Ifo Viewpoint No. 9: EU Enlargement: the Migration Problem

Hans-Werner Sinn
Munich, 23 Dec. 1999

The eastern expansion of the EU is almost as momentous as German unification. Whereas the latter led to a 26% increase in the population of the Federal Republic, the former will increase the population of the EU by 28% if all ten entry aspirants are accepted. No fewer than 105 million people are waiting for accession.

A special problem will be posed by migration. Wages in the applicant states are mostly about one-tenth of western German wages and one-fourth to one-sixth of German welfare benefits. In view of these figures, a massive westward migration can be expected after EU expansion. Using projections based on Turkish migration to Germany, we can expect four million immigrants from Eastern Europe, but in light of the free movement of labour that EU citizens enjoy, this number is only the lower limit of plausible estimates.

A temporary east-to-west migration up to the time that the eastern countries have created an efficient capital stock makes economic sense if it is driven by wage differences and meets with a flexible labour market (see Ifo Viewpoint no. 6). Since wage differences reflect productivity differences, this migration will lead to an increase in European GDP which will be large enough to offset the migration costs.

Migration does not make economic sense, however, if, and to the extent to which, it is induced by the current social assistance systems. Moreover, welfare-motivated migration would create competition among Western European states to frighten off potential migrants, which would lead to an erosion of the traditional social welfare state.

If the EU plan incorporated a limitation of the free movement of labour, the beneficial migration would also be stopped. A better solution would be to limit access to the Western social systems, at least for a transitional period in order to filter out migration induced by differing social standards. An EU-wide application of the home-country principle used by Switzerland in the granting of social benefits would achieve this goal. The idea under discussion of limiting guest-worker employment to jobs on an independent contractor basis is in accord with this principle since it would allow employment in the West but hinder access to Western social systems. Other variants of the home-country principle are conceivable, too.

Hans-Werner Sinn
President of the Ifo Institute