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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
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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
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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
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Working age population and dependency ratio,
2005-2050
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NPV net contribution to welfare state by age of
entry – red line
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(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, longterm care)
• Key issue: Need for more workers, not more
people
• What role for immigration?
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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)
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(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?
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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
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Dutch experience with immigration
Focus on economic and labour market impact
1. Immigration from outside the EU: Morocco,
Turkey, Surinam, Netherlands Antilles and other
non-western countries
2. Immigration from within the EU: CEEC
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Immigration from non-EU countries, 1995-2007
80000
Other
70000
Asylum
Family
60000
Work
50000
40000
30000
20000
10000
0
95
96
97
98
99
00
01
02
03
04
05
06
07
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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)
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NPV net contribution to welfare state by age of
entry – blue line
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Gap in male employment natives and foreign
born (%), 2005-2006
15
10
5
0
CH
GE
FR
AT
BE
DK
-5
-10
low-skilled
high-skilled
-15
-20
SD
NO
NL
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Enrollment in higher education
(% of age group 18-20)
1995
2000
2007
Men
43
48
52
Women
46
56
61
Men
28
34
50
Women
27
38
61
Native background
Non-western immigrant
background
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Number of workers from CEEC countries,
January 1999 – December 2005
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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
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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)
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NPV net contribution to welfare state by age of
entry – green line
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NPV net contribution to welfare state by age of
entry – 4 cases (HC RM): (- -) (- +) (+ -) (+ +)
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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
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Thank you for your attention
Ministerie van Sociale Zaken
en Werkgelegenheid
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Immigration, 1995-2007
100000
non-EU
90000
EU
80000
70000
60000
50000
40000
30000
20000
10000
0
95
96
97
98
99
00
01
02
03
04
05
06
07
Ministerie van Sociale Zaken
en Werkgelegenheid
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Employment rates after arrival, 1997 cohort