Labour mobility imbalances between European Core and Periphery: evidence from Italy and Portugal
In this post Vincenzo Maccarrone argues that much of the debate on the European economic crisis has concentrated on the presence of structural imbalances between Northern and Southern European countries[1]. When discussing this inequality most commentators focus on the differences in current accounts or in financial flows. However, little focus has been given to another aspect of the Euro crisis: the development of South-North migration flows. He asks whether this element of inter-European disparity something we should be worried about?
Take for instance the case of Italy. In 2014, for the first time in 20 years, the flows of Italian citizens going to live abroad outnumbered the number of foreign citizens entering the country. The trend was confirmed during 2015. Few weeks ago the Fondazione Migrantes (2016) presented its yearly report “Italiani nel mondo” (Italians in the world). According to the report some 107,529 Italians emigrated abroad in 2015, despite the economic recovery the country has experienced in the last year. Top destinations? Germany wins the first position (16,568 Italian citizens emigrated there), the UK comes in second (16,503), with Switzerland standing in third (11,441) followed closely by France (10,728). It is also very likely that this data underestimates the phenomenon as many Italians may not have registered as living abroad: in 2013 the number of Italians who asked for a National Insurance Number, necessary for working in the UK, was four times more than the number of Italians who registered as resident in the country (Gaiazzi, 2015, p.12).
Portugal is another telling example. It has the highest emigration rate as a percentage of its population in Europe and a report from the Observatório da Emigração (2015) warns that its emigration rates are at their highest since 1973. Not surprisingly, the top destinations mirror those of Italy, although with some changes in the order. In 2014 30,546 Portuguese citizens emigrated to the UK, 20,039 chose Switzerland as their destination, 18,000 picked France and 10,121 Germany. It is likely that after Brexit (if it does indeed happen) much of the flow to the UK will be redirected towards other Core countries.
This is indicative of a more general trend of inter-European labour mobility during the crisis. Evidence available shows that up to 2007 there was a consistent flow of mobility from Northern to Southern Europe, where some countries (such as Spain) were experiencing a consistent economic growth. Yet, with the crisis these flows reverted and emigration acted as cushion against the high unemployment rates experienced by Southern European countries (Holland and Paluchowski, 2013). According to research published by the Deutsche Bank, the unemployment rate in Spain in 2013 may have been 9 points higher without the change in migration trends (Bräuninger, 2014). This is even more remarkable if we make a comparison with the United States, where inter-regional labour mobility did not increase as a response to negative labour market trends (Jauer et al., 2014).
The “cushioning” effect, together with an attenuation of the phenomenon of over-education affecting the Euro-zone periphery, has been a key argument for those calling for further increases in inter-European labour mobility (Dittrich, 2016). Yet, beside the fact that there is no empirical evidence of the latter effect (Dittrich, 2016, p.8), what is particularly worrying is that it appears that outflows from the Euro-zone periphery are continuing to increase, a sign of the weakness of the economic recovery and of the increasing divergences across European countries.
According to the Deutsche bank study, about one tenth of German GDP growth between 2010 and 2014 can be attributed to the migration of citizens from the Southern and Eastern European partner countries (Bräuninger, 2014, p. 1). There is no reason to expect that this effect has diminished over the last two years. It’s a virtuous or vicious circle, depending on how you look at it, or rather, depending on which part of Europe you are looking at it from.
Figure 1: Net migration to Southern and Northern Europe, 2006-2013
Source: Dittrich, 2016. Southern Europe= Spain, Italy, Greece, Portugal, Ireland Northern Europe= Germany, Netherlands, Belgium, Austria.
When assessing the migration phenomenon, it should also be noted that among those who emigrate the share of young and educated people is increasing. Among the 107,529 Italians who emigrated in 2015 more than one third of them were young people aged between 18 and 34. Graduates are over-represented: in 2014 a third of Italian emigrants held a degree (Gjergji, 2015, p.15) while the share of graduates in the population overall is around 22 per cent. As for Portugal, Carrilho and Perista (2016) report that “the number of Portuguese people with higher qualifications living in OECD countries grew by 87.5% between 2000–2001 and 2010–2011”, although this also likely reflects an increase in the general level of education of the Portuguese population.
