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CE Financial Observer: It’s been four years since the peak of the so-called migration crisis, when over 1.3 million refugees suddenly arrived in Europe. Can we now assess the impact of this wave of immigration on the European Union’s labor market?
Professor Michael C. Burda: It depends which EU member state we are talking about. Immigrants from outside the EU have mainly settled in the United Kingdom, Sweden and Germany. I have been living and working in the latter country for many years. A sudden influx of large numbers of immigrants creates a risk that they could become a financial burden for the state if they don’t find employment. Fortunately, the labor market in Germany was pretty well prepared for the absorption of this new workforce. This was largely due to the flexibility of the local labor laws.
Yes. In the 1990s German regulations hampered the labor market and contributed to the relatively high rates of unemployment. However, fundamental reforms were carried out in 2003-2004. These changes allowed entrepreneurs to employ people under very liberal terms of payment and limited access to welfare benefits. The reforms were mainly introduced for Germans from the former GDR, who often faced significant difficulty in finding employment. Outside of the Turkish diaspora, at the time there were almost no immigrants in Germany in today’s meaning of this word. The reforms made it easier to find employment not only for the Germans, but also for Poles, for whom the German market opened up following the country’s accession to the EU. When people from Syria or African countries arrived at the gates of Europe in 2015 — and we should keep in mind, that they often lacked any qualifications — the German market had a lot of low-paying jobs available for them. Instead of becoming a burden, they started to contribute to the German GDP. Together with the Turks they already account for approximately 0.5 per cent of the domestic output.
Did German recently introduced minimum wage hamper the immigrants’ integration in the local labor market?
The German minimum wage is very low, if we compare it with the rest of Europe, and if we take into account the local purchasing power. It’s only approximately EUR9 per hour. It really didn’t matter.
So, the majority of the immigrants who settled in Germany are now employed?
No, not the majority. Approximately 20-30 per cent. This is still quite a success, if we compare this percentage to countries such as Sweden or the United Kingdom, where it is lower.
30 per cent does not sound like success.
Well, we should keep in mind, that these immigrants often do not know the local language, not to mention other cultural barriers, and their assimilation is very difficult.
Did Sweden attract the immigrants with its generous social benefits?
This is certainly true to some extent. The labor market in that country is less capable of absorbing immigrants than Germany. It is strongly unionized, and you have to be a really productive worker in order to find employment. By the way, the generous welfare benefits granted to immigrants in Sweden or Denmark are causing strong social tensions.
Should the Swedes limit the immigrants’ access to these benefits?
Well, that might not change too much. As a rule, there are three major factors attracting immigrants from poor countries. Outside of the welfare benefits, it is also the affluence of the destination country: people are migrating to rich countries and to countries that are prospering, because there are better chances of finding work there. And Sweden is a wealthy country. Moreover, if there are already many Syrians in the United Kingdom, then new ones will arrive. This is also the case in Sweden. Those who have already settled are helping their compatriots in finding shelter, work, dealing with the various procedures and the public offices. This is a very strong effect, often determined, for example, by a shared history. That’s why Moroccans, Algerians and Albanians are emigrating to France. Interestingly enough, France opposes Albania’s entry into the European Union precisely because it fears a wave of immigrants from that country. Meanwhile, Germany supports the expansion, because the Albanians are not heading there.
However, France was not the main destination for immigrants in 2015, despite the fact that it already had a large population of immigrants from outside the EU. Why was that?
Because in the meantime, strong anti-immigrant attitudes had emerged, which was reflected in the growing support for the National Front. The immigrants were simply afraid to go there.
You’re saying that the German labor market is coping well with the absorption of immigrants.
So why was Germany pushing the idea of relocation of immigrants, among others, to Poland?
The secret lies in the word “relatively”. Germans also have problems with the immigrants, so they want — in accordance with the principle of solidarity, which is generally accepted in Europe — to resolve them, by sharing the burden with other countries.
Which are much poorer than Germany. Poland, the Czech Republic and Slovakia may not be able to cope with this task financially.
“We are still catching up”. I’m hearing this argument very often, and I think it is largely the result of the strong belief concerning the difficult situation on the labor market, which had been developed two decades ago. At that time the unemployment rate in Poland reached 20 per cent and the memory of that period is still alive today. It’s just that today the absorptive capacity of your labor market is much greater, you even experience serious labor shortages in some industries. Germany’s willingness to share the problem of immigrants also arises from the forecasts of the local economists who are predicting a recession. It is supposed to arrive soon and weaken the country’s ability to cope with additional tasks.
All of Europe is struggling with population aging and labor shortages. The economists are pointing out that it will be necessary to either increase labor productivity, which has been virtually stagnant, or to rely on immigrants to offset the demographic losses. What is your position?
Immigrants are very important, but once again I’d like to go back to the issue of qualifications. They have to match the challenges faced by the societies of the European Union member states. Immigrants could help in increasing the productivity of Europeans, if they could free up their potential, for example, by taking up employment in areas such as elderly care or child care. Such jobs require language skills, but also soft skills, such as being attentive, caring, sensitive, responsible, etc. Such competences are not acquired at the university but in the course of one’s upbringing. Many immigrants possess such qualities. Such professions cannot be replaced by robots. Of course, Japanese already have robots that care for seniors, but in my old age I wouldn’t like to be cared for by a robot instead of an actual human being. I think that such solutions don’t have much of a future in Europe. As for the productivity of the Europeans themselves, it is not entirely true that it’s stagnant. For example, some Polish factories are now just as productive as the German ones. Over the past two decades truly amazing progress has taken place in your country in this respect.
