Europe’s Migrants: ‘The World Is a Smaller Place’

This month, 30 students at Osnabrück University in Germany’s Lower Saxony are making history. The students — all imams or religious counselors involved in Muslim communities — will spend the forthcoming weeks taking part in a series of religious education seminars never before offered at a German university. Taught with the Muslim community in mind, lectures will range from conflict management to a primer on Germany’s legal and social systems. For many, the seminars are viewed as a step toward improving the integration of the country’s millions of Muslims. Others are not so sure.

It’s part of a larger debate that has engulfed the European Union in recent weeks. In France, President Nicolas Sarkozy has been in a heated argument with the European Commission after ordering more than 1,700 Roma Gypsies to be expelled to Romania and Bulgaria this summer, in direct conflict with European Union rules on freedom of movement. Meanwhile, the far-right Sweden Democrats won their first parliamentary seats in national elections in September, after campaigning on an anti-immigration platform similar to what has been heard for several years now in Denmark, Norway, the Netherlands and Austria. As for Germany, the national debate about immigration intensified when a controversial central banker, Thilo Sarrazin, was forced to resign as a member of the Bundesbank’s executive board and was expelled from the center-left Social Democrat Party after writing a divisive book arguing that immigration is dumbing down the country.

In an era when the number of migrants has been increasing, these recent events might make Europe appear to be at a breaking point. Exacerbated by the economic downturn, fears are growing across all strata of society that immigrants are hindering, not helping, Europe by taking away jobs from natives, straining social systems and irreparably damaging national cultural identities.

“These aren’t new concerns,” says Mauro Guillén, a Wharton management professor. Nor is the migration of foreigners into Europe unprecedented, he notes, “but over the last 20 to 30 years there has been an increase.” And just like on previous occasions when unemployment levels have been uncomfortably high and economies are hurting, “politicians who want to exploit the populist sentiment against immigration … will have no problem doing so.”

But unlike in the past, there is an increasingly rich body of research from economic and management experts on both sides of the Atlantic looking at whether, and under which conditions, immigration is economically and socially beneficial to Europe. Much of the work shatters some misperceptions and provides a broad range of ideas about how immigration can be handled across the European Union. As Guillén notes, “It’s not a zero-sum game.”

Border Crossing

There is some evidence that migration across the Continent has actually decreased slightly over the past year or so as economic opportunities have become scarcer. But from a longer-term perspective, Europe has been part of a larger growth trend. According to the International Organisation for Migration, an agency that works with governments and migrant communities, the number of migrants worldwide has increased during the last 10 years, from an estimated 150 million people in 2000to 214 million people today, or some 3% of the world’s population. In other words, says the agency, one out of every 33 people in the world today is a migrant, compared with one out of every 35 in 2000. The global economic impact of these migrants has also been substantial: According to the agency, remittances sent by these immigrants to their home countries increased from $132 billion 10 years ago to an estimated $414 billion in 2009.

In Europe in particular, the big shift in migration dynamics happened in 2004, when the EU added 12 new member states, and then again in 2007, when Bulgaria and Romania joined the union. According to the EU’s statisticians at Eurostat, EU27 member countries were host to 32 million foreign citizens in 2009, or 6.4% of its total population, of which around one third were from another EU27 country. Of the EU27 member countries, Germany had the highest number of foreign citizens, at 7.2 million, followed by Spain at 5.6 million and the United Kingdom with slightly more than four million.

Now that it is no longer unheard of for migrants to make up as much as 10% of a European country’s population, “the world is a smaller place,” says Christian Dustmann, economics professor at University College London and director of its Centre for Research and Analysis of Migration. Dustmann, who is from Germany and has been studying migration for more than 20 years, says, “Immigration has so many aspects. Some see disadvantages; others see advantages.”

On the one hand, “if you look at the hard facts, for companies wanting a qualified, flexible labor force, migrants are important,” he notes. On the other hand, “the [European] populace at large is driven by concerns about its own jobs” and the impact of immigration on day-to-day lives. Polls in Germany, for example, show that Sarrazin’s opinions struck a chord with many. Pollsters at TNS Emnid reported that nearly one-fifth of Germans would vote for “a Sarrazin party,” while other surveys found that 46% felt “like strangers” in their own country, and many doubted the ability and willingness of migrants to learn their language.

At the same time, many Europeans see immigration as a way to help them with what Wharton’s Guillén calls their “ticking time bomb”: Low birth rates and an aging population mean that more and more Europeans are retiring than working, putting a huge strain on social systems. Klaus Zimmermann, president of the German Institute for Economic Research, a Berlin-based think tank, told a reporter for a local newspaper that by 2015, the country “will lose around 250,000 workers” due to retirement and will need “at least 500,000 more immigrants annually to ensure our economic strength.”

Population experts note that Europe’s migrants tend to be younger than natives — according to Eurostat, the median age of nationals is 41.2 years currently, compared with 34.3 for foreign citizens — and they have more children. “This is helping to rebalance the demography a little bit,” notes Guillén. Going forward, experts say it would be unrealistic to expect an influx of migrants alone will be able to address Europe’s aging profile given the enormity of the imbalance, but it is a step in the right direction.

Costs and Benefits

But are there other ways that migrants in Europe are affecting local economies? In search of the answer, Dustmann says he examined a number of areas in the U.K., in terms of the fiscal costs and benefits of immigrants from eastern Europe after 2004. “Anecdotally, we were told that there was a lot of free-riding of the system,” with EU migrants claiming an unusually high amount of social benefits, he says. “We investigated those claims, and even in worst-case scenarios, we found they contributed far more to the system than what they took out. That was a surprise.”

