Incentives for labour migrants from new Eastern European Member States

Incentives for labour migrants from new Eastern European Member States

Pull sign on door
So-called pull factors, such as financial reward, are the reasons for Eastern Europeans to migrate to Western Europe — Bildnachweise

 

by Wadim Strielkowski

From the origins of migration theory to EU labour migration

The reasons leading to migration and the decision to move places are reached through an evaluation of the incentives and obstacles for migration. Here push (unbearable or threatening conditions in the home country) and pull factors (incentives in the countries of immigration) play an important role. Those ideas are not new: most of them were outlined in the late 19th century by geographers such as Ernst Georg Ravenstein (notorious and often-quoted “Ravenstein’s laws of migration”).

Incentives may contain increased employment opportunities, better housing, or a more sympathetic and appealing political or cultural environment. Obstacles to migration usually list unfamiliarity with the new location, lack of information about distant opportunities, language barriers, transportation costs or difficulties and immigration or emigration restrictions.

The research literature on migration suggests that a very complex set of inter-relationships exist between social, psychological, background social structural and educational factors, as well as certain constraints on individuals’ decisions to migrate. Individuals’ motives or reasons for migrating require explanation. It is often suggested that they are mainly explainable in terms of individuals’ locations in the economic and social structure, and level of educational background: because everything to what the individuals are aspiring to is given and pre-determined by their educational level and social-economic or socio-cultural characteristics.

However people’s beliefs (or perceptions) of how satisfactory local or foreign communities may be, also depend on the nature of the local economy or labour markets (mainly on such factors as the rurality of the community and its unemployment level). Hence a direct linkage exists between the nature of the home community’s economic structure and satisfying one’s economic aspirations locally.

The pattern of migration is more or less the same everywhere: people leave poorer regions or countries in search of higher-paying jobs in richer regions or countries. The same patterns hold true for the labour migrations within the European Union. The freedom of movement (of persons) is, alongside with the freedoms of movement of capital, goods and services, one of the basic rights determining the European Union itself. In theory, the creation of a Single Market pre-supposes the creation of a lot of additional employment and earnings opportunities for the workers in various Member States of the EU. In addition, unrestricted labour flows should substantially reduce regional differences in economic opportunities within the EU.

It would be fair to say that the interest in labour migration from the new Eastern European Member States to EU-15 (1) was very much induced by the discussions around the transitional period introduced for the labour force from the EU-8 after the EU Enlargement on the 1st of May 2004. While the majority of experts estimated that migration flows from the EU-8 Member States would represent rather modest shifts rather than an avalanche, this point of view was not accepted by the policy-makers and public opinion in the EU-15 Member States. The EU Enlargement was consciously and unconsciously tied up to triggering off the mass inflow of workers from the “new” countries (2).

The recent experience, however, showed that those three out of EU-15 countries – Ireland, Sweden and the United Kingdom – which did not follow other EU Members (such as Germany and Austria) and opened their labour markets to the newcomers, did not experience any adverse effects associated with mass migrations or over-flooding of their labour markets with cheap labour force. Clearly, in spite of all the prominent incentives for labour migrants from Eastern Europe available in the EU-15, there is more in this process than meets the eye. That should be considered carefully before claiming that the vision of higher wages alone would be capable of setting large masses of labour migrants from the East on the move.

EU enlargements and labour migration

For its rather short history of existence, the EU has already experienced five major enlargements. The story with each was different, and only four of them, including the most recent enlargement, can encounter as those having an impact on the international migration and the issue of inter-EU free movement of labour.

EU membership, as it appears, by no means necessarily induces uncontrolled immigration into the core EU Member States. On the contrary, in the aftermath of their EU accession net emigration from Greece, Spain and Portugal in the first half of the 1980s has substantially declined. In spite of that, recent EU Eastern enlargement, encountering mostly post-Communist countries of the Eastern and Central Europe aroused many doubts to what will be the effect of introducing the free movement to labour onto the countries with their GDP per capita hardly reaching the EU-15 average. There were various studies analyzing that issue and assessing the post-enlargement migration. However, none of them came up with a catastrophic scenario (See the overview table at the end of this article).

Even now, almost six years after the Eastern Enlargement (and three years after the inclusion of Bulgaria and Romania), the issue remains open and the free mobility of labour chapter closed, so to speak. All this is in place in spite of the fact that there has never been any mass migration registered using the data from those EU countries which opened their labour markets to the workers from the EU8 Member States as the first, namely Ireland, Sweden and the United Kingdom.

The incentives for labour migrants from Eastern Europe and the migration aversion effect

In order to be able to speak about incentives for labour migrants from the Eastern European EU Member States (or EU-8 plus Bulgaria and Romania) the process of the creation of a Common Market should be recapitulated very briefly. In economic theory, the process of the creation of the Common Market is usually shown by the example of two countries, one of which is capital-abundant with a higher real wage rate (in our case this might be Austria or Germany) and the other is labour-abundant country with a lower real wage rate (in our case represented by the Eastern EU Member States). The economic theory considers labour to be a factor of production, and with the Common Market entailing the free mobility of this factor it can be envisaged that workers from the lower wage country would migrate to the higher wage country until the wages are assimilated (equalization of factor prices assumption).

