Intra-EU Mobility of Workers: Argue on Facts, not Beliefs
Text: Holger Bonin, Herbert Brücker
Intra-EU labour mobility raises output in the Common Market as a whole, yet it may not be mutually beneficial for receiving and sending countries. Better knowledge about its welfare and distributional effects is essential, given the types of migrants involved as well as structural features and institutions of the economies concerned.
These days, it appears that the achievement of free movement of workers as a core element of the Single European Market is increasingly under question. Many citizens, as well as some policymakers and analysts now seem sceptical about the role free flows of workers can play in promoting upward economic and social convergence of the Member States. In particular, they show concerns that intra-EU labour mobility could be detrimental to growth and development and come with an unequal distribution of welfare gains and losses both within and across countries.
In Germany, decision-making concerning free mobility of workers was long governed by fears of mass immigration triggered by huge wage differentials, as well as negative self-selection by immigrants pulled by the magnet of the generous German welfare state. As a result, the country was one of the last to remove obstacles to labour market access for workers from the new Eastern and Central European Member States of the 2004 enlargement round. Since opening up its labour market in 2010, Germany has in fact experienced very substantial inflows of workers from Central and Eastern Europe. The trigger for these migrants has mostly been strong labour demand. They help overcome shortages in a heated labour market, exhibiting high employment and low welfare dependency rates. Hence, Germans on the whole quite likely benefit from increased economic growth and higher net revenue for public coffers. Similar gains were experienced earlier on in the United Kingdom, one of the few countries that granted workers from the new Member States of 2004 immediate access to its labour market. However, concerns that incumbent workers and social cohesion suffered from the European free movement policy prevailed, becoming a key factor in Brexit.
„On the whole, case studies indicate that immigrants contribute positive – if quite small – net payments to government budgets.“
Impact of migration on government budgets
Meeting such concerns requires a balanced view of the costs and benefits of free labour mobility in all its facets. On the one hand, empirical studies in general suggest that labour mobility between low- and high-wage regions has contributed to higher productivity and economic output in the Common Market as a whole. Yet on the other hand, economic theory and the evidence tell us that the welfare and distributional effects of international labour flows can be very different, depending in particular on the types of migrants involved, as well as on the institutional frameworks and structural features of the economies affected. Moreover, migration across borders does not necessarily yield mutually beneficial trade-offs between sending and receiving countries. We illustrate these issues via two examples. First, consider the impact of immigration on government budgets. Quite a number of case studies exist on the subject. On the whole, they indicate that immigrants contribute positive – if quite small – net payments to government budgets. Yet the direction and size of the estimated fiscal effects crucially hinge on qualification levels and the degree of labour market integration among incoming migrants. Budgetary gains for receiving countries also tend to be larger where demographic ageing or tax-benefit linkages within the welfare state are stronger. A serious shortcoming is that available fiscal impact studies scarcely consider the fiscal position of the sending countries. These could suffer for example from sunk public spending on the education of the emigrants but could equally benefit if temporary migrants returned with enhanced earning capability or if emigrants sent remittances. Given this gap in the literature, it is not yet possible to judge whether total fiscal gains from cross-border mobility in Europe are positive, respectively whether any fiscal gains from worker flows accruing to the receiving countries are sufficiently large to compensate for any concomitant fiscal losses in the sending countries.
Brain drain or brain gain?
With regard to the labour market, human capital and growth outcomes in sending and receiving countries, there is no guarantee at all that worker mobility fosters convergence. Take unemployment rates as the second example. If workers suffering from unemployment in particular are pushed to emigrate and prefer to move to countries with comparatively strong labour markets, cross-countrydifferences in unemployment rates tend to decline. However, it may be the case that emigrants are positively selected such that especially well-qualified agents in employment choose to leave. These workers can then help overcome labour market shortages in receiving countries but at the same time, their loss can create bottlenecks in the country of origin.
Spillover onto demand for other types of workers can lead to larger unemployment and employment rate differentials and correspondingly, a larger disparity in economic output. This constitutes “brain drain”, a possibility much discussed in the context of emigration from developing countries but also warranting attention with regard to worker flows from Eastern and Central European to Western European Member States. In doing so, one should not over-look its potential companion: “brain gain”. In various contexts, it has been observed that the simple option to emigrate (even if never used) or transfers from emigrants to those left behind can foster human capital formation in comparatively poor countries of origin.
„Well-qualified emigrants can then help overcome labour market shortages in receiving countries but at the same time, their loss can create bottlenecks in the country of origin.“
This all means that one always needs to evaluate the effects of worker mobility within specific settings, at particular points in time and from the perspectives of both destination and source countries. In the European context, this is quite a daunting task. The directions and composition of worker flows across the entire EU27 are constantly changing, the maps of comparative advantage or disadvantage that prompt them are complex, and data suited to isolating migration effects at the national and even more so at pan-European level is sparse. Yet it is a necessary task. Of course, serious discourse about the future of intra-EU labour mobility ought to start from facts, not just beliefs or assumptions.
On the initiative of the German Federal Ministry of Labour, a pan-European body of migration researchers will meet to review both facts and knowledge gaps as regards the contribution of free flows of workers to upward economic and social convergence in the EU. Follow their discussion and insight here: www.bmas.de/eu2020