Migration and Remittances Eastern Europe and the Former Soviet Union World Bank Europe and Central Asia Region Slide 1: cover page

Key Messages Migration in ECA is unique, significant and likely to grow Remittances are the second most important source of financing for many and the first for poorest Good economic policies and institutions maximize gains for sending and receiving countries and migrants (‘Triple Win') Current immigration policies, largely bilateral, may not stem large undocumented migration Further study and policy experimentation may help overcome the limitations of the existing framework Since transition, migration has grown very fast a consequence of the integration of Eastern Europe and Central Asia into the world economy.

Migration has followed a two-bloc pattern in the region The collapse of communism (and lifting of Soviet travel restrictions) encouraged large increases in internal and international migration, including a massive increase in migration in ECA, including internal movements, cross-border migration within ECA, outflow from ECA, and some inflows from other regions. The formation of many new countries following the break of the Soviet Union ‘created’ many statistical migrants—long term, foreign born residents who may not have physically moved, but were defined as migrants under UN practice.

A lot of early migration was driven by civil conflict and war In the early years of transition, migration flows were especially large as residents of the former Soviet Union returned to ethnic homelands and many were displaced by conflicts that emerged among countries in the ECA region during the 1990s: such as in Georgia, Southern Russia, and Tajikistan in the CIS…and the former Yugoslavia.

Pool of labor within ECA…Central Asia, Caucasus, Balkans In addition to differences in expectations of income disparity and quality of life, demographic pressures in the transition economies and in Western Europe will drive migration in the medium term. As the figure demonstrates, there are ten ECA countries that combine a natural increase in their population and net emigration. This includes the countries of Central Asia, the Caucasus, and many of the former Yugoslav states. With their faster-growing populations, especially youth populations, migration pressures in these countries will likely persist into the future. * Data are from 2000-2003

Losing population to emigration and demographics…Baltics, SE Europe, Poland, Ukraine and Moldova Moreover, a group of 12 ECA are experiencing a decline in their natural populations and have a negative net migration balance. This includes Ukraine and Moldova, the three Baltic states, and four Central European countries, including Poland. In all of these countries, both trends are expected to continue well into the future, causing large population declines as well as rapid ageing of their populations. * Data are from 2000-2003

Declining population despite immigration…Central Europe, Russia and Belarus A first group includes the new EU members of Central Europe (except for Poland) and Belarus and the Russian Federation which are already net immigration countries. In the case of the latter, Russia is one of the world’s largest magnets for migrants with a measured population increase of 4 percent since 1990 and perhaps and equal amount of undocumented migration. * Data are from 2000-2003

A lot of migration is illegal… Undocumented Migrant Stock as a Percentage of Total Migrant Stock Exploitation of migrants (degrades human capital) Huge rents for traffickers and associated criminality Income largely untaxed Unfair competitive advantage for firms hiring illegally Affects quality of migrants (adverse selection) Risks to health and safety in the workplace Risks of importing disease Victims of crimes Stigmatization may undermine social cohesion Induces longer stays Source: Various

It is likely that migration will increase for five main reasons Differentials in expected quality of life increasing Demand for non-traded services from increasingly affluent and large middle class Much lower transportation costs (esp. low cost airlines) and easier to keep in touch Only quick way to build savings and human capital Demographic decline in Europe and parts of the CIS (especially Russia) Income differentials now much larger than at time of large migration of Italians and Irish to US. At the beginning of 20th century income differences of 1 to 2-4 was enough for people to board ships. Now income differences -also within ECA- are much higher, exceeding 1 to 10.

Remittances to sending countries are large as a portion of GDP Remittances as a Portion of GDP (2004), Current US Dollars Some parts of ECA lead the world in official remittances receipts (per GDP) Moldova +25% Bosnia & Herzegovina +17% Albania+15% Remittances have driven economic growth in some parts of ECA (e.g. Moldova, Albania, Central Asia) Perhaps about 50% of remittances are sent through informal channels

International market for migrant labor has large net benefits… Sending Countries and Migrants Can relieves pressures on labor markets when tight Remittances Migrants remit about 36 percent of their incomes Human Capital and Savings 26 percent intended to start a business on return 70 percent improved job opportunities Receiving countries fills labor market shortages and attract new skills

Yet Migration also generates costs Costs for receiving countries New competition: wages may fall as a result of migrants especially for the lower skills (DeNew/Zimmerman 1994 -0.5% for blue collar from 1 percent increase in migrants) Strain on existing social services Problems with integration of foreign workers Criminality Costs for sending countries Loss of human capital, especially if migration permanent Disruption to families and communities (may require additional Government services) Costs for migrants Heavy penalty on family life (over half return home due to family related concerns) Costs of leaving familiar and adapting to new culture

Most legal migration facilitated by bilateral agreements Bilateral migration agreements proliferated rapidly during the early 1990s Externalities make bilateral agreements superior to MFN, unlike trade These agreements form a ‘patchwork’ as their designs vary tremendously and there is little coordination The majority of agreements cover migration between CEECs and EU15 though a few address migration to Russia

Problems with the Current Regime Agreements do not address the full size of the demand for migrant labor Sometimes legal quotas unfilled due to high transaction costs Creates incentives for illegal migration The system is unbalanced as a few countries account for the majority of the agreements Current system does not encourage circular migration and allows adverse selection and criminal activity

Features of an Alternative Regime for Labor Migration More effectively matches the supply with the demand for international labor Reduces rents for traffickers Establishes transparent rules for remuneration, work conditions, and dismissal procedures Provides incentives for migrants to be complements, not substitutes, to domestic labor Offers employers means to hire legally the workers they need Provides incentives to encourage return home where permanent migration is not desired

One option—among many—for improving policies could be to encourage circular migration… Circular migration would/could: Utilize migrants and their acquired skills for economic development in sending country Reduce brain drain because absence is temporary Probably address some fears in receiving countries about migrants staying permanently Provide an alternative to full liberalization for receiving countries

Circular migration is consistent with many migrants’ preferences for short periods of time abroad Circular migration is in line with migrants’ preferences for spend shorter periods of time abroad. Source: World Bank (forthcoming 2007)

Policy experimentation and pilots could be useful World Bank is working on implementing pilot migration schemes with several EU member-states