eu labor markets after post-enlargement...

EU Labor Markets after Post-Enlargement Migration

Klaus F. Zimmermann (IZA, Bonn University and DIW Berlin)

September 2009

IZA Migration Program AreaIZA Migration Program Area

• ResearchJournal articles books edited volumes– Journal articles, books, edited volumes

– Internal and international mobility, ethnicity and ethnic identity, east-west migration, language, labor markets, risk, transition, brain d i / i / i l ti t hi di i i tidrain/gain/circulation, entrepreneurship, discrimination, homeownership, citizenship, intermarriage, attitudes, remittances

• Policy– Policy reports and advising (European Commission, World Bank, European

Parliament, German and other governments)

• “EU Enlargement and the Labor Markets” research sub-area – Annual workshops since 2006– Expert Network– This book summarizes the first stage – Pre-crisis experienceg p– Next project – Crisis and free mobility in an enlarged EU– IZA Expert Opinion Survey – 82.5 percent of respondents report that their

evaluation of the need for immigrant labor has not changed with the crisis

3

g g(Kahanec and Zimmermann, 2009)

Chapter 1:Lessons from Migration after EU EnlargementLessons from Migration after EU Enlargement

Martin Kahanec (IZA)Anzelika Zaiceva (IZA and University of Bologna)Anzelika Zaiceva (IZA and University of Bologna)


Chapter 4:EU Enlargement under Continued Mobility Restrictions:

Consequences for the German Labor Market

Karl Brenke (DIW Berlin)Mutlu Yuksel (IZA)


BackgroundBackground

• Migration is an integral part of the European past and present

• EU Enlargement– May 2004: Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania,

M l P l d Sl ki d Sl i j i d h EU (EU10)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 g , g

Iron Curtain– Significant income and unemployment differentials– Substantial population sizep p

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

5

European public and policy discourse

Policy reaction: Transitional arrangementsy g• 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 LMsIn 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 thatAustria and Germany have simplified the procedures but announced that

the will apply transitional measures until 2011.

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

Slovenia, Slovakia, Finland and Sweden have opened up their LMs for EU2Spain Greece Hungary and Portugal opened up in the second phase

6

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

Theory: Should we fear migration?y g

• Migration generally benefits the economy– Improves the allocative efficiency of labor marketsp y– Brain circulation facilitates international trade, transfer of technologies and

knowledge, and eliminates bottlenecks to economic development

• Free movement benefits the migrants themselves

R di ib i ff• 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! Let’s look at the empirics

7

Post-enlargement migration: The receiving countries

• Generally, an increase in migrant inflows from EU10 and EU2Generally, an increase in migrant inflows from EU10 and EU2

• In 2003, each EU10 and EU2 about 0.2% of the EU15 population. In 2007 about 0.5%. Compare to 1.7% of other EU15 in EU15, or 4.5% of non-EU nationals

• EU10: Diversion away from Austria and Germany to Ireland and the UK

• EU2: Continued migration mostly to Italy and Spain

8

The distribution of EU8 nationals in the EU15

4 5 Share increased remarkably

3.5

4

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

2.5

3

2000

2003

1

1.5

2 2007

0

0.5

1

k

Austria

Belgium

Denmark

Finlan

dFranc

eGerm

any

Greece

Irelan

d

Italy

Luxe

mbourg

Netherl

ands

Spain

Sweden UK

EU15

9

The distribution of EU2 nationals in the EU15

1.6

1.8

2 Italy and Spain attracted EU2 migrants

1

1.2

1.4

2000

2003

g

0.6

0.8

1 2003

2007

0

0.2

0.4

Austria

Belgium

Denmark

Finlan

dFranc

eGerm

any

Greece

Irelan

d

Italy

Luxe

mbourg

Netherl

ands

Spain

Sweden UK

EU15

10

The distribution of foreigners in the EU1514 Non-EU and EU15 nationals

10

12much more numerous than EU10 or EU2

8

10

Non-EU27

EU2

EU10

4

6EU10

EU15

0

2

Belgium 1)

Denmark

2)

German

y 3)

Irelan

d 4)

Greece

1)Spa

in 3)

France 1

)Ita

ly 2)

Netherl

ands

3)Aus

tria 2)

Portug

al 1)

Finlan

d 2)

Sweden

3)UK 1)

EU15 6)

11

N

Post-enlargement migration: The sending countries

• Increase in emigration between 2000 and 2007 in all EU8 and EU2Increase in emigration between 2000 and 2007 in all EU8 and EU2

• 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 g g g pthe periphery and highly-skilled ones from the cores

12

Post-enlargement migration: The sending countries

8 EU10: LT PL EE SK

6

7

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

4

5

6

2000

2003

2

3

4 2003

2007

0

1

2

0

Czech

R.

