A European mobility assistance scheme

Tito Boeri, Herbert Brücker, 22 April 2014

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Policymakers are petrified by increasing sentiments against migration across Europe. The Swiss population has voted against the free movement of workers; the Cameron government in the UK has requested a renegotiation of the EU’s treaties asking explicitly for restrictions on labour mobility within the Union – a pillar of the Common Market since the Rome Treaty. In Germany, a debate on so-called ‘poverty immigration’ from Bulgaria and Romania has fanned fears that immigrants abuse the welfare state. Populist movements will make the election for the European Parliament a sort of referendum on migration and the free mobility of workers within the EU.

Restricting the free movement of workers is not only a threat to the European identity. More importantly, labour mobility is a blessing for a monetary union whose labour markets have been taking diverging trends in the last five years. Free mobility is way more effective than a one-size-fits-all monetary policy in dealing with inflationary and deflationary pressures in different parts of the Eurozone. The issue is that this heterogeneity in economic conditions throughout the EU is also the very reason why tensions on migration are emerging. Migrants from Bulgaria and Romania and the other new member states from Central and Eastern Europe are the most mobile part of the European workforce today. While emigration from the crisis countries has been moderate, the financial crisis and the subsequent recession substantially diverted flows of citizens from the new member states away from their traditional destinations in Ireland, Italy, and Spain. They are now moving massively to Germany, Switzerland and, to a lesser extent, the UK. About 70% of the recent immigration surge in Germany can be attributed to the deterioration of the economic conditions in alternative destinations (Bertoli et al. 2013). The migration from the new member states partly compensates the immobility of Greek, Italian, Spanish, and Portuguese workers, thereby reducing unemployment in the South, just while preventing overheating in countries like Germany.

No ‘welfare abuse’ by migrants

As our research has documented (Boeri 2010), the main source of concerns of public opinion about migrants is represented by access to the welfare state. There is no evidence for ‘welfare abuse’ at any significant scale.

  • In Switzerland, the unemployment rates of foreign workers are low and the foreign population is a net contributor to the welfare state, particularly via the pension system.
  • In the UK, the unemployment and welfare benefit recipient rates of the foreign population from the new member states is below that of natives (Dustmann and Frattini 2013).
  • In Germany, the unemployment and benefit recipient rates of Bulgarians and Romanians are only slightly higher than those of natives, and well below the average of the foreign population – the vast majority of immigrants work, pay taxes and social security contributions (Brücker et al. 2014).

The fact of the matter is that while migrants are underrepresented among pensioners, recipients of sickness benefits, and beneficiaries of unemployment insurance, all contributory and at least in principle funded schemes, they are overrepresented among the recipients of mean-tested welfare benefits (Boeri 2010). The intergenerational transfers made to the elderly by the immigrants are larger than the means-tested transfers that they receive (see e.g. Bonin 2006 for Germany, Dustmann and Frattini 2013 for the UK).

  • Thus, migrants are overall net fiscal contributors in their destination countries. Or in other terms, one might argue that migrants are taxed rather than subsidized by the welfare state.

However, given the relatively large share of migrants receiving non-contributory transfers, they may be perceived as a threat to the welfare state. It is not a problem of abuse. Migrants do not have other sources of income, hence are more likely than natives to receive mean-tested transfers than natives when they lose a job. There is also no evidence of ‘residual welfare dependence’ of migrants, that is, migrants receiving more transfers than those that should be expected on the basis of their labour market position, family characteristics, incomes, and eligibility rules in the countries they live in (Boeri 2010).

Yet, the concerns of public opinion should be taken seriously into account. An additional reason for the EU to address the issue is that there is potentially a time bomb concerning the access of non-native EU citizens to the welfare state. Very soon the European Court of Justice will have to decide on important aspects of the access of immigrants to welfare benefits. At present, the EU legislation in this respect is guided by the principle of equal treatment. Individuals who pay taxes and social contributions in one country have access to the same benefits as natives. The EU free movement directive and national legislations, however, include also some safeguard clauses which should prevent ‘welfare shopping’ of immigrants at their arrival. Inter alia, immigrants who do not work have to prove that they can afford their living expenses. Moreover, they can be excluded from social assistance: all EU member states exclude all immigrants (including non-native EU citizens) from welfare benefits for a transitional period, which can last up to two years.

