How Far UK Economy Depends on the Immigration From the New EU States?

General Discussion

1. Labour migration from the European perspective

1.2 European immigration: threats and opportunities

Global overpopulation leads to the increase of migration processes that present great challenges and threats to state governments. Overall, policymakers are focusing on increased cross-border labour mobility as a sound and beneficial direction that enables individuals with new opportunities and better career prospects. Free movement of labour constitutes one of the central principles of modern policies and is an important component of the completion of regional markets.

Labour mobility promotes sustainable growth and development of less advantaged areas within on the continent. For instance, in its policies the European Union widely promotes economic and social progress by enabling a high level of employment and achieving balanced and sustainable development. In turn, this strengthens economic and social cohesion and active citizenship.

The freedom of movement for workers, underscores the importance of labour market mobility in advancing the employment strategy, and opens labour markets. This involves the equipment of human resources with the skills required to face multifaceted challenges, adapt employment and labour force to changing circumstances in the most smooth and efficient manner, as well as to drive change in a competitive global economy. Labour policies respond to the need and commitment to develop better quality jobs, as well as combine higher productivity and ensure greater flexibility and security of working relations (European Commission, 2007).

However, there are threats of booming migration. For instance, Europe currently imports large numbers of immigrants to bolster workforce mostly from the Middle East, which causes the lslamification of Western Europe. Such diversity of cultures, religions and backgrounds due to globalisation may potentially lead to nationalist-state developments to secure a country from overwhelming emigrant flows. Thus, global migration processes should be strictly regulated by the appropriate policies to keep respective quotas to a reasonable level.

The booming globalisation is deemed as a movement in the direction of greater integration, as both natural and manmade barriers to international economic exchange continue to fall. This definition includes not only the increased international mobility of goods within the world economy, but also the greater mobility of services, capital, labour and financial assets (Wolf, 2004).

With progressing globalisation and the disappearing of geographic boundaries, the development of cutting-edge technologies, and emergence of new diverse social attitudes, there is plenty of opportunity for the implementation of appropriate policies and provision of legal responses towards modeling EU economic governance (Johnson, 2006). However, for the time being, the EU lacks adequate scope of effective policies and legal responses to properly face this challenge.

2. Integration phenomenon of the Central and East European (CEE) economies

Privatisation in the Central and East European (CEE) economies resulted in reforms in regulation, liberalisation and privatisation in an attempt to integrate transition economies to the global system. The final goal of transition was not only the establishment of a market economy but the integration of these economies, not only on a regional basis but rather in the global system. The ultimate goal of the transition countries was to become members of the European Union (EU) and then members of the Economic and Monetary Union (EMU). Membership in the EU is based on the satisfaction of the Copenhagen criteria and the implementation of the 31 chapters of the acquis determining the economic structure of the member country. The criteria require that a state has the requisite institutions to preserve democratic governance and human rights (political criterion), a functioning market economy (economic criterion), and that the state accepts the obligations and intent of the EU.

Membership presupposes the candidate's ability to take on the obligations of membership including adherence to the aims of political, economic and monetary union (administrative criterion - acquis). This involves among others, the free movement of goods, services, capital and labour. Free movement of goods is one of the cornerstones of the internal-single market. The principle of the free movement of goods requires a common regulatory framework to ensure products can move freely from one part of the Union to another just as they would within the boundaries of an individual country. Further, the EMU involves integrated economic policies, common monetary policy, common currency, and one central bank completing in this way globalisation and integration for transition economies (Bitzenis, Marangos, 2007).

In the contemporary context, the concept of integration means that a country becomes part of the global world. Integration is the goal of globalisation, and integration is defiantly achieved by inviting multinationals and entering the EU. Integration is further enhanced by membership of the EMU and the adoption of the single currency.

Both the EU and the EMU are the best examples of integration and globalisation, as membership involves the abolishment of barriers to entry, liberalisation policies, and the adoption of the 35 chapters of the acquis (6th EU enlargement policy). All of them determine the legal, political and economic convergence among member countries, and create the fundamentals for the members for stability and a sound business environment to attract foreign direct investment (FDI) and trade flows (Bitzenis, Marangos, 2007).

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As for now, the core advantage of regional integration within the EU zone is that in the course of regional integration the former centrally planned economies of central Europe (i.e. Poland, Chech Republic, Slovakia, Hungary, Slovenia, Bulgaria, and Romania) have attracted increasing shares of the international capital flows to emerging market economies. Moreover, compared to other world regions, a relatively large share of these flows has been constituted of foreign direct investment (Baláž, Williams, n.d.).

Considering “pre-EU integration” economic development in the centrally planned economies, it should be said that it was mainly based on extensive inputs of domestic labour and capital. The domestic labour inputs were initially enabled by mass rural-urban migration, feminization of the labour force, and relatively high population growth rates, but their generating power waned over time.

As for capital sources, forced capital accumulation, reflected in limited consumption of consumer goods and services, was unable to offset a capital deficit. In relative terms (per capita net inflows), transition economies had the largest capital inflows amongst the emerging markets. Moreover, the structures of the flows differed with foreign direct investment being the main component in central Europe, indicative of a higher ‘quality’ (long-term capital with no increased foreign debt).

