Departement Volkswirtschaft Departement Volkswirtschaftslehre Swiss Immigration Policies and their Impacts on the Economy LSE-Conference on Migration London, 27. June 2014 Prof. Aymo Brunetti University of Bern

Departement Volkswirtschaft Departement Volkswirtschaftslehre 2 Content 1. Some Numbers 2. Swiss Immigration Policy Regimes 3. Economic Effects of Free Movement of Labor 4. Regime Change Conclusions

Departement Volkswirtschaft Departement Volkswirtschaftslehre 3 1. Some Numbers > An high share of foreign born people in Switzerland: —USA: 12.9% (2010) —Canada: 19.5% (2006) —Australia: 26.8% (2010) —Switzerland: 27.6% (2012)

Departement Volkswirtschaft Departement Volkswirtschaftslehre 4 1. Some Numbers > A strong recent increase of immigration: Average immigration —1982 – 2002: 90’000 per year —2002 – 2012: 120’000 per year ≈ the population of Bern Average balance of migration —1982 – 2002: 25’000 per year —2002 – 2012: 60’000 per year

Departement Volkswirtschaft Departement Volkswirtschaftslehre 1. Some Numbers 5 Source: Swiss Federal Statistical Office

Departement Volkswirtschaft Departement Volkswirtschaftslehre 6 2. Swiss Immigration Regimes > The Regime between 1970 and 2002 —Numerical limits for specific groups of migrants > The Regime between 2002 and 2014 —Free movement of persons > The Regime after 2014 —Numerical limits for all groups of migrants

Departement Volkswirtschaft Departement Volkswirtschaftslehre 7 2. Swiss Immigration Regimes The Regime between 1970 and 2002: > Quotas per economic sector > Allocation politically decided => High quotas for agriculture and low-skilled jobs > Consequence: Low-skilled immigration => After some years: Inefficient reallocation (see next slide)

Departement Volkswirtschaft Departement Volkswirtschaftslehre 8 The Regime Between 1970 and 2002 Demand Driven Numerical Limits Agriculture, low-skilled jobs Medium- skilled jobs (branch 1) Medium- skilled jobs (branch 3) Medium- skilled jobs (branch 2)

Departement Volkswirtschaft Departement Volkswirtschaftslehre 9 2. Swiss Immigration Regimes The regime since 2002: > Free movement of persons (FMP) vis-à-vis EU/EFTA > Integral part of the bilateral treaties with the EU > Freedom of establishment for EU/EFTA migrants with an occupation or «sufficient funds» > Accepted by the Swiss population in a series of popular votes

Departement Volkswirtschaft Departement Volkswirtschaftslehre 10 The Regime Between 2002 and 2014 Free Movements Of Persons low-skilled jobs Medium- skilled jobs High-skilled jobs

Departement Volkswirtschaft Departement Volkswirtschaftslehre Economic Effects of FML > Immigration at the core of the latest rise in hours worked Source: Michael Siegenthaler, Michael Graff, and Massimo Mannino, „The Swiss ‚Job Miracle‘“

Departement Volkswirtschaft Departement Volkswirtschaftslehre Economic Effects of FML > Foreign workers do not replace Swiss workers Source: Michael Siegenthaler, Michael Graff, and Massimo Mannino, „The Swiss ‚Job Miracle‘“

Departement Volkswirtschaft Departement Volkswirtschaftslehre Economic Effects of FML Effects on hours worked: > Fact: Swiss work force is decreasing (demography) > Fact: Immigration increases total hours worked > Consequence: FMP offsets decreasing Swiss work force > Consequence: Eases continued rise in GDP => Effect on per capita GDP depends on ø productivity

Departement Volkswirtschaft Departement Volkswirtschaftslehre Economic Effects of FML Effects on human capital: Immigrants under FMP are highly skilled: — : only 15% of the immigrants were highly-skilled — : 51% of the immigrants were highly skilled => positive effect on average productivity likely.

Departement Volkswirtschaft Departement Volkswirtschaftslehre Economic Effects of FML Effects on wages: > Empirical evidence (Gerfin and Kaiser, 2011) —Little pressure on wages of highly skilled workers —Wages of medium and low-skilled workers rise

Departement Volkswirtschaft Departement Volkswirtschaftslehre Economic Effects of FML Effects on unemployment: > Empirical evidence (increase) —Stalder (2010): Unemployment falls less quickly under FMP > Empirical evidence (no increase) —Very low and stable unemployment rate —Siegenthaler et al. (2014): – 65-80% of migration attributed to job creation in Switzerland – 50% have a job when they come

Departement Volkswirtschaft Departement Volkswirtschaftslehre Economic Effects of FML Other effects: > Social security system benefits in the short term > Possible upward pressure on real estate prices > Pressure on infrastructure utilisation

Departement Volkswirtschaft Departement Volkswirtschaftslehre Regime Change 2014 Referendum on a popular initiative: > «Switzerland regulates migration independently.» > «Significant decrease of the balance of migration» > «Limited number of foreigners allowed to stay in Switzerland, using yearly maxima and numerical limits.» => February 9, 2014: 50.3% Yes

Departement Volkswirtschaft Departement Volkswirtschaftslehre Regime Change 2014 Rual areas (pro) versus cities and the french part (contra)

Departement Volkswirtschaft Departement Volkswirtschaftslehre Regime Change 2014 Economics: What if initiative is strictly implemented? —Likely: Some bilateral treaties canceled – Market access of Swiss companies endangered – Free movement of Swiss citizens to EU endangered —Back to the 70s? – Politics: Low-skilled immigration – Comparatively low growth benefits

Departement Volkswirtschaft Departement Volkswirtschaftslehre Regime Change 2014 What next? —Negotiations with the EU —Implementation of the initiative text —Likely: Popular vote on the outcome

Departement Volkswirtschaft Departement Volkswirtschaftslehre Conclusions > Low-skilled migration under numerical limits (before 2002) > High-skilled migration under FMP (after 2002) > FMP with positive effect on Swiss wealth > FMP without negative effect on Swiss wages > FMP with little effect on Swiss unemployment > FMP raised balance of migration > FMP raised concerns about migration

Departement Volkswirtschaft Departement Volkswirtschaftslehre Conclusions > Uncertain future due to the February 2014 vote > Possible outcomes: —Strict implementation: numerical limits —Mild implementation: combination of numerical limits and FMP —Non-implementation: FMP