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….


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