Labor Mobility after the EU?s Eastern Enlargement ? Who wins, who loses?
On March 8, 2007, GMF hosted a discussion on the topic of "Labor Mobility after the EU's Eastern Enlargement - Who wins, who loses?" Herbert Brücker, Research Fellow at the Institute for the Study of Labor in Bonn, talked about the impact of increased labor migration after the EU's 2004 enlargement round on GDP, wages, and unemployment in both sending and receiving countries. Rakesh Kochhar, Associate Director for Research at the Pew Hispanic Center, gave an overview of the situation in the United States and talked about the impact of migration from both Mexico, other countries in Central America and South and East Asia on the labor market in the United States. The event was moderated by GMF Senior Transatlantic Fellow Jim Kolbe, who pointed out that the topic of labor migration has been a very hot topic in the United States in the last few years because the U.S. not only has economic impacts on the native population, but is also closely related to the security debate after 9/11.
Brücker began with the 2004 EU enlargement round that was characterized by drastic income differences between old and new member states (NMS). Against the background of these income disparities between the incumbent EU member (EU-15) states and the accession candidates, along with the high degree of uncertainty about the potential scale of migration, the EU-15 countries decided at the European Council in 2004 to impose transitional periods for the free movement of workers from the NMS. This allowed individual member states to suspend the free movement of workers from the new member states for a period of up to seven years. As enlargement came closer, only a few member states removed immigration barriers for workers from the NMS completely, such as Sweden, or at least largely, as was the cases with the Denmark, Ireland, and the U.K. Others opened their labor markets partially either by quotas or for certain sectors based on bilateral agreements, including Austria, Germany, Greece, Netherlands, Spain, and Portugal. This selective application of the transitional periods for the free movement of labor resulted in the diversion of migration flows away from countries which pursued a restrictive immigration policy to those which decided to open their labor markets. However, since the United Kingdom and Ireland thus bore the brunt of the migration flows after the 2004 enlargement, causing both countries to partially close their doors to workers from Romania and Bulgaria after EU accession in 2007.
To better predict the actual economic impact of unrestricted labor migration between new and old member states, Brücker developed an simulation model that compared the short-term versus the long-term impacts of migration on GDP, earnings of both blue- and white-collar workers in receiving countries, unemployment, and migrant income. His model takes into consideration the skill composition of the migration workforce, labor market flexibility in receiving countries, and the heterogeneity of different regions. Considering these variable, Brücker came to the following results:
In the short-run, labor migration will contribute to:
- Substantial gains in GDP: the total GDP of the enlarged EU in the long-term increases by 0.2% which amounts to some €25 billion. The gains are higher if labor markets are flexible. Moreover, they tend to increase if the share of white-collar workers in the migrant labor force increases;
- Ambiguous effects on native wages: natives in receiving countries tend to win in the case of flexible labor markets and tend to lose in the case of semi-rigid labor markets. However, gains and losses are pretty small;
- Substantial gains for migrants: the income of migrants increases by between 94 and 32%;
- Changing unemployment: in the case of flexible labor markets there is no unemployment. In the case of semi-rigid labor markets, the unemployment rate increases slightly in the receiving countries by between 0.1 and 0.2% depending on the skill composition of the migrant population. Blue collar workers in receiving countries suffer more than white collar workers from unemployment.
In the long-run, assuming capital adjustment, migration will lead to:
- Even higher GDP gains: GDP gains of up to 0.4% of the enlarged EU's GDP;
- Positive consequences for natives: natives in receiving countries tend to win in the long-run assuming that the migrant population is sufficiently educated;
- Continuous gains for migrants;
- Smaller impact on the unemployment rate in receiving countries: since the influx of capital generates a higher labor demand the unemployment rate increases less in the receiving countries;
- Smaller impact on wages in receiving countries:migration involves lower wage effects in receiving countries, since the adjustment of capital generates a higher labor demand relative to the case with fixed capital.
Brücker concluded that migration does not necessarily have a negative impact on wages in receiving countries as many politicians and experts have suggested in the past. On the contrary, there are substantial economic gains from migration within the enlarged EU which haven't been exploited yet due to uncoordinated policies between sending and receiving countries and labor market institutions that are not equipped to handle the new migration flows.
Rakesh Kochhar picked up on Brücker's presentation by looking at the percentage of the foreign-born population in the United States as a share of the total population and the impact the increase of migration to the United States in recent years has on the employment rate of the native population. Looking back at the last 30 years, Kochhar pointed out that the share of the foreign born population in the United States has increased dramatically since the 1970s from 4.7% to 12.4 % in 2005, with the main percentage of migrants coming from Mexico (30.7%) and South and East Asia (23.4 %). These foreign-born workers comprise 15% of the work force and are mainly employed in the construction business where they represent a share of almost 50% of the workforce. However, despite the fact that some sectors of the economy employ such a big share foreign workers, Kochhar was eager to stress that the growth in the foreign-born population is not related to the employment rates of native workers
Both Brücker and Kochhar thus tried rebut the popular assumption that an increase in migration flows has negative impacts on employment rates and wages of native workers. However, both of them also pointed out that more exhaustive research is necessary to completely understand the economic and social impact of both documented and - especially in the case of the United States - undocumented migration on both sending and receiving countries.