Q&A: How Can Germany Benefit from Immigration? - "Germany Must Find a Way to Handle Low-Skilled Labour Migrants"

The massive wave of refugees entering the EU has led to an increasingly intense debate in Germany on how to sensibly manage economic and humanitarian immigration. Calls for an immigration law are getting louder. In this interview, ZEW labour economist Holger Bonin explains that Germany has good regulations for the management of labour migration in place. Still, the country faces tough challenges when it comes to agentswho enter Germany with low qualification levels.

Judged by the net intake of immigrants, Germany seems to have overtaken traditional immigration countries. Does the country need better governance of labour migration?

It seems that the immense challenge of the massive intake of asylum seekers has diverted attention away from the issue of economic migration. However, after some rather tacit amendments in recent years, Germany's labour migration policy already ranks among the most liberal in the world. In regard of immigration into the labour market from the EU member states, regulation is no longer possible due to the principle to free movement of workers. And the high employment rates of EU migrants suggest that market forces do quite well in governing labour migration. When it comes to the selection of labour migrants from non-EU countries, Germany has established a demand-based management system. This means that obtaining a resident permit is fairly easy, provided that you are qualified and can show an adequate job offer. Giving a high weight to proof of employment  in tight labour markets is a reasonable system for it helps avoiding unemployment or under-qualified employment upon entry into the country.

Many say that Germany will require immigration in order to compensate for the loss of human capital due to demographic ageing. Do you see threatening labour shortages ahead?

I am not too much concerned, since I believe that labour markets are flexible in the longer run. Of course, the size of the labour force in Germany will decline substantially with no immigration. Yet this decline is a highly predictable and gradual process. This gives agents good chances to respond, e.g., through investment in physical or human capital. Thus future labour demand could adapt to shrinking labour supply, and domestic workers may even profit from this in terms of higher wages. Therefore, labour migration is just one possible, but not an inevitable way to cope with demographic change. In my view, the economic benefits of immigration mostly stem from making the human capital pool in a country more diverse, rather than making it just larger.

What specific benefits are you thinking of?

Migrants carry novel skills and ideas. This may move the economy of the receiving country towards a higher growth path. Besides, immigrants who become well integrated into the labour market may help improve upon the sustainability of government finances. The results of a recent ZEW study, for instance, show that future immigrants to Germany could reduce the long-term tax burden on the entire population, if their average employment and income levels reach those of the incumbent workers with completed apprenticeship training. Indeed, the fact that Germany is running a budget surplus is partly a result of employment growth fuelled by the intake of EU labour migrants.

But what about low-qualified immigrants who also seek to come to Germany?

We need to draw a clear distinction between refugees and economic migrants. Immigrants who are accepted via the humanitarian immigration channel require rapid support and qualification in order to make the labour market integration process as smooth and quick as possible. In fact, Germany's Federal Employment Agency has developed a promising concept for such early intervention. The huge challenge will be to make it work with high numbers of refugees. Active integration programs will cost much at the beginning, yet the long-term costs of non-action for society and government would be much higher. With regard to low-qualified labour migrants from non-EU countries, decision makers face a tough choice. As these economic migrants do not have a right to live and work in Germany, one could try to immediately repatriate those who still make an attempt, or prevent them from entering the country altogether. In view of the strong push factors operating in the countries of origin, however, it may well turn out that this will not release enough pressure from the immigration system. The alternative, which is certainly unpopular, would be to open up Germany for low-skilled labour migrants a bit, to condition resident permits on gainful employment under non-exploiting conditions and to maintain control trough a quota system.