof skilled-people at the sametime. There has traditionallybeen strong migration dyna-mism in both directions. Morethan 9 percent of British doctorswere not operating at home inthe same year. It may be due tothe British health care systemequipped with less attractivepay levels that stimulate themovement of British doctors toforeign countries.

Let us now consider the migra-tion of people with a tertiaryeducation. According to Figu-re 7, around 4 percent of Frenchand 7 percent of Italian educat-ed people were active in foreigncountries in 2000, while 9 per-cent of Germans with a tertiaryeducation were working abroadin the same year.Again it shouldbe noted that the same ratioamounted to 17 percent for

Britain and 34 percent for Ireland.

Let us now have a closer look at Germany. Ger-many has had large-scale ethnic German immigra-

Figure 4

Table 2

Origins of foreign-trained physicians

Country

Share of foreign-

trained physicians (%)

Top three countries

of origin

UK (2001)

Switzerland (2001)

Canada (1998)

Australia (1998)

US (2001)

12.6

19.1

20.0

21.4

27.9

India, Ireland, South Africa

Germany, Yugoslavia, Belgium

UK, South Africa, India

UK, Asia, New Zealand

India, Pakistan, Philippines

Source: Ifo Institute.

Figure 5

tion since the 1970s, as illustrat-ed in Figure 8. In particular,after the Iron Curtain fell at theend of 1980s, the influx of eth-nic Germans from EasternEurope into the country in-creased drastically, amountingto around 300,000 annually.This is part of the explanationof why Germany has a largeshare of foreign-born people.There has also been a remark-able outflow from Germany, asFigure 8 also shows. The netmigration statistics for ethnicGermans have even becomenegative in recent years. Ac-cording to the 2007 data, thenatural German population isdeclining faster than that of anyother OECD country. More-over there is no other OECDcountry that has a lower num-ber of babies per thousandinhabitants than Germanydoes.

Only a few years ago the popula-tion loss was partly compensatedby the immigration flow of eth-nic Germans. This is not the caseanymore. The primary reason isthat ethnic German immigrationfrom Eastern Europe, Russiaand the other CIS countries islargely exhausted. The remain-ing ethnic Germans are notinterested in moving to Ger-many. Germany’s emigrationflow has increased a bit over thelast 20 years, from 100,000 to140,000 people, expressed interms of gross outflow (Fi-gure 9).

Where are all these Germanmigrants going? Although Aus-tria and Switzerland have rapid-ly gained attractiveness since thelate 1990s, the United States hastraditionally been the major tar-get of German emigrants. Thecountry has continuously ab-

CESifo Forum 3/2008 8

Introduction

Figure 6

Figure 7

Figure 8

CESifo Forum 3/20089

Introduction

sorbed around 13,000 Germansevery year in the last twentyyears. In 2002 the new agree-ment on free movement bet-ween the EU and Switzerlandbecame operative. Since thenSwitzerland has not been able tohinder the active German immi-gration, although such a strongtrend was initiated at the end of1990s, as already mentionedabove (see also Figure 10). Fi-gure 11 additionally shows anoverview of the absolute num-ber of educated Germans livingabroad. In 2000, with ca. 358,000people, the largest share ofGermans with a tertiary educa-tion were in the United States,followed by Canada, Switzer-land, Britain and France witharound 60,000 educated Ger-mans. As a consequence, thelargest scale of German braindrain has taken place to theUnited States. One can alsocount the foreign scholars at USuniversities. There were about12,000 Chinese studying at Ame-rican universities at the end of1990s, followed by 5,500 Japa-nese and 5,000 Germans. Thenumber of German students washigher than that of British orFrench students in the UnitedStates, which amounted to ap-proximately 3,000.1

Why are so many Germansgoing to the United States? Firstof all the education system isbetter there. Another reason ismoney. What do we know aboutsalary differences? Let us takethe gross salary level in the cor-porate banking sector as anexample. If one compares NewYork with Frankfurt, an associ-ate at a bank currently earns

Figure 9

Figure 10

Figure 11

1 See Buechtemann, C. F. (2001), DeutscheNachwuchswissenschaftler in den USA,German Federal Ministry of Educationand Research, Berlin, accessible at http://www.bmbf.de/pub/talent_ii-1_2.pdf.

40 to 75 percent more in the United States, expressedat the OECD purchasing power parity. And for adirector the salary gap is even larger: bank directorsin New York earn around 61 to 90 percent more thantheir colleagues in Frankfurt. Net income differenceswould be even bigger, because income tax is lower inthe United States (see Table 3).

Many participants of the conference may also beinterested in how university professors are different-ly paid. According to the statistics on average annu-al salaries of junior, associate and full professors col-lected by the European University Institute inFlorence, junior professors in the United States earn38 percent more than their western German col-leagues. I can confirm this fact from my own experi-ence. When a German scholar has an offer from anAmerican university, German universities are hardlyable to financially induce him to stay. For an associ-ate professor the salary gap is even larger: US asso-ciate professors earn 45 percent more than Germanassociate professors, while the US salary superiorityagainst that of Germany increases to around 76 per-cent for full professors (see Table 4).

Let me briefly summarise the major findings. We dohave a huge migration wave in Europe. Countrieslike France, Italy and Germany have been the majortargets of less-skilled immigrants on a large scale.The migration pattern for Britain and Ireland isquite different, since these countries have haddynamic in- and outflow migrations at the same

time. There has been a strong movement of skilledpeople from Western Europe to the United States.Germany is not an exception. One of the crucial rea-sons why German academics and bankers, for exam-ple, prefer US universities and banks is the hugesalary differences between these two countries.

Thank you for your attention. I look forward to alively discussion of these issues.

CESifo Forum 3/2008 10

Introduction

Table 3

Annual salaries in corporate banking

(in Euro, OECD PPP)

City Associate Director

Frankfurt

London

New York

50,000–80,000

67,000–160,000

70,000–140,000

120,000–170,000

173,000–333,000

193,000–330,000

Source: BayernLB; OECD; Ifo Institute calculations.

Table 4

Annual academic salaries (in Euro, OECD PPP)

Country

Junior

professor

Associate

professor

Full

professor

West Germany (2007)

UK: Essex Univ. (2007)

UK: LSE (2007)

USA (2006)

40,864

51,732

55,285

56,550

46,680

63,416

69,947

67,860

56,683

68,970

106,280

100,050

Note: West Germany: junior professor = W1, associate professor = W2, full professor

= W3; UK: junior professor = lecturer (A), associate professor = reader; US: junior

professor = assistant professor.

Source: European University Institute (2008), Max Weber Postdoctoral Pro-

gramme, Academic Careers Observatory, Florence.