The Impact of Real Convergence on Migration and Labour Markets

Abstract

Migration from the new member states of the European Union (EU) has accelerated in the course of the EU’s eastern enlargement. About 250,000 persons per annum moved from the eight new member states (NMS-8) who joined the community in 2004 into the EU-15 during the first three years following enlargement, and another 150,000 persons from Bulgaria and Romania during the same period of time. This migration took place despite a real convergence of per capita GDP levels. In this context, this chapter addresses two questions: first, does real convergence of GDP mitigate migration pressures? Second, what is the impact of migration on convergence and labour markets?

We find, first, that the real convergence of per capita GDP levels can reduce migration levels, but only to a limited extent under reasonable assumptions on real GDP convergence. Second, we find that migration itself supports the convergence of per capita GDP levels, wages and unemployment rates. In the long run, the GDP of the enlarged EU will, however, increase by some 0.6 per cent if 4 per cent of the population of the new member states emigrates into the EU-15. In particular the GDP of Ireland will increase by more than 4 per cent and that of Austria, Germany and the UK by about 2 per cent. These gains dwarf those of a further integration of goods and capital markets. The main winners are the migrants themselves: their income increases by more than 100 per cent. While natives in the sending countries tend to gain on average, the aggregate impact on the income of natives in the receiving countries is neutral or even negative. However, migration has only a negligible impact on the convergence of native income levels between the East and the West. The unemployment rate increases in the immigration countries by less than 0.1 percentage points, but blue-collar workers are particularly affected. Their earnings net of taxes and transfers might decline by 0.2 per cent in the receiving countries at the given skill composition of the workforce from the new member states.