TAKING STOCK. of Recent Migration Flows in the European Union. Poverty Reduction and Economic Management Unit Europe and Central Asia Region

Transcription

1 TAKING STOCK of Recent Migration Flows in the European Union Poverty Reduction and Economic Management Unit Europe and Central Asia Region

2 ACRONYMS AND ABBREVIATIONS EU European Union GDP Gross Domestic Product LFS Labor Force Survey NAFTA North American Free Trade Agreement NMS The New EU Member States PESs Public Employment Services SILC Surveys of Income and Living Conditions UK United Kingdom Vice President : Philippe Le Houerou Country Director : Peter Harrold Sector Director : Luca Barbone Sector Manager : Benu Bidani Task Leader : Salman Zaidi ii

3 PREFACE AND ACKNOWLEDGEMENTS This report has been prepared by a task team comprising Claudio Montenegro, Erwin Tiongson, Helena Makarenko, Misha Bonch-Osmolovski, Roberta Serafini, and Salman Zaidi (task team leader). The report was undertaken under the guidance of Peter Harrold, Country Director; Luca Barbone, Sector Director; and Benu Bidani, Sector Manager. Dena Ringold and Dilip Ratha were the peer reviewers of the report. This report also draws upon analytical work commissioned earlier by the Czech Ministry of Labor and Social Welfare: The Foreign-Born Population in the European Union and its Contribution to National Tax and Benefit Systems, which was presented at the EU Ministerial Conference Strengthening EC Competitiveness Potential of Migrants on the Labour Market organized by the Czech Presidency of the Council of the EU in Prague, February, The team would like to thank numerous individuals who provided very useful comments and suggestions on an earlier draft of the report, including Michal Boni (Member of Council of Ministers, Poland), Bogdan Alexandru Dragoi (Secretary of State, Ministry of Public Finance, Romania), Sandor Karacsony (Senior Advisor to the Executive Director EDS10, The World Bank, Einars Repse (Minister of Finance, Latvia), Uldis Augulis (Minister of Welfare, Latvia), Mindaugas Petrauskas (Vice Minister, Ministry of Economy, Lithuania), and Audrone Morkuniene (Vice Minister, Ministry of Labor, Lithuania). In addition, the team would also like to thank Asad Alam, Willem van Eegen, Orsalia Kalantzopoulos, Toni Koleva, Sanket Mohapatra, Sonia Plaza, Elina Scheja, Kristyn Schrader, and Penny Williams at the World Bank, Martina Michalcová and Martina Tomková in the Czech Ministry of Labor and Social Welfare, and participants of the above-mentioned EU Ministerial Conference for helpful comments on the analytical work presented at the conference. iii

4

5 TABLE OF CONTENTS TABLE OF CONTENTS... V LIST OF TABLES AND FIGURES... VI EXECUTIVE SUMMARY... IX CHAPTER 1 EU ENLARGEMENT: EXPANDED SINGLE MARKET FOR WORKERS... 1 EU Enlargement and Impact on the Labor Market... 1 Overview and Outline of the Report... 3 Attitudes Towards Enlargement: Perceived Opportunities and Risks... 4 How Many Migrants, Where Are They From, and Where Do They Live?... 5 CHAPTER 2 MIGRATION INTENTIONS AND LIKELY FUTURE TRENDS Introduction...15 Review of Related Literature...17 Empirical Analysis...20 Concluding Observations...26 CHAPTER 3 MAIN CHARACTERISTICS OF THE EU MIGRANT POPULATION Age and Demographic Composition:...29 Educational Background:...31 Employment and Occupational Status:...31 Household Earned Income:...33 Living Conditions and At-Risk-of-Poverty Rates...34 CHAPTER 4 CONTRIBUTION OF MIGRANTS TO NATIONAL TAX AND BENEFIT SYSTEMS Basic Methodological Approach and Data...37 Average Taxes Paid:...39 Average Benefits Consumed:...40 Net Contributions to National Tax-Benefit Systems...41 CHAPTER 5 RECENT DEVELOPMENTS AND CONCLUDING OBSERVATIONS Recent Migration Flows Out of EU10 Countries:...45 Remittances to EU10 Countries:...47 Increased Labor Mobility for the Young, Better-Educated EU Work-Force?...49 Concluding Observations...50 REFERENCES v

