labour markets at UK
In order to fully comprehend the impact European Union (EU) enlargement and labour mobility has on labour markets in the UK, Germany and Poland it is necessary to consider many different scenarios and possibilities. EU enlargement has many benefits, one such benefit being an integration of markets. In this case we are mainly going to concentrate on the labour market, and how an expansion of the EU creates an integration of labour markets, and the effect that this has. Whilst there are many benefits that can be gained when labour markets integrate, it is also very important to consider the possible drawbacks. Theoretically when labour markets integrate this should make them more competitive, and cost effective, because there will be a higher number of workers to choose from, thus people will be more willing to accept jobs at a lower wage. Furthermore an EU enlargement will mean that more people will relocate in order to find jobs that will suit their skills, and where they will have higher wages and thus a better standard of living. On the other hand it is also important to consider the effects of labour movement, especially how this will impact the nation where the workers are migrating from, and where they are migrating. One possible scenario is that foreign workers could lead to a higher unemployment rate of home workers, because when they first arrive to a new country they are willing to take a wage cut, and as a result it might be the case that firms decide to hire more foreign workers in order to keep their costs down and as a result increase their profitability. In order to see whether labour mobility and EU enlargement has an overall positive or negative effect on home and foreign labour markets, it is important to analyse many possible issues, such as unemployment rates, protection of home markets, effects on wages, skill distribution, labour market efficiency and see how integration and labour mobility affects these factors.
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Following the EU enlargement in 2004 to bring the total number of countries to 25 there has been a noticable movement of Polish labourers into foreign countries. As a result the term "Polish plumber" was coined as an image to represent the cheap labour that was arriving from the Eastern countries that had recently joined the European Union. This movement was advantageous for many Western countries, one such example being the United Kingdom, because this movement of labour coincided with the housing boom that was being experienced in this country. As the demand for new housing increased in the UK so did the demand for labour, such as construction workers and plumbers, and this new demand was being supplemented with the influx of foreign workers. Furthermore as London won the bid to be the host city for the 2012 Olympics meant that there would be an even bigger surge in construction because of the need to build stadia, facilities for the athletes and also housing. In order for this demand to be met "The Federation of Master Builders estimates that 87,500 new builders are needed every year for the next five years."1 Thus for this demand of new labour to be met it will be necessary for foreign workers to come to the UK, which is made possible by an integrated labour market and free labour mobility.
On the other hand the large number of Polish migrants leaving their home country to move abroad could cause a shortage of certain labour skills in their own labour market. This was made evident when in 2007 the Polish government attempted "to push through a law making it easier for ethnic Poles from neighboring states to enter the country and will even consider using ex-convicts"2 in order to meet their own deadlines for the European Football Championships in 2012. Their shortage of skilled labour has been documented and its estimated that "more than 800,000 skilled Poles have left to work in other European Union countries"2 hence the government is trying to replace these workers through various ways, one which has been listed above.
The fact that Polish workers are deciding to move to different countries because of more lucrative wages, they are in turn causing unemployment to decrease in Poland. There are two reasons for this effect, the first being that if an employed worker from Poland relocates to a foreign country, they are leaving their job for unemployed people in Poland. In the other case an unemployed person in Poland might decide to relocate to a country where there is a shortage of the skills that they posses, or just because they are an unable to find work at home. This is clearly demonstrated by chart 6 below and table 11 in the appendix.
Chart 6 shows that Poland's unemployment rate was 16% in the year 2000, and rose to around 19% by the year 2004, which is when Poland joined the EU. Since then their unemployment rate has rapidly decreased and by the first quarter in 2008 it was at exactly 8%. This massive drop in unemployment was clearly influenced by the number of Polish people leaving to go to foreign countries. "An estimated 96,000 Polish citizens migrated into the UK in 2007, which was the highest inflow of any individual citizenship."3 This shows that the UK was a popular destination for Polish workers, as it the highest number of nationals which entered into England where from that country. This is interlinked with what has been mentioned before in the second paragraph that due to a high demand for labour the UK was a lucrative place for new Member States. Additionally it would be ignorant to say that this decrease in unemployment rate was only due to migration, because we know that Poland has grown and developed rapidly, and therefore there were many new jobs created. Consequently it is important to understand that unemployment was decreased because of a number of factors, migration being a very important one.
The enlargement of the EU will lead to an increase in labour mobility as the labour markets will integrate, and there are possible positive and negative outcomes from this. Theoretically an influx of foreign workers should mean that unemployment in the receiving/host country should go up because the labour market will increase, and in turn this will make it more competitive. One of the reasons for this is that foreign workers are usually willing to take a wage cut when they arrive, something that the locals might not be willing to do, and as a result could suffer because employers will be more willing to hire cheaper labour in order to maximize their profits. Whilst this should happen "there is little evidence that workers from the new Member States have displaced local workers ... in a serious way, even in those countries where the inflows have been greatest"4 Therefore this shows that foreign workers do not have a negative impact on unemployment in the country where they are migrating. This could be because in recent times there has been a sustained period of economic growth, and as a result new jobs were being created, however this might not be the case now that there has been an economic downturn and a very likely recession. In addition chart 6 (on the previous page) also supports that migrants do not have a negative impact on unemployment rates. This is portrayed by a comparison between the UK's and Germany's unemployment rates. The unemployment rate in the UK was very constant and hovered around 5% even after the expansion of the EU, the unemployment rate was relatively unaffected even though they fully opened their labour market to the new Member States. Whilst Germany which did not fully open its labour market and placed restrictions on the EU 10 in the form of the ("2+3+2 formula") experienced an increase in unemployment until the third quarter in 2005, and it has been decreasing ever since. Following this analysis we are led to believe that unemployment does not increase significantly as a result of migration, instead it is more influenced by demand for labour and economic growth of the country. This is supported by the fact that "Thanks to favorable cyclical and structural factors in the EU unemployment declined to 16 million persons in the first quarter in 2008, down by 4.7 million persons since the beginning of 2005"5
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As we have noted migrants from the new Member States do not really have a negative affect on unemployment rates, and there is another very important reason for this. Labour that arrives from abroad is usually more willing to do the jobs that the locals would not undertake; this is usually the case with East to West migration. An example of this can be seen in the town of Peterborough where the locals are unwilling to pick butternut squash for Â£7 an hour and "prefer to sign-on than do that" [reference to collecting unemployment benefit] as they "don't want to work in like no cornfield."6 This shows that without the influx of foreign workers there would be a shortage of labour in certain sectors, one being agriculture.
