Immigration policy in the European Community

1. Economic advantages

Migration has become a major global phenomenon in recent decades. As well as permanent migrants and their families there are seasonal and temporary workers, frontier workers, illegal immigrants and asylum-seekers. In Africa the traditional movement of traders and seasonal workers has been obscured by the large number of refugees from political conflict. In Asia there has been temporary migration from the Indian subcontinent to meet the labour shortages of the Middle East. In Europe the long established migration patterns from ex-colonies to the UK and France, and of Turks to Germany, has been supplemented by new flows into the traditional countries of emigration such as Italy, Spain and Portugal. At the same time the political changes in Central and Eastern Europe have created new and substantial immigration pressures upon the Community.

For the developing countries, from which these immigrants principally come, these outflows usually offer significant economic advantages. Faced with high rates of population growth and limited employment creation immigration offers a safety valve. Remittances can be a significant source of foreign exchange, while returning migrants may bring capital and skills to foster economic growth. Only the loss of any scarce skilled and qualified labour may inhibit their economic development. From a global perspective economic analysis would see such movements of labour as yielding the same global welfare maximisation that arises from the free movement of capital and of free trade. However immigration is determined not just by economic forces but also by political decision making. It is the receiving countries whose immigration policies determine the scale of immigration flows and therefore it is their national economic evaluation of the costs and benefits that is central to understanding this phenomenon. The intention of this paper is to bring economic welfare analysis to bear on this issue from the narrower perspective of these receiving countries.

This analysis will be placed in the context of the EU experience. The establishment of the free movement of labour under the Single European Act and the first stages in the creation of a borderless Europe under the Schengen agreement have brought to the fore the issue of external immigration into the European Union. Inevitably it is being recognised that there is a need to establish a common EU immigration policy to replace fragmented and inconsistent national regimes.

In the following papers I first describe the changes that took place in national immigration policies in the 1970s. In Section 2 I review the trends in immigration into the EU Member States over the last few decades and its significance to their economies. The change in national policies reflected in part concerns as to the economic consequences of continued immigration, in particular its impact upon the receiving countries social infrastructure and labour markets. In Section 3 welfare analysis is brought to bear in order to clarify these economic arguments. I also review the available studies of the economic impact of immigration into the United States. The paper concludes with a review of the progress that the EU has made towards the development of a common immigration policy.

2. Labour Mobility in the EU

Common labour markets had existed between the UK and Ireland and the Nordic countries before the formation of the EU in 1958. Although the original Treaty of Rome under Article 3(c) had required 'the abolition, as between Member States, of obstacles to freedom of movement of persons', the process of establishing a common EU labour market did not make significant progress until the enactment of the provisions of the Single European Act. In 1992 this finally created the single European market (SEM). A series of Directives and Regulations have sought to remove all obstacles to labour mobility within the EU by outlawing discrimination between EU citizens in employment rights, health, social security and housing entitlements in any member state. The Commission is also pursuing a programme to establish the mutual recognition of both vocational and academic qualifications. Any EU citizen has the right to take up employment or establish a business in any member state, and to seek employment, accompanied by their dependents, throughout the EU.

Despite the SEM legislative programme the intra EU movement of labour is expected to decline in the coming decades. The principal labour flow in the 1950s and 1960s had been from the poorer Southern European states, such as Italy and Spain, to the more prosperous Northern countries, eg. Germany and France. However the rising incomes in the Southern states has removed much of the incentive to migrate, while the cultural and language differences across Europe will always present a significant barrier to migration. By contrast the pressure from external migrants for entry into the EU remains substantial and is likely to increase. The rate of immigration has been determined solely by the controls imposed by each European state. Between 1960 and 1970 the number of foreign workers in nine European countries, increased from 2.5 m. to 5.4 m. The numbers were to peak at 6.3 m. in 1973 and then decline to 5.8 m. by 1987 (Hansen 1993). However the number of foreign residents was substantially greater and by 1991 it was estimated that 8 million non EU nationals were resident in the Community, 2.5% of the EU's population. By contrast only 5 million EU citizens were resident in an EU country other than their own.

