Strengthening EU Competitiveness – Potential of Migrants on the Labour Market

1. Strengthening EU Competitiveness –Potential of Migrants on the Labour Market The Costs and Benefits of Economic Migration A Dutch Perspective Jos Jansen (Ministry of Social Affairs and Employment) February 26, 2009

2. Outline • Migration in relation to key policy challenges (1) Sustainability of welfare state (2) Structural changes on the labour market • Dutch experience (1) Non-western immigration (from late1960s) (2) CEEC immigration (from late 1990s) • Conclusion

3. Broader setting: Key policy challenges Due to ageing of population, globalization, technological advances, etc.: • Sustainability of welfare state under pressure • Shorter working lives • Higher old age expenditures (pensions, care) • Declining working age population • Higher factor mobility • Structural changes on the labour market • Demand: Sectoral shifts (e.g. care) • Supply: Ageing of workforce, possibly decline

4. Working age population and dependency ratio, 2005-2050

5. NPV net contribution to welfare state by age of entry – red line

6. (1) Sustainability of the welfare state • Policy approach along three tracks • Increase labour utilization (participation rate, hours per worker, working life) • Decrease government debt • Adjust current welfare state arrangements to reduce future spending (unemployment and disability insurance, social safety net, old age pension, long-term care) • Key issue: Need for more workers, not more people • What role for immigration?

7. Immigration and the welfare state • Immigrants who work • Pay taxes and contributions • But also accumulate rights on benefits • Immigrants are in many cases also citizens, with additional consequences for the welfare state • Family reunion • Family formation (spouse from home country, children) • Duration, permanent residency • Selection: Do generous welfare states attract immigrants with low potential (Cohen and Razin 2008)

8. (2) Structural changes on the labour market • Effects of labour shortages and sectoral shifts may be mitigated by • Adjustment of wages and wage structure • More imports • More outsourcing • Investment in employability, human capital • Investment in labour-saving technological change • Activating untapped labour potential • Labour market institutions that support flexibility • What role for immigration?

9. Migration and the labour market • Benefits • Increases labour supply, reduces tightness • Increases output • Better matching on the labour market (larger pool) • Increases flexibility and dynamism on the labour market • Increase of high-quality human capital at work in case of highly-skilled immigrants • But … • Not every immigrant is successful • Displacement of native workers (esp. low-skilled) • No structural solution for future shortages

10. Dutch experience with immigration Focus on economic and labour market impact • Immigration from outside the EU: Morocco, Turkey, Surinam, Netherlands Antilles and other non-western countries • Immigration from within the EU: CEEC

11. Immigration from non-EU countries, 1995-2007

12. Immigration – Part of the solution? Impact on sustainability crucially depends on labour market integration of immigrants: • Skill level • Length of stay, remigration • Cultural distance (language, cultural capital) • Network effects • Integration in society (mixed marriages, follow-up migration)

13. NPV net contribution to welfare state by age of entry – blue line

14. Gap in male employment natives and foreign born (%), 2005-2006

15. Enrollment in higher education (% of age group 18-20)

16. Number of workers from CEEC countries, January 1999 – December 2005

17. Economic impact of CEEC labour migrants (1) • Estimates for 2008: 51,000 long-term and 107,000 temporary workers (3 months) • Employment in 2005: 0.7% of total hours worked • Displacement wrt jobs: None by long-term migrants; small effect by short-term migrants in expansion sectors (doubling their presence reduces number of ‘Dutch’ jobs by 0.08%) • Displacement wrt wages: Reverse pattern • The demand curve for labour is downward sloping

18. Economic impact CEEC labour migrants (2) • Use of benefit schemes is at present very low Based on rough calculations: • Short-term migrants: small positive net contribution to Dutch welfare state • Longer-term migrants (average): NPV of net contribution measured over duration of stay is modestly positive (1 yr state pension for 1 person) • Net contribution: modest but positive (robust)

19. NPV net contribution to welfare state by age of entry – green line

20. NPV net contribution to welfare state by age of entry – 4 cases (HC RM): (- -) (- +) (+ -) (+ +)

21. Conclusion • Migration by EU-nationals reduces labour shortages and modestly improves sustainability • Same (probably) holds for knowledge workers • Short-term immigrants from non-EU countries may under certain conditions have a positive impact on labour market and sustainability • Long-term/permanent migration without integration may well hurt sustainability • Domestic labour utilization is key to sustainability, not migration

22. Thank you for your attention

23. Immigration, 1995-2007

24. Employment rates after arrival, 1997 cohort