In this Issue Paper, Nigel Harris explains the economic cost of migration control and makes the case for a free migration system where the supply and demand of workers is met by a world labour market.
Introduction
Immigration is, at the moment, a peculiarly sensitive issue in European politics, and perhaps it is understandable why this should be so. After some three hundred years of European nationalism and interstate warfare and rivalries, it is understandable that a popular reaction to foreigners in aggregate (rather than as individuals) is to see them as invading forces or enemy spies. Others may see new entrants to their club with supposedly fixed facilities as reducing the share of each members[i]. Xenophobia, based on fear and insecurity, becomes a hook on which to hang a multitude of real discontents, even if the target is largely irrelevant as a source of those discontents. Indeed, given these antecedents, perhaps we should, without being complacent, wonder at the long periods of lack of hostility, the lack of success of xenophobic political parties in the past half-century rather than the occasional conflicts.
However, the immediate context for present alarms is unique to this point in time, and to the erratic progress of globalisation – the opening of national economies to flows of trade, capital and people, and the results of this in the restructuring of national economies to accord with new global patterns of economic specialisation. In the context of migration, we are in the midst of a process of transition from closed or semi-closed labour markets to a world labour market, with continual contradictions between the changing nature of domestic labour demand (itself reshaped by new specialisations) and a world supply of workers, facilitated by the growth of a literate labour force in developing countries, a radical decline in transport costs and no less radical reforms in developing countries releasing large numbers of workers for domestic migration[ii] (China offers a vivid illustration of this).
In the old order of national economies, the political boundary was assumed to coincide with the economic, and the economy was relatively self-sufficient – neither imports, foreign capital nor immigrants were important. The theory was one thing; in practice, there were many obvious qualifications – Europe in the nineteenth and part of the twentieth centuries also possessed major empires in the rest of the world and supported major emigrations (and major migrations within empires). However, in the newly emerging order, national output is the product of world interactions and no government can aspire to self-sufficiency in either the production of goods and services or capital; rather each government is concerned with managing flows that start and end beyond its authority and often its knowledge. Such a system requires growing mobility – of business people, students, tourists, and consultants – within which it is almost impossible to identify those who wish to work without permission. In the field of labour, the instincts of national manpower planning and self-sufficiency in local supply have some continuing life.
Capital, trade and labour are, in tradable sectors of the national economy often substitutes – for example, imports can replace the tradable output produced by immigrants. On the other hand, the availability of workers of a given skill and cost in the present system influences the migration of capital or substitution of imports for local production as well as the growth or contraction of the black economy, including the flows of irregular workers. However, in the final analysis, each economy retains a core of non-tradable services where substitution is, in the medium term, impossible. One could of course, solve this issue by relocating the consumers abroad and to some extent this occurs (most strikingly in foreign tourism or retirement abroad by the native-born) but this is outside the terms of the present discussion.
Immigration policy has historically dealt with actual or potential settlers, rather than transient workers, and in important senses, it forced transients into exile from their home country if they wish to protect their access to work. Today, insofar as policy deals with migrant workers (and for many countries in Europe, family reunification still provides the bulk of immigration although this is changing), it is a form of manpower planning – estimating future demand by skill level and setting quotas, numbers of workers to be admitted in a given period for a set time. Such a policy approach has all the negative aspects of central planning. The unexpected fluctuations of a dynamic economy cannot be accommodated (as was shown so painfully in the misestimation of required information technology specialists just before the collapse of the ‘dot.com’ boom), the delays and costs of bureaucratic processing are notorious etc.
However, manpower planning requires a closed or semi-closed economy. In an open economy, compensatory movements across borders are constantly nullifying domestic policy changes or leading to perverse outcomes. Meanwhile, the economic costs of migration control to the world as a whole are largely unseen[iii].
The attempt to make planning a margin of the labour force effective requires the control of irregular movement. On the one hand, this should entail considerably greater internal police controls to check those who work while on a visa that does not allow this or has expired (in fact, it seems, governments are unwilling to risk popular hostility to enforce this). On the other, borders become militarised, brutalised and criminalized, and the asylum system is effectively wrecked in pursuit of ‘economic migrants’. In Europe – as on the southern border of the US - we are within sight of restoring the border fortifications – backed by State intimidation - that divided East and West Germany in the Cold War, now between Poland and the Ukraine, Hungary and the Ukraine, Spain and Morocco (and, on occasions, between France and Britain). It is apparently a permanent war against the compensatory imperatives of the labour market and its attempt to meet Europe’s demand for low skilled workers, with the same discouraging results as the US war on the narcotics consumed by Americans.