This is not surprising, as the crisis has hit the youth component of the population particularly harshly, especially in the Euro-Mediterranean countries. Youth unemployment rate has skyrocketed (see figure 2), as well as the number of young people who are not in employment, education or training, and those indicators are still well above the pre-recession levels. EU-wide programmes such as the Youth Guarantee seem to have been so far ineffective in dealing with such a disaster.
Even those who work are often employed in bad jobs, hired on precarious contracts, with low remuneration and adverse working conditions. It does not come as a surprise that Italy and Portugal, together with Spain and Greece, are at the bottom of the “Young Workers Index”, which measures economic prospects for young people across 35 OECD countries (PwC, 2016). Conversely, Switzerland and Germany are at the two top positions. Precariousness is a good predicator of emigration, especially for the qualified workforce: a survey of more than 1,800 Portuguese researchers showed that 73 per cent of them have a precarious contract. Among those who did not already choose to emigrate, 40 per cent were willing to emigrate and 40 per cent were undecided (Carrilho and Perista, 2016).
Figure 2: Youth (15-24) unemployment rates in GIPS countries
Source: Eurostat (2016), own calculation
It can also be said that policy decisions in periphery states have not been neutral in terms of their effects on emigration. Austerity measures implemented during the recession by the EU-Periphery countries in exchange for emergency funding had both a direct and indirect effect on emigration. The direct effect is linked to the adjustment in their public sectors, where hiring has stopped altogether as a result of the block of turn-over. As the Portuguese case shows (and young Irish people will certainly see parallels here with their own experiences), this has caused many qualified young people to leave, as the state is the largest employers of graduates (Rapazote, 2015). The indirect but not less pernicious effect is related to the recessionary impact that austerity policies had on the Periphery’s economies, with the explosion of unemployment rates.
North-South emigration imbalances are thus another example of the fallacy of the economic logic behind the belief that European recovery might come if every member state turn to an export-led economic growth, thanks to structural reforms which in turn increase country competitiveness. The reality is that this vision is leading to an increase, rather than to a decrease, of inter-European imbalances (Regan, 2015). Sadly enough, the governments of Southern European countries seem to have internalized the logic of cost competitiveness: in the brochure “Invest in Italy” produced recently by the Ministry of Economic Development (2016) the Italian government made a stark admission of this logic, inviting foreign entrepreneurs to invest in the country because labour costs are significantly lower than those of competitors such as France and Germany.
Yet, as Simonazzi, Ginzburg, and Nocella (2013) suggest, Germany’s competitive advantage does not lie only in cost competitiveness through wage restraint, but it is mainly linked to process of restructuring of production towards high-value added products. This is reflected by the composition of migration flows: as Bräuninger notes “in Germany, 29% of all immigrants aged 20 to 65 who arrived in the last decade or so (2001 to 2011) held a graduate degree while among the total population the respective figure was only 19% in 2011. Among the immigrants more than 10% had a degree in science, IT, mathematics or engineering compared to 6% among the rest of the population aged 25 to 65. These are key qualifications which Germany urgently needs to maintain its position as production location” [2] (Bräuninger, 2014, p.8).
Even if we adopt a narrow-minded human capital approach, we can see the danger of forcing young and qualified workforce to leave peripheral countries. According to OECD data, the Italian state spent 23 billion on the education of those who emigrated from 2008 to 2014 (Fubini, 2015). To this we must also add the cost for those emigrated throughout 2015 and 2016. Far from being a solution, labour mobility will only increase structural differences across EU countries. It is time for European politicians to begin to tackle this issue, dealing with root causes and abandoning wrong policies.
Vicenzo Maccarrone is a PhD student in Industrial Relations at the Smurfit School of Business. He holds an MA in Economics from the University of Torino and the Collegio Carlo Alberto. He previously worked as a researcher at the Torino branch of the Bank of Italy and at the European Foundation for the Improvement of Living and Working Conditions in Dublin. His research, funded by the Irish Research Council, focuses on the impact of the new European economic governance on the industrial relations of Italy and Ireland. This blog post was completed as part of his assignment in UCD’s School of Politics module: the Global Political Economy of Europe.
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[1] Following Regan (2015), I use the term “Northern” (or “Core”) European countries to describe Austria, Belgium, Finland, Germany, the Netherlands and to a lesser extent France. The term “Southern” (or “Periphery”) is used instead to refer to Greece, Italy, Portugal, Spain and to a lesser degree Ireland. Throughout our analysis I will focus mostly on Italy, Portugal and Germany.
[2] Emphasis added
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