Tito Boeri Università Bocconi e Fondazione Rodolfo Debenedetti “Migration and Development Labor Market session” A European Perspective Washington, 23 May.

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Tito Boeri Università Bocconi e Fondazione Rodolfo Debenedetti “Migration and Development Labor Market session” A European Perspective Washington, 23 May 2007

Outline Immigration to European-type institutions: theoretical predictions and empirical evidence A closer look at “welfare abuse” and “welfare shopping” Policy issues: – Restricting welfare access by migrants – Adopting a point system – Introducing a pan-European safety net

Unskilled migration to imperfect labour markets w L w N Unemp With a minimum wageWith semi-rigid wages w L w0w0 w1w1 N Unemp LsLs LsLs LdLd LdLd

However Econometric studies find very mild effects of unskilled migration on wages and unemployment of natives And opinion polls indicates that Europeans are not too worried about the labor market impact of immigration (1 out of 2 states that “we need immigrants to work in certain sectors of our economy”*) * Source: Eurobarometer 64, June 2006.

Perhaps because migration substitutes low internal mobility

And under centralised bargaining may improve the labor market also in the South

Growing Concerns on welfare % of respondents stating that “minority groups exploit the system of social welfare” EU 12 EU EU12EU Source: EU 12, Eurobarometer 1994, 2000; EU 15, Eurobarometer 1997,2000.

Stronger concerns in countries with a richer welfare state… Unconditional correlation between perceptions of welfare abuse and generosity of welfare systems

Self-selection Social welfare and the skill composition of migrants

Are really migrants abusing welfare? Evaluating “residual welfare dependency” of migrants (non-EU citizens) based on ECHP data 2001 In the ECHP 2112 non-EU migrants accounting for 3.75% of the respondents (under-representation) Is there a residual effect of migrant status on benefit receipt after controlling for personal characteristics?

Migrants are over-represented among beneficiaries of several transfers.. Odds Ratios Pension Unemployment Benefits Family Allowances Sickness Benefits Education Allowances Social Assistance Housing Allowances

Countrymigrant_nonEUObservationsPseudo R-squared Germany-0.28(0.03)*** Denmark0.43(0.09)*** Netherlands0.16(0.11) Belgium0.17(0.06)*** France0.08(0.05)* United Kingdom -0.28(0.12)** Ireland0.33(0.22) Italy-0.18(0.11) Greece-0.13(0.07)* Spain0.1(0.1) Portugal0.13(0.08) Austria-0.02(0.07) Finland0.02(0.07) Residual dependency on Unemployment Benefits of non-EU citizens

Residual Dependency on Social Assistance and Housing benefits of non-EU citizens Countrymigrant_nonEUObservationsPseudo R-squared Germany-0.19(0.05)*** Denmark0.29(0.16)* Netherlands0.16(0.15) Belgium0.01(0.09) France-0.07(0.06) United Kingdom-0.45(0.13)*** Ireland-0.26(0.33) Italy0.16(0.10)* Greece-0.16(0.09)* Spain-0.08(0.16) Portugal-0.09(0.09) Austria-0.01(0.08) Finland0.14(0.1)

The reaction of Governments

Tightening everywhere, mostly in rich welfare state countries index of the stance of migration policies (increasing in restrictions)

A vicious circle? Perceptions of welfare abuse support tightening of migration policies resulting in more illegal (hence less skilled and not paying social security) migration. This further supports perceptions of welfare abuse making stricter migration policies even more popular….

Policy options 3 possible ways out 1.Closing the welfare door to migrants 2.Selecting migrants: introducing a point system 3.Harmonising minimum guaranteed income schemes: a EU-wide safety net

Closing the welfare door? US experience suggests that it is too difficult to enforce these restrictions Evidence that cutting access to welfare reduces migration to rigid countries (by 1,5-3% for men, while migration of women increases!) with no effects on the skill composition Problems of assimilation Equity considerations

A points-based system? Skilled migration is consistent with redistributive institutions; it reduces income inequalities in the recipient. Simplification of migration policies (including asylum) Issues: enforcement; risk of “brain drain”, equity considerations.

Brain drain may not be harmful to LDC growth Source: Docquier – Rapoport (2004)

Effective in selecting migrants (IALS scores) Germany New Zealand

Migration policies are already getting selective Tightening everywhere of migration policies towards the unskilled While race to attract highly skilled migrants Explicit point systems in a increasing number of countries (Canada since 67, Australia since 84, New Zealand since 91, Switzerland since 96, UK is gradually adopting it)

A EU-wide safety net? EU-wide minimum welfare floor (Atkinson (1998)) preventing a “race to the bottom” in non- contributory transfers Important design features (need to harmonise in absolute levels, adjusted to PPP) Costs (not too large actually: MGI at 430 Euros for singles costs about 30 billion, ½ of the CAP) If provided as citizenship right, necessary to coordinate migration policies as well.

In any event Migration policies and social policies ought to be more closely integrated Welfare state when fiscal spillovers are perceived as important poses problems of co-ordination across jurisdictions of welfare minima (and migration policies)