However, in the late 1990s, the Europeans entered the competition to attract highly skilled workers (particularly in Information Technology). The partial relaxation here only underscored the inequality of the migration regime. As in South Africa’s apartheid system, the skilled ‘whites’ have the right to migrate, while the low-skilled remain, supposedly, tied to the soil of their birth, denied the opportunity to escape poverty. However, for reasons to be discussed, it is likely that the right to migrate will be extended over the next half century. But, without preparation for this extension, the present process will remain painful, arbitrary and brutal.
Europe’s labour market: the supply of workers.
There are a number of self-reinforcing factors of relevance here:
The demographic decline in the size of the European labour force over the next half century is by now well-known and the data need not, therefore, be repeated here. Suffice it to note that by 2005, over a third of Europe’s regions will face a declining size of workforce. The process of contraction will be exaggerated as the generation of the post-war “baby boom” enters retirement.
However, within this projection there are other indications that show a more dramatic decline in the available working time on offer:
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An increasing proportion of working life (15-60/65) is becoming devoted to education and training. For example, in the UK, the present government has the objective of sending half the age group, 18-30, to university in the immediate future which has the effect not only of reducing the available work time but also of radically cutting those available for jobs requiring less than university education. Other European powers (for example, Germany) have comparable aims.
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An important part of the existing labour force is not engaged in paid or recorded work, but retires early, lives on disability pensions, or in other ways has withdrawn from work. For example, the size of this under-utilised workforce ranges from between 18 and 22 per cent of the labour force in Sweden to 40 per cent in Italy. This is not necessarily unemployment. The mark of an increasingly wealthy society is that people can afford to work less. On the other hand, such workers may be working in the black economy or other statistically unrecorded sectors, may work unpaid in caring for the elderly, for the young, for the disabled etc.
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The working life, year, week or day all tend to contract with growing wealth.
The trends coincide, in some cases, with high levels of unemployment (and especially of long-term unemployment), all the signs of a mismatch between labour demand and supply (or also a lack of complementary low skilled workers). Within the Union, this allows areas of high labour scarcity to coexist with those of high unemployment (or non-employment). Nor does it appear that Europeans are willing in sufficient numbers to move from one to the other. The last figures for the proportion of internal migrants to population were put no higher than 0.2 per cent (1999).
The result of this combination is peculiarly damaging - growing labour deficits with a significant under-utilisation of the existing workforce. Assessing labour shortages is difficult, but we have some estimates for 2000-2003 in the latest Sopemi report[iv]. It is interesting to note here that, contrary to government assessments of what shortages they should respond to, it is the shortage of low skilled workers, which is most often mentioned.
The UK example suggests where some of these deficits are occurring. With the highest level of employment recorded and unemployment at its lowest rate for nearly a generation (April 2003), grave shortages are reported
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in the public sector – in health services and schools (two of the key targets for major improvement for the present government) and in local government;
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in the private sector – in construction (particularly plumbers, electricians, bricklayers, engineers), in seasonal agriculture, road haulage, retail trade, hotels and restaurants etc.
In some of these activities, the rising average age of the workforce, promising high rates of retirement in the short term, indicates the failure to recruit adequate numbers of new entrants despite rising relative wage levels. Similar shortages are reported in France, Germany and other Union members, albeit with higher levels of open unemployment.
In the short term, the deficits are already affecting the performance of the UK economy and the capacity of the government to meet its current objectives, thus affecting the electoral prospects of the government. In the medium term, the picture is very much worse. Ageing, apart from the other factors cited, will increase the reduction in the size of the working population at the same time as the demand for age-related labour-intensive services increases.
Government responses
Despite the dangers of a negative political reactions, governments have made some attempts in terms of raising the discussion of increasing the retirement age, reducing the disincentives to work (to encourage housebound women to enter work, to encourage withdrawals to return) and raising the costs of leaving work, increasing training facilities to meet the requirement of mid-level occupations, and increasing productivity (in the UK, assistants to teachers and medical doctors have this purpose). In the Lisbon Agenda, the target is set of raising European participation rates to 70 per cent by the year 2010.