You’ve mentioned that excess immigration could cause social tensions between the immigrants and the local populations. Is there a way for governments to somehow mitigate these tensions?
The tensions are understandable. In the case of low-skilled jobs the local workers are simply being displaced from the labor market. If someone hires a Mexican worker at a tomato farm in Texas, then some Texan person will lose the job. Does this mean that we should prohibit the employment of Mexicans? No. However, those who lose their jobs should get some sort of protection. How can we do this? By taxing the owners of the tomato farms and using these taxes, for example, to finance job training which will enable the Texans to find new employment. Of course, the owners of the farms will not be happy about this, because every capitalist would like to be able to bring in workers from abroad who will work for next to nothing. That’s understandable, and such solutions would reduce the attractiveness of this strategy. Western countries have generally fared rather poorly when it comes to designing mechanisms to compensate the “losers” of the process of globalization. When the United States started trading with China in the 1990s, we started getting cheap products from China sold at the Walmart. But those who had been producing these goods domestically before that ended up losing their jobs and had to fend for themselves.
However, even in places where there are compensatory mechanisms, such as Sweden, and where the immigrants are not taking jobs from the “locals”, we still see social tensions.
I think that this is a natural and inevitable phenomenon. If a foreigner comes into your country and makes a claim on your resources, you will fight back. And this is not about any sort of xenophobia. It’s not that someone hates immigrants as people. If the people of Louisiana emigrated to Alaska and received the rights to a portion of the revenues from the local oil production, then the Alaskans would be rightly outraged. I think only Jesus himself would not be outraged in such a situation.
So, if we impose additional taxes on companies that are bringing in immigrant workers, will that solution be effective? They are known to avoid the payment of the taxes already imposed on them. Polish companies employ Ukrainians and come up with perfectly legal ways in order not to pay the insurance contributions. In other words, fiscal realism forces us to approach your proposal with some suspicion.
I don’t think so. In the contemporary economy, based on digital solutions, it is much easier than it used to be to find companies that are trying to cheat the tax system, and also to identify loopholes in the legislation that enable them to legally circumvent this system.
What would you say to the following combination: entirely open borders plus a compensation system? Is this a good direction for immigration policy?
The answer is complicated. If we would like to reduce immigration to our country, we would have to accept the costs of such a solution. Americans are hypocrites in this regard. They say: “we don’t want Mexicans”, but they still hire them as domestic help, for mowing the lawns around their houses, or for picking the aforementioned tomatoes. Limiting immigration would carry a cost in that they would have to do these things themselves. If someone really wants to limit immigration, they should first make sure that people in the countries supplying immigrants have no reason to emigrate. The process is simple: let’s help them build well-functioning economies. The countries of Europe have a history of colonization in which they exploited foreign resources without simultaneously building market institutions. Perhaps it is now time to fix this mistake. Let Germany help in the development of Togo or Nigeria, for example, by reducing the corruption there.
Your ancestors were Poles. They emigrated to the United States from southern Poland, the region of Galicia. They were brought across the ocean by an American company looking for workers. Today, you are one of the leading scholars, contributing to scientific research in the United States and in Germany. It seems that this alone should make you a supporter of open borders.
In the 19th century America was a true melting pot. Anyone could go there and start from scratch. It didn’t matter whether you were a Pole, a German, or an Irishman. At the outset your chances we more or less similar, and you could actually expect to improve your livelihood. This allowed for the emergence of the notion of the „American dream”, which is a bit anachronistic today. Nevertheless, the United States is still a different place than Europe. We could say that Europe provided the United States with people who had the greatest risk appetite and the biggest ambitions. Meanwhile, the people who stayed behind in Europe espoused completely different values. They were closely attached to family, community, and peace. Today, Europe desires equality, which is not present in the United States. In that country you really have to work hard in order to have a house and three cars. And there is no paid leave. It’s a really hard life. Moreover, it’s entirely possible that you will not be able to afford that house, even if you work hard. If you were born in a poor family in the middle of the country, you have less of a chance of moving up on the social ladder than if you were born in a poor family in the Western states. And these chances have got relatively worse over the recent decades. The influx of immigrants at a rate of 1 per cent of the United States’ entire population each year does not improve this situation. The point I’m trying to make is that the question of “open or closed borders” should be resolved by the individual countries and should not be based on economic factors alone. The values espoused by the given society should also play some part in this decision. Poles have a different opinion about these issues than Germans, and the Germans, in turn, view it differently than the Swedes or the Americans.
So, you support localism in matters of immigration policies?
Yes, but this localism shouldn’t go too far. Would you like to live in a country in which each region has its own separate immigration policy? Exactly. Still, I would like people to have more of a say when it comes to who they will accept and who they won’t accept in their own community. The arrival of immigrants influences the environment, especially when they start building their own temples or hospitals. Some agree to that, while others see this as a threat to their identity. The history of Europe is a history of conflict and division. We should keep this in mind. I believe that no one really wants full federalization here. Even the supporters of the common currency haven’t shut down their local central banks, which would be advisable, if they really wanted to create a full-fledged union.
What you’re saying goes against the European Union’s official philosophy when it comes to immigration policy, which involves an emphasis on common solutions.
Yes, but they go the wrong way about it. These common solutions should be shared not only at the intergovernmental level, but also between the individual nations. In other words, the nations of the European Union must feel some sort of community and have some common objectives in order to support the common policies. And the development of such common areas can be stimulated, for example, by making it easier for EU citizens to travel across the community, to create joint grassroots projects, companies or to conduct scientific research, etc. Then it will be easier to reach an agreement on the shape of the immigration policies.
Michael C. Burda is an American economist from the Humboldt University of Berlin.