Regional disparities, migration and geographical mobility in the EU

1

• Regional disparities, migration and geographical
  mobility in the EU
• Adnett ch.5.5,5.6,5.7
• Employment in Europe ch.5

2
Mobility patterns in the EU

• Low geographic mobility within the EU both
  relative to the EU population and compared to
  migration inflows from non EU countries
• Regional mobility within EU member states is
  higher than cross-borders mobility.
• Overall internal mobility rates in the EU are
  lower than in the US between 2000-2005 around 1
  of the working age population have changed
  residence each year from one region to another
  compared to 2,8-3,4 in the US
• Since the EU enlargement the mobility flows did
  not increase much
• Mobile and migrant workers are usually younger
  and more educated/skilled than the average
  sending country population.

3
Variables which affect migration choices

• Economic determinants
• Differentials in income per capita,
  (un)employment rates, social security systems
• Characteristics of the population
• Age, education, female participation
• Distance
• Physical distance (km), border
• Cultural aspects
• Common language
• Networks
• Institutional aspects
• Regulations of flows
• Pensions portability
• Recognition of qualifications/educational degrees

4
Economic models of migration/labour mobility

• According to standard neoclassical theory workers
  compare the net present value of job offers
  outside their region/country with those within.
  The net present value of job offers is the
  difference between expected benefits and expected
  costs of migration/mobility,
• Expected benefits are given by income/wage
  differentials between arrival countries/regions
  and countries/region of origin (Wa-Wo) and
  differences in employment opportunities.
• Expected costs are given by the opportunity costs
  (Co differences in employment probabilities and
  forgone earnings) and direct mobility costs (Cd),
  both monetary (search costs and re-locating costs
  such as information costs, housing costs, moving
  costs, etc.) and psycological (breaking family
  ties,..)
• Migration costs and benefits vary according to
  the abilities/skills of individuals (A), because
  ability affects both C and wage differentials.
• rm f ( Wa-Wo ACo Cd)

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Implications of the neoclassical model

• Labour mobility and migration contribute to
  optimal allocation of resources and labour market
  adjustment high wage and low unemployment
  regions attract migration inflows from low wage
  and high unemployment regions migration flows,
  by increasing labour supply in high wage
  countries and reducing it in low wage countries,
  reduce regional differences in wages and
  unemployment.
• Returns and costs of mobility vary across workers
  due to personal and family characteristcs
• Young people are more likely to move, because for
  older workers higher post move earnings are
  discounted over fewer years
• If skill/educational qualifications are
  transferable, skilled and better educated and
  higher potential income workers are more likely
  to move, because they have lower moving costs
  (i.e.easier access to information and lower
  re-locations costs) and higher expected benefits
• The policy implication is that labour mobility
  should not be limited, but rather encouraged.

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Effects of migration/1

• According to human capital models, the wages of
  migrant workers in arrival countries are
  initially lower than similar indigenous workers,
  but then increase with the duration of stay in
  the arrival country, reflecting the initial
  investment in country specific human capital.
  With temporary migration this initial investment
  is not convenient, if acquired skills are not
  recognised in the country of origin.
• Selective migration differences in wage
  distribution across skills/occupation between
  sending and arrival countries and the
  transferability of qualifications may affect the
  composition of migration inflows. If the wage
  dispersions across qualifications is higher in
  arrival countries, there will be higher
  incentives for highly skilled workers to migrate,
  than for low skilled ones. On the other hand low
  skilled workers are incentivated to migrate by
  differences in welfare benefits and low direct
  migration costs.

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Effects of migration/2

• Effects of migration on arrival countries depend
  on the composition of migration flows and their
  complementarity/ substitubility with local
  workers. They also depend on wage flexibility in
  arrival countries. Econometric studies on wage
  and employment impact of migration find low or no
  wage and employment effects of immigration
• The economic conditions of sending countries may
  be worsened by out-migration if it is made mainly
  by the most skilled young workers (brain drain)
• However if the migrant workers acquires skills in
  the arrival country which are more valued (in
  terms of real wages) in the country of origin
  than in the arrival country, migrants may decide
  to return to the country of origin.

