Immigration as economic profit – for nearly all

Migrants pull frequently into a new country, because they hope they will do there economically better than in their homeland. In the countries of destination the influx with regard to the own job and prosperity arouse frequently uneasiness.

The thought to a rising number of immigrants causes in many countries apprehension and fear. Some people see their jobs threaten and many fear sinking wages, because the migrants, who usually come from poorer countries, are set for doing the same work for fewer funds. During the extension of the European Union to the East in the year 2004, when further ten states were taken up, Germany belonged to those EU members, that didn’t want to permit immediate liberality for workers from these countries. Rather Germany used the seven-year delay up to the opening of the job market, permitted by the European Union.
But do the fears of the Germans apply at all? Professor Wilhelm Kohler and Dr. Gabriel Felbermayr of the economic seminar of the University of Tübingen examined in a study, which effects are to be expected for the German job market by immigrants actually. They adapted thereby an investigation model, which was developed for the US-American job market, to German conditions. According to the results (based on a long-term view) most people would profit by immigration, both the native citizens and the migrants.

With the extension of the European Union 2004 were Great Britain, Ireland and Sweden the only European Union member states, which didn’t develop restrictions for the immigration of workers. When in the year 2007 Bulgaria and Romania were added, only Sweden remained to the generous regulation. Germany however met particularly strict restrictions. But is it appropriate to shift the potential immigration wave around years? Wilhelm Kohler placed two aspects in its investigation into the foreground: He wanted to examine on the one hand the effects of immigration for the German job market on occupation and/or unemployment and on the other hand the effects for the wage level. “Caused by globalization in the industrialized countries in the past twenty years the wages of good and less good educated people went further apart”, say Wilhelm Kohler. In general the assumption of policy is that immigration lowers the wages. “However, with facts and numbers this assumed effect is very difficult to prove.”

In order to examine the results for Germany, the scientists had to find both a suitable data record and a way to adapt the American model to German conditions. “The data we received from the socio-economic panel, an extensive questioning of German households of the institute for economic research (DIW) in Berlin. It fit well into the model”, reports Kohler. During the adjustment of the model it had to be included the possibility of the “underemployment”, thus unemployment. “In the USA there are relatively little underemployment, because the wages are very flexible”, explains the economist. It’s typical for Europe that the wage negotiations are conducted with the trade unions, so that the creations of wages are less flexible and consequently more unemployment. Kohler accepted a scenario in their studies, by which the immigrant proportion of the population would have approximately doubled itself.

According to Kohler’s results there could be a wage lowering indicated at short notice for the native citizens, particularly with low-educated employees. But this effect would level off on a long-term point of view again, even profit would be possible. Although not everybody and not everybody equally would profit. “Altogether there would be smaller effects in Germany than in the USA. By force of the trade unions immigration causes smaller wage lowering” says Kohler. “Also, we couldn’t state in our simulation, that unemployment of native citizens would rise on a long-term basis. However it’s disturbingly that according to the computations, with unchanged institutions of the job market by immigration, unemployment among foreign workers would rise on a long-term basis.

Despite this effect: The biggest winners of the migration are the migrants themselves, because they’re moving to a more productive region. “In Germany simply more is to be earned than in Romania” explains Kohler the situation. Which brings up a new aspect: “If policy is serious about reducing world’s poverty, then it’s necessary to realize that migration could be a way of reaching this aim.” The task of politics and science thereby is to prevent extreme situations of mass immigrations into the countries of destination. Kohler would see one way for the benefit of native citizens in partly skimming the income increase of the immigrants off. “Perhaps it’s unorthodox, but the policy would have to choose such ways in order to increase the acceptance of immigration.”

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One thought on “Immigration as economic profit – for nearly all

  1. As we have already discussed during our labour economics class, in 2025 European Union will extremely lack workers coming from Europe originally. The labour migration from other parts of the world to Europe will increase significantly. Many european countries have agreements with other non-european countries concerning simplified conditions for labour liqudity already now.

    In my opinion labour migration definitely brings economic profit to companies. Companies in Western Europe and Scandinavia save on wages by employing people from Eastern Europe and other regions (especially developing countries). And that is also a benefit for migrants, who are able to support their families back in their countries and have a better life.

    Although there are disadvantages as well, that come with labour migration: the average wages rate falls, and local people have to agree to work for less money in order to be competitive on the labour market, full of migrants who do not mind working for a minimum wage.

    What concerns labour migration within EU, I would like to share some information about the conditions that apply to employees from Estonia as an example (the country I come from) after joining EU in 2004.

    By now Estonia has been a member of EU for already 6 years and the conditions for entrying EU labour market are pretty favorable:
    2004 – the labour market became open in UK, IE, CY and SE ;
    2006 – it expanded in FI, GR, PT, ES and IT;
    2007 – NL, LU;
    2008 – FR;
    2009 – BE and DK.

    In Germany there are no restrictions for recruiting machine engeneers from Estonia as well as international students, who do their degree in Germany.

    EFTA countries such as NO and IS do not have any restrictions against recruiting employees from Estonia as well.

    I have to mention, that one of the reasons for giving Estonia favourable conditions in open labour market in EU is its small population (only 1,4 m people). Other considerably new EU members with larger population mostly would not have the same favourable conditions.

    Reply

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