Does labor mobility in the EU have adverse effects on labor markets in the countries on the receiving end of immigration? And the sending countries?

The European Union had a main objective of creating freedom between its countries, meaning that people could move freely between member sates. This allowed them to work, go on holiday or simply to migrate to another country. With the EU enlargement records proved that there have been massive increases in migration, with this there have been many negative effects as well as positive on both receiving and sending countries. In the following essay we are going to discuss many effects that both countries will have such as: wage, unemployment, crime, competition, integration of markets, and change in public spending, also injections and leakages in both economies.

“Everyone has the right to freedom of movement and residence within the borders of each state. Everyone has the right to leave any country, including his own, and to return to his country” (The Universal Declaration of Human Rights, art. 13.)

Migration has an adverse effect on sending countries this is due to fact the country becomes scarce in certain areas i.e. shortage of labor of skilled and unskilled workers. It happens when a country cannot provide the work force with satisfying wage rate and as the EU has no barriers the migrants will move to developed countries with higher wage rate.

Monthly gross statutory minimum wage rates

Full-time adult employees, aged 23+ ()

Country

local currency

euros

Date effective

Belgium

1,234.21

01.06.2005

Bulgaria

160 leva

81.80

01.01.2006

Croatia

2080 kunas

282.23

01.01.2005

Cyprus

362 Cyprus pounds

631.44

01.04.2005

Czech Republic

7,660 koruny

263.93

01.01.2006

Estonia

3,000 kroons

191.73

01.01.2006

France

1,217.88

01.07.2005

Greece

658.00

04.04.2006

Hungary

62,500 forints

247.26

01.01.2006

Ireland

1,326.00

01.05.2005

Isle of Man

910 IOM pounds

1,314.94

01.10.2005

Jersey (Channel islands)

908.27 Jersey pounds

1,312.08

01.04.2006

Latvia

90 lats

128.06

01.01.2006

Lithuania

550 litai

159.29

01.07.2005

Luxembourg

1,503.42

01.10.2005

Malta

250.81 lira

584.19

01.01.2006

Moldova

440 lei

28.98

01.02.2004

Netherlands

1,272.60

01.01.2006

Poland

899 zlotys

233.01

01.01.2006

Portugal

385.90

01.01.2006

Romania

338.00 new lei

97.07

01.01.2006

Russian Federation

800 rubles

23.48

01.09.2005

Serbia

7,973.33 new dinars

91.24

03.02.2006

Slovakia

6,900 koruny

182.14

01.10.2005

Slovenia

122,600 tolars

511.87

01.08.2005

Spain

540.90

01.01.2006

Turkey

530.73 new lira

332.26

01.01.2006

Ukraine

332 hryvnias

55.58

01.09.2005

United Kingdom

875.33 pounds sterling

1,272.28

01.10.2005

Table 1

So by looking at the graph number 1 we can clearly see that a monthly minimum wage in less developed countries such as Poland for example is much lower than in some other EU countries. Western countries like Ireland, United Kingdom, Netherlands, Belgium and France etc have higher wage rates, which mean that migrants will be willing to migrate to this country in order to get a better life. “Pay in the EU's eastern European member states is generally much lower than in western Europe, with the highest rates being approximately one-third of those paid in Germany. Social security charges are generally higher than in Western Europe, but corporate taxation is usually low enough to offset such costs.”(7)

In the receiving country one of the positive effects is that there is an increase in labor market this allows firms and businesses to have more choice in choosing their employees. Where as one of the negative effects is a decrease in wages. Also the migrant worker will take a wage cut in order to get a job, this will attract employers as it is more cost efficient for them so they will benefit from higher profit margins. This will make markets more competitive and cost effective. Increase in labor market means competition amongst workers increases this will make native worker more efficient in its job through extra training or attending courses to make them superior to the migrant worker as well as other natives. Labor immigration will have negative consequences for resident labor force that competes for the same job as immigrants. “There is little evidence that workers from the new Member States have displaced local workers … in a serious way, even in those countries where the inflows have been greatest”(6) Displacement effect can take place, when immigrants can be substitutes for native workers and this could result in unemployment. Migration can also maintain inflation to a certain extent, if there is a shortage of labor, wages will increase, which leads to increase in prices. “Immigration from Eastern Europe has helped keep inflation - and therefore interest rates low” (9) If migrants come from abroad the shortage of labor will be reduced and so wages will go down as well, therefore leading to a decline in prices, which will help to keep inflation steady. On the other hand the sending country will benefit from migration this is because as people migrate wages of natives go up because now the labor market has decreased, employers have less choice and it is bad for them because the cost of employing goes up, meaning less profit margins for firms and businesses. You can see these effects on the graph 1 below.

Graph 1.

