Case 8 the European Union and Immigration From New Member Countries

8/10/2019 Case 8 the European Union and Immigration From New Member Countries

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The European Union and Immigration from

New Member Countries

The case focuses on the issue of immigration from the new member states who joined

the EU in 2004 into the older member states of the European Union. It traces the

process of European integration from the period after the Second World War, and the

formation of the European Union and its subsequent expansions.

The case further discusses the different approaches adopted by the older member

states of the EU to deal with the expected flood of job seekers from the newly

independent states from Central and Eastern Europe, which joined the EU after the

disintegration of the Soviet Union.

While Ireland, the United Kingdom and Sweden were fairly open to immigrants fromthese countries, the other EU members imposed many restrictions on the movement of

workers from the new member states. The case then compares the impact of

immigration on the three EU member states that chose to allow immigrants in, with

the countries which followed a more restrictive approach. It ends by examining the

issue of the expected eventual decrease in the EU's population in the coming

years/decades and the need for these countries to supplement their indigenous labormarkets with immigrants.


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The European Union and Immigration

from New Member CountriesThe [European] Union has today set itself a new strategic goal for the next decade:

to become the most competitive and dynamic knowledge-based economy in the world

capable of sustainable economic growth with more and better jobs and greater socialcohesion.

1

Presidency Conclusions, Lisbon European Council, in March 2000

The old EU owes them [the new members] a welcome. In practical terms, this

means that West European politicians should stop exploiting populist resentment of

low-wage competition. They should explain to their voters that economic reforms

would be necessary even in the absence of enlargement and that, on the whole, the

addition of ten new members has been good for the EU economy.2

Katinka Barysch, Chief Economist, Centre for European Reform,3

in 2005.

Introduction

On March 09, 2006, the Spanish Prime Minister, Jose Luis Rodriguez Zapatero

(Zapatero), and his Polish counterpart, Kazimierz Marcinkiewicz, announced at a joint

press conference that from May 01, 2006,Spain would open up its labor market to

workers from Poland and the other seven countries from Central and East Europe

(CEE) which had joined the European Union (EU) on May 01, 20044. The

announcement was not unexpected as it had been widely anticipated that Spain would

favor opening up its labor market to the new members5of the EU. On February 28,

2006, Portugal had also indicated that it would open up its labor market to the new

members from the CEE. Before that, on February 13, 2006, Finlands Labor Ministry

had proposed that restrictions on labor movement from the new EU member countries

be lifted.

At the time of the 2004 enlargement, the EU had allowed its existing members (the

old member states) to impose restrictions on the free movement of labor from the new

member states for a transition period extendable up to 2011. Twelve out of the fifteen

countries opted for labor restrictions, fearing that there would be a large-scale influx

of immigrants from the new member countries chasing jobs and driving down wage

rates. Only the UK, Ireland, and Sweden decided to allow the new member countries

access to their labor markets (Refer to Exhibit I for a map of the European Union

in 2005).

1 www.union-network.org/uniibits.nsf2 www.cer.org.uk/pdf/essay_eastvswest_jan06.pdf3 The Centre for European Reform is a London-based think tank devoted to improving the

quality of the debate on the future of the European Union4 The EU was enlarged in May 2004 with ten new members. They were Cyprus, the Czech

Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. While

the nationals of Cyprus and Malta were given the freedom to access the labor marketswithin the EU, others were severely restricted.

5 Here new members would mean the eight new members from the CEE; i.e., all the newmembers of 2004, except for Cyprus and Malta. The old members would mean the 15 EUmember states before the 2004 enlargement.


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The European Union and Immigration from New Member Countries

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Exhibit I

Map of European Union in 2005

Source: www.ezilon.com/ eu_map_europe.jpg.

A year later, these three economies reported that they had not experienced anyupheavals or disruptions in their labor markets. Instead, they claimed, the immigrants

had helped fuel their economic growth by filling in the gaps in their labor markets

be it in construction, health & hospitality, or in other areas, while making few claims

on the welfare system or public services.

Background

Human migration, or the movement of people from one place to another, is a

phenomenon that is as old as mankind itself. Indeed, it is believed that humans first

appeared in Africa, and subsequently spread out toward the Middle East, Europe,

Asia, Australia, and finally to the Americas. Even after the advent and growth of


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human settlements, people have continued to migrate from one place to another,

shaping the growth of civilizations and the progress of human history. For example,

the migration of the Huns, the Goths, and other tribes during and after the fall of the

Roman Empire changed the demographic and cultural landscape of Europe. In the 17thcentury, the movement of English religious groups to the New World, seeking a place

where they could practice their religion freely, laid the foundation of the present day

United States.

In modern times, after the advent of the nation states and the consolidation of

nationalities, the migration of people from one nation to another came to be regulated

by the national governments. The inflow of migration into a country became

immigration while the outflow came to be known as emigration. Emigration had a

profound influence on Europe in the 19th century and the early 20th century, when

hundreds of thousands of poor families left Western Europe for the United States,

Canada, Brazil, Argentina, and Australia.6

Why do people move from one place to another? The reasons could be to escape war,

famines, droughts, disease, political and religious persecution, and poverty. Or they

may migrate for more positive reasons to seek adventure, better employment and

business opportunities, higher incomes, or better healthcare facilities, or to reunite

with their family members.

In the late 20th

century, while the development of transport and communications

turned the world into a global village, increasing restrictions by national governments

on immigration made it very difficult for people to move from one country to another.

