In a referendum on February 9, the Swiss narrowly adopted the principle of setting annual quotas for foreign workers, including from neighbouring European Union countries. This was a surprise because Switzerland, which is not part of the EU but is surrounded its members, has very close relationship with it, had agreed to the free movement of workers with the EU and even agreed to lift all border controls. What was especially shocking for the other Europeans is that foreign workers in Switzerland are first of all from neighbouring Italy, Germany and France, as well as from Portugal, not from distant or poor countries. They suddenly felt shut out from their own continent.
The result was widely seen as counterproductive from a Swiss viewpoint, but also as a warning signal for Europe. It has triggered a heated debate: are the Swiss singular or are they simply telling us that citizens in Europe are turning their back on openness and will push for the closure of national borders?
Switzerland is in fact not alone. In Britain, opinion polls suggest that in elections next May the UK Independence Party is likely to receive more votes than Prime Minister David Cameron’s Conservative Party. Immigration control is one of its favourite themes, and it has been so successful with it that Cameron himself wrote a few months ago that the free movement of persons cannot remain an unqualified right. In spite of it being a fundamental principle of the EU, Britain is not the only country where the free movement of people is being questioned. In France, migration within the EU is a far less sensitive issue than migration from the rest of the world, but a few years ago the “Polish plumber” was widely pictured as a danger for jobs and a large segment of the population would still support closing borders to immigrants from Eastern Europe.
The problem is that Europe today needs migration much more than at any time in recent decades. There are two reasons for that. The first is the huge labour market asymmetry between the south and north in the immediate aftermath of the euro crisis. The unemployment rate is 28 percent in Greece, 26 percent in Spain, 15 percent in Portugal, but 5 percent in Germany, 5 percent in Austria and 7 percent in Denmark. Idle workers are in the south but vacancies are in the north. Furthermore, a significant part of the unemployed in Southern Europe are young and skilled. To move temporarily to another country would not only alleviate their immediate suffering, it would also help them maintain their skills.
The second reason is demographics. Absent immigration, Germany, the country with the strongest economy and one of the lowest unemployment rates, is set to lose close to 6 million people between 20 and 59 over the next 10 years. This would amount to a 13 percent shrinkage and represent a major shock for German industry. Spain and Italy are also set to lose population. Policymakers would therefore want immigration to fill the gap.
Economically, whether large-scale migration is desirable is a matter for discussion. In the short term, it can certainly serve as an adjustment mechanism between countries – to the extent they do not follow the same cycle. This is what happens between U.S. states: when California is in a bust but Texas in a boom, people move in search of better opportunities. Cross-border flows will never reach the same size in Europe, but since the EU enlargement in 2004, the potential for migration has consistently been underestimated. This could happen again. Moreover some segments of the population – the young, the skilled, the poor – are indeed relatively mobile. At any rate, workers abroad often acquire new skills and at least they do not lose the ones they had, which is better for them and better for their country of origin than to stay idle. So, despite the suffering it may imply, there is little doubt than migration is preferable to lasting mass unemployment.
In the long run things are less clear-cut. A trained worker who moves out permanently is a net loss for the home country and a net boon for the receiving country. She takes with her human capital that has been paid for by parents and national taxpayers and leaves behind her public debt she will not contribute to serving anymore. It’s known that the cost of bringing up a child is more than 200 000 euros, so migrations may therefore entail huge international transfers. Whether these transfers are desirable from an international welfare viewpoint is by no means certain. Furthermore, wealth transfers to the tune of 200billion euros per million workers would most probably lead to calls for offsetting fiscal transfers. The countries benefitting from the agglomeration of economic activities on their territory would be asked to contribute to income maintenance in the regions emptied of their inhabitants. In other words, peoples’ mobility breeds federalism.
Should large-scale movements of persons be allowed? Should they be encouraged or discouraged? The question, which is first and foremost a political one, has never been properly settled. Europe in fact is deeply ambiguous about migration. On the one hand it claims that freedom to move across borders is part of its genetic code. On the other, integration in its first decades has relied on the assumption that people do not really move that much. Popular unease about migration coming at the very same time the economic potential for it is higher than ever before means that crunch time has come and that an answer to this old question has to be given. History will tell us the answer, and whether the fate of Europe has been shaped by remote Alpine cantons that are not even part of the EU.
*Jean Pisani-Ferry teaches at the Hertie School of Governance in Berlin, and serves as Commissioner-General for Policy Planning in Paris. He is a former director of Bruegel, the Brussels-based economic think tank. You can read his original op-ed here.