Increasing Labour Supply through Economic Migration Statements and Comments

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1 Increasing Labour Supply through Economic Migration Statements and Comments Donald Storrie Centre of European Labour Market Studies (CELMS) Part 1: A brief assessment of the policy context, economic circumstances and institutional/legal background in the peer country, which are relevant to the policy/measure under discussion Immigration for labour reasons has since the mid 1980s been minimal in Sweden. The Swedish position, as originally stated in 1984 (prop 1983/84:144 p. 62), was that there was no reason to consider any need for immigration for labour reasons in the foreseeable future. The view was taken that it was up to the National Labour Market Administration to ensure an adequate labour market supply drawn from those already residents of the country. The massive increase in unemployment in the early to mid 1990s reinforced the logic of an almost exclusive recourse to the now very large domestic labour reserve. Table 1 shows that despite a recovery from the massive labour reserve of the mid 1990s, it is obvious that there is no current acrossthe-board shortage of labour. The figures from 2000 correspond to the most recent business cycle peak, since then the labour market has deteriorated further. Table 1: The labour reserve 1990, 1995 and 2000 Year Unemployed Part-time Discouraged Total number Persons Hours Persons Hours Persons Hours Of hours , , , , , , , Note: Persons in hundreds, hours in millions. Source: The Labour Force Surveys. However, despite the very restrictive policy towards immigration for labour reasons, the number of foreign-born increased dramatically during these years, and by the turn of the millennium constituted 12 percent of the population between the ages of 16 and 64. This is one of the highest rates of foreign-born in the European Union. The vast majority of these people are political refugees and their families. Both the high aggregate unemployment rate and the fact that the new generations of foreign-born had appreciably lower employment rates and higher unemployment rates than native-born, was hardly conducive to calls for an increase in immigration for labour reasons. However, very recently there has been some shift of policy. In 2004 the Parliament set up a Committee named An overview of the regulation of immigration for labour market reasons. In the terms of reference to the Committee the position taken is that while there is still no current need for immigration for labour reasons, there may be a need in the foreseeable future. This is almost exclusively due to the demographic changes common to nearly all industrialised countries. While projections of a radical increase in dependency ratios, particularly after 2010, are an important factor it is clearly indicated that immigration cannot provide a full solution to this problem. The terms of reference also mention the importance of learning from the experiences of other EU Member States. Presumably this is why 1

2 Sweden has expressed an interest in participating in this Peer Review to examine what can be learned from the Irish approach to increasing labour supply through economic migration. Labour permits are awarded to cover temporary shortage of labour and to facilitate international exchange. The National Labour Market Administration lays down the guidelines for the issuing of work permits and they are awarded by the Migration Board. Both Social Partners are provided the opportunity to express their opinion on these guidelines Usually work permits should be issued to the worker before arrival in the country. Wages and working conditions should at least correspond to conditions in collective agreement or current practice. There should be sufficient hours of work to allow a reasonable standard of living. Permits may also be awarded to accompanying spouses, partners and children under 21 years of age (not for seasonal permits). Most permits are temporary and are granted in occupations in which it is difficult for the employer to recruit. These permits are issued for 18 months and may be extended for six months more. Seasonal permits (1 April to 1 November) are valid for three months. These are most often for seasonal agricultural work such as fruit picking. In ,185 work permits were issued. 8,500 of these were first-time permits issued to labour outside of EU25. 1 ; 6,800 were issued to residents of EU/EEA countries. 4,900 seasonal permits were issued and only 209 permanent permits were issued to immigrants for labour market reasons. Of the total of 10,300 temporary permits issued to residents outside EU, 2,022 of these were to artists and entertainers. Indians were prominent among the high-skilled labour immigration. 1,100 permits were issued to Indians, of which 781 permits was for work in IT and high tech sectors. 483 were issued to Chinese of which 151 worked with teaching and research. 731 of the permits were to residents of USA. 177 of these permits were for entertainment and 90 for top management posts. During ,144 people obtained a residency permit in Sweden. Of these 6,140 were refugees and 22,214 received a permit due to family connections in Sweden. Part 2: A brief assessment of the potential transferability of the policy/measure (as a whole or parts of the approach) to the peer country and of the likely conditions for its application; (e.g. what labour market problems in the peer country it could potentially solve, the extent to which it fits with the policy and legislative system in the peer country, etc.) As stated previously, there is currently no across-the-board labour shortage in Sweden. However, general labour shortages are to be expected in the future and there are current labour shortages in certain occupations. Table 2 shows that the percentage of the population between ages of 20 and 64 begins to decline quite significantly after This is accompanied by an increasing share of, primarily, the over 65 year olds. It should of course be pointed out that the dependency ratio (ratio of working to non-working) is not only a matter of the age structure. Sweden has an excellent record in terms of employment rates for the older workforce with both the highest male and female employment rates for those between the ages of 55 and 64 in the EU, and already well above the Lisbon target. However, somewhat ironically in the context of the immigration, Sweden has not in recent years been successful in integrating the foreign born. In 2004 the employment rate of foreign born was 61 percent compared to 76 percent among native Swedes. The gap between native and foreign born was much lower in the 1970s. This is often attributed to the characteristics of economic immigrants as compared to other immigrants. However, it 1 Note that no permit is required for Nordic citizens who are thus not included in the statistics. 2

