Ministerie van Sociale Zakenen Werkgelegenheid
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Strengthening EU Competitiveness –Potential of Migrants on the Labour
Market
The Costs and Benefits of Economic Migration
A Dutch Perspective
Jos Jansen
(Ministry of Social Affairs and Employment)
February 26, 2009
Ministerie van Sociale Zakenen Werkgelegenheid
2 Outline
•Migration in relation to key policy challenges
(1) Sustainability of welfare state
(2) Structural changes on the labour market
•Dutch experience
(1) Non-western immigration (from late1960s)
(2) CEEC immigration (from late 1990s)
•Conclusion
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3 Broader setting: Key policy challenges
Due to ageing of population, globalization, technological advances, etc.:
•Sustainability of welfare state under pressure
Shorter working livesHigher old age expenditures (pensions, care)Declining working age populationHigher factor mobility
•Structural changes on the labour marketDemand: Sectoral shifts (e.g. care)Supply: Ageing of workforce, possibly decline
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Working age population and dependency ratio, 2005-2050
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NPV net contribution to welfare state by age of entry – red line
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6 (1) Sustainability of the welfare state
•Policy approach along three tracks– Increase labour utilization (participation
rate, hours per worker, working life)– Decrease government debt– Adjust current welfare state arrangements
to reduce future spending (unemployment and disability insurance, social safety net, old age pension, long-term care)
•Key issue: Need for more workers, not more people
•What role for immigration?
Ministerie van Sociale Zakenen Werkgelegenheid
7 Immigration and the welfare state
•Immigrants who workPay taxes and contributionsBut also accumulate rights on benefits
•Immigrants are in many cases also citizens, with additional consequences for the welfare state
Family reunionFamily formation (spouse from home country,
children)Duration, permanent residency
•Selection: Do generous welfare states attract immigrants with low potential (Cohen and Razin 2008)
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(2) Structural changes on the labour market
•Effects of labour shortages and sectoral shifts may be mitigated by
– Adjustment of wages and wage structure– More imports– More outsourcing– Investment in employability, human capital– Investment in labour-saving technological
change– Activating untapped labour potential– Labour market institutions that support
flexibility
•What role for immigration?
Ministerie van Sociale Zakenen Werkgelegenheid
9 Migration and the labour market
•Benefits– Increases labour supply, reduces tightness– Increases output– Better matching on the labour market (larger
pool)– Increases flexibility and dynamism on the labour
market– Increase of high-quality human capital at work in
case of highly-skilled immigrants
•But …– Not every immigrant is successful– Displacement of native workers (esp. low-
skilled)– No structural solution for future shortages
Ministerie van Sociale Zakenen Werkgelegenheid
10 Dutch experience with immigration
Focus on economic and labour market impact
1. Immigration from outside the EU: Morocco, Turkey, Surinam, Netherlands Antilles and other non-western countries
2. Immigration from within the EU: CEEC
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Immigration from non-EU countries, 1995-2007
0
10000
20000
30000
40000
50000
60000
70000
80000
95 96 97 98 99 00 01 02 03 04 05 06 07
Other
Asylum
Family
Work
Ministerie van Sociale Zakenen Werkgelegenheid
12 Immigration – Part of the solution?
Impact on sustainability crucially depends on labour market integration of immigrants:
•Skill level
•Length of stay, remigration
•Cultural distance (language, cultural capital)
•Network effects
•Integration in society (mixed marriages, follow-up migration)
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NPV net contribution to welfare state by age of entry – blue line
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Gap in male employment natives and foreign born (%), 2005-2006
-20
-15
-10
-5
0
5
10
15
CH GE FR AT BE DK SD NO NL
low-skilled
high-skilled
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Enrollment in higher education (% of age group 18-20)
1995 2000 2007
Native background
Men 43 48 52
Women 46 56 61
Non-western immigrant background
Men 28 34 50
Women 27 38 61
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Number of workers from CEEC countries, January 1999 – December 2005
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Economic impact of CEEC labour migrants (1)
•Estimates for 2008: 51,000 long-term and 107,000 temporary workers (3 months)
•Employment in 2005: 0.7% of total hours worked
•Displacement wrt jobs: None by long-term migrants; small effect by short-term migrants in expansion sectors (doubling their presence reduces number of ‘Dutch’ jobs by 0.08%)
•Displacement wrt wages: Reverse pattern
•The demand curve for labour is downward sloping
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Economic impact CEEC labour migrants (2)
•Use of benefit schemes is at present very low
Based on rough calculations:
•Short-term migrants: small positive net contribution to Dutch welfare state
•Longer-term migrants (average): NPV of net contribution measured over duration of stay is modestly positive (1 yr state pension for 1 person)
•Net contribution: modest but positive (robust)
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NPV net contribution to welfare state by age of entry – green line
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NPV net contribution to welfare state by age of entry – 4 cases (HC RM): (- -) (- +) (+ -) (+ +)
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21 Conclusion
•Migration by EU-nationals reduces labour shortages and modestly improves sustainability
•Same (probably) holds for knowledge workers
•Short-term immigrants from non-EU countries may under certain conditions have a positive impact on labour market and sustainability
•Long-term/permanent migration without integration may well hurt sustainability
•Domestic labour utilization is key to sustainability, not migration
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Thank you for your attention
Ministerie van Sociale Zakenen Werkgelegenheid
23 Immigration, 1995-2007
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
95 96 97 98 99 00 01 02 03 04 05 06 07
non-EU
EU
Ministerie van Sociale Zakenen Werkgelegenheid
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Employment rates after arrival, 1997 cohort