The arrival of new immigrants into a country was often seen by its citizens as diluting

their countrys national, ethnic, or religious character. Immigrants were also often

viewed as job-chasers who drove down wages and salaries. However, there were also

others who welcomed the immigrants, seeing them as hard-working people

contributing to the development of the host countrys cultural and economic life.

Immigrants have thus been welcomed and despised at the same time by different

sections of their host country.

The European Community (EC)

After the end of the Second World War, Europe was divided into two opposing blocs

the US-led free-market oriented Western Europe and the Soviet Union-led socialist

Central and East Europe. The West European countries, devastated by the war,

realized that economic protectionism and chauvinistic nationalism were factors that

could lead to war among various nations. Jean Monnet, considered by many as the

architect of the European Union, felt that if Europe was to avoid the scourge of

destructive wars, the European states must come together. He declared, There will be

no peace in Europe, if the states are reconstituted on the basis of national

sovereignty...The European states must constitute themselves into a federation.7

Accordingly, the European Coal and Steel Community (ECSC) was founded in 1951by Belgium, the Netherlands, Luxembourg, France, Italy, and West Germany, in orderto pool their all-important steel and coal resources. The process of integration wasfurther strengthened with the signing of the Treaty of Rome in 1957 establishing theEuropean Economic Community (EEC), which came into effect on January 1, 1958.

6 Emigration, http://en.wikipedia.org/wiki/Emigration7 Jeremy N. Smith, The Father of Europe,

http://www.worldtrademag.com/CDA/Articles/Column/0489bc5ec5499010VgnVCM100000f932a8c0__


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The EEC was established with the aim of creating a Customs Union (CU) among thesix member states based on the four fundamental freedoms: the freedoms ofmovement for goods, services, capital, and people. The CU was finally established in

1968. The EEC was later renamed the European Community (EC).

Enlargement of the EC and the Creation of the European Union

The success of the EC in stimulating trade, growth, and development among themember states prompted Britain, Denmark, and Ireland to apply for the ECmembership in 1961.

8A series of negotiations followed in which the EC members and

the prospective members evaluated a number of proposals and counter-proposals.Finally, Britain joined the EC along with Denmark and Ireland in 1973. This was thefirst enlargement of the EC. In 1981, six years after its application for membership,Greece acceded to the EC.

When Spain and Portugal applied for EC membership in 1977, the existing ECmembers were forced to face the problem of immigration associated with the

enlargement of the EC. Although Portugal and Spain eventually gained membershipin 1986, the people of these two countries were restricted for a period of 10 years frommoving freely within the EU in search of work. One of the reasons for theserestrictions was the fear that there would be a large influx of Portuguese andSpaniards looking for work into the more prosperous countries of the EC if the

borders of these countries were opened up fully.9

In 1993, the Maastricht treaty, signed a year earlier, modified the Treaty of Rome andestablished the European Union (EU). The EC became an integral part of the new EU.

The EU was enlarged in 1995 to include Austria, Finland, and Sweden.

The Collapse of the Socialist BLOC and the Copenhagen Criteria

Meanwhile, the collapse of the socialist bloc in Central and Eastern Europe in 1989-90 released many countries from the control of the Soviet Union. During this period,Poland, Hungary, Bulgaria, Romania, and Czechoslovakia became free of Sovietcontrol. In 1991, the disintegration of the Soviet Union led to the emergence ofseveral new states on the international stage -- the Russian Federation, Lithuania,Latvia, Estonia, Ukraine, Belarus, Moldova, Georgia, Armenia, Azerbaijan,Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, and Turkmenistan. Having beenseverely constrained for decades by centralized planning, many of these newlyindependent states looked eagerly toward the EC for the development of theireconomies. It also provided an opportunity for the EC to further the process ofEuropean integration.

Therefore, as initial steps to future integration, the EC concluded Europe Agreementswith Hungary and Poland in December 1991, Romania, Bulgaria, the Czech Republic,

and Slovakia in February 1995, Estonia, Latvia and Lithuania in February 1998, andSlovenia in February 1999. The aim of these agreements was to liberalize trade

between these countries and the EU.10

8 Norway also applied for the EC membership. But in a referendum held in 1972, its people

rejected the governments decision to join the EC. More than two decades later in areferendum held in 1994, the Norwegian electorate again voted against joining the EC.

9 Antonio Vitorino, The Challenges of Global Migration: An EU View,http://www.carnegiecouncil.org/ viewMedia.php/prmID/4985

10 The Enlargement of the European Union, http://www.auswaertiges-amt.de/www/en/eu_politik/ vertiefung/erweiterung_html


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In June 1993, the EU formulated the Copenhagen Criteria that defined the eligibility forEU membership. These criteria required that the candidate countries have stableinstitutions to guarantee democracy, the rule of law, human rights, and the protection of

minorities (the political criterion); a functioning market economy and the capacity to copewith competitive pressures and market forces within the EU (the economic criterion), andthe ability to take on all the obligations of membership, i.e. the ability to conform to theentire body of EU law (the so-called acquis communautaire), and adhere to the aims of

political, economic, and monetary union (the acquis criterion).11

The Accession of New Members

Following the formulation of the Copenhagen Criteria, many of the CEE countriesapplied for EU membership. Hungary applied in March 1994, Poland in April 1994,Romania and Slovakia in June 1995, Latvia in October 1995, Estonia in November1995, Lithuania and Bulgaria in December 1995, the Czech Republic in January 1996,and Slovenia in June 1996. Turkey had already announced its desire to become amember in April 1987. Cyprus and Malta had done likewise in July 1990

12.

