Ministerie van Sociale Zaken en Werkgelegenheid 1 Strengthening EU Competitiveness – Potential of Migrants on the Labour Market The Costs and Benefits of Economic Migration A Dutch Perspective Jos Jansen (Ministry of Social Affairs and Employment) February 26, 2009

Ministerie van Sociale Zaken en Werkgelegenheid 2 Outline Migration in relation to key policy challenges (1) Sustainability of welfare state (2) Structural changes on the labour market Dutch experience (1) Non-western immigration (from late1960s) (2) CEEC immigration (from late 1990s) Conclusion

Ministerie van Sociale Zaken en Werkgelegenheid 3 Broader setting: Key policy challenges Due to ageing of population, globalization, technological advances, etc.: Sustainability of welfare state under pressure Shorter working lives Higher old age expenditures (pensions, care) Declining working age population Higher factor mobility Structural changes on the labour market Demand: Sectoral shifts (e.g. care) Supply: Ageing of workforce, possibly decline

Ministerie van Sociale Zaken en Werkgelegenheid 4 Working age population and dependency ratio,

Ministerie van Sociale Zaken en Werkgelegenheid 5 NPV net contribution to welfare state by age of entry – red line

Ministerie van Sociale Zaken en Werkgelegenheid 6 (1) Sustainability of the welfare state Policy approach along three tracks –Increase labour utilization (participation rate, hours per worker, working life) –Decrease government debt –Adjust current welfare state arrangements to reduce future spending (unemployment and disability insurance, social safety net, old age pension, long- term care) Key issue: Need for more workers, not more people What role for immigration?

Ministerie van Sociale Zaken en Werkgelegenheid 7 Immigration and the welfare state Immigrants who work Pay taxes and contributions But also accumulate rights on benefits Immigrants are in many cases also citizens, with additional consequences for the welfare state Family reunion Family formation (spouse from home country, children) Duration, permanent residency Selection: Do generous welfare states attract immigrants with low potential (Cohen and Razin 2008)

Ministerie van Sociale Zaken en Werkgelegenheid 8 (2) Structural changes on the labour market Effects of labour shortages and sectoral shifts may be mitigated by –Adjustment of wages and wage structure –More imports –More outsourcing –Investment in employability, human capital –Investment in labour-saving technological change –Activating untapped labour potential –Labour market institutions that support flexibility What role for immigration?

Ministerie van Sociale Zaken en Werkgelegenheid 9 Migration and the labour market Benefits –Increases labour supply, reduces tightness –Increases output –Better matching on the labour market (larger pool) –Increases flexibility and dynamism on the labour market –Increase of high-quality human capital at work in case of highly-skilled immigrants But … –Not every immigrant is successful –Displacement of native workers (esp. low-skilled) –No structural solution for future shortages

Ministerie van Sociale Zaken en Werkgelegenheid 10 Dutch experience with immigration Focus on economic and labour market impact 1.Immigration from outside the EU: Morocco, Turkey, Surinam, Netherlands Antilles and other non-western countries 2.Immigration from within the EU: CEEC

Ministerie van Sociale Zaken en Werkgelegenheid 11 Immigration from non-EU countries,

Ministerie van Sociale Zaken en Werkgelegenheid 12 Immigration – Part of the solution? Impact on sustainability crucially depends on labour market integration of immigrants: Skill level Length of stay, remigration Cultural distance (language, cultural capital) Network effects Integration in society (mixed marriages, follow-up migration)

Ministerie van Sociale Zaken en Werkgelegenheid 13 NPV net contribution to welfare state by age of entry – blue line

Ministerie van Sociale Zaken en Werkgelegenheid 14 Gap in male employment natives and foreign born (%),

Ministerie van Sociale Zaken en Werkgelegenheid 15 Enrollment in higher education (% of age group 18-20) Native background Men Women Non-western immigrant background Men Women273861

Ministerie van Sociale Zaken en Werkgelegenheid 16 Number of workers from CEEC countries, January 1999 – December 2005

Ministerie van Sociale Zaken en Werkgelegenheid 17 Economic impact of CEEC labour migrants (1) Estimates for 2008: 51,000 long-term and 107,000 temporary workers (3 months) Employment in 2005: 0.7% of total hours worked Displacement wrt jobs: None by long-term migrants; small effect by short-term migrants in expansion sectors (doubling their presence reduces number of ‘Dutch’ jobs by 0.08%) Displacement wrt wages: Reverse pattern The demand curve for labour is downward sloping

Ministerie van Sociale Zaken en Werkgelegenheid 18 Economic impact CEEC labour migrants (2) Use of benefit schemes is at present very low Based on rough calculations: Short-term migrants: small positive net contribution to Dutch welfare state Longer-term migrants (average): NPV of net contribution measured over duration of stay is modestly positive (1 yr state pension for 1 person) Net contribution: modest but positive (robust)

Ministerie van Sociale Zaken en Werkgelegenheid 19 NPV net contribution to welfare state by age of entry – green line

Ministerie van Sociale Zaken en Werkgelegenheid 20 NPV net contribution to welfare state by age of entry – 4 cases (HC RM): (- -) (- +) (+ -) (+ +)

Ministerie van Sociale Zaken en Werkgelegenheid 21 Conclusion Migration by EU-nationals reduces labour shortages and modestly improves sustainability Same (probably) holds for knowledge workers Short-term immigrants from non-EU countries may under certain conditions have a positive impact on labour market and sustainability Long-term/permanent migration without integration may well hurt sustainability Domestic labour utilization is key to sustainability, not migration

Ministerie van Sociale Zaken en Werkgelegenheid 22 Thank you for your attention

Ministerie van Sociale Zaken en Werkgelegenheid 23 Immigration,

Ministerie van Sociale Zaken en Werkgelegenheid 24 Employment rates after arrival, 1997 cohort