Estonia

Hunga

ry

Latvi

aLit

huan

ia

Poland

Slovak R

.Slov

eniaBulg

aria

Roman

ia

EU8

EU2

13

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

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

and participation ratesp p

• After enlargement among EU8 migrantsHigher employment rate– 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!

14

How do the post-enlargement migrants fare? (II)ow do the post enla ge ent g ants fa e? (II)• NMS immigrants overrepresented in low and medium-skilled sectors

and occupations

• But relatively educated– Almost a quarter of EU8 immigrants high education, majority mediumost a qua te o EU8 g a ts h gh educat o , ajo ty ed u– 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 p g ;declined. Improvement on average

• Transtitional arrangements imply negative selectionTranstitional 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

Doing well but “downskilling”

15

Doing well, but downskilling

The effects of migration: Any disruptions in EU15?The effects of migration: Any disruptions in EU15?

• Unemployment rates:10

12

p y

2

4

6

8

0

2

2003

q03

2003

q04

2004

q01

2004

q02

2004

q03

2004

q04

2005

q01

2005

q02

2005

q03

2005

q04

2006

q01

2006

q02

2006

q03

2006

q04

2007

q01

2007

q02

2007

q03

2007

q04

2008

q01

2008

q02

2008

q03

2008

q04

• Labor cost index:

EU15 Germany Ireland Sweden UK

120

140

160

• Labor cost index:

40

60

80

100

120

0

20

40

2003

q02

2003

q03

2003

q04

2004

q01

2004

q02

2004

q03

2004

q04

2005

q01

2005

q02

2005

q03

2005

q04

2006

q01

2006

q02

2006

q03

2006

q04

2007

q01

2007

q02

2007

q03

2007

q04

2008

q01

2008

q02

2008

q03

No disruptions

16

2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

Germany Ireland UK

No disruptions

Th ff f i i A i ff i EU15?The effects of migration: Any negative effects in EU15?• In general, no negative impact on receiving countries’ wages,

unemployment or employment, or the welfare systemsp y p y y

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

i l b bl d b bl f di f i ipotential observable and unobservable confounding factors in an econometric analysis

– Perhaps some negative effect on the relative wages of the least skilled – It is rather the “fear of unemployment” that has risen in response toIt 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 in gaps in labor supply

• Ireland• 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

G ll NO i ff

17

jGenerally, NO negative effects

Th ff f i i C lib i i d lThe effects of migration: Calibrations using models

• EU as a wholeSubstantial positive effects in terms of GDP GDP per capita productivity and– 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 runy p g

– Long-run impact corresponds to a sum of 24 billion Euros = 28,571 Euros per post enlargement migrant!

EU15• 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 runlong run

– increase in GDP and a small positive effect on 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

18

The effects of migration: Any disruptions in NMS?

14161820

The effects of migration: Any disruptions in NMS?

• Unemployment rates:

468

101214p y

02

EU15Bulg

aria

Czech

Rep

ublic

Estonia

Cyprus

Latvi

aLit

huan

iaHun

gary

Malta

Poland

Roman

iaSlov

eniaSlov

akia

2004 2007Cz 2004 2007

• Labor cost index: 450500

Labor cost index:

150200250300350400

050

100150

Bulgari

aRep

ublic

Estonia

Cyprus

Latvi

aLit

huan

iaHun

gary

Malta

Poland

Roman

iaSlov

eniaSlov

akiaNo disruptions

19

BuCze

ch R

e E C Lit Hu Ro Slo Sl

2004 2007

No disruptions

The effects of migration: Any negative effects in NMS?The effects of migration: Any negative effects in NMS?• Generally, aggregate data document decreasing unemployment,

increasing number of vacancies, and employment growth, as well asincreasing number of vacancies, and employment growth, as well as increasing wages in the post-enlargement period

O tfl f kill d i t t h t d t t i• 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

20

R mitt nRemittances• Remittances constitute a significant part in Bulgaria’ and Romania’s

GDPs and are also important in the Baltic States. p

• 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

i d itertiary education

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

21

The Case of GermanyThe 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 the new member states.– Self-employed workers from the EU8 are allowed to settle in Germany and run a p y y

business. However, they may not employ workers from their home country.