The applicants had to go through painful transitions of their polities, economies, andsocieties so as to conform to the eligibility criteria. It was not easy for these countries,which for decades had been planned socialist economies with strict policing andalmost no concern for human rights, to undergo the democratization process and movetoward becoming market-oriented economies. The prospective candidates were toincorporate all the existing laws of the EU into their domestic legal framework andwork for their active application.

The EU continuously monitored the progress of the candidate countries with respectto the Copenhagen Criteria to determine their eligibility. In 1997, the EU decided toopen accession negotiations with Cyprus, Hungary, Poland, Estonia, the CzechRepublic, and Slovenia. Romania, Slovakia, Latvia, Lithuania, Bulgaria, and Maltawere added to the list in 1999. In December 2002, leaving Bulgaria and Romaniaaside for further negotiations, the EU concluded access negotiations with theremaining ten candidates. The Treaty of Accession with these ten countries wassigned in Athens on April 16, 2003, and the treaty came into effect on May 01, 2004.Bulgaria and Romania were slated to accede to the EU in 2007.

Thus, ten new countries became members of the EU on May 01, 2004. Thesecountries, when compared to the old members, were very small in terms of GDP, butquite large in terms of population and labor force. While the new member statescombined GDP was 5% of the GDP of the old EU, their labor force amounted to 25%of that of the latter. Moreover, there were huge differences in wage rates between theold and new members. The new members were erstwhile socialist countries whichgave their citizens full employment at the expense of economic health andcompetitiveness. Dismantling of these economic systems in the early 1990s led tohuge lay-offs and high levels of unemployment in these countries.

With accession, the new member countries gained the right to participate on an equalbasis in the institutions and committees of the EU. The market for their goods andservices expanded and the free movement of goods, introduced as per the EuropeAgreements of the early 1990s, was to be complete. Membership of the EU also

provided full freedom of movement for persons from one country to another withinthe EU. Citizens of both the old and new members could travel freely anywhere in the




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enlarged EU.13

However, for a transition period of seven years, the old members wereallowed to impose restrictions on the movement of labor from the new members, ifthey so wished. This provision was made out of fear that people from some of the new

member states would swamp the labor markets of the old members. However, thecitizens of Cyprus and Malta did not face this restriction.

Only three of the old members opted not to apply these restrictions on the free

movement of workers. The UK, Ireland, and Sweden opened their labor markets to

people from the new member states. However, there were fears even in these

countries, especially in the UK, that the workers from the new member states would

chase local jobs and strain the economy by seeking welfare benefits.

The Demographic and Economic Profile of the EU

To understand the issue of migration in the EU, it is essential to understand certain

important characteristics of the demography and economy of the EU member states.

These issues were interlinked, and, individually and in combination, had a significant

impact on the growth rates in these countries. The old EU economies, especially, hadbeen struggling with low growth rates for many years. Between 2000 and 2004, the

growth rates of GDP of the old EU countries had ranged between 1.0% and 3.8%

(Refer to Exhibit II for growth rates in the EU between 2000 and 2004).

Exhibit II

Real GDP Growth Rates in the Old and New Member States in %

2000 2001 2002 2003 2004

Old EU15 3.8 1.8 1.1 1.0 2.2

New EU10 4.1 2.4 2.4 3.8 5.1

Source: Katinka Barysch, East versus West?The European economic and social

model after enlargement,

www.cer.org.uk/pdf/essay_social_model_barysch_oct05.pdf.

The old EU economies had also been facing very low employment rates14

64% as

against the EU norm of 70%. Paradoxically, in spite of high wage rates, there were

also many gaps in the labor market that were unfilled because of the unwillingness of

the domestic labor force to take up certain jobs (Refer to Exhibit for III hourly

labor costs in the EU).At the same time, they also had high unemployment rates

8.5% (Refer to Exhibit IV for unemployment rates in select old EU member

countries).This paradox of high unemployment and huge gaps in the labor marketwas explained by the welfare nature of these economies, and their high and rigid wage

rates.

Many of the EU countries were welfare states, where the governments provided

generous unemployment benefits and allowances to workers, to help them get through

periods of unemployment, and find jobs better suited to their abilities and aptitudes.

These allowances, in some instances, had the effect of people deliberately choosing to

remain unemployed. The allowances also made people reluctant to move in search of

13 There were also other transition measures such as the precedence of national rules over the

free movement of capital with regard to the purchase of agricultural and forest land in all thenew member states (again Cyprus and Malta along with Slovenia were excluded)

14 Employment rate refers to the percentage of the labor force that is employed, whileunemployment rate is defined as the percentage of the total labor force that is unemployedbut actively seeking employment and willing to work.


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employment. As a result, in many of these these countries, high unemployment rates

coexisted with a large number of unfulfilled job vacancies. These unfulfilled job

vacancies were partly responsible for the slow growth rates of these economies (Refer

to Exhibit V for economic indicators of the EU) .