3 should be underlined that some of todays immigrants probably have moved to Sweden for economic reasons and key factor in the integration of foreign born is almost certainly the state of the labour market which is much worse today than it was prior ro Table 2: The age structure (percent) in Sweden and projection Year Age group Year Age group Source: Sveriges framtida befolkning - Befolkningsframskrivning för åren , Statistics Sweden There are no long-term projections of labour force requirements by occupation conducted by Statistics Sweden. However, speculation on long-term labour requirements usually mention the need of highly qualified technicians and workers in the health and care sectors and teachers. In the most recent annual projection of labour demand the National Labour Market Administration state that not since the deep recession of the 1990s have the measures of labour shortage been so low. 2 Like Ireland, economic immigration in Sweden is vacancy driven. However, the key role of the National Labour Market Administration and the Social Partners (particularily the trade unions) lead to a much more restrictive policy. The ESRI paper on the occupation/education gap for immigrants is highly relevant for Sweden. The over-educated immigrant is a well-known phenomenon for the foreign-born in Sweden today. The explanation for the gap is commonly viewed in Sweden to two closely related issues, namely the lack of Swedish specific human capital (language, social norms, etc) and discrimination. Given the geographical proximity (and in some cases also historical links), the small Baltic States and Poland are currently the most obvious source of low-skilled labour for Sweden. Indeed for many years much of the seasonal labour migration has come from these countries. Given a continuation of the prevailing wages in these countries relative to Swedish wages, one could possibly expect labour market immigration from these states in the future if and when the demand arises, and thus not requiring immigration from outside the EU(25). On the other hand, there has been only a very limited increase in labour from these countries since May Ura 2005:1 Var finns jobben 2005? 3

