The dream of a flexible labour market

In spite of the euro crisis, there are no signs whatsoever of an exodus of Greek, Spanish or Portuguese migrants. Only a few Southern Europeans are daring to move to healthier euro countries in an attempt to escape unemployment and low wages. Extracts.

Published on 19 October 2011 at 14:36

340 Portuguese, 518 Spaniards and 630 Italians. These are the net numbers of Southern European immigrants to the Netherlands in 2011, the second consecutive annus horribilis of the euro zone. Not particularly high numbers, when you realise that 1 in 8 Portuguese and 1 in 5 Spaniards are currently unemployed. There are no up-to-date statistics for the Greeks (unemployment rate: 1 in 6), but migration from there is also still limited.

The European Union might want to be a single common market, but it still consists of 27 different labour markets, says Jules Theeuwes, Scientific Director of SEO Economic Research. “We have abolished the borders, there is free movement of goods and capital, however there has always been less labour migration than you might have expected. If you compare this aspect of the European labour market to that of America, Europe is not dynamic.”

A better balanced economy

A flexible labour market, with extensive inter-country migration has always been one of the cornerstones behind the idea of a joint European market. ‘It was one of the solid arguments behind the Single European Act and the entire process of economic integration’, says economist Francesc Ortega of Queens College, New York. “In a way, migration offers a kind of insurance against sudden macro-economic shocks.”

The inflexible labour markets in many European countries was one of the main political considerations for Sweden, Denmark and the United Kingdom not to join the euro zone. These countries have very open labour markets and feared that countries with closed labour markets would be less able to respond to new economic developments. In the past, countries could tackle that problem by devaluing their currency, but that would no longer be possible with the euro. “When we still had our own currency, we could devalue the peseta in economically difficult times to make our exports cheaper. But if countries are now hit by a crisis, there are only two options: cut costs, or migrate to locations that are not hit so hard,” says Juan José Dolado, Professor of Economy at the Universidad Carlos III of Madrid.

The migration of Southern Europeans is not yet significant enough to stimulate the European economy. This could be possible if the numbers were higher, says Dolado. “Migration will cause a scarcity of higher educated people in their home countries, which will force wages to rise. If, for instance, Spaniards were to move to the Netherlands, the supply of their skills would exceed the demand, resulting in lower wages and in turn a better balanced economy. This is a basic economic principle.”

Brain drain good for labour market

“What do you expect of a labour market?”, asks Theeuwes. “That the best people will end up where they are most productive. What you now start to see in Europe is the cautious emergence of economic clusters similar to Silicon Valley, for instance in the Netherlands the technological cluster around Eindhoven and the agricultural cluster around Wageningen. You notice that regions are gradually becoming more important than countries. If you were to have a larger European labour market, engineers from Spain and Finland could work in those clusters. This already happens, but not on a large scale.”

Although there is still no significant migration of labour from Southern Europe, Dolado expects it to increase in the coming years. But would this not pose the threat of a brain drain from Southern Europe? A country such as Spain will get the pensioners from the North, and the Netherlands would be flooded with highly qualified Spaniards. Theeuwes is not afraid of that. “The basic principle is that it is good for the European labour market. This type of reallocation might result in a brain drain from some regions, but for Europe as a whole it is advantageous.”

Translated from the Dutch by Stuart Buck

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