However, the deficits are urgent and immediate, but these remedies take a much greater time. Thus, alongside these measures have gone changes to ease the issue of temporary work permits and not just for the highly skilled. The schemes cover seasonal agricultural workers, working holidaymakers, work-experience schemes, contract workers, cross border commuting etc. More important, the principle that migrant workers can once more be employed has been established in practice even if political leaders have yet to set about convincing their electorates[v].
The changes being introduced will, however, be insufficient to cope with future scarcities, particularly given the intensified competition for some types of workers – for example, for nurses from the Philippines, Bangladesh, and the Caribbean etc. British road haulage employers hope that the accession of the East Europeans members to the Union will provide them with an opportunity to recruit drivers there, thus jeopardising the efforts to expand the economies of the new members.
Nor is the search for labour necessarily consistent with other government priorities. The British ‘working holiday makers’ scheme, originally directed at the old British Commonwealth dominions but now expanded, collides with British aid policy’s promise not to recruit scarce middle-level skilled persons from, for example, South Africa. In addition, occupationally specific quotas do not allow for the inclusion of non-specific self-employed activities. Immigrants are over-represented in self-employment[vi] and have famously saved from extinction retail outlets, corner shops, news-agencies and cafes, in poor city neighbourhoods and in provincial towns, and seem now to be doing the same in rural localities (Greece is reported as a prime example of this last phenomenon). Such workers are not included in the current quotas.
Europe is aspiring to be a provider of high skilled services and innovative technology to the rest of the world. However, as noted earlier, even if lower skill tradable sectors are relocated to developing countries, the high skill economy will require a cluster of low skill and non-tradable support services to be effective – from cleaners, retail trades, construction, transport, domestic and caring services etc. The task, even in this extreme case, is to make such services affordable to the mass of the population without requiring levels of taxation that, even if politically possible, do not stimulate the emigration of both the highly skilled and of business. In practice, the outcome is likely to be less sharp than this since irregular migration will meet the deficits with whatever incidental costs this incurs.
Migration and the Poor
It is a persistent theme in much of the economic literature on migration that employers and the better off (who can afford maids etc.) gain from the immigration of the lower skilled, and “it is the lower paid who are disadvantaged”. However, on reflection, this cannot be so. There are two pertinent observations:
1.) There is a large number of studies on American data that have found either no or an insignificant impact of increased immigration on native wage and employment levels[vii]. Where there are small negative effects, they tend to affect earlier cohorts of immigrants rather than the historical poor of the US – blacks or Hispanics. This could be that migrants move to labour scarce areas where wages are rising in any case so that their effect is masked in the general movement. On the other hand, there is much evidence that unskilled immigrants do the jobs which the natives, even if unemployed, are unwilling to do; they are not competing; rather low skilled immigrants compete with earlier low skilled immigrants. Immigrants then fill places not because they are cheaper – in general, they seem not to be – but because they are the only workers available (as happens with some seasonal migrant workers in European agriculture).
On the other hand, few studies track the impact of immigration on raising employment for complementary native workers – how the availability of foreign-born unskilled production workers increases the demand for native-born foreman, supervisors and managers, skilled workers and technical staff, truck drivers etc. Fewer still estimate the multiplier effects of immigrant expenditure – on demand for accommodation, furnishings, foodstuffs, transport etc.
Borjas[viii], along with others, has changed the nature of this discussion by suggesting – following Adrian Wood’s work on trade[ix] – that the native unskilled take anticipatory action to avoid competition, so local studies much underestimate the impact of increased immigration. It is an ingenious argument and may have some validity, but it is far from the consensus among migration specialists.[x]
2.) However, if we broaden the focus from work to consumption and prices, it seems intuitively the case must be false. For example, immigrant workers in agriculture ensure fewer imports and the survival of small farmers and the rural economy, as well as lower food prices, the primary beneficiary of which is the poor (who spend a larger share of their income on foodstuffs). Immigrant workers in manufacturing, construction, public transport and so on have similar effects. Women are able to undertake paid work outside the home if child-care and cleaning services are available, and often these are only available at affordable prices through immigrant carers and cleaning services. Immigrants, as mentioned earlier, have saved the small corner shop in the poorer areas of big cities and provincial towns in certain regions, and are now doing something similar in some rural areas. In public health care services, the immigrant labour force is crucial – particularly in the poorer districts of our larger cities. Indeed, “the disadvantaged” may be the primary beneficiaries of the immigration of un- and semi-skilled workers, and would suffer most if the supply were curtailed. The better off can afford to manage without the services provided by immigrant labour. Of course, it might be argued that wages should be paid which induce native-born workers to do these jobs, and that this can be done without a level of taxation, which is electoral suicide, or of pricing which makes the services prohibitive for the poor. That case, however, has to be demonstrated.
