Wednesday, October 25, 2006

2006 - The European Year of Workers (Im)Mobility

As the EU is currently still celebrating the year 2006 as the European Year of Workers’ Mobility it may be a good idea to review what restrictions on intra-EU mobility still apply towards the CE-8, and how this celebration is reflected in declarations on the opening up of the labor markets towards the 2007 two candidates – Bulgaria and Romania.

Upon the previous (1/May/2004) enlargement of the EU, labor market restrictions were an individual decision of each member state. The restrictions could sum up to a maximum of seven years, after which the workers from CE-8 will have to be treated equally with workers from the old member states (which should happen in mid 2011 at the latest). On the day of accession only three states (Ireland, Sweden and UK) opened up their labor markets, while other countries retained their permit systems, though admittedly with some changes, be it instant or gradual, in the way they are issued. After a two year period (1/May/2006) another four countries (Finland, Greece, Portugal and Spain) decided to adopt the ‘open-door’ policy, and two months later, Italy notified the Commission that it is doing the same. The rest of the countries do not seem to be moved by the ‘2006 Year of Workers’ Mobility’ slogan and is keeping the permit schemes, though admittedly the ‘toughness’ of the restrictions varies among countries. Notably, Italy is the only EU founding member that has decided to open up its labor market.
As for the new enlargement, to come next year, the declarations seem even more severe. The leaders of the previous open-door policy seem a bit overwhelmed by the influx of workers from the CEEC-8, which well exceeded estimates, and thus the UK was the first country to declare (Eastern approaches, FT: October 25 2006) it will not extend its policy to Romania and Bulgaria. With similar voices from Ireland, it is hard to expect the more conservative (on the 'open door policy') states will not follow, especially the ones with restrictions still applying to the previous group of acceeding countries. The threats of reciprocity on the side of the candidates will probably have no influence on the other member states (as for instance Poland and Hungary have been applying the rule since accession).
On the other hand, the CEEC-8 states do not seem to give a fabulous example themselves. When joining the EU in 2004 they jointly decided not to restrict labor market access to each other. Now, there seems to be less consensus. The Estonian, and then the Slovak government declared it will not apply any restrictions (here) and were recently followed by a similar declaration from Poland (here, in Polish unfortunatelly ). The other countries seem rather undecided, Hungary seeming rather against the idea (here). Politically, this seems to be a mistake, as one can still recall the complaints on the decisions of most EU-15 countries to seal up their markets against CEEC-8. Moreover, the open-door policy towards Bulgaria and Romania would be rather a signal than have a huge effect on the CEEC-8 economies.
Whatever the outcome will be, the labor markets inside the EU are still far from open to EU citizens form transition economies.

Labor market restrictions information source: EURES

Sunday, October 01, 2006

Bulgaria and Romania - a green(?) light

Last week (26th of September) the European Commission gave a green light to the 2007 enlargement which will encompass the two South-East European states. This followed a discussion on the suitability of the countries in question, be it on grounds of relative poverty, the state of economic and political reforms or on the issue of fighting organized crime. Bulgaria was the one to create most controversy, especially on the last issue, and the warning voices from the EC suggested that the issue may lead to the postponing of the enlargement, either for Bulgaria itself or for both of the countries. Though the enlargement has yet to be approved by national parliaments (most have done it already), it seems decided that the enlargement will take place in 2007, amid voices that delaying the accession may have a rather negative than encouraging effect on reforms in the two states.

There are two (among others of course) interesting discussions related to the above discussion. First of all, one concerning the opening up of job markets to immigrants from the above countries, and second, the fact that the EC mentioned that further enlargements will not follow for a rather indefinite horizon.

As both issues seem a bit worrying, I think it is good to start from clearing up a few matters on the first one. The idea to open up to Bulgarian and Romanian workers is even more controversial that in case of the previous enlargements (which could have been easily foreseen (here ), as the countries are poorer than the current NMS. It seems quite probable that the only country to continue its open-door policy to new(est) member state workers will be Finland. The other EU-15 states are reluctant to give a green light to labor mobility. Even the UK and Ireland are most likely not going to continue the stance they maintained with respect to the CE-8. This decision seems politically motivated – the UK had experienced an inflow of 470 thousand workers (estimates including self-employed workers range up to 600 thousand - Home Office Report), mostly from Poland, in the past 2 years – much larger than previously expected.