Initially immigration into Europe during the period of post war reconstruction was of 'displaced persons' from Central and Eastern Europe. During the boom years of the 1950s and early 1960s European countries actively recruited labour from their ex colonies or developing countries. National immigration policies could be broadly classified as of two types: rotational and permanent. Switzerland and West Germany adopted a rotational system of immigration controls, where permits were issued for a limited period and could not be extended. By contrast the UK operated a system of permanent residency permits. Other European countries operated a mixture of these two systems, but no country allowed uncontrolled immigration.

By 1973 West German attempts to rotate immigrant labour under the 'guestworker' system had failed to prevent the emergence of a permanent immigrant community which exceeded 10% of the workforce; one quarter of which was Turkish. The impact of the 1967 68 recession and the first oil price shock of 1973 4 provided the trigger for a policy change. From November 1973 recruitment of foreign labour and the issue of primary immigration permits were ended. At the same time the number of permits for relatives of existing migrants were increased; effectively recognising the failure of the rotational system. Although the recessions provided the rationale for the tighter immigration controls, the available evidence of unemployment rates amongst unskilled workers (approx. 0.1%) suggests other political considerations were of greater importance than the state of the labour market (Hansen 1993).

During the 1970s a similar watershed was passed in many European countries in their attitude to immigration. In France the first attempt to tighten the controls on legal and illegal employment of foreign labour occurred in January 1972 with the "Fontanet" circular. The opposition of employers ensured its suspension in 1973, but legislative controls on immigration were significantly tightened by 1974. In Sweden the foreign recruitment of labour was halted and immigration permits reduced in 1972. Similarly the Netherlands tightened its immigration controls in the late 1970s. The UK had been seeking to reduce 'new' Commonwealth immigration since 1962, with the 1971 Immigration Act restricting immigration to the dependents of existing immigrants.

As with West Germany the rise in unemployment in the early 70s seems unable to explain both the tightening of entry controls and their subsequent maintenance. Political concern at the social impact of large and growing non European immigrant communities may well be the crucial factor in explaining these policy changes. However two further economic considerations may have contributed to these policy shifts. Firstly, recognition of the strain that substantial immigration was placing on the social infrastructure such as housing, education, health, and social services, and upon social security budgets. Secondly, pressure from trade unions concerned that immigrants would displace their members in employment and depress wages. These two issues are analysed in greater detail in Section 3.

3. Recent Trends in Immigration

Initially the attempt to curtail immigration in the early 1970s across the EU was largely successful. However family reunification and the natural growth of the immigrant communities resulted in their continued expansion. Family reunification and the young age profile of these communities, has produced a fertility rate significantly higher than that of the indigenous population. Thus while the European fertility rate is approximately 1.6 children per woman, below the replacement ratio of 2.1, that for example, of Tunisian women resident in France was 6.19. In 1992 10% of all births were to parents of foreign origin in Germany, Belgium, France and the UK. However over time most immigrant groups would be expected to adjust their fertility rates to those of the indigenous European population (OECD 1991).

During the 1980s net migration had equalled the indigenous population growth of the EU with the number of foreign residents increasing by nearly 800,000 in Germany, by 500,000 in Italy and by 200,000 in the UK and the Netherlands. In France the number of foreign residents fell by 130,000 as a result of naturalisations and immigrants returning to their home countries. But overall net immigration had been on a downward trend until the last few years of the 1980s (Table 1). This reversal has been attributed to four factors; the social upheavals in Eastern Europe, an upturn in the inflows of skilled labour, the increase in migration to the Southern Member States of the Community and the increase in the number of asylum seekers (Table 2). The number of asylum applications increased in Germany from 73,832 in 1985 to 322,600 in 1993; in France from 25,800 to 27,600 and in the UK from 5,900 to 28,500. The total number of refugees resident in the EU in 1988 had reached 1.2 million; with 800,000 in Germany, 184,000 in France and 100,000 in the UK.