Exhibit III

Hourly Labor Costs in Industry and Services in 2000 &

Labor Productivity in the EU in 2002

Country

Hourly

Labor Cost

in Euros

Labor

Productivity

in 1000

Euros

CountryHourly

Labor Cost

Labor

Productivity

Sweden 28.56 64.4 Cyprus 10.74 NA

Denmark 27.10 68.0 Slovenia 8.98 25.4

Germany 26.34 56.9 Portugal 8.13 NA

Luxembourg 24.61 90.5 Poland 4.48 16.9

France 24.42 65.6 Czech Rep. 3.90 17.3

UK 23.85 58.1 Hungary 3.83 17.0

Austria 23.60 63.1 Slovakia 3.06 13.3

Netherlands 22.99 55.6 Estonia 3.03 12.0

Finland 22.13 64.3 Lithuania 2.71 12.9

Italy 18.99 56.5 Latvia 2.42 10.7

Ireland 17.31 81.6 Old average 22.10 57.6

Spain 14.22 45.9 New

average

4.20 16.7

Greece 11.62 39.3 Combined 19.09 51.9

NA Not Available. Countries in bold are new EU members. No data were available for

Belgium and Malta.

* French labor productivity data is of 2001.

Source: Eurostat; printed in The Wall Street Journal 1618 April 2004.

Exhibit IV

Unemployment Rates in Select Old EU Members

Country 2003 2004 2005

Austria 4.3 4.9 5.2

Finland 9.0 8.9 8.3

France 9.5 9.6 9.5


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Germany 9.1 9.5 9.5

Ireland 4.7 4.5 4.3

Italy 8.4 8.0 7.7

Spain 11.1 10.6 9.2

Sweden 5.6 6.4 NA

United Kingdom 4.9 4.7 4.7

NA = Not Available.

Source: OECD

Exhibit V

Economic Indicators of the EU and its Member States

Country

GDP

in billions

of $ (USD)

(real

exchange

rates)

(2004)

GDP

% of EU

(2004)

GDP

per capita

in PPP $

(USD)

(2005)

Public

Debt

% of

GDP

Deficit

% of

GDP

Inflation

%

Annual

European Union 12,690.6 100.0% 26,900 63.8 -2.6 2.0

Germany 2,714.4 21.4% 28,988 66.0 -3.7 1.8

United Kingdom 2,140.9 16.9% 28,938 41.6 -3.2 2.0

France 2,002.6 15.8% 27,738 65.6 -3.7 1.8

Italy 1,672.3 13.2% 27,984 105.8 -3.0 2.2

Spain 991.4 7.8% 23,627 48.9 -0.3 3.2

Netherlands 577.3 4.5% 29,332 55.7 -2.5 1.5

Belgium 349.8 2.8% 29,707 95.6 -0.1 2.7

Sweden 346.4 2.7% 28,205 51.2 -1.4 0.8

Austria 290.1 2.3% 31,254 65.2 -1.3 2.0

Denmark 243.0 1.9% 33,089 42.7 -2.8 1.7

Poland 241.8 1.9% 12,452 43.6 -4.8 1.4

Greece 203.4 1.6% 22,000 110.5 -6.1 3.2

Finland 186.6 1.5% 29,305 43.6 -2.1 1.0

Ireland 183.6 1.4% 37,663 29.9 -1.3 1.9

Portugal 168.3 1.3% 18,503 61.9 -2.9 0.6

Czech Republic 107.0 0.8% 18,370 37.4 -3.0 1.3

Hungary 99.7 0.8% 15,546 57.6 -4.5 3.7


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Slovakia 41.1 0.3% 15,066 43.6 -3.3 2.5

Slovenia 32.2 0.3% 20,306 29.4 -1.9 1.7

Luxembourg 31.1 0.2% 61,220 7.5 -1.1 3.2

Lithuania 22.3 0.2% 12,610 19.7 -2.5 2.0

Cyprus 15.4 0.1% 22,330 62.3 -3.5 1.5

Latvia 13.6 0.1% 11,850 14.4 -0.8 6.6

Estonia 10.8 0.1% 13,190 4.9 -1.8 4.6

Malta 5.4 0.04% 18,720 75.0 -5.2 2.1

Source: wikipedia.com.

The EU also faced the problem of an ageing population. As the proportion of retired

people in the population increased, the burden on the working age population in terms

of financing their pension and healthcare costs increased. In 2005, the EU economicand monetary affairs Commissioner Mr Joaquin Almunia (Almunia) said that under

the existing (current) policies, ageing would increase public spending on pensions,

healthcare, and long-term care by 4% to 8% of GDP in most of the EU's 25 states by

2050.15

In 2004, almost 35% of the EU population was above the age of 5016

. At the

same time, the number of people aged between 0 and 24 was decreasing, creating

possibilities of a demographic crisis in the future. Logically therefore, the economicproblems caused by the unfilled job vacancies and the shrinking population in the

working age group, should have led these countries to welcome immigrants from the

CEE (Refer to Exhibit VI for area and populations statistics of the EU) .

Exhibit VI

Area and Population Statistics of the EU and its Member States

Member StatePopulation

in millions

Population

% of EU

Area

km2

Area

% of EU

Pop. density

People/km2

European Union 454.9 100% 3,976,952 100% 115

Austria 8.2 1.8% 83,858 2.1% 98

Belgium 10.3 2.3% 30,510 0.8% 340

Cyprus 0.8 0.2% 9,250 0.2% 84

Czech Republic 10.2 2.2% 78,866 2.0% 130

Denmark 5.4 1.2% 43,094 1.1% 126

Estonia 1.4 0.3% 45,226 1.1% 29

Finland 5.2 1.1% 337,030 8.5% 15

France 60.2 13.2% 547,030 13.8% 111

15 EU needs immigration to support ageing population,http://www.workpermit.com/news/2005_10_25/ europe/eu_needs_immigration

16 Europe in figures: Eurostat yearbook 2005, European Commission, Luxembourg.


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Germany 82.4 18.1% 357,021 9.0% 231

