Ifo Viewpoint No. 97: Barbarians or Geniuses at the Gate?

Hans-Werner Sinn
Munich, 15 July 2008

Europe is currently experiencing a huge wave of migration between its east and west. This movement resembles the Great Migrations (Völkerwanderung) that marked Europe between the fourth to sixth centuries.

Within the first year of Romania’s accession to the EU on January 1, 2007, for example, roughly a million Romanians migrated to Italy and Spain. More than 800,000 eastern Europeans have become workers in the United Kingdom over the past four years, most coming from Poland. Indeed, in the last two years alone, 1.5 million Poles emigrated, and overall probably more than two million have done so since Poland’s EU accession in 2004. On a smaller scale, the migration of Ukrainians to the Czech Republic, Bulgarians to Turkey, and British citizens to Spain is also noteworthy.

Because Germany still restricts the immigration of dependent workers from eastern EU countries, most of immigrants from these countries come as self-employed or economically inactive people. In Munich, the number of self-employed tilers increased in 2004 and 2005, the first two years after the first eastern enlargement wave, from 119 to 970. But despite restrictions, by 2005 Germany had absorbed 37% of all migrants from eastern Europe that had come before and after eastern EU enlargement, whereas Italy had absorbed 22%, Greece 11%, Switzerland 8% and the UK only 3%. In the same year, 13% of the population living in Germany was foreign born, more than in Britain (10%), France (7%), Spain (5%), or Italy (3%).

The immigration waves of the last two years to Britain, Spain and Italy will have significantly changed these figures, but the information needed to update the statistics is not yet available. Nowadays, people move faster than statistical offices can count them.

Before the EU’s eastern enlargement, many studies predicted the likely migration waves. The forecasts of the proportion of eastern Europeans who were expected to move west within a 15 years ranged from 2.5% to 6%. Given that about 5% of the Polish population has now emigrated within a period of only four years, despite immigration restrictions by important target countries, these estimates were much too cautious.

Before enlargement, it was politically incorrect to discuss possible waves of migration to the west, as EU politicians saw this as an obstacle to the enlargement process. Now that enlargement has taken place, it is easier to discuss migration objectively.

This immigration is not an invasione barbarica, as Italians refer to the Völkerwanderung, although the orders of magnitude are comparable. As migrants move between markets with well-defined property rights, immigration in principle is beneficial for both the immigrants and the target country. The immigrant receives a higher wage than at home, and the target country benefits from cheap labour, which creates more value than it costs.

But in practice, immigration is often not as beneficial as it could be, because the target country has a rigid wage structure that prevents the additional jobs needed to employ the immigrants from being created. If, for example, a target country provides minimum wage guarantees and replacement incomes for the domestic unemployed, immigrants simply force domestic residents into the care of the welfare state. This is not a problem of immigration as such but of poorly designed domestic social and labour market institutions.

To be on the safe side, host countries often try to limit immigration to skilled workers, because they join segments of the labour market in which sufficient downward wage flexibility provides immigrants with additional jobs. But countries have so far had mixed success in attracting skilled immigrants. The most successful countries in this regard have been the Anglo-Saxon countries (Canada, Ireland, Australia, the United States and the UK, in that order), as well as Denmark and Norway.

More than one-third of immigrants to these countries have tertiary education, with Canada and Ireland at 45%. In the more unsuccessful countries – Italy, Austria, Germany, France, Portugal and the Netherlands – the proportion of immigrants with a tertiary education is below a quarter. In Italy, the share is just 11% – the lowest in the available statistics.

The brain drain to the Anglo-Saxon countries, the US in particular, is astounding. The graduating classes of top American universities are packed with foreign students, and 27% of physicians practicing in the US today come from abroad. America’s postwar growth and dynamism largely resulted from skilled immigrants. Before and after World War II, many skilled people came from Europe, Germany in particular; in recent decades, Asian immigrants dominate, with India, Pakistan, and the Philippines occupying the top ranks.

Today’s brain drain is not only from emerging and developing countries to richer countries but also from European countries to the US. In most research disciplines, European-born “superstars” work and teach in the US rather than in Europe, and, according to a study by Gilles Saint-Paul, it is the superstars in particular who generate growth and prosperity for a country.

Of course, people with a decent tertiary education are also important for a country’s economy, and here the losses of some European countries are substantial. While only 3% of Spanish and 4% of French people with tertiary education live abroad, 7% of Italians and 9% of Germans do. Surprisingly, Ireland and the UK lead in this category, with 34% and 17%, respectively. This may reflect the high interchange in both directions between the Anglo-Saxon countries, or replacement migration in which skilled people arrive from elsewhere as the domestic skilled migrate to other Anglo-Saxon countries.

The European landscape will change as rapidly in the course of this century as it did at the time of the Völkerwanderung. History will have many tales to tell about what this really meant for the Continent. At the moment, though, the casual observer is still rather clueless.

Hans-Werner Sinn
Professor of Economics and Finance, University of Munich
President of the Ifo Institute

Published as „Millionen auf den Beinen“, Die Welt, no. 153, July 2, 2008, p. 7; additionally printed in Les Echos (Mali), The Independent (Bangladesh), South China Morning Post (Hong Kong), Jakarta Post (Indonesia), The Japan Times (Japan), The Korea Herald (South Korea), Daily Times (Pakistan), Business World (Philippines), L'Echo (Belgium), Poslovni Dnevnik (Croatia), Borsen (Denmark), Taloussanomat (Finland), Vilaggazdasag (Hungary), Diena (Latvia), Verslo Zinios (Lithuania), Logos Press (Moldova), Diario Economico (Portugal), ZIUA (Romania), Tyzden (Slovakia), Finance (Slovenia), L'Agefi (Switzerland), The New Economy (United Kingdom), Zero Hora (Brazil), Ultima Hora (Paraguay), Bahrain Tribune (Bahrain), Al-Sabah Al-Jadeed (Iraq), Jordan Times (Jordan), The Daily Star (Lebanon), Al Eqtisadiah (Saudi Arabia), New York Sun (USA).