This brings us to the main incentives for labour migrants from the EU-8, Bulgaria and Romania and their hopes and goals associated with moving to any of the EU-15. A first guess would be wage differentials: truly enough, the differences in hourly minimal wages or monthly gross statuary minimum wages can be enormous (two- or even three-fold). The second guess would be better quality of life and social and medical care.

However, strange as this might seem, none of this is true anymore. While the second obvious factor is getting less and less important in the eyes of potential migrants from Eastern Europe, the political and social climate is getting better in the EU-8 and the middle class is growing in number and influence. Also, the quality of life between Eastern and Western Europe does not differ grossly (perhaps, being cheaper and more affordable in the East) anymore.

As for the wage differentials – once powerful incentives for labour migrants – there are some aspects to be considered. It should be understood that the equalization of wages on the Common Market, as described above, is hardly observed in the European Union. It appears that on the EU Common Market the real wage rate for member countries is unlikely to equalize. The main reason for this is the lack of international mobility which can be expressed by the low propensity to migration. This depends on the indicator of migration cost (let us call it α) which consists of tangible and intangible components.

The migration transaction cost deserves further elaboration. It is clear that any migration induces a cost. It might be a financial cost of moving to another place and settling down there, but it also can be the cost of leaving family or friends, adjusting to a new environment, cultural differences, and language difficulties, which is hard to represent in financial terms. Therefore, as far as the cost of migration includes both tangible and intangible aspects, α can be expressed in terms of the following two aspects that seem to be most relevant for the purpose of this analysis:

  • Monetary (financial) cost of migration (keeping two homes, bearing travel expenses, various travelling and administrative adjustments and re-settling, etc.),
  • Cost of (intangible) psychological factors (habits, language barriers, breaking of social ties in the country of origin, deprivation related to migration, etc.).

The indicator of migration cost which is a country-specific variable might be used for assessing the volume of international migration: It can be shown that if this indicator is greater than the difference between wages of member states in the EU common market, there is no motivation for the labour to move (propensity to migration equals to zero). In such a case economic and psychological costs of migration are larger than benefits of wage differentials.

Here, two issues should be considered by anyone who wishes to assess migration from the Eastern European Member States to the “core” EU:

First, even though the migration from the EU-8 Member States to the EU-15 countries might be generally caused by the economic incentives, it does not necessarily hold true that the "response ratio" will be the same as in the case of traditionally emigration countries, such as Ireland or Portugal. Second, it might be relevant to measure the migration potential of the population in the EU-8 Member States. Various reports suggest that the labour mobility in the EU-8 Member States is low and falling, this happening even in spite of increasing wages and unemployment disparities across regions. In fact, it seems that only the prosperous regions are dealing with migration, moreover this migration covers high-skilled workers. If this is true, then the EU accession only had the adverse effect on the labour migrations from EU-8 Member States.

Conclusions

So, who wins and who loses from the East-West migration in the EU? Why are there barriers to migration that prevent the completion of the EU common market and who wants those barriers to be in place?

Although analyzing the welfare considerations of a market integration process in the EU it can be shown that the total welfare effect is positive. There should be a distinction between those who win and those who lose from that process. The index of migration cost can shed some light on the situation of winners and losers of market integration and free movement of labour. Specifically, it appears that usually entrepreneurs in the country with higher wages and employees in the countries with lower wages profit from the market integration and free movement of labour. On the other hand, employees in the country with higher wages and entrepreneurs in the countries with lower wages lose from market integration.

Therefore, it is employees in more economically developed countries of the EU that are trying to prevent market integration and especially the opening of the labour market from happening. They have a large variety of instruments to achieve their goals with the most effective of them being the lobbying power of the trade unions. This can be easily traced in the recent history of the EU Enlargement – those EU-15 countries where the trade unions are traditionally strong (Austria, France and Germany) are the ones that are still restraining the transition periods for the labour force from the EU-8, Bulgaria and Romania. On the other hand, countries in which entrepreneurial associations hold a strong position (United Kingdom, Ireland, and Denmark) opened their labour markets to citizens of the New Members States that joined the EU after May 2004.

Hence, it appears that the wage and quality of life incentives for labour migrants from the Eastern EU Member States for moving to the EU-15 are not the main motive for labour migrations within the EU. There are countries that enable the free flow of labour migration and countries that try to keep it at bay as long as possible (driven by lobbying groups and political decisions). Labour migrants from Eastern Europe choose where to go based on the simplicity of rules and fairness of reward for their hard work. Should the EU want to deepen its integration and complete the creation of the common market, it has to remove all obstacles to labour migrations from the “new” Member States (including transition periods for the free movement of labour). The flow of labour migration within the EU should be made easy and smooth. With less than 2% of the whole EU population being mobile, that is a goal in itself.

 

References

1 Many authors use terms “core” EU countries and “new” EU countries referring to the EU Members before and after the Enlargement on the 1st of May 2004 (specifically the CEE countries without Cyprus and Malta). I will call them EU-15 and EU-8 respectively for the sake of simplicity.
2 In this context those countries are mainly represented by the Central and Eastern European countries and the Baltic States which joined the EU on the 1.5.2004.

Table

 

Dr. Wadim Strielkowski is Associate Professor at the Institute of Economic Studies, Charles University in Prague. Previously, he worked as a Research Fellow at the Univ. of Nottingham pursuing cross-disciplinary research on migration and rural development

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