Economic Impact of EU Labour Mobility

1. Economic impact of migrationprepared on the basis of „Labour mobility within the EU. The impact of enlargement and the functioning of the transitional arrangements” by T. Fic, D. Holland, P. Paluchowski, A. Rincon-Aznar, L. StokesJune 2011

2. Objective • The objective of this study is to assess the macro-economic impact of the increased labour mobility that has resulted • from the two recent EU enlargements in 2004 and 2007 • on both host and home countries

3. Outline • Labour mobility in the EU • Migration trends in Europe • Mobile workers’ characteristics • Economic impact of labour mobility • The role of the enlargement process itself • The impact of the crisis on migration

4. Total migration from EU8+2 to EU15 99% of labour movements in the EU have been East-West migration flows from EU8+2 to EU15 Since the 2004 enlargement, about 1.8% of the EU8 population has moved to the EU15, raising its population by 0.3% Since 2007, about 4.1% of the EU2 population has moved to the EU15, raising the host country population by a further 0.3%

5. To individual EU15 countries Migration has raised the Irish population by about 4%, Spanish – by 1.9%; Italian – by 1.4% and the UK - by 1.1%; elsewhere - inflows have been small From individual EU8+2 countries The biggest outflows have materialised in the case of Romania – 7.2% of domestic population, Lithuania – 3.6% and Bulgaria – 3.4% Migration to and from individual countries

6. Mobile workers’ characteristics • Age profile • More than 80% of migrants are of working age, compared to an EU-27 average of about 65% • There is an overrepresentation of working age citizens from all EU8+2 countries • Education profile • About 28% of all EU8+2 workers in EU15 countries are low-skilled, 55% are medium-skilled and 17% are high-skilled • EU8 mobile workers are somewhat better educated than EU2 movers • Germany, France and Ireland tend to attract high-skilled workers, while • Greece, Belgium, Netherlands are more popular destinations among those with low skills

7. Mobile workers’ characteristics • Occupational structure • About 32% of EU8+2 nationals work in elementary occupations • About 54% are employed in occupations requiring medium skills such as craft and related trades workers, service workers and shop and market sales workers • About 14% work in high skill occupations as legislators, senior officials, managers, professionals, technicians and associate professionals • Sectoral structure • Arrivals from the EU8 work predominantly in manufacturing and wholesale and retail trade, while • movers from the EU2 are frequently employed in the construction sector and by private households

8. What is the impact of migration on host and home economies? • To assess the macroeconomic impact of labour flows from each of the EU8 and EU2 countries to each of the EU15 countries • we conduct a series of macroeconomic simulations • We use a global model NIGEM where most countries are modelled individually • We use annual data on population stocks from Eurostat’s Population statistics for EU8+2 and EU15 countries over 2004-2009

9. in receiving countries On average, population inflows from EU8 correspond to a long run increase in EU15 GDP by 0.34%, and in the case of EU2 – 0.31%. Ireland and the UK have benefited more than others from migration from the EU8, whereas Spain and Italy – from migration from the EU2 in sending countries On average, population outflows from the EU8 correspond to a long run decline of EU8 GDP of 1.31%, and in the case of the EU2 – of 7.4% of EU2 GDP. Romania, Lithuania and Bulgaria have experienced biggest reductions What is the impact of migration on the long run level of output?

10. What is the role of the enlargement itself? • Assuming that migration from the EU8 and EU2 would have continued at the same rate as before the accession, we decompose the long run GDP impact of migration into that driven by enlargement and other factors • EU8 and 2004 enlargement EU2 and 2007 enlargement About 90% of the impact in the UK and Ireland results from the enlargement itself. EU8 average: about 75% The process of migration from EU2 started well before the accession EU2 average: about 50%

11. What has been the impact of the crisis on migration flows? • If there was no crisis and emigration rates from individual EU8+2 in 2007 would have persisted in 2008 and 2009 , migration flows from EU8+2 would have been higher • Taking into account relative positions of individual countries during the crisis (measured by unemployment rates and GDP pc) we estimate that: • Spain, the UK and Ireland, as well as Italy became less attractive as destinations • Germany and France, weathered the recession relatively well (especially as for the labour market performance) and have become more attractive as destinations

12. What is the impact of the crisis on a sending country? Romanian perspective • The main receiving countries of Romanian nationals are Italy and Spain, which attract about 88% of migrants • Despite severe recessions in Spain and Italy, net migration rates from Romania remained positive • However the distribution of Romanians across the EU15 has changed • from Spain towards Italy (and the UK) • The employment status of Romanian migrants worsened • the share of unemployed increased in 2009 by about 4pp • a vast majority work in construction, manufacturing and tourism – sectors which were hard hit by the crisis • The crisis did not result in large flows of return migration • self employed in Italy • access to benefits in Spain • circular migration • Remittances – declined somewhat due to limited employment opportunities • although continue to be almost as high as FDI inflows

13. What is the impact of the crisis on a receiving country? UK perspective • Rates of total immigration from EU8 and EU2 remained positive • The crisis resulted in outflows of Poles, Bulgarians and Lithuanians • Over 2008-2009 the employment status of those who remained in the UK improved • driven by increases in employment in services • when the crisis hit some of those previously working in agriculture, manufacturing and construction, they either switched to services or decided to leave • Return migration • Estimated at about 50000 EU8+2 nationals (2009) • resulted both from poorer labour market situation and depreciation of the GBP • The value of remittances sent from the UK declined • Driven by return migration and weak pound • As the UK economy recovers, immigration rates may increase, however, some of potential flows from the EU8 may be diverted from the UK towards Germany • traditional destination for Poles • lifted barriers on access to its labour market on 1 May 2011 • currently somewhat better labour market prospects

14. Conclusions • Since 2004 about 1.8% of the EU8 population has moved to the EU15: • raising the EU15 population by 0.3% • of this, approximately 75% can be attributed to the enlargement process itself • Since 2007, about 4.1% of the EU2 population has moved to the EU15: • raising the EU15 population by a further 0.3%. • of this, just over 50% can be attributed to the enlargement process itself

15. Conclusions • Migration raised the long run level of output in receiving countries while it left a long term scar on output in sending countries: • in Bulgaria, Romania and Lithuania the potential level of output may be permanently reduced by 5-10%, in Latvia and Estonia - by at least 3% • in receiving countries the macro-economic impact is small, possibly raising the long-run level of potential output by about ½%, with the exception of Ireland - 2½%, and the UK – about 1%

16. Policy implications • Lifting barriers in Germany may divert some EU8+2 workers away from the UK and towards Germany, especially given the relative strength of the German economy compared to the UK • By 31 December 2011, the UK will have to decide whether to extend current restrictions on labour market access to citizens from Bulgaria and Romania. If so, the government will need to demonstrate that lifting barriers threatens a “serious disturbance of its labour market”. Recent NIESR research would provide little support for such an argument