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Immigrants and EU Labor Markets
By Louka T. Katseli
OECD Development Centre
Most European countries are experiencing increased immigration. Immigrants are contributing to population growth and helping to meet labor shortages, thereby augmenting growth and competitiveness.
In sectors in which foreign and domestic labor can be easily substituted for one another, the employment of immigrants has been accompanied by increased unemployment among native-born workers. Labor rigidities in almost all European countries mean that, paradoxically, new immigrant flows coexist with low labor force participation rates, labor shortages, and unemployment.
Migration policies need to take into account not only the commonalities but also the differences among European labor markets, differences that have intensified with successive waves of EU enlargement.
The most recent enlargement, in May 2004, expanded the EU from 15 to 25 countries, bringing into the fold eight former Soviet Bloc countries as well as Cyprus and Malta. Distinct migration regimes in northern and southern, as well as Western and Eastern, Europe require differentiated policy approaches.
Moreover, migration policies cannot substitute for required changes in domestic economic and social policies. The inherent complexities and the need for coordination across various policy domains require that new institutional mechanisms be created in which policy will be designed with the active participation of all stakeholders.
In light of increasing European integration and the recent enlargement to the east, policies concerning the integration of migrants should become a basic component of the EU policy agenda.
Discussion: EU Labor Markets and Immigration
In nearly all the European member countries of the OECD (Organization for Economic Cooperation and Development), populations are expected to fall by about 10 percent in the first half of this century. In addition, the EU's dependency ratio - the population below age 15 and above age 65 divided by the population aged 15-64 - is expected to nearly double.
Even considering the effects of immigration and potential changes in labor participation rates, the labor force is expected to decline in most European countries. Labor shortages, which are already apparent in many countries, are likely to persist and become more serious.
Labor market imbalances are attributable largely to structural rigidities. These include, among other things, the lack of interregional geographic mobility aggravated by linguistic barriers, restrictions that reserve access to specific professions only to nationals, mismatches between existing skills and those in high demand, and cultural and socio-economic barriers that preclude the entry of nationals into low-status or low-wage jobs.
It is worth noting that in 1999, intra-European migration involved less than 0.2 percent of the total population of the EU, while only 1.2 percent of people in work changed residence.
Structural rigidities in European labor markets also imply that labor shortages in most countries are likely to coexist not only with large pools of unemployed and/or inactive people, both nationals and foreigners, but also with continuous inflows of new immigrants.
Employer surveys conducted between 2000 and 2002 confirm the appearance of labor shortages for skilled and/or unskilled personnel, even though countries such as France and Germany, which recorded high unemployment rates among both nationals and foreigners, were experiencing high immigration flows. It has been estimated that the size of the "unused or latent labor supply" in Europe varies from 18 to 22 percent in Switzerland and Sweden to 40 percent in Italy.
In view of these trends and characteristics, it is not surprising that foreign workers enter EU countries to cover needs at both ends of the skills spectrum.
In the more industrialized countries, which can be considered as traditional immigration countries - Austria, Germany, the Netherlands, Belgium, France, and Sweden - skilled immigrants, mostly on temporary (five-year) visas, fill job openings in the manufacturing and mining sectors or in sectors exhibiting rapid technological change, such as the information and communication technology sector.
At the same time, unskilled immigrants, both legal and illegal, cover vacancies or create demand for new jobs at the lowest social and occupational categories. In the Nordic countries - Denmark, Norway, and Sweden - as well as in Ireland, the education, health, and community-service sectors account for relatively high shares of total foreign employment. State agencies or large firms recruit immigrants, and labor migration remains concentrated among few nationalities.
Family reunion inflows are also on the rise as immigrants become integrated into formal economies. Given these trends, the effort to manage migration flows in northern Europe has focused mostly on combating irregular migration and illegal employment, as well as on developing more effective integration policies.
In southern Europe - where agriculture still accounts for a significant share of total employment, including large informal and seasonal sectors - the employment of foreigners tends to be concentrated in the agricultural sectors, the construction industry, the wholesale and retail trade, and in the tourist industry.
