European labour migration and welfare states Olaf van Vliet NISZ, 7 July 2016

Labour migration in the Netherlands Source: SEO (2014)

Outline Labour market effects Welfare state effects Some evidence Political economy

Labour migration in the EU: economic motives EMU – optimum currency area Mundell criterion Increases welfare

Welfare effects of labour migration Welfare gains in all countries as a result of better matching on labour markets Redistributive effects (employment, wages) within countries, variation across: Sectors Occupation Skill-level At the individual level: “winners and losers”

Migration and welfare states (1) Efficiency hypothesis: ‘bad risks’ are attracted to countries with generous social security ‘good risks’ are attracted to countries with low taxes and contributions downwards convergence: ‘social race to the bottom’

Migration and welfare states (2) Compensation hypothesis: Immigration leads to economic insecurity (employment and wage effects) To compensate the increased economic insecurity, governments provide more social security

Migration and welfare states (3) Taken together: Compensation hypothesis increased demand for social security Efficiency hypothesis budget to fulfill this demand undermined Dilemma for policy-makers

Evidence: labour market effects in the Netherlands Strong heterogeneity across sectors SEO (2014): some evidence for displacement effects at the macro-level (construction, horticulture, road transport); not at the micro-level. International competition: winners and losers Bogus constructions: companies circumventing legislation, false self-employment

Evidence: welfare states Many studies on the ‘welfare magnet hypothesis’ Various push and pull factors Employment and wages are the main driver Generosity of social policy: small effects at most Social policy Migration

Budgetary effects Source: SEO (2012)

Public social expenditure (% GDP) 1980 2005 2014 Austria 22.1 26.8 28.4 Belgium 23.5 25.6 30.7 Denmark 24.4 27.3 30.1 Finland 18.0 25.0 31.0 France 20.6 29.6 31.9 Germany 21.8 27.0 25.8 Greece 10.3 21.1 24.0 Ireland 16.0 15.8 21.0 Italy 24.9 28.6 Luxembourg 20.3 22.0 Netherlands 24.8 24.7 Portugal 9.6 22.8 25.2 Spain 15.4 20.9 Sweden 26.0 28.7 28.1 United Kingdom 16.3 20.2 21.7 Mean 19.1 Standard deviation 4.8 3.6 3.3 Coefficient of variation 0.3 0.2 0.1 Hoogte werkloosheid en vergrijzing Bruto. niet netto Totaal. niet per programma Etc. Source: OECD 2016

Net unemployment benefit replacement rates 2009 Source: Van Vliet en Caminada (2012)

Net unemployment benefit replacement rates Source: Van Vliet en Caminada (2012)

Net social assistance benefit replacement rates Source: Wang and Van Vliet (2016)

Net social assistance benefit replacement rates   1995 2000 2005 2009 Mean OECD-21 48.8 45.9 45.0 45.2 Standard deviation 9.4 9.3 9.8 12.1 Coefficient of variation 0.19 0.20 0.22 0.27 Mean EU-14 49.8 46.6 46.7 48.1 9.1 11.8 0.25 Source: Wang and Van Vliet (2016)

Political economy Efficiency and compensation hypothesis Embedded liberalism hypothesis Brexit EU-Ukraine Association agreement CETA TTIP Migration Welfare state reform

Political economy (2) Not much research yet Variation across welfare state programs (social assistance benefits, unemployment benefits, family benefits, health care, education) Real pressure on welfare states versus perception Solidarity Migration Welfare state reform

SOLID “Solidarity under strain – A legal, criminological, and economic analysis of welfare states and free movement in the EU” Research project 2016 – 2020: Pressure from labour migration on national welfare states Bogus constructions, payrolling and subcontracting Leiden University - Leiden Law School: Department of Economics Department of Labour Law Department of Criminology Department of European Law

SOLID