Draft:Economic results of migration in the European Union

Economic Results of Migration in the European Union

Migration is not a new phenomenon in human history as currently mediatized. Notwithstanding, the European Union (EU) has been experiencing an unprecedented increase in the number of migrants into and within the EU In the recent past decades. Migration and its by-products, notably the current refugee crises have positioned itself not only as an extra problem faced by the EU but also as the worst since World War 2. In the interim, there is a need for the EU in its constant quest for peace and prosperity in the EU and its environment to brace themselves to face the multidimensional challenges and opportunities associated with migration. The economic results of Migration into and within the EU are wide and varied with significant results on the economic landscape of the EU.  

Effect of Migration on EU GDP and Productivity

Studies investigating the outcome of migration on different indicators of economic performance in the EU have revealed different sizes and directions of causality both in the short and long term. The findings from one study have demonstrated that the long-term effect of migration on GDP depends on the associated EU integration policy. The EU estimate shows that the long-term effect of migration on GDP ranges between 0.2% and 1.4% on average, and the payback period of the integration investment is expected anywhere between 9 and 19 years.. A related study found that over the period 2000–2007, a 1% increase in immigration into the EU was associated with a 0.02% increase in GDP per capita and a 0.03% increase in productivity gains in the short term with slightly higher estimates of about 0.44% increase in GDP per capita and a 0.20% increase in productivity in the long run. EU post-enlargement migration studies show that the movement of migrants from new EU Member States into the relatively older member states positively correlates with per capita GDP and employment rate whereas it negatively associates with output per worker.  The same study found a similar trend for migration to new EU member states from the Eastern Partnership countries.

Effect of Migration on the EU Labor Market

Migration equally affects the EU Labour Market dynamics. It has been shown to affect both the Labour Force of the emitting and receiving countries through its impact on the population structure.  Evidence from Croatia shows that the majority of emigrants account for between 25%-50% of the working population of Croatia, which implies that emigration negatively impacted the Labour force of Croatia in 2020. Conversely, immigration is likely to increase the receiving country's Labour force, if properly canalized into the receiving country's productive sector.

The literature on the interaction between migration and the Labour market generally highlights employment and salary differentials in the Labour market of the host country depending on Labour substitutability. In the condition of perfect substitution, the unit price of Labour in the host country drops as it corresponds to an increase in Labour supply. In conditions of imperfect substitution, as in the case when immigrant Labour has ill-adapted skill sets, sectoral preferences, and linguistic preferences of native Labour have no impact on the equilibrium price of Labour. In the case of the ageing EU population, the influx of immigrants has helped to mitigate Labour market shortages associated with the greying EU population.. However, the longer the immigrant interact with the EU Labour market the more their Labour becomes substitutable and replaces the ageing Labour force. This is because the longer the immigrants interact with the EU labour market, the more they can determine the demands of the labour market and conquer market barriers such as language and certificates.

Migrants pay gap in the EU

Theoretically, a substantial and unanticipated influx of low-skilled immigrants could put downward pressure on wages.. The presence of collective labour agreements or a minimum wage, which could prohibit any nominal wage decrease is not taken into consideration by this theoretical impact analysis. It is reasonable to suppose that there would be some effect on the pace of increase in these salaries, which would be slower than in the absence of immigration.

Similar to the employment analysis, non-immigrants may even see an increase in their pay if immigrants provide a complement to native workers.. Empirical research, primarily on the US. or the EU's expansion, demonstrates that although there is generally no adverse effect on natives' overall wages, the results vary when broken down by educational attainment. Highly educated natives typically see an increase in salary following immigration, whereas it is unclear how immigration would affect the salaries paid to less educated workers. The increased demand for managerial positions brought about by the growing immigrant population somewhat justifies the higher earnings of highly educated natives. Once again, the immigrants who have already made their home in the host nation would be the ones affected by declining wages because they are more replaceable by newcomers.  A portion of this salary disparity is still "unexplained," meaning it may be linked to prejudice against foreign workers rather than the peculiarities of the domestic labour market or the workers’ skill set. Compared to domestic workers, migrant workers earn less even when they possess similar qualifications within the same occupational category. Moreover, in some European countries, migrant workers with higher levels of education are less likely to obtain higher-skilled jobs.