Greece 10.7 2.4% 131,940 3.3% 81

Hungary 10 2.2% 93,030 2.3% 108

Ireland 3.9 0.9% 70,280 1.8% 57

Italy 58 12.8% 301,320 7.6% 193

Latvia 2.3 0.5% 64,589 1.6% 35

Lithuania 3.5 0.8% 65,200 1.6% 55

Luxembourg 0.5 0.1% 2,586 0.1% 181

Malta 0.4 0.1% 316 0.0% 1,261

Netherlands 16.2 3.6% 41,526 1.0% 395

Poland 38.6 8.5% 312,685 7.9% 124

Portugal 10.1 2.2% 92,931 2.3% 114

Spain 40.2 8.8% 504,782 12.7% 80

Slovakia 5.4 1.9% 48,845 1.2% 111

Slovenia 1.9 0.4% 20,253 0.5% 99

Sweden 8.9 2.0% 449,964 11.3% 20

United Kingdom 60.1 13.2% 244,820 6.2% 243

Source: www.wikipedia.com.

In comparison, the new members of the EU, especially the eight members from theCEE, had similar but bigger problems. In some of these countries, unemployment was ashigh as 19% in 2004 (Refer to Exhibit VII for unemployment rates in select new EUmember states). High unemployment coupled with a relatively strong educationalenvironment created a fertile ground for migration to countries with better employmentopportunities. Added to this was the disparity in wage rates between the CEE countriesand the older EU members. With huge differences in wage rates between the old and thenew members, potential migrants could earn much higher incomes in the old EUcountries. All these factors created an environment favorable to emigration in the newEU countries.

Exhibit VII

Unemployment Rates in Select New EU Member States

Country 2003 2004 2005

Czech Republic 7.8 8.3 7.9

Hungary 5.9 6.1 7.2

Poland 19.6 19.0 17.8

Slovak Republic 17.6 18.2 16.4

Source: OECD.


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The enlargement thus had the potential to stimulate growth in the economies of theold EU countries, by solving some of their labor problems. However, this was not to

be.

Theoretically, in a free market, market forces determine the supply of and demand forlabor. These forces also determine the wage rates. However, as mentioned earlier, thewage rates in the old EU countries were quite rigid. In countries like the UK, thegovernment fixed the minimum hourly wage rates. In Germany, the wage rates inmany sectors were negotiated by trade unions and federations of employers. As thewage rates were comparatively rigid, there were apprehensions that the incomingmigrants could have the effect of driving the locals from their jobs and intounemployment, leading to higher government expenditure on unemployment benefits.It was also feared that the immigrants themselves might eventually claimunemployment benefits, further draining government resources.

Some conservative politicians seized on the issue with claims that the enlargement ofthe EU and the resultant migration from the East to the West would disrupt the labormarkets in the EU-15 and cause a huge drain on the government exchequers through

claims on welfare benefits. Eventually, they were successful in forcing the EU toprovide for an option to limit immigration from the new members. Many of the oldmembers opted to impose restrictions on immigration from the new membercountries. These measures ranged from requiring immigrants to obtain work permits,to restricting them from claiming welfare benefits. (Refer to Table I for more detailson the types of immigration regimes in the old EU member countries, relevant toimmigrants from the new member countries).

Table I: Immigration Regimes in the Old EU Member Countries after theEnlargement

A restrictive immigration regime in which workers fromthe new member states are treated in the same way as non-EEA* citizens and are required to apply for a work permit,

which is to be issued only in cases where neither nationalsnor other EU-15 nationals can fill the position.

Belgium, Finland,Germany, Greece,France, Luxembourg,

Spain

Restrictive immigration regime but with a quota forworkers from the new member states

Austria, Italy, theNetherlands, Portugal

General access to the labor market, however with limitedwelfare benefits. Unemployment might also constitutegrounds for the withdrawal of the residence permit.

Ireland, the UK

Community rules on the free movement of workers arefully applied.

Sweden

*EEA stood for European Economic Area and comprised Iceland, Liechtenstein,Norway, and the EU along with its 25 member states.

Source: Julianna Traser, Whos afraid of EU enlargement?www.ecas.org/file_uploads/1009.pdf.

Immigration in Post Enlargement EU

While other countries imposed various kinds of quotas and restrictions, the UK,Ireland, and Sweden allowed workers from the new member countries access to theirlabor markets. The UK implemented a Worker Registration Scheme, and required allimmigrants from the new member countries to obtain a work permit.

Since the accession, till December 31, 2005, nearly 345,000 applicants from the new

member countries registered with the Worker Registration Scheme to work in the UK.

Of these, around 329,000 applicants were issued worker registration certificates and

cards. The Polish were the largest group of all (204,895) followed by the Lithuanians


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(44,715). More than 80% of the immigrant workers were aged between 18 and 34

(Refer to Exhibit VIII for details on immigrants to the UK between May 2004

and December 2005).