But the UK has been the primary EU job target for young Polish workers long before Poland actually joined the EU, while this has not been the case of Romanian or Bulgarian workers. Romanians rather choose Italy or Spain – because of language and cultural reasons, geographical vicinity, but possibly also because of the inefficiency of authorities in the crackdown on illegal labor (Christopher Condon reported on this for the FT on the 29/08/06 in “Romanians set sight on Italy and Spain” ). Moreover, quite likely most Romanian migrant workers are already working in Italy and Spain, though mostly in the grey zone. Some estimates (like the Romanian Labor Ministry cited by the previous FT source) claim 2 million Romanians are already working in the EU – 2 million of a 22 million country – so how many more could realistically leave? Of these, 90% are estimated to work illegally. Even if these guesstimates give rather the upper bound, other surveys tend to show ca. 1 million (cited in Migrating or Commuting....) of which 53% illegal. As for Bulgaria, the situation is a bit different. The language similarity is nor an issue, but the country experienced a massive outflow of migrants in the early 1990s (official figures cited in ILO International Imigration Paper no.39
show about 480 thousand net emigrantion in 1988-1995, and here surveys show a decline in population of 6% between 1992-2001), most of them to Germany, Austria, Italy and Spain (and US). Thus in both cases the answer to the question whether Romanians and Bulgarians would flood the EU-15 labor markets upon entry seems to be – no, they’re already there.

Whether the UK opens up to Romanians and Bulgarians – will probably not change much in the UK labor market – as mentioned, the UK would be unlikely to become a primary target for Romanians, and moreover its low-skilled labor market is rather saturated by workers from CE-8. That is, I would claim the large wave of influx into the UK has peaked, and a couple thousand workers from the south of Europe would not change much.

But a decision not to do so (i.e. open up) in Italy, Spain or even France seems rather a mistake. Putting aside the fact that opening labor markets would spread the migration more evenly across the EU15, the EU could benefit as a whole on legalizing the status of ‘underground’ workers from Bulgaria and Romania. Additionally, new EU members will enjoy the right to freedom of movement, and thus coming to an EU15 country as tourist will, contrary to still the current situation (albeit already much easier than a couple years ago) be trouble-free. Therefore one can expect an even additional boost to grey zone employment, especially in Italy, Spain and France. This will not only increase the problem of crime, but also put downward pressure on wages – obviously illegal workers are not subject to minimal wages, and the employer bears no costs of social security or medical insurance. The only wise decision would be to open up, and allow a “coming-out” of the underground workers, which would facilitate the crackdown on crime.

Finally, governments of CEECs are realizing that the outflow of (mainly young, flexible and often skilled) workers may not be so favorable, and we should soon expect incentives in order to attract them back home. Admittedly the recent emigration did contribute to the lowering of unemployment rates in Poland (from above 19% on EU entry to 15.5% in August, though not seasonally adjusted) and other CE-8 countries, but as we discussed thoroughly on this blog ( here ) the outflow of (mainly young) workers may have many adverse longer term effects on the economies. Social security, pension and healthcare systems are put under strain from the lack of contributors, while the amount of beneficiaries is increasing as the societies age (in case of the CE-8 relatively rapidly). The infamous, though possibly frequent case of university graduates (whose education was paid by the tax payer) not being able to find a job at home and thus shifting to low skilled tasks in the UK, means that the money invested in their education could perhaps have been spent better. Health and pension systems, and (in this case rather wasteful) education spending reinforce the already high tax burden on employees in the home countries, which further decreases the job opportunities for young workers – creating something like a vicious circle.
Bulgaria and Romania are growing fast and unemployment rates are not extremely high (8.7% and 7.5% respectively data). Reportedly, some sectors in Poland (despite the still high unemployment rate) like agriculture and construction, but also Romania are reporting a shortage of labor–and during this years’ harvest, there were voices in the Polish government to look east for workers….