Migration to Europe and developing countries
It is well-known – but worth repeating – that continued protectionism in world trade reduces the employment potential in developing countries and this may affect the propensity to migrate to work elsewhere. Nowhere more so does this appear to be true than in agriculture, where, in the most notorious case, the Common Agricultural Policy not only deprives developing country exporters of markets here, by subsidizing exports to third country markets, it also deprives them of markets there (and this is achieved through higher European food prices, affecting most severely the poorest consumers).
To the employment losses incurred through protectionism can be added those experienced through worker emigration. This is greatest with the highly skilled and magnified where such workers leave permanently or for the bulk of their working lives, depriving the developing country of skilled inputs (and the productivity of the average worker is strongly related to the average skill level of the labour force as a whole), of complementary employment of lesser skill, of tax payments that the emigrant would otherwise have made[xi], and if the emigrant’s skills were acquired with public subsidies, these also are lost.
Worker remittances returned to countries of origin are some compensation here. But a much greater benefit would accrue if migrant workers could return with enhanced skills. Low skilled workers who travel without families have always tended to return; they work abroad primarily to strengthen their position at home. This tendency is much reduced by the tighter the controls on migration – the higher the costs of getting access to work, the greater the tendency to settle in order to secure continued access to work[xii]. On the other hand, anecdotal evidence suggests some increase in the propensity of highly skilled workers to return to Asia if not to Africa. Domestic reform and stabilisation are obviously crucial here. However, given relatively abundant labour supplies in developing countries, standards of living for the highly skilled at much lower levels of pay than are available in developed countries (even if much closer in Purchasing Power Parity terms) can be much higher. The development of high level research facilities in developing countries supports tendencies to return (or indeed, not to set out in the first place). Numerous national and international schemes exist to support the process of return[xiii], but more can be done to remove existing anomalies which force migrants to settle as a condition of work, and which weaken the “social embeddedness” of migrants in their country of origin. Aid programmes can be of assistance here in financing migrants for training in preparation for their return and in employing returning migrants as agents of development, using funds to strengthen the creation of new businesses. Migration might then come to be seen by most migrants as an important part of education, of enriching skills and work experience rather than simply as an opportunity to earn[xiv].
The issue of migration to the developed countries may prove temporary. Since over the next half century, the bulk of the world’s labour force is going to be redistributed to developing countries, it may be expected that the bulk of the world’s tradable sectors will follow, led by those most sensitive to labour costs. It could be that over the next half century, migration flows may come to be in the reverse direction.
Remedies
The most obvious remedy to the problems of the present system is to accept the inevitable integration of Europe in a world labour market and move towards free migration and open borders. Employers would then recruit abroad as they do at home and bear the risks – the costs - of any errors made in assessing their future labour needs. The role of government would be restricted to extending its present responsibilities in the regulation of employment of native-born workers to the foreign-born. At the moment private brokers and agents organise the regular and irregular recruitment and movement of workers, so the basic social infrastructure exists for such a change. Such a system would eliminate irregular migration and the bulk of asylum seekers who could take work immediately and not be obliged to call on public support (this would not be true of asylum seekers without the capacity to work, but that would be a much smaller problem than the current one).
However, the immediate needs of developing countries for the return of their migrant workers coincides with the fears of a significant sector of the European electorate about the possibility of being swamped by foreigners to suggest that, while the aim should remain intact, we need a second-best transitional arrangement that allows governments to retreat if required.
It is not the task here to design such transitional arrangements – and there are now increasing numbers of schemes on offer[xv]
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However, a number of points might be made about revisions of the present system:
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The first issue of importance here is that, in principle, all migration should be temporary even if some migrants apply to be considered to stay to longer. This would be one element in restoring equality between skilled and low skilled workers. While it is assumed that most migrants will want to return home provided there is a reasonable possibility of future opportunities to work in Europe, nothing should be done to weaken their commitment to return. In some present schemes there are additional incentives – paying part of the wage in a cumulative sum in the home currency on their return (or possibly adding a bonus and/or refunded social security funds). We have mentioned the possibility of aid programmes financing training and offering business start-up funds on return. Given a well-managed pattern of circulatory migration, applications to stay longer for whatever reasons can be treated with generosity.