It has been argued that when the EU expands and labour markets integrate it will increase the movement of labour, and as a result wages of local workers could suffer because of a possible influx of foreign nationals. This is because economic theory is in support that when the number of available workers increases, wages decrease because the labour market becomes more competitive, and there are also more workers who are willing to take a wage cut in order to obtain a job, especially those from abroad. The table below (Figure 8.9 - economics of labour migration - Richard Baldwin and Charles Wyplosz, 2004: The economics of European integration, McGraw - Hill Education) demonstrates how this theory works. Initially there are higher wages in the home country (MPL) and the wages in the foreign country (MPL*) are lower. Then after the result of migration there are more workers in the UK then before and as a result wages should go down from w0 to w' and in the foreign country wages will go up from w*0 will move up to w'. This means that the workers in the home nation will lose out because their wages have gone down, however businesses will gain because they now have cheaper labour available to them, thus a decrease in overall costs and an increase in profit. In the foreign country workers will benefit because their wages will have gone up, however businesses will lose out because they will have to pay higher wages.
Whilst the theory above is accurate in what should happen, this was simply not the case when the European Commission researched the effect of migration, which was published in October 2008. In fact "the actually observed east-west mobility flows during the 2003-07 period have dampened EU-15 average wages by only 0.08% in the short run, with no impact on the long run."7 Therefore we can see that whilst the theory should be taken into consideration, it is not necessarily applicable to all real life scenarios. One of the possible reasons for this is the fact that people in the home and foreign country might have different levels of training, and as a result migrants are unable to push down the wages of workers in the home country, as they are unable to offer the same level of skills.
When the labour markets integrate it leads to a more efficient market because not only is there more competition for available jobs, but it also makes it easier for skill distribution to occur. As competition for jobs increases workers will look to differentiate themselves from the rest, and as a result might take extra courses or retrain so that they can show that they would make a good employee. When this occurs people should perform better in their jobs because they will have a higher level of skill. Additionally to this the markets will become more efficient because skills will be distributed more effectively. This is because labour markets are self-regulatory and as a result labour moves to the most optimum location in order to maximize their earning and quality of living. "Workers go to where there is demand for labour and many leave again when employment conditions become less favourable"4 This was the case with Polish workers leaving to work abroad, however many workers are looking to go back now especially after "the zloty has risen against the pound and the euro"8 which means that if they are sending money back home to family it is worth less and the sacrifice is no longer as rewarding. Additionally the rapid fall in unemployment, rise in wages and growth of the Polish economy means that people are willing to go back home.
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In conclusion labour mobility and EU enlargement has mainly positive effects on the labour markets and the European Union in general. Although some would argue that there are possible negative effects from labour market integration, the positive outcomes clearly outweigh them. Labour mobility is beneficial for both the home and foreign country, because in one case workers who migrate are leaving jobs for the unemployed in their country, and on the other hand they are taking jobs that the locals would normally refuse to do. As there are effectively no negative consequences on unemployment or wage rates in the host country there is no need to restrict labour movement in order to protect one's own labour market. Additionally labour mobility makes it possible for countries to supplement their demand for certain skills by enticing migrants with more lucrative wages. This has been the case with east-west migration, and in the case of the UK there has been a clear benefit because the housing boom was able to continue due to an influx of foreign workers coming to work, and demand could be met. As we have mentioned labour markets are self-regulatory thus now that we are experiencing an economic downturn it is vey likely that the number of migrants will just keep decreasing and many will even return home. In the case of migrants in the UK and important factor has been the devaluation of the Great British Pound (GBP), which makes the sacrifice of moving abroad less appealing because it effectively reduces their wages in respect to their home currency. Explicitly we have seen that the UK and Polish labour markets benefit from labour market integration. On the other hand Germany did not seem to experience the same benefits of EU enlargement, however this could be because they chose to restrict the number and type of new Member States migrant from entering freely. Therefore labour markets should integrate and be opened up to foreign workers because it is clear that there is a general positive effect from migration.
- http://news.bbc.co.uk/1/hi/magazine/7316261.stm, 27th March 2008
- http://www.iht.com/articles/2007/06/22/africa/poland.php, 22nd June 2007
- http://www.statistics.gov.uk/CCI/nugget.asp?ID=260&Pos=3&ColRank=1&Rank=310, 19th November 2008
- http://ec.europa.eu/social/main.jsp?langId=en&catId=89&newsId=414&furtherNews=yes 18th November 2008
- (http://ec.europa.eu/employment_social/employment_analysis/quarterly/spring2008_en.pdf, European Commission, Quarterly EU Labour Market Review, Spring 2008).
- http://news.bbc.co.uk/1/hi/magazine/7288430.stm, 11th March 2008
- http://ec.europa.eu/social/BlobServlet?docId=688&langId=en European Commission, Employment in Europe 2008
- http://www.nytimes.com/2008/06/26/world/europe/26poles.html?_r=2&fta=y 26th June 2008
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