MUNICH ECONOMIC SUMMITSocial Union, Migration

and the EU Constitution

Enlargement: The Challenge of Migration from the New

Member States

Georges de MenilDelta, Ecole des Hautes Etudes en Sciences

Sociales, ParisStern School, New York University

The Nature of the Challenge

How much immigration?What kind of immigration?What costs?What benefits?What Policy?

How Much Immigration?

ANNUAL NET FLOWS OF POTENTIAL IMMIGRATION FROM CEEC-10 INTO GERMANY

(Year from removal of restrictions) (000's)

1

3

5

Sum first 5 years

DIWW, (2003)

180 221 169 992

Sinn et al., (2003) (CEEC-5)

193 248 225 1143

Boeri et al., (2002) (CEEC-10)

225 280 150 1170

CEEC-5 : Poland, Hungary, Czech Republic, Slovakia, Romania. CEEC-10 : Poland, Hungary, Czech Republic, Slovakia, Slovenia, Lithuania, Latvia, Estonia,

Romania, Bulgaria. Notes : In 2002, the population of CEEC-5 was 83,5% of the population of CEEC-10.

How Much and When?

What Kind of Immigration?

YoungRelatively EducatedSimilar Cultural Heritage The Roma Problem

Potential Costs

Disruption of Host Labor Markets.Budgetary Costs.

Disruption of Host Labor Markets

Depends on the flexibility of the host labor market.

If markets are flexible, a reduction, over 5 years, of real wages 1-1.5% below the levels they otherwise would have risen to, would be sufficient to absorb new entrants.

If markets are rigid, new entrants could add 1 percentage point to existing unemployment rates.

Budgetary Cost (Major Components)

Statutory Pension InsuranceUnemployment InsuranceTaxed Based Welfare PaymentsProvision of Public Goods

Potential BenefitsGrowth dividend from the influx of qualified

and flexible worker.“Having already cut his roots to his native

land, the foreign worker is peculiarly mobile…He can transfer readily from firm to firm, occupation to occupation, and region to region within a country and between countries, and between abroad and home.”

C.P. Kindelberger, Europe’s PostWar Growth (1967)

Potential Benefits:Examples from PostWar Growth

Germany in the 1950’sFrance after the return of the “rapatriés”

from North Africa

Potential BenefitsThe example of Chinese immigrants to

Europe. “Europe has seen a dramatic increase in

Chinese immigration…Today’s Chinese migrants are consummate globalizers … They are independent, tech-savy and highly mobile. Indeed, some seem to be quicker than many Europeans to recognize Europe as a seamless single entity. “

Wall Street Journal Europe, June 17 2004

Potential Benefits

The initial budgetary cost should be viewed as a profitable investment in growth.

It may be important to recognize the need for larger, initial, structural deficits.

Policy Recommendations

1. Open the doors and restrict entitlements2. Accelerate labor market and welfare

reforms.3. Address the Roma problem.

The U.K. and Ireland are closest to having it right.

“Hard working immigrants are welcome. Benefit tourists are not.”

Home Secretary David Blunket, May 25 2004

Query:Will this approach be consistent with the new European constitution?

The enhancement of “social rights” may rule out the proposed, gradual inclusion approach.

This is an important example of the potential cost of including the Social Charter in the constitution.

What has been particularly misguided is the attempt to enact these “rights” through the courts.