High rates of employment of foreigners are also observed in household services, even though the female unemployment rates are high and female participation rates are very low, especially in Greece, Italy, and Spain. Regardless of the employment sector, in the south foreigners typically cover seasonal, short-term and/or "atypical" jobs.
Extensive borders with non-EU countries, along with weak border control and administrative structures, contribute to rising illegal entry, residence, and work in these countries, just as they have in Eastern Europe. Legal entrants often overstay their visas. Recruitment by private 'illegal brokers' is prevalent.
Even though immigrants from neighboring countries constitute the larger share of immigrants - Albanians in Greece and Italy, Moroccans in Italy and Spain - immigrants exhibit a remarkable diversity of nationalities and educational levels. Given the ease of illegal immigration, asylum seeking in these countries has never been a major issue.
Through repeated regularizations, governments have attempted to manage the extended illegality and irregularity of migrants. This policy pattern, however, has prompted new illegal migrant inflows and a tendency toward permanent as opposed to temporary settlement of immigrants.
The segmentation of EU labor markets, in conjunction with differences in economic, social, and institutional characteristics, has thus given rise to two distinct "migration regimes" in northern and southern European countries.
Migration regimes are further distinguished with respect to immigrant and host country characteristics, labor market and redistribution effects from immigration, and policy content and effectiveness. The policy debate in Europe must take these differences into account.
The globalization of production and the liberalization of commodity trade and capital markets have not so far proven sufficient to equalize standards of living across the world. In the coming decades, there will be increased pressures for greater integration of labor markets through migration. The effective management of migration flows is therefore set to become a top priority for policymakers across Europe.
From the analysis provided so far, the following conclusions can be drawn:
The presence of diverse migration regimes across Europe requires flexible policy approaches. "Best practices" in some countries can turn out to be "worst practices" in others. For example, targeted immigration programs to meet specific market needs have proven to be relatively successful in northern industrial countries but totally ineffective in southern Europe.
Given the high propensity for substitution between different kinds of immigrants (i.e., labor immigrants, asylum seekers, refugees) and the considerable scope for substitution between potential immigration routes, migration policy will have to become more integrated across policy domains. It also will have to become more strategic (as opposed to defensive), focusing on the choice of incentives and disincentives for entry, length of stay, work, and degree of mobility of migrants.
In many countries, especially in southern Europe, migration policies should be framed in such a way as to facilitate rather than impede - as they presently do - temporary and recurrent migration flows through the extension of renewable, multiannual visas.
Rapid technological change and labor market changes require a continuous reevaluation of which skills are needed. The associated information costs of such evaluations are usually prohibitive, however. For this reason, selective and targeted immigration policies, though useful in meeting very specific short-term needs, cannot provide the basis for an effective migration policy in the long-term.
Policies concerning the integration of migrants could be made more coherent across regulatory areas, involving the EU, national governments, and local administrations. Participation in policy design and implementation by immigrant associations, NGOs, and the wider public is a prerequisite for the sustainability of policies, successful integration, and the better use of both immigrant and domestic labor potential.
At the European Union level, the creation of a "Task Force for Migration Policy," supported by an appropriate secretariat or policy institute, could provide consistency and help coordination across policy domains, as well as assist regional administrations in the design and implementation of regional policies.
Designing effective migration policies is as much a political as a technical issue. Given the complexities involved, most European governments have tried to keep migration issues at the low end of the political agenda. Their attempts to cope with the issues have taken the form of either crisis management or stop-go defensive tactics, including tightening border controls, implementing selective immigration programs, and undertaking massive regularizations.
Strategies for managing international labor flows must become an integral part of the European policy debate, side-by-side with trade and capital-market integration. Against the background of entrenched rigidities and imbalances in labor markets, monetary integration alone cannot promote European competitiveness and growth.
Louka T. Katseli is Professor of Economics at Athens University and Director of the OECD Development Centre (www.oecd.org/dev).
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