Po­ten­tial im­pact of mi­grants on Europe

China Daily (Canada) - - TORONTO -

To some ex­tent, the pic­tures of mi­grants try­ing to make their way north af­ter hav­ing crossed the Mediter­ranean or Aegean Sea il­lus­trates an ageold truth: Be­sides un­rest, des­ti­tu­tion back home and at­tempts to flee war, mi­grants also want to work. In Europe to­day that mostly means go­ing to Ger­many, Scan­di­na­vian coun­tries, Bri­tain and other places, such as the Nether­lands.

As free move­ment of la­bor is one of the found­ing prin­ci­ples of the Euro­pean Union, many mi­grants will likely end up where the jobs are and, to a lesser ex­tent, where other mi­grants from their home re­gion have al­ready set­tled to pro­vide start-up com­fort and sup­port.

Take Ger­many, a fa­vorite des­ti­na­tion of the new mi­grants, as an ex­am­ple. Ac­cord­ing to re­cent re­ports, Ger­many­may re­ceive 400,000 to 500,000 more im­mi­grants this year than it ex­pected six months ago. If so, that would add 0.5 per­cent to 0.6 per­cent to the Ger­man res­i­dent pop­u­la­tion. For the EU av­er­age, the in­crease may be half that scale.

The EU needs some com­mon re­sponse. That should in­clude a clearer for­eign pol­icy de­signed to sta­bi­lize Syria and Libya, urg­ing Tur­key to play a fully con­struc­tive role, and a com­mon def­i­ni­tion of who qual­i­fies as a refugee and who can be sent back to safe coun­tries of ori­gin in theWestern Balkans.

Of course, a quota sys­tem to dis­trib­ute refugees can make sense to process their claims fast. How­ever, those who are ac­cepted may ul­ti­mately move to where the jobs are and not re­spect an ini­tial quota dis­tri­bu­tion be­tween, say, Ger­many and Hungary or Bri­tain and France for very long.

Ex­pect a small stim­u­lus to ag­gre­gate de­mand. Ex­tra spend­ing on mi­gra­tion-re­lated is­sues may amount to 0.3 per­cent to 0.4 per­cent of an­nual GDP in Ger­many and per­haps a few other places.

Some other coun­tries will likely quote this as a rea­son to ex­ceed fis­cal tar­gets. On bal­ance, the re­sult could be a near-term stim­u­lus to de­mand some 0.2 per­cent of the eu­ro­zone GDP for the sec­ond half of 2015 and prob­a­bly all of 2016.

This could lead to a small in­crease in con­sump­tion growth in the com­ing years and to even marginally firmer real es­tate mar­kets in the metropoli­tan ar­eas that the mi­grants are mostly striv­ing for. This, in turn, will pos­si­bly ac­cen­tu­ate the di­vide a lit­tle be­tween metropoli­tan and less fa­vored ru­ral ar­eas in real es­tate mar­kets over time.

The vast ma­jor­ity of mi­grants seem ea­ger to work de­spite oc­ca­sional ev­i­dence that some orig­i­nat­ing from within, rather than out­side Europe, may also be drawn by wel­fare ben­e­fits.

If re­cip­i­ent coun­tries in­te­grate the mi­grants rea­son­ably well, mi­gra­tion could be a boost to ag­gre­gate sup­ply: firmer growth trend for a while.

The faster the EU mem­ber coun­tries can process the claims of mi­grants and the ear­lier they are al­lowed to work, the bet­ter. Even fis­cal hawks should con­sider that to be money well spent.

To re­al­ize this sup­ply po­ten­tial, re­cip­i­ent coun­tries need to keep their la­bor mar­kets flex­i­ble and up­grade their ed­u­ca­tion sys­tem, with a fo­cus on ba­sic ed­u­ca­tion such as lan­guage skills.

If Ger­many gets this right, it may just be solv­ing part of its de­mo­graphic prob­lem for the next decade. Mi­grants who take huge risks to get where they want to of­ten tend to be more en­tre­pre­neur­ial. That may also help keep an ag­ing econ­omy vi­brant. How­ever, if Ger­many and coun­tries with sig­nif­i­cant immigration get their pol­icy re­sponse wrong, they­may end up cre­at­ing prob­lem­atic ar­eas with dis­af­fected sec­ond-gen­er­a­tion im­mi­grants some 20 to 30 years from now.

The do­mes­tic pol­icy re­sponse, no­tably la­bor mar­ket and ed­u­ca­tion poli­cies, mat­ters more than any de­ci­sion on an ini­tial dis­tri­bu­tion of mi­grants. The worst pol­icy would be to tighten em­ploy­ment laws in coun­tries that are cur­rently a draw for im­mi­grants due to their re­cent la­bor mar­ket dy­nam­ics.

If Bri­tain and Ger­many make it more dif­fi­cult to cre­ate jobs, they could store up so­cial trou­ble for the fu­ture. For ex­am­ple, rais­ing min­i­mum wages, tight­en­ing rules for tem­po­rary work con­tracts and erect­ing other bar­ri­ers to en­try into the la­bor mar­ket would not seem to be the right poli­cies amid a rise in immigration.

The au­thor is chief economist at Beren­berg Bank in Lon­don. The Glob­al­ist

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