Labour immigration will not solve the Dutch ageing problem, but can be useful for other countries

Large scale labour immigration is not an effective instrument to cope with the financial effects of an ageing population in the Netherlands. Nor will large scale labour immigration have positive effects on the labour market. On the other hand, small scale labour immigration can be beneficial for the Dutch labour market, especially if immigrants are high-skilled, have good prospects for a job, and if they fill vacancies which are difficult to fill.
Whereas immigration is not a panacea for ageing and labour market problems in the Netherlands as a host country, it can be a sensible solution for other countries.

Immigrants often have a lot to gain by immigration, both financially and socially, but this is not the subject of the present study. The focal point is the effect of immigration on the economy of the Netherlands as a host country: is labour migration desirable from an economic point of view?

The fiscal impact of an immigrant depends highly on his or her age at entry and on social and economic characteristics. For all entry ages, however, immigrants turn out to be a burden to the public budget if their social and economic characteristics are equal to those of the present non-Western resident. These characteristics include their skills and education and their use of social security. If immigrants have the same characteristics as the average Dutch resident, the result is positive for entry ages in the range of 14 to 45 years. Even in this case, immigration would only lead to a relatively small improvement of public finances. Substantial effects are achieved only if, on average, the immigrants have better characteristics than Dutch residents. It is not realistic to assume that large groups of high-skilled immigrants will come to the Netherlands, so that large scale selective immigration does not seem to be feasible.

The fiscal impact is calculated as the net lifetime effect on public finances: tax revenues and government expenditures. In case of positive net lifetime effects, immigration can have an alleviating effect. The consequence of negative net lifetime effects is that immigrants are a burden to the public budget. It is important to explore the long-run effects, as most immigrants are young when they enter. In general, people contribute more during their working age years, whereas they cost more when they get older. Furthermore, if an immigrant does not come alone, but brings in a family as well, this has a negative budgetary effect due to extra expenditures on education, etcetera.

Studies on the fiscal impact of immigration for other countries generally show more favourable outcomes. This partly depends on the seriousness of the ageing problem. In countries with a pay-as-you-go pension system combined with a low birth rate, immigration can be more advisable. Another factor is that immigrants in other countries often are more successful from an economic point of view than immigrants in the Netherlands, with average wages and employment that do not deviate as much from those of natives. The causes for the relative underperformance of immigrants into the Netherlands are not clear yet. This calls for further research.

Immigration is not likely to have strong positive effects on the labour market. The effect on wages is small but negative. A positive impact on the labour market and the long-term economic growth can be expected from a selective admittance policy on high skills and talents of immigrants, e.g. top-class scholars and football players.

Another advantage of labour immigration could be that it helps to grease the wheels of the labour market, by providing large groups of young workers who are willing to go there where labour is wanted, and thus helping the labour market to attain an efficient allocation. However, the Netherlands may be too small for this efficiency gain to be relevant.

A third possible advantage for the labour market is that (temporary) immigration can help to smoothen cyclical fluctuations in labour demand. This can be the case if immigrants come to fill vacancies that are difficult to fill. That can be positive if immigrants only come to the host country for the limited period of labour shortages. If they do not remigrate when the labour market situation changes, these labour immigrants will turn out to be a burden as they then aggravate the labour market problems.

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2 thoughts on “Labour immigration will not solve the Dutch ageing problem, but can be useful for other countries

  1. I think labour migration is a successful way for economies like the dutch one to increase the effeciency of production outcomes. The Netherlands have a long tradition of integrate foreign sciences and labour forces into their economy to develope more efficient trade and production systems. Companies have big advantages by hiring foreign high-skilled employees due to the fact that they are educated in another system which leads to a new creativity and productivity level. But it is also useful to hire low-skilled employees to fill the gap of workers during an economic recovery.

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  2. I think foreign labour forces migration is a great opportunity even for the Netherlands. In my opinion it´s important for companies to hire people from other educational systems than just the countries´ own one. It increases creativity and at least productivity of companies which leads to higher profits and therefore taxes. The Netherlands as a small country should focus on high-skilled labour forces from foreign countries to increase knowledge concerning all kind of sciences, health-care and of course productivity of companies. The stability of the Dutch economy is based on this behaviour because the country traditionally focuses on knowledge transfer with other countries to increase their trading and production capacities.

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