4 Currently it is rather difficult to envisage significant high skilled labour from outside the EU(25). Moreover, were such a need to arise it may also be somewhat unrealistic to believe that Sweden would be very successful in competing with other EU countries in attracting this labour. Sweden does not have a colonial history and thus is without the cultural ties that may be helpful for, for example, France and the UK to attract foreign-born high-skilled labour. Moreover, unlike English or French, knowledge of the Swedish language is hardly widespread. 3 These factors, together with a relatively compressed wage structure (and relatively high taxation), do not suggest that foreign workers will come to contribute appreciably to the future requirements of the Swedish labour market. Part 3: A note of any important issues relevant to the policy area that are currently being raised and debated in the peer country, and any future developments which are likely to be relevant to the policy area Sweden, together with Ireland and the UK, were the only EU15 Member States that did not impose transition rules on migration from the ten new Member States in May However, my interpretation (this is also a common interpretation) of the very peculiar political debate on the issue was that in terms of actual political preferences, as opposed to the political game that was played, there was in fact a political majority for transition rules and indeed the minority Social Democratic Government proposed transition rules to Parliament. 4 The case for transition rules was made in terms of so-called welfare tourism. Any coming liberalisation of immigration for labour market reasons in Sweden is likely to face an intense debate on the possibility of immigrants, even with a rather weak attachment to the labour force, to secure benefits from the extensive Swedish welfare State. I have argued elsewhere that this is hardly likely to be a real issue in practice, mainly because the insurance-based welfare benefits are strongly related to recent income. 5 Probably a more valid concern, and this is certainly the view of the Swedish trade union movement, is of the risk for social dumping i.e. that immigration may lead to a deterioration of wages and working conditions for Swedish residents. This also would appear to be the official stance of the current Social Democratic Government and very clear reference to this matter is made in the terms of reference to the above mentioned Parliamentary Committee. As opposed to the provision of welfare services and social insurance, the Swedish Model is based on a very non-interventionist state in the labour market as regards pay and working conditions, which is almost the exclusive preserve of the Social Partners. Regulation occurs primarily by means of collective agreement. For example, there is no law on minimum wages; health and safety issues are mainly regulated by collective agreement; and large parts of the Employment Protection legislation may be replaced by collective agreements. Thus, in Sweden the maintenance of pay and working conditions hinges crucially on the capability of the trade unions to maintain the integrity of the collective agreement. While it would appear the trade unions have some confidence that they will be able to continue to do so 3 On the other hand perhaps too much can be made of the Swedish language issue as regards high-skilled labour. English is the official company language in several major Swedish companies, such as VOLVO and Ericsson. Moreover, as Sweden scores high on most quality of life indicators, such as the UN s Human Development index, it might be viewed as an attractive country to live in. 4 For an interesting and somewhat provocative account of the debate about immigration for labour market reasons in Sweden see Bucken-Knapp Gregg (2003) Workers of the World, Keep Out! Unions, Social Democrats and the Question of Arbetskraftsinvandring. Paper presented to Industrial Relations Conference Saltsjöbaden, Sweden, May Gothenburg University s official response (remissvar) to EU:s utvidgning och arbetskraftens rörlighet (SOU 2002:116). 4

5 as regards employees that are or have become resident in Sweden, they are much more concerned about self-employed and employees of foreign firms in Sweden. This has led some trade union officials to publicly voice the possibility of introducing a legally mandated minimum wage. While these issues, particularly that of employees of foreign firms, fall primarily under the free movement of services (see the debate on the now defunct Services Directive), issues of social dumping will continue to be a vital issue in any proposed liberalisation of labour immigration in Sweden. Probably the single most prominent labour law case currently in Sweden concerns the Latvian construction company Laval that failed to strike a collective agreement with the Construction workers Trade Union (Byggnads) for the pay for their eastern European workforce in Vaxholm (outside Stockholm). The conflict escalated so that a number of other unions also enforced a blockade of the site. Laval sued the unions and the case reached the Labour Court. Generally unions do have right to use industrial action to obtain a collective agreement. However, the Labour Court decided that they could not rule on the issue as the fact that Laval had a collective agreement with a Latvian union complicated matters considerably and on 29 th April 2005 the matter was referred to the European Court. The issue is of central importance to the Swedish trade union movement, which argues that it may lead to apartheid with poorer pay and working conditions for foreign workers and an undermining of collective agreements for resident workers. The Swedish Minister of Labour has declared that he supports the union s position. One may expect a judgement within a year. As indicated by the debate on transition rules for the ten new Member States, the important Social Democratic Party (together with the trade unions) while not against the idea of economic emigration, appear to be the least enthusiastic. The high level of unemployment, concerns over social dumping, and the low level of labour market integration of foreign-born residents lie behind this reservation. Most opinion polls indicate, and most political observers believe, that next year s election will be won by the non-socialist block. This may suggest a more radical change of immigration policy than envisaged by the present government. Those interested in up-coming developments of this issue in Sweden should observe the on-going work of the Parliamentary Committee - An overview of the regulation of immigration for labour market reasons. 6 6 The Committee s first report was published in May 2005 Arbetskraftsinvandring till Sverige: befolkningsutveckling, arbetsmarknad i förändring, internationell utblick Delbetänkande av Kommittén för arbetskraftsinvandring till Sverige. SOU 2005:50. It contains an English summary. 5

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