Welfare States and Labour Migration Policy Regimes in Europe

Dr Alexandre Afonso Department of Political Economy King’s College London

Department of Political Economy

Faculty of Social Sciences and Public Policy 23.04.2015 – ISCTE Lisbon

Migration and the Welfare State 1.  When the things you think you know

are mostly wrong 2.  Problems 3.  An alternative framework 4.  Comparative Evidence 5. Conclusion

When the things you think you know are wrong

When the things you think you know are wrong

Welfare Magnets!

Borjas 1999 •  Location choice of newly arrived immigrants in

the US determined by level of benefits •  States with higher benefits tend to have more

migrants, as migrants are income-maximising

•  Hypothesis: Higher social spending, higher immigration

•  Policy implication: retrenching benefits will deter potential migrants

R

Welfare magnets?

Data: OECD International Migration; OECD SOCX R-square: 0.34

Welfare magnets?

Data: OECD International Migration; OECD SOCX

Welfare Magnets: Critiques

•  Dustmann et. al. Based on UK data, migrants tend to use less welfare than natives (differs by welfare scheme; pensions -, family & unemployment benefits +)

•  Kahanec et al.: Generosity of unemployment benefits does not increase immigration flows – Difference between EU and non-EU migrants – But effect inexistent once endogeneity

problems addressed

Problems

•  Spending as a measure of generosity •  Says little about structure of welfare

(entitlement, targeting, who benefits, who pays) (Esping-Andersen)

•  If welfare heavily biased towards old-age pensions, why should it be attracting migrants?

•  Endogeneity •  Does higher/lower welfare spending cause

migration, or does migration cause lower/higher welfare spending?

Migration supply vs. migration demand Models based on idea that supply of migrants drives flows, migrants make choice top move But historically: Largest migration flows triggered by deliberate policies to bring in labour Proposition 1: Employer demand for migrant labour is shaped by welfare and labour market arrangements. Proposition 2: Different welfare regimes provide different incentives to use foreign labour

Problems

Employer demand and relative cost of migrant labour

Determinants of relative cost of foreign labour

•  High tax wedge makes low-skilled (migrant) labour more expensive

•  High Collective bargaining coverage & High Union Density prevents differential treatment of migrant labour

•  High minimum and or reservation wages discourage low-wage (migrant) employment

•  Differential coverage of welfare arrangements (universal/segmented) – Leeway for differential coverage of migrants

and natives differs across welfare states

Scandinavian Welfare States Universal coverage and strong unions make it difficult to differentiate between native and migrant labour ! Low employer demand for migrant labour Bismarckian Welfare States Segmented coverage between insiders and “outsiders”; ! High employer demand for migrant labour; allows to bypass high cost of “insider” native labour Liberal Welfare States ! Mixed Expectations. Easy to differentiate but also larger supply of domestic low-skilled labour.

Welfare Regimes and Migrant Labour Demand

The Rise and Fall of Guest Worker Programmes in Western Europe (1950-1970)

1950s: massive increase in demand for reconstruction (consumer goods, infrastructure, …) Four potential routes to solve supply problem 1.  Capital investment/modernisation/technology

Uncertainty of growth/scarce capital 2.  Increase female participation

Limited flexibility (baby boom); gender norms 3.  Increase working hours

Unions don’t like that 4.  Import foreign labour

Flexible, disposable, cheap, but may create xenophobic reaction

Choice of route shaped by welfare state regime

•  Male breadwinner model: female employment judged “undesirable” ! import of migrant men judged preferable to lower fertility

•  Conservative model: high protection of men aimed at keeping women at home

•  Unions against increase in working hours •  Germany: Unions want foreign labor to be used “after the

very last German unemployed worker was hired” •  However, reluctantly accept guest workers as long as it’s

temporary, and covers sectoral labour needs (agriculture) •  Unions: Allows to pursue working time reduction •  Employers and Government see advantage in

loosening wage pressure

Germany and Switzerland

“Guest workers”

•  Rotation principle: not here to stay •  Limited mobility on labour market: employment tied

to employer •  Limited welfare coverage allowed by Bismarckian

model: limited coverage by unemployment, sickness, (occupational) pensions; no right to family reunification

•  Employed in sectors weakly covered by collective bargaining

•  Limited social rights; Switzerland: no unemployment insurance until 1982

• Possibility to insulate foreign workforce made them very attractive source of labour for employers: cheap, flexible, disposable

• Migrant recruitment shoots up in 1960s and 1960s

“Guest workers”

0

200000

400000

600000

800000

1000000

1200000

1950

19

51

1952

19

53

1954

19

55

1956

19

57

1958

19

59

1960

19

61

1962

19

63

1964

19

65

1966

19

67

1968

19

69

Sweden Germany Switzerland

Inflows of immigrants in Germany, Sweden and Switzerland, 1950-1970

Armando Rodrigues, 1 millionth guest worker at Cologne Station, 1964

Inflows of immigrants in Germany, Sweden and Switzerland as share of population, 1950-1970

0

0.005

0.01

0.015

0.02

0.025

0.03

0.035

0.04

Sweden Germany Switzerland

Sweden

0.0

20.0

40.0

60.0

80.0

100.0 19

60

1964

19

68

1972

19

76

1980

19

84

1988

19

92

1996

20

00

2004

20

08

Trade union density 1960-2010

Germany Sweden Switzerland

Sweden

•  Similarly to Germany and Switzerland, unions agreed to guest-worker program – But insisted on full coverage of (extensive)

social benefits and rights, family reunification and permanent settlement

– Union clause in bilateral recruitment agreement forced them to become union members

– Union represented in migration board to check compliance with labour regulations

– High union density and bargaining coverage makes it difficult to segment

– Equality of rights makes migrant labour not very attractive, and as/more expensive as native labour

– Guest worker programme doesn’t pick up – Development of female employment

instead. Late 1960s: migrant recruitment stops, tax change favours female employment

Sweden

•  Negative relationship between social rights and immigrant numbers: more rights, smaller migration flows

•  Wide application today: •  Gulf states: huge proportion of migrant labour

with few or no rights •  EU enlargement

– UK, Ireland: unregulated labour market and welfare limitations: mass inflows

– Sweden: regulated labour market and whole entitlement: small inflows

Conclusion

•  Immigration control has small effect: Switzerland had quota system in place, but still bigger flows than Sweden, that didn’t

•  So why is current policy so misguided? •  Immigration policies not oriented towards

problems, but towards voters. •  Limited use of evidence •  Control and restriction are reassuring •  Issues of deservingness more important than

effectiveness

Conclusion

Obrigado!

alexandre.afonso@kcl.ac.uk