The graph above shows how the theory works. Firstly there is an increase in wages in the sending country (MPL) and the wages in the receiving country (MPL) decreases. After migration there is an increase in labor in the receiving country as a result wages should go down from w0 to w' and in the sending country wages will go up from w0 will move up to w'.

In the sending countries, as people migrate from their current jobs, it leaves behind vacancies. This can be taken up by the unemployed labors therefore decreasing unemployment, as the unemployed will fill their roles. Another way unemployment is decreased in home country is when unemployed people migrate to other states to use their skills in countries where there is a shortage of that profession.

As unemployment decreases in the sending country it has the opposite effect on receiving country in the short run. This is because as migrant workers are coming to the country they don't find a job straight a way, therefore increase in unemployment occurs. Also it might be the case that migrants take a wage cut and firms and businesses seize this opportunity to be cost efficient, therefore native workers might be unemployed, which in the short run leads to an increase in unemployment in the receiving country. However in the long run unemployment goes back to normal, this is because migrant workers are more flexible than natives that is why they might help labor shortages in the areas in which local labor do not want to work and even create their own work opportunities. The economy in the working population in the receiving country will benefit when immigrants contribute particular qualifications or fill existing vacancies. In the case when migrant labor is supplement to native workers immigration will improve the productivity of the native working force and increase the demand for their services, which will lead to the decline of unemployment.

You can see the above effect in graph 2.

Graph 2

Year

Unemployment rate (%)

2004

9.1

2005

9.5

2006

9.4

2007

8.5

2008

8.5

2009

7.4

Table 2

By looking at the graph 2 we can clearly see that after EU enlargement in 2004 took place the unemployment rate has gone up because labor from Easton European counties now had an opportunity move to developed countries so there was a huge inflow of migrants in the first year and it took some time for EU unemployment rate to adjust to the massive flow of immigrants. EU unemployment has started to reduce after year 2005.

The reason people migrate is because in less developed countries have a lower minimum wage compare to those in developed country, which have a higher minimum wage rate. Therefore it is more lucrative for people to migrate; they see an opportunity to start a new life and to have a better standard of living. Migrants can see this window of opportunity to earn a better living and have more financial stability to support their families back home. By moving to other states to use their skills they can earn more and save enough money to send remittances back home to help their families maintain a decent standard of living. This remittance has both negative and a positive effect. In the home country migrants are sending money to their families, which will lead to an increase in spending with in their own economy but it may not be of much benefit as money being spend on luxuries and not for investments, which could help improve their economy. This can also be said an injection into the circular flow of income for the economy, as the migrants is an export representing the country. This is seen as a positive effect from remittances.

But there is a negative effect on the receiving/host country. This is because migrants coming into their country is seen as an import, which is costing a host economy money as it is being leaked out of the economy, by migrants sending remittances back to their home states.

Also we can say that money is being lost through migrants, who receive public services free such as health and education sector e.g. NHS and public schools etc. Some migrants migrate with their children, which mean they will send them to public schools and also can claim publicly funded services. The money that will be spent on providing these services to the migrants could have been invested in public services such as education, health care, public transport etc. for local people.

A negative effect for sending countries is that some of the high skilled labor is migrating to another state because of the possibility of higher earnings. This is knows as “Brain Drain”. On the other hand it is good for the receiving country as more high skilled labor is added to their markets.

In conclusion most countries might loose competitivnes in the short run if they recieve a lot of cheap low quality labor. This happens because unskilled labor force takes time to adjust from low quality prodution to high quality production. Falling wages for unskilled workers would put pressure on native labor so in order to earn higher wages in the long run they would have to attend advance training or gain higher qualifications to differentiate themselves. On the other hand the host country might benefit from migrated labor as migrants are willing to take a wage cut and as a result it would lead to cheaper and better products which will improve the competitive position of that country on the European markets. Giving people an opportunity to migrate to a better developed country allows them to additionally retain their skills and also develop new ones and this improves economic relationships between the host and home countries.It has been noted that labor markets are self-regulatory and as a result it should mean that migrating workers should not have a negative impact on the receiving country. The reasons behind this are the fact that once a certain number of workers will migrate to a certain country they will lower the wage a certain amount that there will no longer be a benefit to further workers migrating because the potential high wages and better life from before will no longer be available. Additionally during an economic downturn, as the one we are experiencing it is clear that there will be a lower demand for labor and as unemployment will go up there will be no incentive for migration in search for a job as they will be scarce, and in fact people might even return to their homes due to unemployment. Therefore we have seen through our analysis that labor markets should integrate because the positive effects of migration clearly outweigh the negative ones and this is encouraging for the EU and possible further expansions. “The advantage of citizenship in an EU country is that the laws and regulations of the EU is applicable to any country that you decide to live and work in.”(8)

Source: Essay UK - http://turkiyegoz.com/free-essays/economics/labor-mobility-in-the-eu.php


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