Exhibit VIII

Nationality of Applicants by Quarter Applied in the UK May 2004

December 2005

Period

CzechRep

Estonia

Hungary

Latvia

Lithuania

Poland

Slovakia

Slovenia

Other

Total

Q2

2004

2,520 660 1,090 2,930 7,720 23,465 3,730 50 30 42,200

Q3

2004

3,510 770 1,315 3,660 7,595 28,070 5,240 65 40 50,260

Q4

2004

3,020 615 1,430 2,770 5,360 23,920 4,875 55 30 42,075

Q1

2005

2,840 730 1,460 3,150 5,915 23,805 4,950 55 35 42,940

Q2

2005

2,825 740 1,650 4,340 7,685 33,700 6,025 30 30 57,030

Q3

2005

2,980 630 1,720 3,455 5,985 39,375 6,545 35 50 60,775

Q4

2005

2,310 535 1,670 2,720 4,460 32,560 4,995 55 45 49,355

Total 20,005 4,680 10,345 23,030 44,715 204,89

5

36,355 340 265 344,63

5

As %

of

Total

6% 1% 3% 7% 13% 59% 11%


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called Accession Monitoring Report May 2004 December 2005 released in

February 2006 said that the impact of immigration from the new member states on the

British economy had been modest but broadly positive (Refer to Exhibit IX for the

sectors in which registered workers were employed).

Exhibit IX

Sectors in which Registered Workers are Employed in the UK, by

Quarter Applied May 2004December 2005

SectorQ2

2004

Q3

2004

Q4

2004

Q1

2005

Q2

2005

Q3

2005

Q4

2005Total

Admin, bus &man services

6,590 11,110 13,535 14,155 17,165 21,100 21,360 104,915

Hospitality and

catering

12,000 12,980 9,325 8,085 10,475 11,300 8,420 72,590

Agriculture

activities

8,240 5,660 3,005 4,000 9,295 6,685 2,645 39,525

Manufacturing 2,360 3,750 3,640 3,550 4,280 4,250 3,410 25,245

Food/fish/meatprocessing

1,590 2,545 2,345 2,215 2,815 2,935 2,550 16,995

Health &medical services

1,170 2,220 2,160 2,300 2,580 3,290 2,660 16,380

Retail & relatedservices

1,545 1,950 1,860 1,815 2,120 2,525 2,220 14,035

Construction &

land services

1,710 1,995 1,480 1,610 1,905 2,090 1,575 12,365

Transport 600 910 1,210 1,505 1,890 1,815 1,400 9,330

Ent. & leisureservices

790 950 450 890 1,195 1,135 430 5,840

Education &

cultural act

460 545 490 445 480 510 485 3,400

Real est. & propservices

155 205 170 240 240 255 190 1,450

Sec. & protect

services

95 115 130 100 110 195 140 890

Financial

services

135 160 130 115 110 135 95 880

Extraction

industries

75 145 145 85 110 125 115 805


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535

SectorQ2

2004

Q3

2004

Q4

2004

Q1

2005

Q2

2005

Q3

2005

Q4

2005Total

Computer

services

130 120 135 100 95 125 95 800

Tele-

communications

55 60 60 80 30 45 30 365

Utilitieselec.gas, water

35 50 40 35 35 50 35 280

Sporting

activities

45 60 45 40 15 35 30 266

Government 20 30 25 25 30 40 35 205

Law related

services

35 30 25 20 15 20 20 160

Not stated 990 850 195 85 80 135 45 2,375

Total 38,830 46,440 40,600 41,480 55,065 58,690 47,985 329,090

Source: Accession Monitoring Report May 2004December 2005, www.ind.homeoffice.gov.uk.

The report also mentioned that very few immigrants had actually applied for tax-

revenue funded welfare benefits. Even from the limited number of applications for

welfare benefits, only a few had been approved for further processing. During May

2004 and December 2005, there were 992 applicants for Income Support, 2,232applicants for income-based Jobseekers Allowance, and 46 applicants for state

Pension Credit. Out of these, only 194 applications (or 5.9% of the total) had been

shortlisted for further processing. The remaining 94.1% of applications had been

disallowed on the grounds of Right to Reside and Habitual Residence Tests (Refer to

Exhibit X for the number of applications for income related benefits May 2004

December 2005).

Similarly, Irelands booming economy and especially its construction industry

absorbed a large number of immigrants from the new member countries. Among the

immigrants, the Poles and the Lithuanians constituted the largest numbers, followed

by the Latvians. The Latvians, in particular, earned a good name for themselves as

hard workers. Alfie Lambert, the owner of a firm that makes door frames for the

booming Irish building trade, said, We can't live without the Latvians. We can't grow

without them. He added, Our young Irish don't want to do these jobs any more.18

Between May 2004 and December 2005, Latvia sent 14,000 workers to Ireland, and in

all, Ireland received close to 160,000 immigrants from the CEE19

. Like Ireland,

Sweden, which too opened its doors to the new members, did not report any

disruptions in its labor market.

18 Kevin Sullivan, East-to-West Migration Remaking Europe,http://www.washingtonpost.com/wp-dyn/content/article/2005/11/27/AR2005112700950_2.html

19 Migrant workers from east helping to boost EU's fortunes, says report,http://www.guardian.co.uk/ eu/story/0,,1705656,00.html


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Exhibit X

Applications for Tax-funded, Income-related Benefits in the UK

May 2004December 2005

Q2

2004

Q3

2004

Q4

2004

Q1

2005

Q2

2005

Q3

2005

Q4

2005

Total

Applications for Income Support

Disallowed 43 60 101 134 123 251 237 949

Allowed toproceed for

further

processing

0 3 2 7 4 5 22 43

Total 43 63 103 141 127 256 259 992

Applications for Income-based Jobseekers Allowance

Disallowed 191 162 184 268 358 497 423 2,083

Allowed toproceed for

further

processing

6 8 4 5 12 43 71 149

Total 197 170 188 273 370 540 494 2,232

Applications for State Pension Credit

Disallowed 0 1 3 7 5 13 15 44

Allowed to

proceed forfurther

processing

0 0 0 0 0 1 1 2

Total 0 1 3 7 5 14 16 46

Total

disallowed

234 223 288 409 486 761 675 3,076

Totalallowed to

proceed forfurther

processing

6 11 6 12 16 49 94 194

Total 240 234 294 421 502 810 769 3,270

Source: Accession Monitoring Report May 2004 December 2005,

www.ind.homeoffice.gov.uk.