6 LIST OF TABLES AND FIGURES List of Figures Figure 1.1: Enlargement of the European Union: Figure 1.2: Public Attitudes Towards Enlargement of the European Union... 4 Figure 1.3: Share of Foreign-Born Population in EU Countries... 9 Figure 1.4: Correlation with GDP per capita... 9 Figure 1.5: Breakdown of Population by Place of Birth Figure 1.6: Composition of the EU Migrant Population by Country and Place of Birth Figure 3.1: Differences in Average HH. Incomes by Country: Migrant and Native-Born Population Figure 3.2: Difference in Equivalized HH. Disposable Incomes: Migrant and Native-Born Population Figure 3.3: At-Risk-of-Poverty Rates: Migrant and Native-Born Populations in EU15 Countries Figure 4.1: Differences in Average Benefits by Country: Migrant and Native-Born Population Figure 4.2: Migrants Net Contributions (i.e. relative to native-born population): EU Figure 4.3: Migrants Net Contributions: EU15 and EU10 Countries Figure 4.4: Net Contributions to Tax-Benefit System by Country (Migrants Native-born Population) Figure 5.1: Workers Remittances and Compensation of Employees (percent of GDP) List of Tables Table 1.1: EU Non-National Population by Country of Residence... 5 Table 1.2: Increase in Number of Non-Nationals : EU15 Countries... 6 Table 1.3: Population of EU Countries by Migration Status and Country of Residence Table 1.4: Typology of Countries by Population Share Born in Other EU Countries (2008) Table 2.1: Migration Intentions in the Eurobarometer Table 2.2: Percent Intending to Move within EU Table 3.1: EU Working Age Population: Breakdown by Age-Group Table 3.2: EU Working Age Population: Breakdown by Highest Educational Attainment Table 3.3: EU Working Age Population: Breakdown by Self-Defined Current Employment Status Table 3.4: EU Working Age Population: Breakdown by Employment Status Table 3.5: EU Working Age Population: Breakdown by Occupational Status Table 3.6: Average Household Earned Incomes: Native-born and Migrant Population Table 4.1: Average Taxes Paid: Native-born and Migrant Population Table 4.2: Average Benefits Received: Native-born and Migrant Population Table 4.3: Net Contributions to Tax-Benefit Systems: Native-born and Migrant Population Table 5.1: Net Migration to EU15 Countries by Gender and Time-Period Table 5.2: Inflows of EU10 citizens to EU15 Countries Table 5.3: Remittance Corridors in 2008: Outflows from Selected EU15 Countries Table 5.4: Remittance Corridors in 2008: Inflows to EU10 Countries Table 5.5: Recent Changes in Composition of Within-EU Migrant Group List of Boxes Box 1.1: Transitional Arrangements Regarding Free Movement of Workers... 2 Box 1.2: The European Union s EURES Network Box 2.1: Before & After Enlargement Comparisons: Summary of Studies based on Eurobarometer vi

7 Box 2.2: Migration Intentions: ISSP Data Box 4.1: Definitions of Key EU-SILC Variables Used in the Analysis List of Tables in Annex Table A1: Breakdown of the Population by Country and Age Group Table A2: Breakdown of the Population by Country and Educational Background Table A3: Breakdown of the Population by Country and Current Economic Status Table A4: Breakdown of the Population by Country and Current Employment Status Table A5: Breakdown of the Population by Country and Occupational Status Table A6. Probit Regression Results 1 (Marginal Effects) Table A7. Probit Regression Results 2 (Marginal Effects) Table A8. Probit Regression Results 3 (Marginal Effects) Table A9. Probit Regression Results 4 (Marginal Effects) Table A10. Net Contributions to Tax-Benefit Systems by Country vii

8

9 EXECUTIVE SUMMARY 1. Expanded employment opportunities across the continent EU Enlargement: have been one of the most significant changes to have taken place in Europe during the past 50 years. Since the inception of the European Economic Community in 1957 involving 6 countries (Belgium, France, Italy, Luxembourg, the Netherlands and West Germany) with a combined population of less than 200 million, the European Union (EU) has grown to encompass nearly 500 million people across 27 member countries Source: that produce, in total, about 30 percent of the world s total gross domestic product. May 2010 marked the six-year anniversary of the inclusion of eight countries from Central and Eastern Europe (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, the Slovak Republic and Slovenia) into the EU, followed by Romania and Bulgaria in January An important consequence of these 10 new member states (henceforth EU10) joining the EU has been to expand the internal EU labor market, albeit to varying extents for nationals of different member countries. 2. Our understanding of migration flows out of the EU10 following the 2004 enlargement is hampered by various technical and data constraints. As a result, the policy debates on the welfare consequences of migration following enlargement for both the host and sender countries have often been based on speculation and ideology rather than on the empirical evidence per se. For example, a special Eurobarometer survey in 2006 reveals that EU enlargement has resulted in mixed feelings among the EU population: while most EU citizens agreed enlargement has facilitated mobility of people like students and businessmen within Europe and would encourage better integration of populations from future EU member states, at the same time a majority was also concerned that EU enlargement would increase illegal immigration in Europe, and that it would also increase settlement of workers coming from future member states Following the accession of EU10 countries to the EU, how large were the ensuing flows of migrant workers, and what were their main socio-economic characteristics? in particular, how do migrants from within the EU compare to those from countries outside the EU? Are migrants poorer than the native-born population? do they impose a high economic and social burden on 1 Special Eurobarometer 255 Attitudes towards EU enlargement, July ix

10 the countries where they currently reside? Addressing these and other such key issues of policy interest are among the main questions addressed by this report. Using information from a variety of data sources, it takes stock of the nature, extent, and impact of EU migration following EU10 accession, and synthesizes the main lessons from this experience for future migration policy. In particular, the report highlights the positive contributions made by migrants in their host countries, as well as documents the growing importance of remittances in receiving countries. HOW MANY MIGRANTS, WHERE DO THEY LIVE, WHERE ARE THEY FROM? 4. This report uses both administrative as well as household survey data to analyze the total size and composition of migrant labor force in the European Union. According to the latest data available from Eurostat on demographic composition of the population, in 2008 about 31 million people in EU countries were non-nationals of the countries where they resided, with most of them (over 29 million) residing in EU15 countries. 2 The highest share of EU migrants live in Germany (24 percent of all migrants), followed by Spain (17 percent), United Kingdom (13 percent), France (12 percent), and Italy 11 percent). Taken together, the Big-Five EU member countries are home to over three-quarters of the EU s foreign population. EU15 Migrants (29+ million in 2008) Other EU15 countries 5.6m Germany 7.3m Italy 3.4m France 3.7m United Kingdom 4.0m Spain 5.3m Source: Eurostat. 5. The number of migrants in many EU countries has risen quite rapidly during the past decade. While precise estimates of trends over time are not available for all EU15 countries, World Bank staff estimates based on extrapolations of available Eurostat data suggest that the number of migrants in EU15 countries increased appreciably in recent years, from about 19 million in 1998 to over 29 million in The most dramatic increase over this period has been in Spain, which witnessed an 8-fold increase in the number of foreign residents, in Ireland (5-fold increase) and in Italy (3.5 fold increase) between 1998 and The foreign population also increased appreciably in Portugal (155 percent), United Kingdom (81 percent), Finland (65 percent), Czech Republic (65 percent), and Slovenia (64 percent). By contrast, the number of foreigners remained fairly stable in Germany, Sweden, and the Netherlands during this period. 2 Data downloaded from the Eurostat web-site on February 25 th, x

11 Increase in Number of Migrants by Country: Germany Spain UK France Italy Belgium Greece Source: World Bank staff estimates based on data downloaded from Eurostat website. 6. An alternate set of estimates of number of migrants can be derived using household survey data. Using data from the 2008 European Union Surveys of Income and Living Conditions (EU- SILC), this report finds that about 8 percent of the EU population was born outside their current country of residence i.e. about 37 million in total. More than one-half of these lived in three countries: Germany, France, and United Kingdom. At the other end of the spectrum only one-intwenty of the EU foreign-born population lives in non-eu15 countries. The foreign-born population constituted a relatively high share of the total population in Austria (17 percent), Belgium, Sweden, France, and Ireland (around 12 percent of the total population of each country), but less than one percent of the total population in Poland, Bulgaria, and Romania (figure below) Number of migrants (million) Increase: 1998 to Composition of the EU Migrant Population by Country and Place of Birth Austria Netherlands Ireland Sweden Portugal Denmark Luxembourg Finland Austria Belgium Sweden France Ireland UK Greece Denmark Spain Share of the population (percent) Italy Portugal Germany Netherlands Czech Rep. Finland Hungary Slovakia Poland Bulgaria Romania EU15 EU10 1. Citizens born in other EU27 countries 2. Citizens born outside the EU27 3. Non-citizens from other EU27 countries 4. Non-citizens born outside the EU27 Source: World Bank staff calculations based on 2008 EU-SILC data set (2007 EU-SILC for France). xi

12 Despite the purported rise in numbers post-2004 and related fears, the scale of internal migration within the EU remains fairly low, both in relative as well as absolute terms. 7. As the figure above shows, migrants from other EU countries constitute a relatively small share of the population in most EU countries: according to the 2008 EU-SILC, only 2 percent of the population of EU countries (i.e. less than 10 million people) reported having been born in another EU country. To put this in perspective, in 2006 around 50 million people in the United States (16 percent of population) reported having changed their state of residence during the previous year. Despite the much hyped increase in importance of Europe as a region of immigration, internal mobility within the EU is still only a small fraction of the much higher internal labor mobility in other comparable geographic regions across the world. 8. Using data from the 2005 and 2008 EU-SILC rounds, this report classifies EU countries into various groups based on both the share of their population born in other EU countries as well as the rate at which this share has increased between 2005 and It finds that: Among individual EU countries, Luxembourg (34 percent), Ireland (9 percent), and Belgium (7 percent) have the highest share of migrants born in other EU countries. Between 2005 and 2008, migrants born in other EU countries increased fairly rapidly in Cyprus (1.6 percentage points) and Austria (1.3 percentage points), and now exceed 5 percent of the respective countries total population. Between 2005 and 2008, migrants from other EU countries also rose fairly rapidly in the United Kingdom (2 percentage points) and Italy (1 percentage points); however, the total share of EU migrants in both countries remains modest (UK: ~3 percent; Italy ~2 percent) Migrants from other EU countries constitute a relatively small share of the country s total population in Germany (2.2 percent), Spain (2.0 percent), Greece (1.9 percent), and Hungary 1.3 percent); however, this shares increased by percentage point between 2005 and Finally, in the remainder of EU countries (Netherlands, Finland, Portugal, Sweden, France, EU10 countries), the share of the overall population born in other EU countries did not increase much between 2005 and 2008 (i.e. less than 0.5 percentage points), and continues to remain fairly low (i.e. less than 5 percent of the overall population). 9. Analysis of Migration Intentions: Even though current levels of internal migration are quite low, could removal of barriers to movement of labor across countries nonetheless lead to large waves of future migration from EU10 to EU15 countries? Data on migration intentions provide a useful source of information on potential future migration flows and the likely drivers of such flows. Contrasting individual intentions to migration before and after the 2004 EU enlargement using data from several rounds of the Eurobarometer surveys, this report finds that in new member states, migration intentions rose immediately after EU membership, from 1.6 percent to 5.1 percent, but then fell thereafter to 3.6 percent by In other words, rather than indicating likely surges in future migration flows, the data indicate that intentions to migrate from new member states to EU15 countries may be receding after the initial rise during the postenlargement period. xii

13 10. Drawing on the existing literature, we can speculate on some of the likely drivers of these trends. Immediately after EU enlargement, migration plans in the new member states possibly reflect latent demand to emigrate in the years just before enlargement. The correlates of such intentions mirror the correlates of previous waves of emigration, possibly reflecting network effects or because migration remains costly, even under the new regime, and the individual correlates represent the greater ability to absorb such costs. As more people migrate, the cost of migration (including job search, relocation etc.) falls. Incomes in the new member states also started converging toward those of the older member states as evidenced by the rapid economic growth rates in many of these countries, at least just before the global financial crisis, and the motivation to migrate may have consequently fallen. 11. As migration intentions have risen, some of the key individual-level drivers of migration, e.g., educational attainment and 70 labor market status, initially became more 60 important, and then less important thereafter. For example, being currently unemployed was positively associated with the intention 20 to migrate in the NMS in the pre-eu membership period, and more so 0 immediately after the 2004 EU enlargement. Native-born Migrants However, by 2007, being unemployed is no 56+ years years years longer associated with the desire to migrate, Source: WB staff calculations based on 2008 EU-SILC data possibly reflecting improved prospects in the local economy. Being young, single, and educated also seemed to be associated with rising intention to migrate through Again, however, by 2007, these drivers have become less important, even insignificant in some cases. MAIN CHARACTERISTICS OF THE EU MIGRANT POPULATION Demographic Composition: EU Working-Age Population Working -age Population (percent) 12. Age and Education Profile: Countries in Eastern Europe and the former Soviet Union are experiencing rapidly aging populations, a phenomenon posing significant economic and social challenges due to rising health care expenditures and public pension payments to the elderly. EU countries are no different in this respect: presently every sixth EU citizen is over 65 years of age, and this share is projected to rise to one-fifth by 2020, and as high as onefourth to one-third by The 2008 EU- SILC data clearly illustrate the aging challenge confronting EU countries: 32 percent of the native-born populations aged 16+ years are 56 years or older. Migrants in EU countries help raise the stock of xiii Educational Background: EU Working-Age Population Working -age Population (percent) Native-born Migrants Tertiary Post secondary Upper sec Lower secondary Primary and below Source: WB staff calculations based on 2008 EU-SILC data

14 working-age population, with two-thirds falling in the yr age groups. The average age of migrants is significantly lower than the native-born population in most EU countries: on average 3.2 years lower in Austria and Belgium, 3.4 years in the United Kingdom, 6.0 years in Ireland, and as much as 8 to 10 years in Finland, Greece, Italy, Portugal, and Spain. Moreover, comparing data from the 2005 and 2008 EU-SILC rounds suggests these differences in ages may have increasing over time in most of these countries studied. In EU15 countries, migrants live in larger households than the native-born population (2.6 vs. 2.3 persons per household respectively in 2008). Migrant households tend to have more children than the native-born population; they also more persons of working-age (i.e years), but fewer elderly people. 13. Do migrant workers have more or less education than the native-born population? Migrants tend to have a slightly higher concentration of both low- and high-skills workers as compared to the respective native-born populations of EU countries. This aggregate picture conceals considerable diversity across countries. In Austria, France, and Poland, the foreign-born population has considerably lower educational attainment compared to the rest of the population (and to a somewhat lesser extent in Belgium, Germany, the Czech Republic and Sweden). In Spain, Greece, Netherlands, and Italy, a higher share of migrants have intermediate educational attainment (i.e. upper secondary level) as compared to the native-born population. Finally by contrast, in Ireland, Denmark, and the United Kingdom, migrants are more likely to have higher education (i.e. post-secondary or tertiary ) as compared to the compared to the native-born population. 14. Employment and Occupational Status: Compared to the native-born population, migrants in the EU are slightly less likely to be self-employed and corresponding more likely to work as employees. Moreover, migrants are also more likely to be in engaged in elementary occupations (e.g. construction, mining, salespersons, etc.) as compared to the native-born populations of EU countries, particularly in Austria, Belgium, Spain, France, Greece, and Italy. However, this does not necessary imply migrant workers suffer brain-waste a situation where the skilled and educated leave their home country, but then make little use of their skills and education in their new country of residence since migrants in these countries also tend to have lower educational attainment than the respective native-born populations. EU migrants are more likely to be in elementary occupations compared to the native-born population 100 Working -age Population (percent) Native-born Migrants Other Elementary occupations Craft/related trades workers Service workers/shop/market sales Clerks Technicians/associate professionals Professionals Source: World Bank staff calculations based on 2008 EU-SILC data set (2007 EU-SILC for France). xiv

15 15. At-risk-of-poverty rates: Since migrants in EU countries are more likely to be engaged in blue-collar occupations does this also mean they are more likely to be poorer than the respective native-born populations? According to the 2008 EU-SILC, the United Kingdom, Portugal, Hungary, Lithuania, Bulgaria, and Slovakia are the only EU countries where equivalized disposable incomes of migrants are higher than those of the native-born population. The comparatively poorer living standards of migrants vs. the native-born population in most EU countries are confirmed by their higher poverty rates: about 21 percent of the migrant population in EU countries was at-risk-of-being-poor in 2008, compared to only 17 percent of the nativeborn population. With the exception of Germany, Portugal, and Ireland, migrants were more likely than the native-born population to be at-risk-of-poverty in most EU15 countries. In most EU15 countries, migrants are more likely to be poor than the native-born population 40% 35% Migrant Population Native-born 30% 25% 20% 15% 10% 5% 0% Luxembourg Belgium Denmark Sweden At risk of poverty rate (percent) Austria France Greece Finland Italy Spain Netherlands UK Germany Portugal Ireland Source: World Bank staff calculations based on 2008 EU-SILC data set (2007 EU-SILC for France). MIGRANTS CONTRIBUTIONS TO NATIONAL TAX AND BENEFIT SYSTEMS 16. At the face of it, the fact that migrants are more likely to be poor than the native-born population of the countries where they reside would seem to confirm the common (mis)perception that they impose a disproportionately large fiscal burden on receiving countries because they consume a large share of social benefits and services and contribute little to tax revenues. However, as described below, data from the EU-SILC on taxes contributed and benefits consumed by various sub-groups does not support the contention that migrants contribute less overall to the national tax and benefit systems of the countries where they currently reside. On the contrary, the report estimates that migrants in EU15 countries make a net contribution of nearly Є 60 billion per year to the national tax and benefit systems of the countries where they currently reside. 17. Earned Incomes: Across the 2008 EU-SILC sample, average household earned incomes of migrants are considerably higher (21 percent) than those of the native-born population ( 13,318 vs. 10,983 per capita). However, these EU-wide averages may be deceptive (since migrants tend to be concentrated among the richer EU countries), so it is important to examine differences in average incomes earned by migrants and the native-born population at the country level. As the figure below reveals, there is considerable heterogeneity between these two sub-groups at the xv

16 Eur os per capita per year individual country-level: thus, while migrants in Austria earn about 2,808 per capita less than the native-born population, they earn 3,888 per capita more in the United Kingdom (Figure). Differences in HH Earned Incomes (Migrants vs. Native-Born Population) 4,000 3,888 3,000 2,200 2,337 Euros per capita per year 2,000 1, ,000-2,000 Austria Sweden France Denmark -2,095-2,026 Poland Finland Czech -1, , Belgium Slovakia Greece Netherland Lithuania Bulgaria Cyprus Spain Hungary 1, Ireland Italy Luxemburg Portugal UK -3,000-2,808-2,782 Source: World Bank staff calculations based on 2008 EU-SILC data (2007 EU-SILC for France). 18. Taxes Paid and Benefits Received: Since average household earned incomes of migrants in EU15 countries are almost the same as the native-born population ( 13,960 vs. 13,450 per capita respectively), averages taxes paid by the two sub-groups are also of similar magnitude ( 4,354 vs. 4,559 per capita). However, contrary to popular misperceptions, migrants in EU15 countries receive significantly lower benefits than the native-born population ( 4,406 vs. 6,122 per capita). As a result, net taxes (i.e. difference between taxes paid and benefits received) by EU15 migrant workers are significantly higher than those paid by the native-born populations. As a result, a typical migrant in EU15 countries makes a net contribution of 1,551 per capita to the national tax-benefit systems of the countries where he/she resides non-citizen migrants (both those born in other EU countries as well as outside) make particularly large positive contributions (over 3,000 per capita; see figure). Migrants make significant net contributions to the tax-benefit systems of EU15 countries 3,000 3,132 3,064 2,000 1,511 1, ,000 All Migrants (i.e. groups 1-4 aggregated) - 1. Citizens born in other EU27 countries 2. Citizens born outside EU27 countries 3. Non- citizens from other EU27 countries 4. Non- citizens born outside EU27 countries Source: World Bank staff calculations based on 2008 EU-SILC data set (2007 EU-SILC for France). Net contributions are the differences between net taxes paid by migrants vs. those paid by the native-born populations xvi

17 19. How does the net fiscal contribution of migrants vary across EU countries? As the figure below shows, net contribution vary considerably across individual countries, from - Є 1,608 in Poland to Є 7,034 per capita in Luxembourg. Migrants make large net contributions to tax-benefit systems in virtually all EU15 countries 7,000 7,034 6,000 5,000 Euros per capita per year 4,000 3,000 2,000 1, ,222 3,438 2,699 1,843 1,872 2,013 1,336 1,481 1, ,000-2,000 Poland -1,608 Slovakia Czech Sweden France Bulgaria Lithuania Hungary Austria Netherland Belgium Cyprus Greece Denmark Finland Spain Portugal Ireland UK Italy Luxemburg Source: World Bank staff calculations based on 2008 EU-SILC data set (2007 EU-SILC for France). Net contributions are the differences between net taxes paid by migrants vs. those paid by the native-born populations. 20. Why are net fiscal contributions of migrants in countries like Sweden, France, and Austria so much lower than those in others, such as Ireland, UK, and Italy? The contrast between Austria and the United Kingdom is instructive: while migrants in Austria tend to have relatively low educational attainment compared to the native-born population, the opposite is true for migrants in the United Kingdom: 38 percent of migrants in Austria have primary or lower secondary education; by contrast, almost half the UK migrants have completed tertiary or higher education. These differences in educational attainment, and consequently nature of employment taken up, go a long way in helping to explain why migrants make a significantly larger contribution to the national tax and benefit system in the United Kingdom as compared to Austria. 21. Major Remittance Corridors for EU10 Countries: Available data from the respective countries Balance of Payments show that remittances represent an important source of external funding in a number of EU10 countries, often rivaling foreign direct investment in size. For example, inflows to Bulgaria and Romania since 2004 have amounted to, on average, 5.4 percent and 4.2 percent of total GDP respectively. In addition, as chart below shows, remittances have also been an important source of external funding for Lithuania, Poland, Latvia, Estonia and Hungary. These numbers do not account for unrecorded remittances sent home by migrants through informal channels, implying that the true size of the phenomenon is likely to be largely underestimated. xvii

18 Workers remittances are an important source of external funding in EU10 countries From within EU27 From outside EU Slovenia Czech Republic Hungary Estonia Latvia Poland Lithuania Romania Bulgaria Source: Eurostat ; Workers remittances and compensation of employees as a percentage of GDP. 22. Information on bilateral remittances outflows from the EU15 countries indicate that in 2008 transfers from Germany to Poland and to Romania accounted respectively for 28 percent and 11 percent of the total amount of remittances paid. Other major corridors were Austria to Hungary (12 percent), Austria to Czech Republic and Slovakia (7 percent) and Austria to Poland (6 percent). From the standpoint of receiving countries, remittances to Romania mainly came from migrants to Spain and Italy, accounting for over 32 and 40 percent respectively of the total amount of remittances received. Other major corridors include those to Bulgaria from Germany, Greece and Italy (which represent about 57 percent of total inflows); from Finland to Estonia, from United Kingdom and Ireland to Latvia, Poland, and Lithuania, from Spain and Italy to Romania. 23. To sum, the number of migrants in many EU countries has risen quite rapidly during the past decade. However, despite the purported surge in internal migration following the 2004 round of EU enlargement, the 2008 EU-SILC data show that internal migrants are a relatively small share of the EU s population: depending on the definition used, only 1-2 percent of the population of EU15 countries were born in other EU countries (the corresponding share for EU10 countries is even lower); by contrast, about 6 percent was born in other non-eu countries. On examining the demographic and socio-economic background of the migrant population, the report finds that migrants tend to include a concentration of both low as well as highly educated workers. Both sets of migrants contribute to raising the working-age population of receiving countries. Contrasting the socio-economic and demographic profile of migrants obtained from the EU-SILC rounds provide strong clues that it is mainly relatively young, better-educated workers within the European Union that have benefited from the expanded labor market opportunities arising from EU enlargement. Using data on average incomes and taxes paid and benefits received by households, the report find no evidence to support the contention that migrant workers contribute less in taxes than the native-born population, or consume significantly higher benefits. On the contrary, calculations presented in the report suggest that migrant workers make a net contribution of almost Є 60 billion to EU15 countries tax and benefit systems. Remittances now represent an important source of external funding in a number of EU10 countries, often rivaling foreign direct investment in size. Among the main remittances corridors within the EU are those from Germany to Poland and Romania; from Austria to Hungary, the Czech Republic, Slovakia, and Poland, from Spain and Italy to Romania, from Germany to Bulgaria, from the United Kingdom and Ireland to Latvia, Poland, and Lithuania. xviii

19 CHAPTER 1 EU ENLARGEMENT: EXPANDED SINGLE MARKET FOR WORKERS EU Enlargement and Impact on the Labor Market 1.1. Expanded employment opportunities across the continent have been one of the most significant changes to have taken place in Europe during the past 50 years. Since the inception of the European Economic Community in 1957 involving 6 countries (Belgium, France, Italy, Luxembourg, the Netherlands and West Germany) with a combined population of less than 200 million, the European Union (EU) has grown to encompass nearly 500 million people across 27 member countries that produce, in total, about 30 percent of the world s total gross domestic product. May 2010 marked the six-year anniversary of the inclusion of eight countries from Central and Eastern Europe (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, the Slovak Republic and Slovenia) into the EU, followed by Romania and Bulgaria in January An important consequence of these 10 new member states (henceforth EU10) joining the EU has been to expand the internal EU labor market, albeit to varying extents for nationals of different member countries. 3 Figure 1.1: Enlargement of the European Union: Source: The Accession Treaties governing the entry into the EU of the EU10 countries allowed existing EU members at the time (i.e. Belgium, Germany, France, Italy, Luxembourg, Netherlands, Denmark, Ireland, United Kingdom, Greece, Spain, Portugal, Austria, Finland, 3 Cyprus and Malta also joined the EU in 2004, but are excluded from most of the analysis due to their small populations.

20 Sweden henceforth referred to as the EU15 countries) to introduce some transitional arrangements (Box 1) on the free movement of migrant workers from the new member states. These arrangements aimed at gradually introducing free movement of labor in the EU over a seven-year period comprising 3 main phases, during which increasingly strict conditions applied on the conditions under which individual countries could restrict labor market access. While member countries are of course free to open their labor markets at any stage, they must eventually do so fully at the end of the stipulated 7-year transitional period (2011 for the EU8 and 2013 for Bulgaria and Romania). 4 Box 1.1: Transitional Arrangements Regarding Free Movement of Workers Arrangements agreed in the two last Accession Treaties allow Member States to temporarily restrict the right of workers from the countries that joined the EU in 2004 and 2007 to freely move to another Member State to work (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia, which joined in 2004, and Bulgaria and Romania, which joined in 2007). The arrangements aim at gradually introducing free movement step-by-step over a seven-year period. There are three phases (2+3+2 years) during which different, increasingly strict conditions apply as to the conditions under which Member States can restrict labor market access. Member States may open their labor markets at any stage, but at the latest must open fully at the end of the seven year period (2011 for the EU-8 and 2013 for Bulgaria and Romania). The European Commission published a comprehensive report in 2008, which provides information on the legal basis for transitional arrangements, the current state-of-play of their application in Member States, statistical information on labor flows between Member States since the two recent EU enlargements, and an analysis of the economic, labor market and social impacts of recent labor mobility within the EU. Some of the key conclusions of the report are that: Free movement of workers has not on the whole led to serious disturbances on labor markets. The Commission thus encourages Member States to lift restrictions to the free movement of workers as quickly as possible. Free movement has contributed to economic growth by satisfying labor market and skills shortages in Member States. Despite some temporary adjustment problems, free movement has had little or no negative impact on the wages and unemployment of local workers in the destination countries. There is still much more migration from non-eu nationals than new to old Member States. Lifting restrictions seems to decrease the incidence of undeclared work and the negative consequences associated to that. Mobile workers go to where jobs are, and often leave again or stay at home when conditions are less favorable. The report emphasizes that freedom of movement is a right for every EU worker and is one of the four fundamental freedoms of the European Union. At the signing of the Accession Treaty in 2003, all EU-15 Member States undertook to move as quickly as possible towards the full application of the acquis communautaire (EU law) on free movement of workers. All EU-25 Member States made the same declaration at the signing of the Accession Treaty in As the report shows, lifting restrictions would not only make economic sense, without causing discernible harm to local labor markets, it would also help to avoid some of the more serious problems associated with closed labor markets, in particular undeclared work and bogus self-employment. The volume and direction of mobility flows are driven rather by general labor supply and demand and other factors than by restrictions on labor market access. Restrictions may even delay labor market adjustments and exacerbate the incidence of undeclared work. Finally, the report notes that while the recent economic slowdowns in some countries have led to a substantial reduction in new entries, in parallel to an increase in return migration, free labor mobility has provided a much needed 4 These transitional restrictions apply to workers only i.e. they don t apply to the self-employed, nor do they restrict the rights of citizens of EU member countries to travel and live in other EU member states. 2

21 Continued Box 1.1 flexibility in both directions: workers come where there is demand for labor and many leave again when employment conditions become less favorable. Source: Memo 08/718 issued by the European Commission in November 2008, available at: ilanguage=fr 1.3. Following the 2004 EU enlargement, Ireland, the U.K. and Sweden opened their labor markets to EU8 nationals in phase 1 ( ), while all other EU15 countries maintained a work permit regime (combined with quotas in some cases) for workers from these eight new member states. In Phase 2 ( ), Greece, Spain, Portugal and Finland (and ventually Italy) granted EU8 nationals free access to their labor markets, while Belgium, Denmark, France, Luxembourg and the Netherlands simplified their respective national access regimes. Finally, in Phase 3 ( ), only Austria and Germany opted to maintain restrictions until April 2011 on account of having experienced serious disturbances in their domestic labor markets, while other EU15 countries removed remaining restrictions for EU8 nationals on labor market entry Following the 2007 EU enlargement (Bulgaria, Romania), all EU8 countries except Hungary allowed Bulgarian and Romanian nationals unrestricted access to their domestic labor markets in phase 1 ( ); however, only Sweden and Finland did so among EU 15 countries. In phase 2 ( ), Hungary, Denmark, Spain, and Greece removed labor market restrictions for Bulgarian and Romanian citizens, while most other EU15 countries allowed a limited number of workers from these countries into their domestic labor markets under fairly tightly regulated schemes in a few selected sub-sectors only (e.g. agriculture, food processing, hotels and catering, etc.). Overview and Outline of the Report 1.5. May 2010 will mark the six-year anniversary of the inclusion of eight countries from Central and Eastern Europe (the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, the Slovak Republic and Slovenia) into the EU, followed by Romania and Bulgaria in January Following the accession of EU10 countries, how large were the ensuing flows of migrant workers into the EU, and what were their main socio-economic characteristics? in particular, how do migrants from within the EU compare to those from countries outside the EU? Are migrants poorer than the native-born population? do they impose a high economic and social burden on the countries where they currently reside? Addressing these and other such key issues of policy interest are among the main questions addressed by this report. Using information from a variety of data sources, it takes stock of the nature, extent, and impact of EU migration following EU10 accession The report is organized as follows: Chapter 1 provides a brief overview of the expanded labor market opportunities within the EU permitted by the recent EU enlargement, and takes stock of how many migrants there are within the EU, where they are from, as well as where they currently live. Given that current levels of internal migration within the EU remain quite low, Chapter 2 examines data on migration intentions to analyze potential future migration flows within the EU, as well as the likely drivers of such flows. Chapter 3 presents a profile of migrants living within the EU, focusing in particular on demographic, educational background, employment and occupational status, and living conditions. Using data from the EU-SILC, 3

22 Chapter 4 analyzes household incomes, taxes paid, and benefits received by the migrant and native-born populations in the EU, and in particular whether migrant households contribute more or less than the native-born population to national tax and benefit systems. Finally, Chapter 5 reviews recent developments with regard to migration flows out of the EU10 to EU15 countries, the rising importance of remittances for EU10 countries, as well as provides a brief summary of the main findings of the report and some concluding observations. Attitudes Towards Enlargement: Perceived Opportunities and Risks 1.7. Despite affirmation of the stated goal of free movement of people within the EU, the gradual progress towards implementation of this goal is indicative of the somewhat ambivalent support for this stated public policy goal within individual member countries. A special Eurobarometer survey carried out in 2006 revealed that EU enlargement has resulted in mixed feelings among the population. On the one hand, a majority of the EU population agreed that the enlargement of the European Union has facilitated mobility of people like students, businessmen, etc. within Europe (82 percent) and would help ensure better integration of populations from future member states in the European Union. At the same time, sixty percent of EU citizens were concerned that it would increase illegal immigration in Europe, and the majority felt that EU enlargement would also increase settlement of workers coming from future member states. Figure 1.2: Public Attitudes Towards Enlargement of the European Union (a) Facilitates mobility of people like students, businessmen, etc, within Europe Agree Disagree Don t know 8% 10% (b) Ensures better integration of populations from future EU member states Agree Disagree Don t know 18% 82% 25% 57% (c) Increases illegal immigration in Europe Agree Disagree Don t know (d) Increases settlement of workers coming from future EU member states Agree Disagree Don t know 29% 11% 60% 13% 14% 73%. 4 Source: Special Eurobarometer 255: Attitudes towards EU enlargement, July 2006.

23 How Many Migrants, Where Are They From, and Where Do They Live? 1.8. Our understanding of migration flows out of the EU10 following the 2004 enlargement is hampered by various technical and data constraints. For instance, official statistics on the stock of migrants in countries that have completely opened their labor markets to 2004 EU enlargement countries include an unknown quantity of migrants already residing in these host countries (i.e. UK, Sweden, and Ireland) prior to enlargement. The official numbers thus reflect new flow of immigrants after 2004 as well as "legalized" migrants. In addition, little is known about the demographic characteristics of migrants, including their skill level and educational attainment. As a result, the policy debates on the welfare consequences of migration following enlargement for both the host and sender countries have often been based on speculation and ideology rather than on the empirical evidence per se. This report uses both administrative as well as household survey data to analyze the total size and composition of migrant labor force in the European Union. Table 1.1: EU Non-National Population by Country of Residence Number Share (percent) Population Citizens Foreigners Population Citizens Foreigners European Union (27 countries) 497,444, ,646,435 30,798, % 93.8% 6.2% European Union (25 countries) 468,275, ,528,072 30,747, % 93.4% 6.6% European Union (15 countries) 394,128, ,901,378 29,227, % 92.6% 7.4% Germany 82,217,837 74,962,442 7,255, % 91.2% 8.8% Spain 45,283,259 40,021,164 5,262, % 88.4% 11.6% United Kingdom 61,175,586 57,154,800 4,020, % 93.4% 6.6% France 63,753,140 60,079,000 3,674, % 94.2% 5.8% Italy 59,619,290 56,186,639 3,432, % 94.2% 5.8% Belgium 10,666,866 9,695, , % 90.9% 9.1% Greece 11,213,785 10,307, , % 91.9% 8.1% Austria 8,318,592 7,483, , % 90.0% 10.0% Netherlands 16,405,399 15,717, , % 95.8% 4.2% Ireland 4,401,335 3,847, , % 87.4% 12.6% Sweden 9,182,927 8,658, , % 94.3% 5.7% Portugal 10,617,575 10,171, , % 95.8% 4.2% Latvia 2,270,894 1,855, , % 81.7% 18.3% Czech Republic 10,381,130 10,033, , % 96.7% 3.3% Denmark 5,475,751 5,177, , % 94.5% 5.5% Estonia 1,340,935 1,111, , % 82.9% 17.1% Luxembourg 483, , , % 57.4% 42.6% Hungary 10,045,401 9,868, , % 98.2% 1.8% Finland 5,300,484 5,167, , % 97.5% 2.5% Slovenia 2,025,866 1,957,245 68, % 96.6% 3.4% Poland 38,115,641 38,057,799 57, % 99.8% 0.2% Lithuania 3,366,357 3,323,423 42, % 98.7% 1.3% Slovakia 5,400,998 5,360,094 40, % 99.2% 0.8% Romania 21,528,627 21,502,527 26, % 99.9% 0.1% Bulgaria 7,640,238 7,615,836 24, % 99.7% 0.3% Source: Eurostat Administrative Data: According to the latest data available from Eurostat on the demographic composition of the EU population, in 2008 about 31 million people living in EU countries were non-nationals (i.e. migrants) of the countries where they resided (Table 1.1). 5 The 5 As per the definitions used by Eurostat, the foreign-population in the EU refers to persons having citizenship different from their country of residence i.e. non-nationals are not necessarily only migrants, but also descendants of migrants and citizens of territories that no longer exist. 5

24 highest share of EU migrants reside in Germany (24 percent of all migrants), followed by Spain (17 percent), United Kingdom (13 percent), France (12 percent), and Italy 11 percent). Taken together, the Big-Five EU member countries are home to over three-quarters of the EU s foreign population. In terms of relative concentration in relation to the country s total population, aside from the special cases of Luxembourg, Latvia, Estonia, and Cyprus, migrants constitute a relatively high share of the total population in Ireland, Spain, Austria, Belgium, and Germany ( Table 1.1). Overall, the foreign population constitutes about 6.2 percent of the EU population, with the share varying from around 12.6 percent in Ireland to less than 0.2 percent in Romania and Poland The number of migrants in many EU countries has risen quite rapidly during the past decade. While precise estimates of these trends are not available, World Bank staff estimates based on extrapolations of available Eurostat data suggest that the number of migrants in EU15 countries increased appreciably over the past decade, from about 19 million in 1998 to over 29 million in 2008 (Table 1.2). The most dramatic increase has been in Spain, which witnessed an 8- fold increase in the number of foreign residents between 1998 and 2008; Ireland (5-fold increase) and Italy (3.5 fold increase) have also experienced rapid increases in the number of migrants during this period (albeit also from relatively small bases). In addition, the foreign population also increased appreciably during the past decade in Portugal (155 percent increase), United Kingdom (81 percent), Finland (65 percent), Czech Republic (65 percent), and Slovenia (64 percent). By contrast, the number of foreigners remained more or less unchanged in Germany, Sweden, and the Netherlands over the same period. Table 1.2: Increase in Number of Non-Nationals : EU15 Countries Number of Non-Nationals Change to 2008 Germany 7, ,255, ,438 Spain 637,089 5,262,095 4,625,006 UK 2,227,505 4,020, ,295 France 3,220,475 3,674,000 4,535,25.2 Italy 991,678 3,432,651 2,440,973 Belgium 903, ,448 68,328 Greece 706, ,400 1,997,60.4 Austria 744, ,182 90,747 Netherlands 678, ,375 10,220 Ireland 111, , ,590 Sweden 522, ,488 2,439 Portugal 175, , ,070 Denmark 249, ,450 48,822 Luxembourg 147, ,889 58,189 Finland 80, ,708 52,108 Total: EU15 countries: 18,761,269 29,207,904 10,446,635 Source: World Bank staff projections for some countries based on Eurostat data Given that about four-fifths of the EU s total population lives in EU15 countries, it is not surprising per se that an overwhelming majority (about 95 percent) of the EU s foreign population resides in EU15 countries. In addition, as 2007 EU-SILC data clearly illustrate, migration flows in the EU are positively correlated with income levels, which helps explain why the share of migrants in comparatively rich countries like Ireland and UK is considerably higher than in comapratively poorer countries like Slovakia and Poland. That said, Eurostat data indicate that a non-negligible number of migrants (about 1.6 million in total in 2008, or about 5 percent of the EU total) lived in EU10 countries. A noteworthy development over the past few years has 6