EU immigrants are indispensable

For many years, big welfare states tended to guard their borders, right to residency and especially access to welfare benefits very carefully out of fear of immigration creating a strain on the finances and many nations do in fact still guard these prerogatives today. There generally is a consensus today that if a nation has a liberal policy towards immigration then it also has to have more restrictive access to welfare benefits. However, EU changed this radically when they introduced free movement within its borders. This now meant that what had earlier been controlled by sovereign states now was controlled supranationally by the EU. Following this, workers moving within the Union had the exceptional right to access welfare benefits of other member states.

Nonetheless, this policy has for a long time been questioned due to political uncertainty regarding the sustainability of the welfare state in an open border community. Additionally, ever since the A8 countries (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia) from the former East Bloc joined the EU, concerns with immigrants taking more out of the welfare state than they put in have been exacerbated ultimately peaking with the referendum on Brexit.

This concern ended up being one of the most pressing issues during the referendum campaign, even though EU immigrants have helped subsidize the welfare state as Sam has pointed out before. While it’s uncertain that this was the main driving force behind the outcome of the referendum, there’s no doubt that EU citizens right to participate (and receive welfare benefits) in the labour market created a polarised debate leading to an assumption that EU immigrants are “welfare tourists” who are here to free ride on the system, in spite of the fact that claiming benefits in the UK doesn’t come easy. In fact, in 2013 the EU Court of Justice supported a German jobcentre who declined two Romanian from getting basic social security on the ground that they travelled to Germany with the one goal of getting welfare benefits.

However, the debate is not exclusively prominent in the UK. In other countries, such as Denmark, similar assumptions are made. Due to the generous and universal benefits, many think of Denmark as a "welfare magnet" and to be incompatible with the free movement and open-border policy. Arguably, Denmark is even more of a welfare magnet than the UK with its high share of non-contributory benefits. In addition, more than 90 percent of immigrants from western countries that migrates to Denmark are members of an EEA country. With the addition of the Eastern European countries, the immigration from these countries have even been increasing since 2004 and since 2007 they’ve accounted for the biggest share of immigrants from the EEA, whereas in the UK they’ve been on par or beneath the level of immigration from the original member states.

Because of these characteristics, Denmark makes a good case for examining the effects of EU immigrants on the welfare state enabling us to generalize beyond Denmark and confirm/deny that countries with a residual/insurance based welfare state are attracting EU workers because of the appealing benefits, otherwise known as “welfare tourists”.

A paper published earlier this year examines some of the claims that is stated in the public debate. They manage to identify three core claims in all that they think should be examined empirically:

  1. The EU free movement and cross-border welfare rules are more likely to pose a burden on more inclusive and generous welfare states.

  2. EU immigrants from the new member states are more likely to be net burdens to the host welfare state than EU immigrants from the old member states, as their wage levels will be low, and they will contribute less to the public purse.

  3. EU immigrants with short-term residence are more likely to be net burdens to the host welfare state than EU immigrants with longer term residence, as they may benefit from the system before they have earned their way into it.

The authors found that in the period examined the EU free movement and cross-border welfare rules did not cause a fiscal burden - quite the contrary actually. They conclude that EU citizens had a positive effect on the Danish welfare budget contributing with 15.54bn euros while expending 8.91bn euros resulting in a positive fiscal contribution of 6.63bn euros. Furthermore, EU immigrants coming from some of the newer member states also net contributed to the Danish welfare state, although they didn’t contribute as much as immigrants coming from the original member states. However, they weren’t as much of a strain on the expenditures as EU15 immigrants.

In the blog post I mentioned earlier that Sam wrote, he also examines, based on a paper written by LSE’s John Van Reenen, what effect immigrants have on natives wages. He finds that they have little to no effect overall on low skilled workers. As he argues:

This isn’t terribly surprising, even if we take a fairly simplistic supply and demand view of things. Immigrants supply labour, yes, but they also demand labour – they spend their incomes on groceries and other things, creating about as many jobs as they’ve taken. That’s a very crude way of putting it, but it might help us to understand why the empirics look so benign.

Finally, EU immigrants with short-term residence proved to be putting more into the system than they would take out albeit the numbers are significantly lower than immigrants staying long-term. A report from the Danish Ministry of Finance has confirmed this as well.

In addition to all this, employers understandably fear that a shortage of short-term workers will occur. The average satisfaction with current short-term workers has dropped as well, suggesting that the qualifications of these workers have diminished. However, the fears go beyond that. With the net immigration of EU citizens falling with 81,000 compared to 2016, something might suggest that if a proper deal with the EU securing the free movement of labour and current EU citizens rights to stay in the UK, similar to the deal that Norway or Switzerland have, doesn’t happen, the lack of workers from EU member states will result in an acute labour shortage, especially within the NHS where non-UK doctors have been an important remedy to meet that shortage. If, as the numbers suggest, UK becomes less attractive for EU workers, UK will suffer from even lower productivity as 5.5 percent or 35,740 smaller and medium-sized business directors are from the EU.

Therefore, a change in discourse among pundits is much needed in order to address some of the concerns that dominated the referendum campaign and still dominates the media today. Instead of using fear mongering rhetoric, we should aim to address these fears with sensible arguments and hopefully the UK will get out of the EU with similar possibilities for EU citizens as they have now. They after all help contribute on key areas which is indispensable, especially with the prospects of low productivity for the years to come.