All the three economies UK, Ireland, and Sweden had been experiencing strong

economic growth before the enlargement and they continued to do so even after the

arrival of the immigrants after the enlargement (Refer to Exhibit XI for growth

rates of select EU members between 2000 and 2004).


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Exhibit XI

GDP Growth Rates of Select EU Member States

Country 2001 2002 2003 2004 2005

Ireland 6.2 6.1 4.4 4.5 5

Sweden 1 2 1.5 3.6 2.6

United Kingdom 2.2 2 2.5 3.2 1.9

Finland 1 2.2 2.4 3.6 1.8

Portugal 1.7 0.4 -1.1 1 0.5

Spain 3.5 2.7 2.9 3.1 3.2

Austria 0.8 1 1.4 2.4 1.9

France 2.1 1.3 0.9 2 1.5

Germany 1.2 0.1 -0.2 1.6 0.8

Italy 1.8 0.4 0.3 1.2 0

Czech Republic 2.6 1.5 3.2 4.4 4.1

Estonia 6.5 7.2 6.7 7.8 7

Hungary 3.8 3.5 2.9 4.2 3.4

Latvia 8 6.4 7.5 8.5 7.8

Lithuania 6.4 6.8 9.7 6.7 6.8

Poland 1 1.4 3.8 5.4 3

Slovak Republic 3.8 4.6 4.5 5.5 5

Slovenia 2.7 3.3 2.5 4.6 3.9

Source: IMF.

The Other Economies

Germany and Austria, which shared common borders with some of the new member

countries, estimated that around four million people would move into their countries

from the CEE by the year 2030. This high estimate prompted both countries to applysevere restrictions on the movement of labor from the CEE, through the imposition of

quotas on immigration. In August 2005, Austria announced that it would continue to

apply restrictions on labor movement till 2007. In the same month, it also announced a

proposal for a bilateral agreement with Slovenia, easing restrictions and permitting

free movement for Slovene nationals.

In France, while nearly 2.5 million French workers remained unemployed, 250,000

job vacancies remained vacant. Between May 01, 2004, and March 31, 2005, only a

little more than 700 Polish nationals were granted temporary work permits in France.


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538

At the end of 2005, some of the EU economies had very low unemployment rates.

Ireland reported an unemployment rate of just 4.3%, while the UK had 4.7%. In

comparison, Germany had 9.5% unemployment and Poland 17.8%. The GDP growth

rates for 2005 were estimated at 1.9% for the UK, 2.6% for Sweden, and 5% forIreland. In contrast, Germany recorded a GDP growth rate of 0.8%, and Italy showed

no growth at all in 2005. The new members, on the other hand, had impressive GDP

growth rates. In 2005, it was estimated that Latvia showed 7.8% growth in its GDP,

Lithuania 6.8%, while for Poland and Hungary the growth rate was 3% and 3.4%

respectively.

In a report released in February 2006, the European Commission urged the rest of the

EU to do what Britain, Ireland, and Sweden had done that is, drop restrictions on

labor migration from Eastern Europe. Vladimir Spidla (Spidla,), the European

employment commissioner, said, Free movement of workers is economically rational

and is enshrined in EU treaties. We have not seen any catastrophic tendencies since

enlargement. Spidla said that Britain, Ireland, and Sweden, which had opened their

borders, had seen a drop in unemployment, a rise in employment, and high economicgrowth. In contrast, the 12 old member states which had maintained restrictions on

East European labor had seen undesirable side-effects, such as higher levels of

undeclared work, as well as bogus self-employed work20

, the report said.21

Spain, Portugal and Finland

Migration from the new to the old EU countries was watched closely by all the memberstates. Many member states realized that in spite of imposing severe restrictions, some

countries were facing large-scale illegal immigration. They realized that it would be better

to legalize immigration and integrate the immigrants with the mainstream, instead of

leaving them to live on the fringes of society.

Spain experienced a heavy flow of illegal immigration from the North African

countries. The fact that labor migration did not lead to labor market disruptions in thehost economies led Spain, Portugal, and Finland to contemplate the idea of opening up

their labor markets. In February 2006, all the three countries gave indications that they

were willing to consider the issue of opening up their labor markets to the new

members. And on March 9, 2006, the Spanish Prime Minister Zapatero announced

that Spain would open up its labor markets to the new members effective from May

01, 2006. The announcement was welcomed by the EU, which advised other membercountries to follow suit. However, Germany and Austria along with Italy and France,

the main economies in the rest of the EU, declared that they had no intention of doing

so.

Outlook

Though many of the older EU members have imposed restrictions on immigrationfrom the new member states, it is believed that these countries will eventually have to

take in an increasing number of immigrants to offset the growing number of vacancies

in their labor markets caused by ageing populations and exacerbated by the declining

fertility rates in Europe. The Total Fertility Rate22

in Europe was estimated to be

20 The old member countries could restrict only labor force in search of work. No restrictionscould be applied on those seeking self-employment.