These transitional arrangements are highly controversial. As an example, social courts in Germany are challenging the social code excluding jobseekers from other EU member states from mean-tested benefits if they have not worked before in Germany. This is considered to be a possible violation of the equal treatment principle in the free movement directive. This issue has been brought to the European Court of Justice, and the European Commission, in a statement to the European Court of Justice, has argued that the exclusion of jobseekers from means-tested transfers violates the free movement directive. If the European Court of Justice follows this line of argument, this has far-reaching consequences. Modern welfare states, which consider mean-tested benefits not as social assistance, but as an allowance for jobseekers who should be reintegrated into the labour market, will no longer exclude immigrants from other EU member states from welfare benefits at their arrival if they are looking for work. This will almost unavoidably increase anti-EU and anti-immigration sentiments throughout Europe.

A proposal for a mobility assistance scheme

In order to defuse this time bomb without hampering the mobility of workers within the EU, we suggest reconsidering the access of EU-migrants to welfare benefits based on two key principles.

  • The first principle is that immigrants should be entitled to welfare benefits in the country where they have paid taxes and social security contributions. Otherwise, the benefits and costs of migration would be realized at different locations.

This is the economic rationale behind the equal treatment principle. The problem with this principle is that it does cover the risks associated with the mobility from one country of the EU to another and assumes that migrants already have a job before moving, which is quite unrealistic. This leads us to the second principle.

  • The second principle is that it should be the EU to finance means-tested transfers in the transitional period via the introduction of a mobility assistance scheme for EU migrants funded from the budget of the European Union.

The mobility assistance should be limited to the subsistence level and granted only for a short time period (at most 6 months), applying the strict eligibility rules of the country of destination and targeting the minimum guaranteed income levels of the country of origin, adjusted in order to guarantee purchasing power parity. The cost of such a mobility assistance scheme is limited and could be contained below €2 billion for the entire EU, given that the share of welfare recipients is below 10% among the newcomers.

The advantage of such a mobility assistance scheme is that it encourages labour mobility but does not distort incentives by directing migrants to countries with generous welfare states. Moreover, it does not create a burden to the welfare state in the countries of destination. The economic justification is that there are benefits for the EU as a whole in promoting mobility and internalizing at least part of the negative externalities that migration may initially have in the country of destination.

Politically, the mobility assistance has important side-effects:

  • It does not discriminate jobseekers from other countries and is therefore fully aligned to the free movement directive.
  • Moreover, it can contribute to establish a new consent between sending and receiving countries as to how the access to welfare benefits should be regulated in the enlarged EU.

This indirectly would also encourage all sending countries to introduce a safety net and prevent any welfare shopping leaving those politicians who use migrants as a scapegoat without convincing arguments. Their campaign against the so-called ‘welfare sponges’ will have no appeal whatsoever among local taxpayers, whatever the decision made by the Court of Justice in Luxembourg.

References

Bertoli, Simone, Brücker, Herbert, Jesús Fernández-Huertas Moraga (2013), “The European Crisis and Migration to Germany: Expectations and the Diversion of Migration Flows”, IZA Discussion Paper 7170.

Boeri, Tito (2010), “Immigration to the Land of Redistribution”, Economica, 77(308), 651–687.

Bonin, Holger (2006), “Der Finanzierungsbeitrag der Ausländer zu den Staatsfinanzen. Eine Bilanz für 2004”, IZA Discussion Paper 2444.

Brücker, Herbert, Hauptmann, Andreas, Vallizadeh, Ehsan (2014), “Zuwanderungsmonitor Bulgarien und Rumänien: Beschäftigung steigt starker als Zuwanderung nach Einführung der Arbeitnehmerfreizügigkeit”, IAB, 31 March.

Dustmann, Christian, Frattini, Tommaso (2013), “The Fiscal Effects of Immigration to the UK”, CreAM Discussion Paper 22/13.

 

Topics: EU policies, Labour markets, Migration
Tags: EU migration, mobility assistance scheme

Professor of Economics at Bocconi University, Milan; Scientific Director of the Fondazione Rodolfo Debenedetti and the founder of LaVoce. CEPR Research Fellow
Professor of Economics, University of Bamberg; Head of Department for International Comparisons and European Integration, Institute for Employment Research