EU Migration and Human Capital Movement

Migration as a human phenomenon cuts across many policy areas and robs emitting countries of the most youthful and educated segments of their populations to the benefits of receiving economies as illustrated by the figure below.

CBS (2021). https://www.dzs.hr/Hrv_Eng/publication/2021/07-01-02_01_2021.htm

European migration literature generally notes that migration is an important regulator of the demand and supply of Labour in the EU Labour Market. Studies that included data from Poland and Ukraine have shown that immigrants from Ukraine had the potential to effectively replace the gap reated by Polish emigrants into other EU countries which offset the important human capital outflow in Poland.  

EU Migration and Public Finances.

European migration has political, sociological, institutional, and legal undertones which has resulted in a highly fragmented and incoherent EU migration funding landscape. This fragmentation is characterized by a wide variety of funding instruments, policy priorities settings, and actors. Due to the expenses of asylum procedures, housing supply and material goods, hiring additional staff, and the implementation of integration policies all of which must be done in the unlikely event that the immigrants decide to remain in the country, the influx of immigrants into Europe entails a relatively high financial burden.. At the very least, migrants who fall in the working age group can make additional money after being assimilated into the job market. Furthermore, not having to pay for immigrants' medical and educational needs if they had been born in the host country enables the host country to save money.

Furthermore, because immigrants tend to be younger than the native population, they may mitigate the consequences of an ageing population. Many academics have attempted to assess the net fiscal impact of the host countries. This has very little effect on GDP in most OECD countries. On average, it is anticipated to range between -1 and 1% of GDP.. Many of these estimates are based on how well immigrants have assimilated into the job market. For instance, the OECD notes in its 2013 report that immigrants' less favourable net fiscal condition is almost entirely the result of reduced tax contributions rather than a greater reliance on social services. The 2014–2018 average public expenditures by household migration status.

Overall, in EU-14 countries, expenditures in favour of natives are higher, i.e., natives tend to benefit more from public expenditures than migrants.

Similarly, as noted in the 2014 European Social Survey, 43.8% of EU citizens believe that immigrants benefit proportionately more from EU public spending on welfare and other public services than they contribute through their tax contributions. It has equally been established that the macroeconomic and fiscal consequences of international migration are positive for OECD countries.. The impact of Migration on the EU public budget is more significant than its impact on Labor market competition and economic efficiency. Notwithstanding, other sources have not found evidence to enforce the perception that migrants, especially the skilled ones receive more transfers from the state than they contribute to the public purse. The study equally shows that native EU residents on average spend €9600 per year compared to migrants who spend €8200 per capita on average.

Migration and the welfare state in Europe.

According to EU legislation, access to the welfare state must be granted equally to citizens of the EU and immigrants. However, if immigrants are unable to demonstrate that they can support themselves through employment or wealth, member states may limit immigration from other EU nations to prevent "welfare shopping." Since the unemployment and welfare dependency rates of EU migrants are mostly comparable to those of locals, intra-EU migration access placed a strain on the welfare states. However, the equal treatment concept may lead to some welfare shopping by non-EU member state residents in the presence of wider income disparities in the enlarged EU, which could start a "race to the bottom" in the enlarged EU's welfare system. A welfare state that compresses the pay distribution by skill level will attract more low-skill workers as noted in the Roy model. Due to the increased risk of unemployment, access to social assistance may also contribute to a rise in the number of migrants. As a result, welfare benefits have an impact on income in the receiving nations through two different channels; it might impact directly by shifting native income to the migrant population, and indirectly, by influencing the number and make-up of the migrant population.

Migration, FDI and other Capital movements.

