The economics of Europe's migrant crisis
As our Eurostar train zipped from London through the Chunnel to Paris, I couldn't help thinking about the thousands of migrants languishing on both sides of the Channel. Once again, national and regional political systems are struggling to cope with a mounting human tragedy and its spillover effects involve disruptions to commerce; and all this is stoking a political crisis.
The economics of the Channel migrant crisis are quite clear, being basically about supply, demand and regulatory failures. It also sheds light on the potential solutions, though they will take time to materialize. The supply of migrants to Europe is fueled by waves of people fleeing the economic and social misery of their home countries -and, in some case, political oppression, persecution and violence. They do so in hopes of a better future for themselves and their children. The temptation for some to try and make it all the way to the U.K., often after a perilous sea crossing and a fraught trip through western Europe, is amplified by the attractiveness of an economy with low unemployment, comprehensive social services and a country where many already know the language.
Although the supply of migrants has increased, the demand for migrant labor has gone the other way. Tougher laws have made it harder and more dangerous for employers to hire undocumented workers. And with a European unem- ployment rate of more than 10 percent, the demand is further damped.
This imbalance in supply and demand isn't one that can be sorted out by the markets' normal equilibrating mechanism. The marketclearing wage -- that is, the price that would lower the migration incentive while facilitating the absorption of those still inclined to risk life and limb -- is well below the minimum wage prevailing in Europe; and any meaningful reduction in the wage would involve significant and unacceptable social disruptions to local populations in Europe.
The regulatory systems are not of much help either, pressured at multiple stages, from the countries of origin, to the points of transit and entry to Europe, to the final destinations. And where the regulatory system is aided by physical barriers -- such as the English Channel -- there are visible signs for all to see of migrants' deprivation and desperation. In the process, the road transportation of all sorts of goods is disrupted, causing considerable economic losses. Food rots on trucks waiting to cross the Channel. Vehicles are immobilized, undermining supply chains. Private transportation, including tourism, is subject to long delays on account of congested roads and stepped-up security checks. And, even if the willingness were there, the social safety nets are too weak to cope with the human tragedies that play out every day. All this is increasing pressures on politicians to resolve the problem. Yet effective solutions continue to evade them, both at the national and regional levels.
This isn't a problem that will go away anytime soon, and for a simple depressing reason: The economics of this tragic situation call for a comprehensive collaborative solution, but the best the political system is able to come up with is a piecemeal, weakly coordinated approach. It is an outcome that, at best, can alleviate some of the problems; it will not solve them in a decisive and durable fashion.