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• Empirical evidence Serious data problems
• Population and migration statistics
• Few EU-countries report migration stocks
  (residents) and flows accordinglyDK, FIN, GER,
  NL, SWE
• Others provide short time series and not in all
  years AUS, BEL, LX, ITA, ESP?
• Many provide no or incomplete or flawed dataFRA,
  IRE, GRE, POR, UK
• Other data sources
• Labour Force Survey underreporting of temporary
  migrants, low response rates
• Work permits underreporting of return migration,
  inflated figures

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Why low migration patterns in the EU?

• Migration flows are restricted by cultural and
  institutional barriers, which are particularly
  relevant in EU countries and may explain the low
  mobility patterns
• Linguistic and cultural differences
• Institutional obstacles
• Housing transaction costs
• Lack of pension portability
• Restrictions to foreign access to domestic labor
  markets (Immigration laws, imperfect recognition
  of diplomas,)
• No recognition of qualifications/educational
  degrees
• Others Social ties
• On the other hand, generous welfare regimes may
  be an attracting factor.

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Migration Policies a European dilemma

• A stagnating and ageing Europe badly needs
  migrants for example in Spain they contributed
  to almost 50 of growth in the last 5 years.
• But migration to countries with a rich welfare
  state creates fiscal spillovers across
  jurisdictions, increasing concerns of public
  opinion about migrants..
• ..inducing race to the top in migration
  restrictions and tightening of national policies.
• FEARS with enlargement
• Deterioration of living standards, wage losses
  and job displacements if substitution effect
  prevails, especially for low skilled and Southern
  Europe
• Pressures on labour markets and social cohesion
  due to mass migration. Especially on bordering
  areas and on traditional, labour intensive
  sectors (agriculture and industrial sectors).

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Migration policies

• Everywhere tightening of migration policies
  towards the unskilled
• While race to attract highly skilled migrants
• Explicit point systems in an increasing number of
  countries outside the EU (Canada since 67,
  Australia since 84, New Zealand since 91,
  Switzerland since 96)

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Tightening everywhere, mostly in rich welfare
state countries
www.frdb.org index of the stance of migration
policies (increasing in restrictions)
13
Table A.8 Indicator of the restrictiveness of immigration laws in OECD countries (scale 0-10) Table A.8 Indicator of the restrictiveness of immigration laws in OECD countries (scale 0-10)
Average 1992-2003
Switzerland 4.32
Austria 5.34
Spain 5.81
Norway 5.95
United States 6.11
Australia 6.36
Greece 6.44
New Zealand 6.48
Iceland 6.63
France 6.65
Canada 6.71
Ireland 6.71
Germany 6.85
United Kingdom 6.91
Italy 6.98
Finland 7.01
Belgium 7.20
Netherlands 7.32
Portugal 7.40
Sweden 7.52
Luxembourg 7.55
Denmark 7.73
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Are these fears based on reality?

• Has Eastern Enlargement resulted in more
  migration than expected?
• Have transitional periods resulted in diversion
  of migration flows?
• What is the impact of migration diversion on GDP
  and labour markets?
• What can we conclude for the next Enlargement
  round?

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Estimated impacts of enlargement on migration

• The increase in migration flows are of a minor
  magnitude. Currently immigrants from NMS
  represent only 0.3 of the EU workforce, and 80
  are located in Austria and Germany. Migration
  especially from Baltic countries and Poland.
  Migration flows will be reduced with growth and
  ageing population in AC.
• Temporary rather than permanent migration,
  especially seasonal workers in construction and
  catering sectors.
• Negative effects on EU workers would be limited
  to blue collar workers in the industrial and
  construction sectors and unskilled service
  workers, however this effect is estimated to be
  lower than feared, even in Austria and Germany
• Migration flows, especially in the form of
  crossborder commuting, may have positive effects
  on hosting countries with problems of excess
  labour demand and mismatches and of ageing
  population.
• Limiting migration flows may be negative, because
  it reduces integration potentials and increase
  incentives to illegal immigration and black
  economy.