By 1993 the total number of non EU residents in the Community had reached 12 million. Of these migrants one quarter were Turks, mainly resident in Germany, and another quarter from North Africa and resident in France. Germany accounts for 39% of all migrants to the EU and France 18%. Relative to their populations Germany again emerges as having the highest concentration at 5.9%, with Austria at 5.6%, France at 3.9%, and Belgium, and the Netherlands with 3.7%. The significance of migrant labour to the various European economies can be seen in Table 4. Again immigration is most significant to the German economy, with economically active immigrants providing 7% of Germany's total labour force; while in France, the second highest, they total 4%. Belgium, Portugal, the Netherlands and the United Kingdom all fall in the range 2.1% to 2.7%

However these Tables need to be treated with some caution as an indication of the extent of immigration to the various Member States of the EU. Each country varies significantly in the right to naturalisation and this is reflected in the numbers who are granted national citizenship (Table 5). At one extreme is Sweden, where in 1993 42,700 immigrants received citizenship through naturalisation (13.6% of the resident foreign population), whereas in Germany citizenship was granted to 45,000 (0.9% of the foreign residents). Further complications arise from variations in the entitlement to citizenship of the children of foreign nationals resident in a country, which is the usual practice in France but not in Germany or Austria, and from the entitlements to citizenship of people born abroad (see M. Baldwin Edwards 1991). Thus the UK's estimated non EU population of 1 million contrasts with the 2.6 million ethnic minority population (1991), while Germany has received over one million immigrant ethnic Germans.

Finally we must recognise that so far I have only discussed the available data for legal immigration. Illegal immigration is also regarded as being significant, especially in the Southern Member States of the EU. The EU Commission (ISOPLAN 1989) estimated that in 1988 Spain had 294,000 illegal residents, Portugal 60,000, Greece 70,000 and Italy 850,800. In 1991 Spain decided to regularise the situation of illegal immigrants and received 133,000 applications.

With the contrasting birth rates of the EU and the surrounding countries of North Africa and Asia, and the widening economic gap between these developed and developing areas, migration pressure is expected to be substantial in the coming decades. Between 1994 and 2025 the population of Algeria is expected to increase 91%, Egypt's 67%, Morocco's 76%, Tunisia's and Turkey's 56% and Sudan's by 121% (United Nations Population Fund 1994). Political change in Eastern and Central Europe, with the threat of economic collapse, has also raised the spectre of substantial East West migration. The International Organisation for Migration (1991) has suggested that 5 million migrants will move into the EU by the year 2000. Germany, Austria, France, Italy and the Benelux countries are seen as the most likely recipients of these migrants. If these estimates were to be realised it would represent only an increase of 0.3% of these countries' populations. By comparison during the peak years of immigration to the US (1900 1910) the inflow was 1.2%. However these estimates remain highly uncertain and the actual outcome will be determined by the political decisions of the EUs Member States.

4. Analysis

Immigration will have an impact both upon the labour market conditions and the public finances of a receiving country. It will have implications both for workers and employers in the short and long run. Beginning with a global perspective the economic evaluation of international immigration focuses upon the gains in allocative efficiency that arise from the free movement of factors of production. The efficient world wide utilisation of factors will be indicated by the equalisation of goods and factor prices across all economies. Should factor prices, reflecting marginal productivities, vary, then a reallocation of factors will allow increased production and a gain in global welfare.

A considerable debate has taken place as to whether free trade in goods and the free movement of capital are sufficient to achieve global welfare maximisation without the need for labour mobility, as suggested in the Heckscher Ohlin Samuelson model (see Straubhaar 1988). This conclusion is less clear once the simplifying assumptions of this model are relaxed. Impediments to free international trade, whether arising from trade barriers or natural protection inherent in the nature of the good, and insufficient labour mobility within a country, may both require international labour mobility to achieve allocative efficiency. Markusen (1983) argues that economies of scale, imperfect competition, taxes and differing production technology, will all require labour mobility to complement international trade.

However in this discussion of the welfare effects of international migration it will be assumed that labour mobility is essential to achieve allocative efficiency, and will focus upon the question of the distribution of the benefits from such migration.1Thus the analysis will be confined to the benefits and costs experienced by the receiving country. This is a more narrowly focused definition than the global welfare analysis which is usually employed. These distributional aspects are a crucial issue when international labour flows are usually constrained by national controls on the right of entry and settlement. Restricting the welfare analysis to that of the impact upon a host country will more realistically reflect the policy making environment.


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