Ifo Viewpoint No. 76: Germany: A Land of Immigration?

Hans-Werner Sinn
Munich, 31 July 2006

Exactly how many immigrants live in Germany? Until recently there was no clear answer to this question. It was only known that the foreign population amounted to 8.9 percent, and this was normal for Europe. Many were surprised at this low percentage, because it does not correspond with the picture they see on the streets.

Now that the Federal Statistical Office has published the results of its new micro census we know more. Now the talk is suddenly of 18.5 percent immigrants. The surprise could not have been greater: almost every fifth inhabitant in Germany is now an immigrant.

The contradiction between the two numbers is only apparent, since foreigners and immigrants are not the same. Immigrants can be naturalised, ceasing then to be foreigners, and they can also be Russian or Romanian Germans, who are counted in any case as German citizens. The 8.9 percent refers only to those immigrants who do not have German citizenship. In contrast, the 18.5 percent encompasses all immigrants, counting the Russian and Romanian Germans as well as the children of these immigrants including those born in Germany. The Federal Statistical Office thus speaks of the “population with a migration background”. Foreigners who live here as tourists and are not registered are not yet included in this number.

A somewhat different definition of immigrants refers to that part of the population that was born abroad. Children born in Germany are not counted here, nor is citizenship taken into account. According to this definition, the share of immigrants in 2005 stood at 12.6 percent. This is quite a high figure. It is lower, to be sure, than the corresponding share in the classical immigration countries such as Canada, New Zealand and Australia, which lies between 18 and 22 percent. Nevertheless, this proportion is higher than in countries such as the Netherlands, Austria or Sweden, which have shares of between 10 and 12 percent. Even the United States had a smaller percentage of foreign-born population than Germany in 2000 at 11.1 percent. Germany is indeed a country of immigration.

Mass immigration has been going on for several decades and will not abate in the coming ones, especially in light of the imminent EU membership of Romania and Bulgaria as well as the granting of the free movement of labour for the other Eastern European EU countries as of May 2011. If Turkey is admitted to the EU, immigration will speed up even more.

To what extent immigration enriches German culture or puts extreme pressure on society has been the subject of much discussion. In terms of the economic benefits, the judgments are also mixed. On the one hand, the country needs immigrants in order to keep the economy running. Even if we include the newborn children of today’s immigrants, which account for a third of all births in Germany, the number of inhabitants in Germany is currently falling more rapidly than the population of any other developed country in the world. Only continued immigration can stabilise the country. Without migrants the German economy would be lacking far more than the many goals scored by naturalized Polish immigrants Miroslav Klose and Lukas Podolski during the recent World Cup championship.

On the other hand, Germany does not need the indirect immigration into the welfare state that has been going on for three decades. It makes no sense to let millions of foreign workers into the country when the less qualified locals are induced by a generous replacement wage system to clear the stage to make room for those new immigrants. The rigid, low-wage limits fixed by social assistance and unemployment assistance (Arbeitslosengeld II)—because no one is prepared to work for less than the state pays them for being idle—have led to a nonsensical migration pattern. Immigrants, who are not entitled to such benefits, take the jobs, while the locals let themselves be pushed, not altogether involuntarily, into the easy chairs that the welfare state has prepared for them.

Up to now this economic foolishness has been financed by new public borrowing and taxes, which are primarily paid for by the high-income groups. The lower 40 percent of income recipients in Germany pay no income tax at all while the upper 10 percent shoulder fully half of the total. No wonder that the lower strata of society has no real objection to immigration. Many even welcome the arrival of others who occupy an even lower rung than they do. They profit from cheap döner kebab sandwiches and are happy to have their rubbish picked up by the immigrants. But it is no wonder that the taxpayers are fleeing. Today, Germans invest 50 percent more abroad than at home, and young talent is also leaving the country.

Germany can no longer afford this course, since the redistribution at the expense of the tax-payers has its limits even if the grand coalition thinks it can continue to expand these limits by financing an increasingly larger part of the welfare budget from taxes. However, the capital-flight reactions will prevent a continuation of this course even if the democratic forces insist on an intensification. Instead of redistributing even more income, Germany must at last reassess its social model and make it fit for mass immigration.

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

Published as "Viele Tore“, Wirtschaftswoche, no. 27, July 3, 2006, p. 198.