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Irregular migration is first and foremost a response to labour deficits (even if it may be precipitated by push factors) so that generally migrants move to previously identified jobs (or to agents controlling such work), have very high rates of participation and low rates of unemployment. Accordingly, the expansion of the work permit system should be designed to eliminate irregular migration. However, this cannot be done through government controls on recruitment on the basis of estimates of future labour demand. Not only must such estimates be erroneous in a dynamic economy, they cannot easily accommodate predictions for the type of demand which irregular migrants meet. Any system which is going to meet the economic requirements has to end the idea of set annual quotas of workers and vest the initiative in employers to recruit at their own expense in such numbers as they require, albeit within a framework of government supervision to ensure that the basic conditions of work and pay do not undercut alternative local supplies of workers and are clear to migrant workers before they leave home, that robust provisions are made for the proper return of workers and for social security during the period of work.
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This paper has not dealt with the family reunification class of immigrants, which raises a quite different agenda of policy issues. In general, with globalisation, one would expect increasing mobility and a growing lack of coincidence between, on the one hand, the citizens of a country who live in that country and those who live abroad (the present “polity”); and on the other, the workers who work in that country or contribute to its output from locations abroad (the “economy”). If this is so, then the family reunification category of movement will inevitably grow and, if the welfare of the country is to be assured, must be facilitated.
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The ban on asylum seekers working – whether for six months or, as in some countries, until their claims are sanctioned or rejected – is one of the more obvious sources of social tension. The combined accusation of entering the country illegally (since there is, in many cases, no other way of obtaining entry) and then “living off social security” (since work is forbidden) seems almost deliberately designed to provoke the greatest xenophobia. With an expanded work permit system to eliminate irregular migration, able-bodied asylum seekers can, if circumstances permit, apply for work before they arrive; if this cannot be done, then they can be granted temporary leave to remain while they seek work. Part of the funds at present devoted to supporting asylum seekers can then be directed to short term support for those who cannot work.
The present system for all except the skilled is opaque and costly relative to the returns to work. A world labour market is in operation but without any of the transparency required to put the right worker in the right job. Governments operate as large monopsonist buyers, while private agencies recruit and distribute irregular migrants without being subject to the open competition which reveals the marginal cost/value of the work proposed. Criminalisation is inevitable in such circumstances. A global labour market requires a global exchange in which real scarcities in many different localities can be matched again the immense diversity of those offering work, and wage levels reflect those scarcities.
If Europe is unable to establish an acceptable order in the field of migration, the danger is that political leaders will continue to seek to lock out the poor, at whatever cost to the civil rights of the citizens, the welfare of the poorest Europeans, and the growing numbers of irregular migrants (growing because the labour shortages for low skilled workers will get worse). Protectionism here is, as elsewhere, directed toward trying fruitlessly to capture benefits for a minority at the cost of the world at large.
Appendix
An international system for migration regulation
Some notes are attached here on the principles that might underlie a global approach to migration.
1. The general problem – in economic terms - is that potential unskilled and semi-skilled immigrants and asylum-seekers are seen as a burden, their work as having a negative price, even though many are subsequently found to have a high positive value (highly skilled asylum-seekers, for example) but only after an extended period of misery – and high cost to the government while their applications are processed. However, the work of almost all migrant workers would undoubtedly have a positive economic value somewhere in the world but have no way of identifying such a demand except through the limited range of contacts of private brokers.
2. We assume that for the overwhelming bulk of migrants, the search for work is the primary motive, and that if it is relatively easy to migrate to work, they would prefer to circulate between home and workplace rather than settle at the workplace, whether the period of work is months or years. The motivation is much strengthened for low skilled workers by the fact that a low income earned in a developed country constitutes a relatively high income in a developing country (a gap partly captured by the Purchasing Power Parity estimates) provided the place of earning is in one place, of consumption in another. Relatively low and declining transport costs additionally support circulation rather than settlement. On the other hand, irregular migration cannot, at a politically acceptable cost, be contr
