Labor mobility after the European Union's eastern enlargement

Abstract

"The Eastern enlargement of the European Union (EU) has triggered a net migration from the new member states (NMS) into the EU-15 of some 250,000 persons per year in the first two years following the 2004 enlargement round. Although this migration flow is rather moderate at the EU level, it has fanned fears in those EU countries that have opened their labor markets from the beginning and are particularly affected by immigration from the NMS. But what are the economic consequences of extending the free movement of workers to the NMS in the enlarged EU? To answer this question a simulation model has been developed that frames the conditions of European labor markets with wage rigidities and high unemployment. It finds that the relatively moderate migration after enlargement yields a mere 0.03 percent increase in the enlarged EU's GDP, and that even in the two most affected countries - Ireland and the UK - the GDP gains amount to no more than 0.1 percent. In the long-run, the GDP of the enlarged EU will increase by some 0.6 percent if four percent of the population of the new member states migrate into the EU-15. In particular the GDP of Ireland will increase by more than four percent and that of Austria, Germany and the UK by about two percent. These gains dwarf those of a further integration of goods and capital markets. The main winners are the migrants themselves: their income increases by more than 100 percent. While natives in the sending countries tend to gain on average, the aggregate impact on the income of natives in the receiving countries is neutral or even negative. The unemployment rate increases in the destination countries by less than 0.1 percentage points with blue-collar workers being particularly affected. Their net earnings might decline by 0.2 percent depending on the skill composition of the workforce from the new member states. Nevertheless, since migrants from the new member states are net contributors to the welfare state even the receiving countries can benefit from the free movement if they manage to integrate the immigrant workforce into their labor markets. We thus conclude that the free movement of workers, one of the fundamental freedoms of the Common Market, yields substantial gains for the enlarged EU's GDP in the long-run. Although the impact of migration on the destination countries is ambiguous, the total negative effects are so small that they can hardly justify the suspension of free movement from an economic perspective. This might also be an important lesson for other regional trade arrangements including, most significantly, the North American Free Trade Agreement (NAFTA), where income disparities among members are remarkably similar to the enlarged EU." (Author's abstract, IAB-Doku) ((en))

Cite article

Brücker, H. (2007): Labor mobility after the European Union's eastern enlargement. Who wins, who loses? (GMF Paper Series), Washington, 34 p.