The economic effect of migration on Foreign Direct Investment ( FDI) in the context of the EU has not been sufficiently elucidated. However, empirical evidence from other regions associates skilled immigration with FDI inflows and unskilled immigration with FDI outflow.. A Similar study has noted that regions that attract high amounts of FDI and trade inhibit emigration through labour market mechanisms. Using the case of the Mexico-US, the said study estimates that doubling the FDI inflows between Mexico-US migration generally led to between a 1.5 and 2 per cent drop in migration. Generally, the influx of immigrants between MENA and the EU positively impacted FDI through the mechanism of trade promotion associated with the immigrants between the two. Migration can have a detrimental impact on foreign direct investment (FDI) by raising salaries and per capita GDP in the sending countries. Because migration both expands the market in the country of immigration and, consequently, factors incomes in the enlarged EU and contracts the market in the sending country, which lessens incentives to invest there, the impact of migration on horizontal FDIs is less predictable.   

Impact of remittances

Over the last few years, remittances have increased significantly throughout the world as a result of increased migration flows, as well as the reduced costs of transfers and ease of implementation. Most studies on international migration consider it an effective tool for developing countries, as it has a positive impact on their economy due to the inflow of money via remittances. However, on the other hand, the outflow of money abroad poses a threat to economically developed countries. From this viewpoint, remittances could have negative effects on the economy.. In the case of the EU, the results of studies were mixed, especially in Eastern Europe. Some found support for the positive influence of remittances on investments’ size. and subsequently on long-term macroeconomic growth.. Notwithstanding in the case of Lithuania, over 80 per cent of total remittances, are not statistically significant and negatively impact the GDP growth per capita. According to Eurostat, the ten countries of Central and Eastern Europe saw an inflow of 166.6 billion euro from those working abroad., with Poland, Romania, and Hungary receiving the highest amounts, and Hungary (3.7%), Latvia (3.1%), and Bulgaria (3.0%) seeing the highest amount transferred as a percentage of GDP.

Brain drain, Brain gain, and Brain Exchange.

High-skilled resources are not coming to Europe because of the absence of organized immigration laws for non-EU citizens. Nonetheless, non-EU citizens face severe restrictions under EU administrative rules. Despite all the initiatives taken to encourage the movement of the more skilled labour force inside the EU. Highly skilled resource movement is little and only gradually growing. Conversely, the EU migration's brain gain strategy can be assessed through the use of a Brain Exchange. The last ten years have seen a Europeanization of production, which has contributed to the European Brain Exchange experience.

The EU Blue card

The EU Blue Card policy initiative which seeks to attract non-EU nationals into the EU as an attempt to help the EU address its labour and skills shortages associated with its ageing society to help it achieve global economic competitiveness has a role to play in the brain drain and gain situation. However, this policy option failed to meet its desired objectives owing to the number of EU member states that adhered to it, the number of Blue cards issued, and the fact that after its adoption in 2009, the EU Commission identified some lines of weakness in the implementation of the said policy thus warranting the need for its revision to meet its desired goal of attracting international talents into the EU, and to enable the EU to achieve its so desired global competitiveness and economic growth.

The EU Blue Card initiative was articulated in the Blue Card Directive # 2009/50 of May 29, 2009, and became enforceable throughout the EU since then. In its maiden version, the EU Blue Card directive failed to attract the desired number of talents from the global pool of migrants who prioritized going to more attractive destinations for reasons which include restraining entry requirements into the EU, the existence of more attractive rules, requirements, and conditions in EU member states, the lack of adequate marketing of the policy initiative, which rendered the Blue Card Directive unknown, expensive, and unattractive to both the targeted non-EU talents and  EU recruiters in general. Among all EU member states at the time, Germany, Poland, and France attempted to implement the maiden Blue Card Initiative which found limited use in other EU member states.

The constant quest by the EU Commission for a more effective policy instrument to make the EU an attractive destination for international talents led to the adoption of an improved version of the Blue Card Directive in October 2021 and its eventual enforcement on November 18, 2023. The recast Blue Card Directive seeks to address the shortcomings inherent in the maiden version by harmonizing the old and emergent challenges of the EU Labour market, which was characterized by high post-COVID-19 Labour shortages and the influx of Ukrainian refugees. In response to the unique characteristics of the emerging EU Labour market, the EU Commission also experimented with the Temporary Protection Directive (TPD), and the EU Communication (2022) 657 to accommodate emigrants who fall out of the scope of the revised Blue Card Directive.