• January 1, 2009: Beitrag der Arbeitsmigration zur Sicherung der Fachkräftebasis in Deutschland: Opening to high skilled workers but theFachkräftebasis in Deutschland: 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 p g gcountries 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 enlargementthan in the four-year period before enlargement

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

22

g

Net annual immigration to GermanyNet annual immigration to Germany by region of origin

140000

100000

120000EU accession countries 2004

EU accession countries 2007Old EU member states

Non-EU countries

60000

80000Germany

20000

40000

-20000

0

-60000

-40000Immigration from EU8 has increasedafter the EU enlargement

23

2000 2001 2002 2003 2004 2005 2006

Composition of immigrants in 2007Composition of immigrants in 2007

• The total number of immigrants between the age of 15 and 65 in d fGermany 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%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 Polandimmigrants came from Poland

24

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

0.170.19

0 17

0.190.16

0.18

0.20

Gender

EU8‐male

0.12 0.13

0.130.12

0.14

0.17

0.10

0.12

0.14

opulation by G

EU8‐female

0 02

0.03 0.030.05 0.04

0.060.070.10

0.04

0.06

0.08

centage of Po

0.020.01 0.01

0.01 0.010.01

0.040.03

0.00

0.02

973

976

979

982

985

988

991

994

997

000

003

006

Perc

Mostly female, but difference has decreased

f h EU

1971

‐19

1974

‐19

1977

‐19

1980

‐19

1983

‐19

1986

‐19

1989

‐19

1992

‐19

1995

‐19

1998

‐20

2001

‐20

2004

‐20

Year of Arrival

after the EU enlargement

25

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

13 8814.5

15

15.5

13.45

13.88

13.39

12.8012 42

13.56

12.80

13.3813.33

13

13.5

14

of Schooling

11.80

12.32

11.87

12.42

11 5

12

12.5

Years o

EU8‐male

NonEU‐male

11

11.5

1‐1973

4‐1976

7‐1979

0‐1982

3‐1985

6‐1988

9‐1991

2‐1994

5‐1997

8‐2000

1‐2003

4‐2006

EU15‐male

EU8-males’ education

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

Year of Arrival

education declines after the EU enlargement(absolutely and relatively)

26

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

14.5

15

15.5

13.71

13.2813.3513.60

13.4113.10

13.5213.4413.5113.6913.77

13

13.5

14

of Schooling

12

12.5

13

Years o

EU8‐female

NonEU‐ female

11

11.5

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

EU15‐female

EU8-females’ d i

1971

‐

1974

‐

1977

‐

1980

‐

1983

‐

1986

‐

1989

‐

1992

‐

1995

‐

1998

‐2

2001

‐2

2004

‐2

Year of Arrival

education declines after the EU enlargement

(relatively)

27

( y)

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

• The composition of EU8 immigrants to Germany has changed• 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– 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 45g g p g

• But also the labor market outcomes of EU8 immigrants have changed since the EU enlargement:

Th k i l id j b d k l h– 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

Th 23 1% l lik l t b pl d th ti– 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

28

– However, they are 15.7% more likely to be self-employed than natives

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

Recent EU8 immigrants:

l i- lower income,- lower wages,- and lower employment e p oy eprobability,- but more likely to be self-employedself employed

29

Consequences: The failure of continued mobilityConsequences: 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

• Alth h G n n d hi h kill d i i nt nt i i nt• 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 policiesThis underlines the importance of more open immigration policies targeting high-skilled immigrants

• The current German policy not only fails to attract the required p y y qhigh-skilled workforce, but is also unable to avoid the attraction of low-skilled immigrants

A missed opportunity!

30

A missed opportunity!

The current economic crisis• Deterioration of most aggregate variables &

• Slow down of migration flows

• Many migrants may return homeMany migrants may return home– Economic reasons (job loss)– No restrictions on movement

Temporary intentions– Temporary intentions– Social pressure fuelled by economic difficulties in the destination countries– Shrinking social (ethnic) networks

O lifi d k f i h– Overqualified workers may prefer returning home

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

countries possibly even harder– So east-west migration flows may continue despite the crisis, but their

31

composition might change

Concluding remarks: Receiving countriesConcluding remarks: Receiving countries

• Migration from the new member states to the old EU15 has increased f h 2004 d 2007 lafter the 2004 and 2007 enlargements

• “Migration diversion” effect into countries that opened their labor k t (UK IRL ES IT) B t “ l d” i l i dmarkets (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”

Generally non-negative effects, transitional arrangements backfire

32

Concluding remarks: Sending countriesConcluding 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)vacancies and workers)

– Employment growth

– Upward pressure on wages

– Remittances large but their effect so far limited

Some risks, but positive developments and outlook

33

developments and outlook

Future challengesFuture challenges

• Will many more people decide to leave new member states for the old n r ill th n mb r t biliz t m h l r fi r th n rr nt?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?abroad?

• How the transitory arrangements have affected the post-enlargement migration flows and their repercussions?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

j li k f h d f

34

major policy task for the present and future

Klaus F. Zimmermann

IZA

IZA, P.O. Box 7240, 53072 Bonn, Germany

Phone: +49 (0) 228 38 94 0Phone: +49 (0) 228 - 38 94 -0Fax: +49 (0) 228 - 38 94 180

http://www.iza.org

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