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Eastern-Enlargement migration policies

• Pre-Enlargement migration conditions
• exclusion of labour markets from
  step-wise-integration of NMS into Common Market
• some bilateral agreements and quotas (e.g.
  Germany, Austria)
• other channels
• shadow economy
• establishment of companies (self-employment)
• posting of workers through service trade
• students

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• Transitional restrictions (2004-2007) in labour
  mobility from NMS
• Majority of countries maintained restrictions
• We can classify Member States into 4 groups
• free movement (Community rules apply)
• free access to labour markets, restricted access
  to welfare benefits
• largely restricted small quotas, sectoral
  exceptions, some bilateral agreements
• totally restricted similar treatment as non-EU
  citizens

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• First phase
• Free movement without restrictionsSWE only.
• Free access to labour market, limited access to
  welfare benefitsUK, IRE, DK
• Largely restrictedAUS, GER, ITA, ESP, POR
• Totally restrictedBEL, FIN, FRA, GRE, LX, NET

19

• Second phase
• Free movement without restrictionsSWE FIN,
  GRE, ITA, POR, ESP.
• Free access to labour market, limited access to
  welfare benefitsUK, IRE, DK
• Largely restrictedAUS, GER BEL, FRA, NET, LX
• Totally restricted --

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• and Bulgaria and Romania?
• Policy shift in UK and Ireland
• Free access to labour market ESP?
• Largely restrictedAUS, GER, GRE, POR, IRE, UK,
  ITA?
• Totally restrictedBEL, NET, LX
• Preliminary, not all countries yet decided.

21
Post-Enlargement migration

• What did we expect before Enlargement?
• Most studies expected long-run migration
  potential of 3.0-4.5 per cent of NMS population
  (Layard et al., 1992 Bauer/Zimmermann, 1999
  Boeri/Brücker, 2001 Alvarez-Plata et al. 2003)
• Short-run growth of NMS population of
  250-400,000 persons p.a. (net migration rate)
• The transitional periods can distort the
  regional distribution of migrants from the
  Eastern Europe across the EU-15, that is, the
  diversion of migration flows away from countries
  which restrict immigration into countries which
  pursue a more liberal immigration policy.

22

• Aggregate post-Enlargement migration flows into
  EU-15 below baseline forecasts under free
  movement
• Dramatic shift in regional migration pattern away
  from AUS and GER towards UK und IRE, but not to
  SWE and DK
• Substantial pre-Enlargement migration from
  BULROM towards Spain and Italy, reflect at least
  in case of Spain bilateral agreements

23
net increase of NMS-residents, 2006 baseline
projection and actual development 2006
24
Dramatic shift in regional distribution
25
Simulating diversion impact

• How do selective restrictions affect welfare?
• Less migration more individuals stay at home
  although they could obtain higher utility from
  higher income and/or quality of life abroad
• Diversion More migrants move to locations of
  second choice, i.e. locations where the receive
  less utility
• Economic factors lower wages and lower labour
  productivity less employment opportunities
• Non-economic factors quality of life, social
  networks, geographical and cultural distance

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• Economic implications
• Aggregate GDP falls, if (i) more labour stays in
  low-productivity regions (ii) labour is
  diverted away from high productivity countries to
  countries with lower productivity
• Aggregate unemployment rate increases, if (i)
  more labours remains in regions with high
  unemployment rates, (ii) less labour moves to
  regions where unemployment is low and integration
  is easy

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Short-run impact GDP
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Summary of results

• Transitional restrictions reduce GDP in Enlarged
  EU
• short-run -0.05
• long-run -0.36
• Main losers are migrants (incl. families)
• short-run -26
• long-run - 32
• German natives gain from diversion
• short-run 0.07
• long-run 0.14
• UK natives lose from diversion
• short-run -0.01
• long-run -0.03

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• What can be done to improve EU internal mobility?
• Enhance migration policy coordination at EU-level
  (point system?)
• Attract high skilled migrants
• Reduce administrative and legal barriers to
  mobility from NMS
• Introduce minimum EU wide Social Security Schemes
  and improve the portability of pension rights
• Improve information and transparency on job
  opportunities