21 Migrant workers from east helping to boost EU's fortunes, says report,http://www.guardian.co.uk/eu/story/0,,1705656,00.html

22 Total Fertility Rate is defined as the average number of children expected to be born to awoman during her lifetime.


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539

below 1.5 since 1995 through 2003,23

making an eventual decrease in the EU

population inevitable. This decrease in population is expected to have serious

consequences for EUs future in terms of growth rates and development. The fiscal

burden of financing pension systems for a large number of people and providinghealthcare for the elderly, as well as serious gaps in labor markets, are other concerns.

A large number of elderly people will mean that young workers will have to pay

higher taxes to finance the state pension systems. Increasing taxation on a relatively

smaller working population is likely to lead to a flight of human capital the

migration of workers to countries with lower taxes.

The fears regarding migration are expected to fade over time. Additionally, as

immigrants from the new member countries earn higher incomes and send remittances

back to their home countries, the CEE countries will begin to provide better

employment and income opportunities to its citizens. As the income gap between the

old and new member countries converge over a period of time, people will have less

incentive to move out of their own countries. As migration entails a lot of costs

tangible and intangible people will tend to prefer to stay in their own countries,other factors being favorable. In fact, it is expected that with the development of the

new member countries, many of the immigrants will return to their home countries.

Some of the EU countries are also looking at other options, such as increasing the

birth rates, to overcome the looming problems in their labor markets. How far these

efforts will be successful is anyones guess, given the fact that it takes at least two

decades for a baby boom to impact the labor market.

However, one thing most analysts are clear on is that if the EU wants to become a

knowledge-based dynamic economy as enunciated in its Lisbon European Council, it

cannot afford to have serious labor gaps in its market. How well the different

countries manage to meet that challenge is something that only time will tell.

23 Europe in Figures: Eurostat Yearbook 2005, European Commission, Luxembourg.


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540

Additional Readings & References:

1. Mark J. Miller, Western European Strategies to Deter Unwanted Migration: Neither

New Barbarian Invasions Nor Fortress Europa, US Commission on ImmigrationReform, June 1994.

2. Marek Oklski & Dariusz Stola, Migration between Poland and the European Union:the perspective of Polands future membership of EU, Institute for Social Studies,

University of Warsaw, March 1999

3. Michel Poulain and Nicolas Perrin, Is the measurement of international migrationflows improving in Europe, Statistical Office of European Communities, May 16, 2001.

4.

Migration Policies and EU Enlargement: The Case of Central and East Europe, OECD,

2001.

5. Paul Levine, Emanuela Lotti, Joseph Pearlman & Richard Pierse, The Economic Impactof East-West Migration in an Enlarged European Union, Hamburg Institute of

International Economics, 2003.

6. Stephen Drinkwater, Paul Levine & Emanuela Lotti, The Labour Market Effects ofRemittances, Hamburg Institute of International Economics, 2003.

7. Stephen Drinkwater, Go West? Assessing the willingness to move from Central andEastern European Countries, Hamburg Institute of International Economics, 2003.

8. David Mackie & Michael Marrese, EU enlargement: opportunities grasped by theeast, missed by the west, JPMorgan Research, New York, April 27, 2004.

9.

The Enlargement of the European Union, http://www.auswaertiges-

amt.de/www/en/eu_politik/vertiefung/erweiterung_html, May 2004.

10. Antonio Vitorino, The Challenges of Global Migration: An EU View,http://www.carnegiecouncil.org/viewMedia.php/prmID/4985, May 14, 2004

11. Fredrik Bergstrom & Robert Gidehag, EU VERSUS USA, Timbro, Stockholm, June

2004.

12. Controlling our borders: Making migration work for Britain, Secretary of State forthe Home Department, United Kingdom, February 2005.

13.

John Salt, Types of Migration in Europe: Implications and Policy Concerns,

European Population Committee, Strasbourg, April 2005

14. Tito Boeri & Herbert Brcker, Migration, Co-ordination Failures and EUEnlargement, Institute for the Study of Labor, Bonn, Germany, May 2005.

15. Migration and the Millennium Development Goals, United Nations Population Fund,Marrakech, Morocco, May 2005.

16. Ellen Lammers, Global Migration Perspectives, Global Commission on International

Migration, September 2005.

17.

Julianna Traser, Whos afraid of EU enlargement? ww.ecas.org/file_uploads/1009.pdf,

September 2005.

18. EU needs immigration to support ageing population,

http://www.workpermit.com/news/ 2005_10_25/europe/eu_needs_immigration, October

25, 2005.

19. Katinka Barysch, East versus West? The European economic and social model afterenlargement, www.cer.org.uk, October 26, 2005.

20. Kevin Sullivan, East-to-West Migration Remaking Europe,www.washingtonpost.com/wp-dyn/content/article/2005/11/27/AR2005112700950_2.html, November 28, 2005.


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21.Nicholas Watt, Migrant workers from east helping to boost EU's fortunes, saysreport, http://www.guardian.co.uk/eu/story/0,,1705656,00.html, February 9, 2006

22. Accession Monitoring Report May 2004 December 2005, A joint online report by

the Home Office, the Department for Work and Pensions, the HM Revenue & Customsand the Office of the Deputy Prime Minister, United Kingdom, 28 February 2006.

23. Europe in Figures: Eurostat Yearbook 2005, European Commission, Luxembourg.

24.

www.workpermit.com

25. www.imf.org

26.

www.oecd.org

27. www.guardian.co.uk

28. www.eiro.eurofound.eu.int

29.

www.finfacts.com

30. www.euractiv.com

Documents

Case 8 the European Union and Immigration From New Member Countries