Economic Policy Review ISSN 1313 - 0544

Labor force migration - negative or rather positive impact on the immigration country?

Author: Veliko Dimitrov / 29.01.2007
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Over the last month there have been many articles in the British press questioning whether after Bulgaria and Romania join the EU, workers from those two countries should also enjoy a free access to the UK labor market. Most of the released journalists’ and acting labor party politicians’ opinions were as expected in favor of introducing some sort of restrictions, while the rest, only a tiny fraction, stressed the importance of not offending free market principles.

Although the free movement of people belongs to the fundament on which the EU was once created, this constellation should actually not be so surprising, bearing in mind that decisions based on political arguments sometimes supplant economic-based ones. Or so an acting labor party minister contends “… sometimes politics should get the upper hand over economics”.

How far do politics and economics diverge in this case?

There is no valid economic argument in defense of implementation of labor market restrictions. Labor force, as a factor of production does not generally differ from all others – no matter if it is up to a computer, an iron sheet or human skills. If there is the possibility to obtain them from various sources you simply pick the most advantageous one. The higher competition level on the resource market, which would be provoked by the participation of potential Bulgarian and Romanian immigrants, is the natural prerequisite for the British companies to become more competitive and to be able to sell their products at a lower price. And in reverse, the more restrictions on the resource market, the less chances for business to take up a better position both inside and outside the country. These and similar arguments are subject to no doubt even by the supporters of immigration policy protectionism.

Quite differently grounded is their major argument in favor of sheltering the labor market; it merely says that as a result of the growing supply of foreign workers, unemployment and therefore the social security payments will rise. That is generally possible however available statistical data does not verify this point of view. Three out of 15 old EU member states did not set up restriction mechanisms toward workers from the new accession countries. The table below provides the unemployment rates at and after the date of accession in those three countries.

As shown, for a period of eight months, unemployment in the three countries has not increased and has even decreased in two of them. As some would suggest, this is not due to a lack of any immigrants (in the UK alone more than 127 000 people have been registered(1) ), but to the creation of new, occupied, free, and coming out of the shadow economy working places.

On the other hand, the additional employment and competition have, on average, contributed to about 30% higher GDP growth in 2004 compared to the previous year.

In comparison to the rest of “old Europe” (2,3 % average GDP growth), the expansion of the economies of the three “open” countries is significantly higher .

Quite reasonable sounds the conclusion that thanks to the greater number of workers and increased competition, in particular on the labor market, the three open countries are progressing much faster than their neighbors which have introduced some sort of entry barriers to foreign workers.

I might need to say that the negative impacts of immigration are often being hyperbolized, while the positive ones almost always remain unnoticed (or unmentioned). All of this is mostly due to the fact that unlike other factors of production – goods, services and capital – the labor force and all related issues have much greater populistic potential, which the political elite seldom neglects to fully exploit.

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(1) According to official information published by the Home Office