Free movement for workers from countries that joined the EU in 2004 - Immigration to Germany will Remain Moderate after May 1

On May 1, 2011, all persons from Central and Eastern Europe will gain the unrestricted right to work in another EU nation. Professor Wolfgang Franz talks about the implications of full freedom of movement for the German labour market, as discussed in the annual report of the German Council of Economic Experts.

Professor Dr. Dr. h.c. mult. Wolfgang Franz has been the President of ZEW since 1997 and is a professor of economics at the University of Mannheim. He also directs the research group Growth and Business Cycles at ZEW. His main fields of activity are macroeconomics, labour markets, and empirical economic research. Since 2003, Franz has once again been a member of the German Council of Economic Experts, which advises the German government on questions of economic policy. Since 2009, Franz has been the chairman of this body.

How large a number of immigrants can we expect from the nations that joined the EU in 2004?

Our expectation is that immigration from accession nations in Central and Eastern Europe will be moderate after labour market restrictions within the EU have fallen. For one thing, the obstacles to immigration were not insurmountable prior to this change. A number of studies have assumed that between 50,000 and 150,000 individuals will immigrate to Germany every year. However, these studies have failed to consider the recent financial and economic crisis. The crisis may well have resulted in such a severe deterioration of the labour market in the favoured destination countries of the United Kingdom and Ireland as to make extended residence there unattractive. Immigrants already living abroad are unlikely to decide to move to Germany rather than return to their countries of origin because of potential language barriers. However, the good labour market situation in Germany may attract more immigrants directly from Eastern and Central Europe.

What consequences will the free movement without restrictions have for salaries and employment in Germany?

Germany’s previous experiences with immigrant labour suggest that we should anticipate only minor negative effects upon wage levels. Nevertheless, we cannot rule out the possibility that a few regional labour markets or specific sectors may be particularly impacted by immigration from the countries cited above, so policy makers might feel pressured to take action. Such pressure would be intensified because the direct displacement of domestic workers is much more visible than the relocations of jobs overseas due to low-cost foreign imports.

How should policy makers respond to workers from the new EU nations?

Legislative measure should be avoided, especially legally sanctioned minimum wages. Depending on their level and range of legal effect, minimum wages could result in the loss of a large number of jobs, primarily in the area of less skilled work, thereby affecting a problem group in the labour market. Moreover, the question arises as to how policy makers should respond to parallel demands for special treatment from other economic sectors that are likewise under strong pressure from international competition. In the final analysis, from an economic perspective, there is no essential difference if a product is produced in Poland for lower wage costs than in Germany and is then exported here, or if the same product is manufactured by an immigrant Polish worker in Germany whose wage is similarly lower than the prevailing salary earned by local workers. In both cases, the products can be sold at a lower price – to the advantage of consumers.

The German labour market has a specific deficit in highly qualified workers. Can full freedom of movement counteract the deficit in the qualified work force?

Immigration of workers from Central and Eastern European nations may partially alleviate the lack of highly qualified workers in Germany, but there is no way that this problem will be resolved simply on the basis of full freedom of movement.