Wednesday, May 04, 2016

On speculating about the effects of German labour market restrictions in 2004

In February 2013, in noting the arguments of Jonathan Last about migration, I noted that policy on migration--in sending countries and in receiving countries--was important in directing flows. The example I used was that of post-2004 Polish migration to the United Kingdom.

Consider the movement of Poles to Germany. Large-scale Polish migration west dates back to the beginning of the Ostflucht, the migration of Germans and Poles from what was once eastern Germany to points west, in around 1850. By the time Poland regained its independence in 1919, hundreds of thousands of Poles lived in Germany, mainly in the Ruhr area and Berlin. Leaving aside the exceptional circumstances of the post-Second World War deportations of Germans from east of the Oder-Neisse line, Polish migration to (West) Germany continued under Communism, as hundreds of thousands of people with German connections--ethnic Germans, members of Germanized Slavic populations, and Polish family members--emigrated for ethnic and economic reasons. In the decade of the 1980s, up to 1.3 million Poles left the country, the largest share heading for Germany. Large-scale Polish migration to Germany has a long history.

And yet, in the past decade, by far the biggest migration of Poles within the European Union was directed not to neighbouring Germany but to a United Kingdom that traditionally hasn't been a destination. Most Polish migration to Germany, it seems, is likely to be circular migration; Germany missed out on a wave of immigrants who would have helped the country's demographics significantly. Why? Germany chose to keep its labour markets closed for seven years after Poland's European Union admission in 2004, while the United Kingdom did not, the results being (among other things) that Polish is the second language of England.

This was a huge surge. In their November 2014 discussion paper "Polish Emigration to the UK after 2004; Why Did So Many Come?" (PDF format), Marek Okolski and John Salt noted that the Polish migration post-2004 dramatically reversed a trend one half-century old of decline.

A Polish presence in the UK population existed before 2004 which helped to create networks and contacts between the diaspora and those back home. The 1951 UK census recorded 152 000 people born in Poland, a hangover from the Second World War after which many preferred to relocate to or stay in the UK rather than return home. By 1981 the number had shrunk to 88 000 and although unrest and Martial Law in Poland continued a trickle of new migrants into the UK, the inevitable ageing of the post-war group took its toll so that by 2001 the number had fallen to 58 000. The next decade, however, saw an increase in the number of Polish born in the UK to 676,000 in 2011.

The authors conclude that this surge had much to do with a perfect storm of coincidence, of transformations in Poland and the United Kingdom alike aided by a new transnationalism.

Let us begin with the “right people”. The concept of “right people” embraces the surplus (reinforced by the “boom” of young labour market entrants/higher school graduates) and structural mismatches of labour in Poland, post-communist anomy (migration as one viable strategies to overcome that, similar to migration as a response to social disorder accompanying rapid urbanization, as described by Thomas and Znaniecki), high educational and cultural competence/maturity (including widespread knowledge of the English language) and awareness of freedoms and entitlements stemming from “European citizenship”. Furthermore, at least since 1939 Poles had been generally favourably regarded by the British.

The “right place” was the UK labour market, although it was not immediately apparent at the time. The economy was growing rapidly but there was a reluctance among domestic workers to undertake many of the jobs available at the wage rates on offer. Migrant workers willing to work for minimum (or less) wages allowed employers to avoid capital investment that would have increased productivity in, for example, food processing. In service provision, such as hospitality, migrants provided flexibility in working practices that reduced costs. Furthermore, the UK’s flexible labour market made it easy for those Poles with skills and initiative to engage in upward occupational mobility and encouraged them to stay. In addition, public attitudes towards the inflow of people from new EU member states were generally favourable. Coincidental with this was the “compression” of the physical distance between Poland and the UK through a rapid development of non-costly and effective transport, communication and information facilities between the two countries. This made it possible to achieve the high levels of flexibility required by both employers and migrants.

Finally, by the “right circumstances” we mean the juncture of Poland’s accession to the EU with the decision taken by the UK government to grant immediate access to the British labour market. That other countries did not follow suit meant the lack of any strong competition from other receiving countries.

Plausibly, similar factors may have operated in connection to immigration from the Baltic States, specifically of Lithuanians and Latvians. (Estonians seem not to have been nearly so likely to emigrate, at least not to the United Kingdom.

Germany eventually did open its labour markets to migrants from the new European Union member-states, but the effect was limited.

Germany had 580,000 A8 nationals at the end of 2009, including 419,000 Poles (the UK had 550,000 Poles at the end of 2009). In Germany, almost a third of women from A8 countries are employed in health and caring professions, while a third of A8 male migrants in Germany are employed in manufacturing and construction.

The consensus estimate is that another 140,000 A8 nationals a year may now move to Germany, doubling the stock of A8 nationals in Germany to 1.3 million by 2020, this despite the fact that wages have risen in Eastern Europe over the past decade. Average wages of E5 an hour in Poland are expected to reduce incentives to migrate to Germany, where many A8 nationals earn E8 to E10 an hour. However, German unions expressed fears that more A8 migrants may slow wage increases.

Okolski and Salt point out that, overall, Polish migrants to Germany tended to be older and have lower levels of human capital than Polish migrants to the United Kingdom, limiting their potential contributions. In their January 2013 paper "10 Years After: EU Enlargement, Closed Borders, and Migration to Germany" (PDF format), Benjamin Elsner and Klaus F. Zimmermann conclude that Germany missed out by opting to limit access to its labour markets.

The extent to which immigration affects wages and employment depends on the degree of substitutability between migrants and natives. The more substitutable migrants and natives are, the stronger is the effect. Recent studies by D'Amuri et al. (2010) and Brücker & Jahn (2011) have shown that Germans and immigrants with the same education and work experience are indeed imperfect substitutes. Hence, immigration should only have a moderate effect on wages and employment of natives. Based on this line of argumentation, and in view of the many young and well-educated migrants that went to the UK and not to Germany, we conclude that Germany missed a chance by not opening up its borders in 2004. The fear of the German government that thousands of low-skilled workers would emigrate from the NMS turned out not to be true. Instead, EU8 migrants were actually better-educated than the average native. As shown in previous work by Brenke et al. (2009), immigrants from the EU8 countries mostly competed with previous immigrants and not with natives. For Germany as a whole, the costs of the restrictions exceeded the benefits by far.

Imagine, if you would, that Germany had joined the United Kingdom in 2004 in giving migrants from the new European Union member-states central and eastern Europe. It's certainly imaginable that Germany would have shared in the surge, perhaps even that given its long history as a destination for migrants from Poland and points beyond it would have stayed ahead of the United Kingdom as a destination. Plausibly, this new altered immigration flow would have provided a net benefit for Germany, while still providing some (if fewer) benefits for a United Kingdom that was not such a natural destination. Everyone would have benefited economically.

Another consequence might have been weaker support for Euroskepticism in the United Kingdom. For a variety of reasons which I don't quite understand, this post-2004 migration to the United Kingdom has been exceptionally politically controversial, to the point of strongly accentuating Euroskepticism and even support for Britain's exit from the European Union. There was going to be a surge of migration from the poorer European Union member-states to the richer ones, but if it was not so overwhelmingly focused on a single (if large) state as a destination, would it have had less of an effect? I wonder if this thinking has anything to do with current European Union policy, for instance in trying to avoid the concentration of refugees in a particular member-state and to spread them out.

No comments: