Increasing Labour Supply through Economic Migration Comments and Statements

Increasing Labour Supply through Economic Migration Comments and Statements Karin Mayr Johannes Kepler University of Linz, Department of Economics Part 1: The political, economic and institutional context in Austria. In Austria, the share of foreigners in the total population is around 9 per cent (9.4 per cent in 2003) and increasing. Foreigners are mainly from Former Yugoslavia and Turkey (shares of more than 40 per cent and 15 per cent, respectively); the share of foreigners from the EU-15 countries is around 15 per cent. When comparing data for the last 10 years, however, one can see that the former shares have been decreasing, while the EU-15 share has been increasing (see Table 1). 1 Even though the composition of the foreign population has changed from almost exclusively economic migrants in the 1960s and 1970s towards family re-unification as well as refugees and asylum seekers, the participation rate among foreigners is still higher than among natives, both for females as well as males (see Table 2). 2 A likely reason for this is that foreigners are younger on average than natives. 3 The bulk of foreign workers in Austria is non-eu and, consequently, subject to some type of work permit (see Table 3). 4 5 The number of work permit holders has been decreasing for the last ten years, except in 1995 and 2000, which corresponds to a decrease in the share of non-eu immigrants, in particular those from the Former Yugoslavia and Turkey. The most likely reason for this is an increase in naturalizations (see Graph 3). 6 Besides, in July 2002, a new Foreigners Bill was passed, which restricts non-temporary labour immigration to the admission of high-skilled workers (Schlüsselkräfte/ key workers ). 7 Economic immigration of non-eu (and Accession Country) citizens the work permits system. EU citizens can work freely in Austria, with the exception of citizens of the Accession Countries (excluding the Republic of Malta and the Republic of Cyprus), who are free to reside in Austria (Sichtvermerks- und Niederlassungsfreiheit) from 1 May 2004, but underlie the same restrictions on the right to work and provide services (Arbeitnehmerfreizügigkeit und Dienstleistungsfreiheit) as non-eu citizens during a transition period of up to seven years. Non-EU citizens can obtain work permits, if the criteria in the Foreign Labour Act (Ausländerbeschäftigungsgesetz) are fulfilled. There are essentially three types of work permit. Employers may 1 Statistik Austria (2005a). 2 Statistik Austria (2005b). 3 Statistik Austria (2002). 4 Statistik Austria (2005c). 5 Family members who join the migrant worker must wait four years before they may accept work, although this waiting period can be reduced if the family member was issued with an employment license previously. Foreigners Act, Arts. 21(4) and 23(3). 6 Biffl and Bock-Schappelwein (2004). 7 See Section 1.1 below. 1

only hire migrants once they have obtained an employment license (Beschäftigungsbewilligung) 8 for them or when migrants possess their own (individual) work permit (Arbeitserlaubnis) 9 or exemption card (Befreiungsschein) 10. An employment license can only be issued over and above existing quotas (both national and regional) in certain circumstances, for example, if the employment is deemed necessary on very specific grounds (i.e., in the health or welfare sectors) to further general economic interests, or if it relates to seasonal work (Saisonarbeitskräfte). In addition, with a new Foreigners Bill passed in July 2002, immigrants are required to submit a health certificate and complete an integration and language course. According to the law, this integration agreement is to make possible participation in social, economic and cultural life in Austria. The new Foreigners Bill also restricts non-temporary labour immigration to the admission of high-skilled key workers (Schlüsselkräfte). 11 Key workers are issued a new type of permit that encompasses both the right to stay as well as the right to work for a specific employer for one year. Immigration for this group is restricted by annually set quotas. The quota for self-employed key personnel is set separately. The minimum income is well above the Austrian average income ( 2016 versus 1414 in 2003), and also well above the average salary paid in tourism or the health sector - those sectors, which have exhibited labour supply shortages in the past. According to a study published in 2001 by the Austrian Academy of Science 12, only 16 per cent of Turkish and 40.4 per cent of Yugoslav immigrants in 2000 had a monthly net income exceeding the range between 1090 and 1453, which equals a gross income below the required amount. 13 Consequently, the quantitative importance of key workers has remained low. In 2004, only 589 key workers were admitted, which amounts to 0.3 per cent of the total number of work permits. 14 In addition to the quota for the employment of migrants, there is also a quota in respect of residence policy (Foreigners Act (Fremdengesetz), Art. 18.). The latter quota is set in accordance with the situation and the development of the labour market and is adjusted annually by the government after taking into account the advice of the Austrian Institute of Economic Research (Österreichisches 8 The issue of an employment license is subject to the following criteria (Foreign Labour Act, Art. 4): fulfilment of a labour market test i.e., the actual situation of the labour market and the public and economic interests warrant the employment of the person concerned; observance of the wage and labour regulations and the rules on social security; possession of a residence permit which includes the purpose of employment ( all purpose residence permit) or where this purpose can be extended after an employment license has been issued (this applies only to family members); and in accordance with the national quota or the regional quota (as set by the different Länder). 9 Once migrants have been employed for 52 weeks in the previous 14 months, they have a right to a work permit. Foreign Labour Act, Art. 14a. Employment as an artist, seasonal worker or frontier worker is excluded for this purpose. The work permit is issued for two years and for the region (Bundesland) where they have been employed and enables migrants to accept work in all branches of employment. 10 Migrants can apply for an exemption card once they have been lawfully employed for a minimum of five years in the last eight years. The exemption card is issued for five years and is applicable to the whole Austrian territory. 11 According to the law, key workers are labour migrants who have special training and/or qualifications, professional knowledge and competences and who earn a gross income of at least 60 per cent of the maximum basis for the contributions to the social security system ( 2016 per month for 2003) as well as meet one of the following requirements: the intended employment serves economic interests that go beyond those of the business wishing to employ the person in question; the intended employment contributes to the creation of new jobs or the securing of existing jobs; the migrant worker holds a key position with regard to the management of the business/enterprise; the intended employment includes a transfer of investment capital to Austria; the labour migrant holds an academic degree or the degree of a Fachhochschule. 12 Demel, Fassmann et al. (2001). 13 König and Perchinig (2003). 14 In 2003, only 226 of a total of 689 applications were approved. 2

Wirtschaftsforschungsinstitut (WIFO)). With the Foreigners Bill 2002, this double quota system was abolished for key workers as well as holders of the new permanent residence permit, which encompasses the right to work. Permanent migrant workers are entitled to an exemption card after five years of lawful work permit employment (one year with an employment license and twice two years with an individual work permit) and then have a right to a permanent residence permit (Niederlassungsnachweis) 15. However, temporary (seasonal, rotational, frontier and commuter) workers are excluded from permanent residence. Provisions for the regular employment of temporary workers leave room for short-term fluctuations in demand. There is an annual maximum number for the employment of seasonal workers set within the general residence decree (Niederlassungsverordnung). The Minister of Economic and Labour Affairs may then issue further regulations for those employment sectors that need seasonal workers, such as agriculture, forestry, and tourism (both winter and summer). The admission of workers in the IT sector was being facilitated in the summer of 2000. Under the new Foreigners Bill 2002, seasonal labour was increased considerably and applied to branches of the economy that are not normally associated with this form of labour. 16 The concept of commuters (PendlerInnen) was extended (the definition was changed from daily to weekly commuting). The revision of law also enabled the government to conclude bilateral agreements with neighbouring countries defining the numbers of both frontier workers as well as key workers outside the maximum numbers set by the annual residence quotas. This is to allow for a more flexible handling of labour migration during the transition period leading to freedom of movement for workers of the new EU Member States. Temporary work permits may be issued for a period of up to six months. If the respective decree provides for this, they are renewable once for another six months. Two months must then elapse before a temporary worker is entitled to reapply to work in Austria. There is no overall time limit for this type of temporary work. 1.2 Current labour supply in Austria. According to the latest medium-term forecast of the Austrian Institute of Economic Research 17, real economic growth is expected to increase from an average 1.6 per cent per year during the last five years to an average 2.3 per cent per year in the next five years. On the labour market, no change in the trend for an increase in the number of unemployed (to almost 260.000 in 2009) is expected. The unemployment rate is expected to increase to 4.5 per cent of total labour force (from an average 4.1 per cent during 1999-2004). This is despite of an increase in employment (by 0.9 per cent per year), due to an even stronger increase in labour supply as a result of high naturalisation rates, the inflow of foreign workers and the increase in the early retirement age, with the effect of an increase in the working age population (15 to 64 years) by an average of 0.3 per cent per year until 2009. The number of foreign workers is expected to increase by 10 per cent until 2009, despite of the fact that, in Austria, a transition period for a complete freedom of movement (including the right to work) for nationals of the ten new EU member states is in effect. However, labour market access is eased for 15 Given that they are in possession of an adequate and regular income from lawful employment and the authorities might expect that there will be no grounds to refuse a visa (Sichtvermerksversagungsgrund) in the near future. 16 Under this law (2002), employers in all sectors are able to hire seasonal workers, who are issued with temporary work permits valid for six months. These permits are renewable only once and migrant workers are only able to reapply two months after their previous employment. However, to date, seasonal workers have only been employed in the traditional sectors (agriculture and forestry and tourism) (see Biffl and Bock-Schappelwein (2004), p. 33). 17 Kaniovski, Marterbauer and Baumgartner (2005). 3

foreigners from the EU accession countries who have lived in the country for more than 12 months, and the numbers of seasonal workers as well as workers from the EU15 (in particular Germany and Italy) are expected to increase. There is thus no expectation of a labour supply shortage in Austria in the medium term (over the next five years). On the contrary, the forecast anticipates a pronounced increase in excess labour supply. As a consequence, it will not be possible to employ the large labour market reserves consisting of the unemployed, women, among whom participation rates are relatively low, and older workers. This leaves no room for an early reduction of the unemployment rate to 3.5 per cent, as planned in the National Action Plan for Employment for 2002. The latest annual expertise of the Austrian Institute of Economic Research for the Ministry of the Interior 18 provides further details on the current demand and supply of foreigners in the Austrian labour market. Data on total foreign and non-eu(15) workers by occupation in 2003 and 2004 show that EU(15) workers are mainly concentrated in higher-skilled jobs in the food industry, the chemical and recycling industry and business-related services, as well as in the textile industry, tourism, trade and infrastructure. Non-EU(15) workers are mainly found in construction, agriculture and forestry, the metal industry, as well as tourism, trade and business-related services. Tourism, construction and agriculture and forestry are the sectors with the highest unemployment rates, which exhibit on the same time above-average shares of foreigners in employment. Sector-specific unemployment rates of nationals and foreigners indicate a labour supply excess or shortage. In 2003, the unemployment rate of natives exceeded that of foreigners in five sectors: tourism, private households, agriculture and forestry, the textile industry and the health sector. An increase in seasonal workers and outsourcing of production processes into Middle and Eastern European countries is partly responsible for an increase in unemployment rates, which affects natives and foreigners to a different extent, according to their relative employment in the sectors concerned. The authors conclude that, given high and increasing unemployment rates in most sectors, there is no labour supply shortage for low- and middle-skilled jobs, which are those usually occupied by foreigners. 19 They point out, however, a potential for an increase in high-skilled labour. Part 2: Transferability of the policy measure. In Ireland, current labour market conditions require an increase in labour supply in order to sustain economic growth in the face of a low rate of unemployment and a decline in the young population. The envisaged Employment Bill 2005 is to provide for a flexible 2-year determination of those skills and qualifications that meet the criteria for work permits, working visas/work authorisations and possible green-card type permits as well as quotas on each of these migration instruments where necessary. In Austria, a new Foreigners Bill in 2002 restricted non-temporary labour immigration to the admission of high-skilled key workers. As outlined above, immigration for this group is allowed only within annually set quotas. The national quota (Bundeshöchstzahl) is set at 8 per cent of the Austrian employment potential. This quota is announced by the Minister for Economic and Labour Affairs each year and is based on a report by the Austrian Economic Research Institute on the situation of the labour market, general demographic developments etc., assessing the needs for and the usefulness of immigration in 18 Biffl and Bock-Schappelwein (2004). 19 This corresponds to educational levels of immigrants: according to Census of Population data, in 2001, 49.4 per cent of foreigners in Austria were low-skilled (primary education), 39.3 per cent middle-skilled (secondary education) and only 11.3 per cent high-skilled (tertiary education). 4

the following year. This system, together with the provisions on temporary labour, is set to allow for a flexible immigration policy in line with requirements of the national labour market. Provisions similar to those envisaged in Ireland are, therefore, in place. Key workers, however, have to fulfil a number of requirements (see footnote 6) and have remained very few so far. According to the latest (2004) WIFO expertise 20, current labour market conditions in Austria are not characterised by a general labour supply shortage (see Section 1.2 above). However, a WIFO analysis in June 2001 21 did raise the issue of labour supply shortage. Then, medium-term forecasts for the period 1999-2005 anticipated an increase in labour demand that could not be met by a natural increase in the working age population and only partly by a mobilisation of national labour reserves (the unemployed, older workers and women), who often do not possess the skills in demand (IT specialists, natural scientists and technicians). Two important policy measures were introduced after the analysis was undertaken. First, a pension reform, which became effective in January/July 2004, made early retirement more difficult and introduced a step-wise increase of the regular retirement age by five years (60 years for women, 65 years for men). Second, the new Foreigners Bill, which came into effect in January 2003, restricted non-temporary labour immigration to the admission of high-skilled key workers. Further, the quota for temporary workers was extended significantly in 2001, and the naturalisation rate has been increasing significantly in recent years. These factors, together with an easing of the labour market access for specific EU accession country nationals and an increase in workers from the EU15 have contributed to a tightening on the labour market. Currently, it remains a policy challenge to secure the supply of high-skilled labour where needed, and to avoid high overall unemployment. Part 3: Current and future issues of debate in Austria. Given the increase in the demand for high-skilled workers, the government introduced the work permit for key workers, who have to fulfil a number of economic and skill requirements and enjoy both the right of residence as well as the right to work for one year. Until now, after one year (in case of an extension of the status), the dual system of separate residence and work permit becomes effective again. The key worker then has to apply for a two-year individual work permit with the Labour Market Service (Arbeitsmarktservice - AMS) and for extension of the permanent residence permit with the residence authority. A current draft revision of law, however, seeks to facilitate application procedures for key workers further. It provides for an initial right of residence and work for 18 months instead of 12 months, as well as a permanent residence permit thereafter. This change is not likely to increase the numbers of key workers, though, since the strong requirements for labour market access remain unchanged. The large majority of work permit holders are still working under the traditional employment license scheme (with ensuing individual work permit and exemption card). They consist of temporary workers (like seasonal workers) or people who have already acquired the right of residence, like family members of foreigners. Efforts to increase the supply of high-skilled labour should be targeted more towards an education and training of the sizeable native and foreign resident labour reserve. 20 Biffl and Bock-Schappelwein (2004). 21 Walterskirchen (2001). 5

References Barrett, A. (2005), Ireland: Increasing Labour Supply through Immigration. Paper prepared for the Peer Review Process of the Mutual Learning Programme of the European Employment Strategy. Biffl, G. (2002) (ed.), Arbeitsmarktrelevante Effekte der Ausländerintegration in Österreich (Labour market relevant effects of the integration of aliens in Austria). WIFO, Wien. Biffl, G. and J. Bock-Schappelwein (2004), Zur Niederlassung von Ausländern in Österreich. Studie des Österreichischen Instituts für Wirtschaftsforschung im Auftrag des Bundesministeriums für Inneres, WIFO, Wien. Cholewinski, R. (2002), The Legal Status of Migrants Admitted for Employment A Comparative Study of Law and Practice in Selected European States. Committee of Experts on the Legal Status and Other Rights of Immigrants. Council of Europe. Demel, K., H. Fassmann et al. (2001), Die soziale Mobilität der AusländerInnen. Österreichische Akademie der Wissenschaften, Wien Kaniovski, S., M. Marterbauer and J. Baumgartner (2005), Mittelfristig langsame Erholung der Inlandsnachfrage. WIFO Monatsberichte 5/2005. König, K. and B. Perchinig (2003), Austria. In: Niessen, J., Y. Schibel and R. Magoni (eds.), EU and US approaches to the management of immigration. Migration Policy Group. OECD (2003), Part II: Labour Shortages and the Need for Immigrants: A Review of Recent Studies. Sopemi, Trends in International Migration. Statistik Austria (2002), Volkszählung 2001 Österreich. Wien. Statistik Austria (2005a), Demographisches Jahrbuch 2003. Wien. Statistik Austria (2005b), Mikrozensus Jahresergebnisse 2003. Wien. Statistik Austria (2005c), Statistische Übersichten. http://www.statistik.at/statistische_uebersichten/deutsch/start.shtml as of 10 June, 2005. Statistik Austria (2005d), Statistisches Jahrbuch Österreichs 2005, Wien. 6

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