His research found that the so-called Accession 8 (A8) countries — the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Slovakia, Slovenia and Poland — accounted for 0.91% of the U.K.’s population in fiscal 2009, but contributed 0.96% of total tax receipts and accounted for only 0.6% of total expenditures. Along with being 60% less likely to claim benefits than natives, the A8 immigrants were also working for a third less wages on average.

Research elsewhere has shed more light on the economic impact of immigration. For example, Giovanni Peri, economics professor at University of California, Davis, was part of a research team that examined 15 years of data from parts of Spain with dense migrant communities from particular countries — such as Colombians living in and around Valencia — to see whether they had an impact on trade competitiveness and foreign investment.The research found an increase of the immigrant community from a particular country in a province by 10% raises the exports of that province to that country by between 0.5% and 1%.

“By knowing the local rules and being able to speak the language [of their home countries], these [migrants] reduce barriers to entry,” he says. Immigrants also increase the variety of goods that a country imports and broaden the range of customers a business can serve. “It just shows the increase in the interconnectedness of the world,” Peri adds.

Peri caused a stir earlier this year when he published research conducted on U.S. immigrants while he was a visiting scholar at the Federal Reserve Bank of San Francisco. He found that immigration doesn’t decrease the number of jobs available to natives, as is often believed. “People think there is a fixed number of jobs in a country,” he says. But the crowding out of jobs by migrants is “a myth,” not least because immigrants “take jobs that tend to be in a segment of employment in which the natives are moving out of.”

Moreover, in the sectors in which most migrants can be found, such as construction, they take jobs that complement, rather then substitute, those of natives. He argues that this can help increase both wages and productivity of both the natives and migrants. “When there is a large supply of workers, you create opportunities for firms to expand,” Peri says, especially if migrants take low-skilled jobs that don’t require strong linguistic and communication skills, leaving the better-paying supervisory jobs, which do require such skills, to the locals.

Peri, a native Italian who is currently conducting research from his base at Bocconi University in Milan, is finding that the trends are similar on both sides of the Atlantic, but with one critical difference. “Labor markets in Germany, Italy and Spain are more rigid,” he says. One reason is the clout of their unions, which means “local networks are stronger, so ‘insiders’ tend to organize themselves more and competition in the labor market is lower.” Among the downsides this creates is that low-skilled natives at the bottom of the career ladder tend to stay put, while their U.S. counterparts are more likely to vacate posts and move upwards. In the more rigid European context, “it makes it hard for immigrants to get into the labor force,” he says. That explains why unemployment rates are higher in Germany, Italy and Spain among migrants than among natives, he says, “whereas it’s the opposite in the U.S., where unemployment rates of immigrants are lower than among natives.” The positive gains in productivity in Europe, therefore, might not be as high as in the U.S., and there might be a little bit more marginalization.

As for wages, Peri says, “all economists would agree very strongly that there is an aggregate positive effect of immigration.” The debate begins around the question of who benefits the most and who benefits the least, he adds. “The disagreement comes in discussions about the effect on wages of the least educated and least skilled part of the labor force of the receiving country. I say there is zero loss in wages; [others] say there is a loss. But even then, we’re talking about a few percentages up or down.”

Office Politics

Other factors at play are often overlooked. One is what happens at work when immigrant and native cultures collide. It’s an area that Nancy Rothbard, a Wharton management professor, is currently exploring. “In diversity literature, there is the basic premise called ‘similarity attraction,’ a concept about how people are attracted to similar others and feel more comfortable with them,” she says. “What I and my colleagues argue is that when people are in diverse groups, they tend to want to keep the [personal] parts of their lives separate, and if they can, avoid disclosing information that is going to highlight how they are different from others.” According to Rothbard, her current work shows that this affects the quality of work relationships, “and other work on diversity shows that when the quality of relationships is affected, the effectiveness of how people work together can also be affected.”

Because of the growing number of companies embracing globalization, that is a challenge many executives cannot, or don’t want to, deal with, she contends. “It’s hard for CEOs to say diversity may not work the way we want it to,” says Rothbard. “But it doesn’t work the way we want it to when we assume that it’s naturally going to be good. That’s where we run into a lot of problems.”

The problem could get worse before it gets better. Many European countries say they are suffering from a severe shortage of skilled workers. That’s the case in Germany, where experts have said its lack of engineers, scientists and other educated white-collar workers is costing the country between 15 billion euros and 20 billion euros a year. Like other EU countries, Germany has re-launched a previous scheme similar to the U.S. green card system, which failed to take off when introduced some four years ago. This time around, however, the salary threshold required for migrants to get work visas has been lowered, while one government minister suggested that companies should offer “welcome money” to woo more white-collar migrants.

Not all immigration experts applaud such efforts. “I always argue that if you provide access [to visas] only to people who are highly skilled, what happens to all the other people whose skills we also need?” says Sergio Carrera, a research fellow at the Centre for European Policy Studies (CEPS), a Brussels-based think tank. “When talking about migration policies, we have certain politicians who are happy to say, ‘We are managing the kind of migration that we want,’ and framing the others we don’t want as a threat to security and a threat to our economic stability.”

He makes the point that many measures taken by EU members today that discriminate against certain migrants — including the more extreme ones, such as France’s expulsion of the Roma — goes against the human rights framework they embraced when becoming members of the union. For its part, the EU “is struggling” to enforce what is acceptable under the human rights accords agreed to by members over the past 11 years, and hits a gridlock with members whenever it gets close to establishing a single policy on migration. “This is clearly an issue that is nationally sensitive, linked with matters of identity, traditional powers of the nation state, and who is included and who is not entitled to social solidarity,” Carrera says.

In the end, economic needs may trump all. As UCL’s Dustmann observes, “We’re not in an economy anymore in which you can close borders.”

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