Migration and welfare

Tito Boeri 11 June 2007

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There is a widespread perception in Europe that migrants abuse the welfare state. This view is deeply rooted in the countries where more money is spent in social transfers and is stronger among poorer and less educated individuals.

True, migrants are overrepresented among beneficiaries of non-contributory transfers, but there is no evidence of “residual dependency” of migrants: they do not receive transfers more than natives when their educational attainments and family characteristics are taken into account. More than abuse strictly speaking, it is probably the fact that low-skill migrants go to countries with the richest welfare state which drives concerns of EU citizens.

Concerns of welfare abuse are inducing governments to set unrealistic restrictions to migration which induce more illegal and unskilled migration, generating even more public opinion perceiving welfare abuse. This vicious circle leads nowhere. To prevent it, three strategies could be adopted at the European level: 

  • closing the welfare door to migrants,
  • introducing a `point system' rewarding skilled migration;
  • harmonising safety nets at the EU level

Closing the Welfare Door?

Closing access to welfare cuts across these concerns, preventing welfare abuse. It would reduce migration flows, while mildly increasing the proportion (not the absolute number!) of skilled workers in migration inflows.

Closing the welfare door policy, however, would postpone the integration of migrants who are already in the country or who would come in any event. Thus, it may paradoxically increase the negative effects of immigration on unskilled native workers by pushing many migrants into illegal activities. Moreover, closing the welfare door is not a credible policy under the present large immigration flows to Europe. The US experience is revealing in this respect: a system that strongly discriminates against immigrants can face political resistance, is easily challengeable in the courts and is thus likely to ultimately revert to the previous system.

Adopting a points-based system?

A points-based system is a method to rank applications for residence and work permits. It has been adopted by Australia, Canada, New Zealand and, in Europe, by Switzerland. The UK is likewise introducing a points-based system while the draft migration law recently approved by the Italian Government envisages a similar selective mechanism in allocating quotas. In such a system, each application is allocated a score based on explicit criteria which typically reward educational attainment, experience, and language abilities. "Bonus points" can also be given for employment in occupations and regions where there is a shortage of workers. A point-system adopted by Europe vis-à-vis third country nationals would encourage more skilled migration not only in relative, but also in absolute terms, enhancing the growth potential of migration and reducing negative externalities via unemployment.

Points systems seem to be rather effective in selecting migrants, as suggested by comparisons of International Adult Literacy Scores of migrants and natives in countries without a points-based system and countries with a points system in place.

Harmonising minimum welfare across jurisdictions

Another option is to harmonise minimum welfare standards at the EU level. The rationale for this policy is that it would prevent welfare shopping and a potential “race-to-the bottom” in social welfare provision associated with fiscal spillovers across jurisdictions. Although there is no evidence that social assistance provisions are being dismantled, many immigration countries have some safety net in place, and hence it seems reasonable to co-ordinate these minimum guaranteed income schemes.

Minimum-welfare transfers and services could be co-financed by a specific budget line item at the EU level. The amount required could be significantly smaller than that currently allotted to Structural, Cohesion, or Common Agricultural Policy funds (which currently amount to some 60 billion euro).

An EU-wide minimum welfare program should be clearly targeted at avoiding European poverty with the least possible negative impact on employment. Some design features of this harmonised minimum guaranteed income scheme would be very important. In order to prevent welfare-shopping from distorting mobility incentives and reducing the political feasibility of welfare provision, the minimum standard needs to be specified in absolute terms (rather than in relation to local incomes). At the same time, cost-of-living differentials and the character of social-service provision should be taken into account by the definition of country- and region-specific minimum levels of welfare provision. Uniform minimum absolute welfare levels would indeed have the most negative employment effects in relatively poor countries or regions. Minimum assistance levels should then be specified in purchasing power terms, and would therefore, for example, be much lower in Poland than in Germany. This is a difficult exercise but, to the extent that prices of non-traded goods are lower in the same locations where labour productivity and wages are low, it would go some way towards reducing disincentive effects on local labour supply.

Whatever the choice European governments end up making among increasing the selectivity of migration policies or introducing a pan-European minimum guaranteed income scheme, there is little doubt that social policies and migration policies need to be more closely integrated. 

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Topics:  Migration

Tags:  welfare abuse, migrants

Professor of Economics at Bocconi University, Milan; Scientific Director of the Fondazione Rodolfo Debenedetti and the founder of LaVoce. CEPR Research Fellow