Foreign investors were not allowed to participate in some privatisation programmes but in practice financed the new domestic owners. On the other hand, not all foreign investments were really foreign. There were thriving black and shadow economies in the transition states, with widespread tax evasion and money laundering. Capital frequently was transferred to international tax havens, only to reappear in the clothing of foreign investment, safe from tax office and police investigation.

Hence, integration with the global world is achieved through liberalisation of FDI and trade flows. Multinational enterprises (MNEs) are the main vehicles of the foreign direct investments (FDI) and trade flows. However, the behaviour of MNEs results in regionalisation and concentration of FDI as a result of the establishment of regional agreements. The transition economies presented a new opportunity to MNEs. However, the transition economies lacked private capitalists with the necessary financial capital to purchase enterprises ‘legally’, making foreign ownership the only alternative.

It was not by coincidence that foreign capital came to the rescue of transition economies. This was an act of purposeful action by the mature market economies, ensuring that foreign ownership was the only permissible "legal" medium of privatisation. The aim of the shock therapy approach was a rapid transition to capitalism, disregarding any consideration of the political, social and cultural elements of the society, which were seen as constraints.

A process like this implicitly had the goal to initiate the destruction of any institutional barrier inhibiting the penetration, influence and power of foreign capital. Thus, four main factors were significant for capital inflows to transition economies in Central Europe: GDP levels, histories of low inflation, relatively high ratios of broad money to GDP, and relatively high margins between domestic and international interest rates (Baláž, Williams, n.d.).

Taking into account the above mentioned facts regarding regional EU integration, it should be noted that European integration is deemed by experts as a form of regional globalisation, driven by political decisions that are aimed to promote freedom and cohesion of European societies, as well a single and free European market that would eventually benefit most Europeans (Poettering, 2007). In economic sense, however, globalisation, expresses the tendency of the world economy to integrate, not only in respect to cross-country trade and investment flows, but also in regard to the harmonisation of laws and regulations of economic activity. Hence, integration with the globalised world is achieved through liberalisation of FDI and trade flows.

The establishment of the European Community and the European Union has marked the emergence of a new legal order covering the issues of international relations domineering over the scope of national law. Under the impacts of vast globalisation, national integration into international communities has increased the importance of market economy relations and business operations that ignore national trade barriers in accordance with the single market, single currency, single economic policy, and employment policy principles (Poettering, 2007). As well as these, the community legal framework considers the issues of internal and external security policy. All these enable individual states to reach greater centralisation of decision-making, establish legal structures and opt for better policy choices (Poettering, 2007).

Nonetheless, for the time being, the EU legal system is deemed as unstable prone to constant alterations and modifications mainly due to a dynamic intervention of the Court of Justice particularly in the course of interpretation of EU law. Inadequacies are caused as a result of the actions of individual Member States that may decide to implement amendments to the provisions of EU Constitution, which automatically cause the alteration of the main EU Treaties. Therefore, apart from the lobbying of political interests by certain Member States, EU law should be comprehended within economic context to acquire a substantial amount of contextual knowledge in the areas like labour and capital mobility within the EU (Poettering, 2007).

The continuous process of European integration is largely shifted by globalisation challenges. Therefore, EU legal framework in terms of economic governance has considerably expanded and became more diverse than ever. Under the conditions of external dimension, the European Commission is authorised to represent the European Community in international trade negotiations, as well as relations regarding the flow of labour and capital within the continent.

Thus, the EU eagerly attempts to apply the principle of multilateralism to non-discriminate trade matters in its relations with the partners. European regional integration based on multilateralism enables liberal interpretation and implementation of common commercial policy. However, there is a considerable difference between feasibility at the regional (the European) level and the global level mainly due to the similarity of economic and social values, and a well-established legal order. Once attained within the EU, the joint governance of the economic interdependence serves as a strong basis to regulate and govern such important constituents as labour and capital flows.

The increasing globalisation of economic and production exchange, along with the inadequacy of international rules, caused unilateral actions aimed at extraterritorial dimension to competition policy. The continuous extension of the international trade agenda enables the European Commission with legal powers to represent the EU in negotiations exclusively with respect to trade in goods. European integration was aimed at the joint management of increasingly interdependent mixed economies. EU developed a complicated package of liberalisation and regulation provisions. However, regional integration has not changed the mixed character of European capitalism fundamentally.

Thus, globalisation in a market and technology-driven process raises important questions of economic governance and regulation. This is explained by the permanent necessity to govern wealth-creating effects of globalisation, on the one hand, as well as inequalities, environmental damage, social disruption and other adverse externalities, on the other hand. At that, EU should further promote institutions and rules to enable the genuine effectiveness of global economic governance.

European integration is an inevitable constituent of globalisation processes. The processes of liberalisation of capital and financial services prove this statement right. At that, regional integration should enable EU to effectively tackle the challenges of global interdependence by establishing collective forms of management and regulation, as well as impacting the international decisions.

The issues of labour and capital mobility within EU were addressed in this research to highlight EU responses to major challenges posed by globalisation to the European model of economic governance which necessitate more effective policy and legal responses so far. In due respect, the economic governance model of EU membership should provide a sufficient framework for governments seeking to enhance the credibility of trade reform and to provide national companies with a more predictable external trading environment.

Meantime, successive rounds of multilateral trade liberalisations should highlight the difficulties that many low-income countries are facing in capturing the benefits of more open markets. In these countries, governments, institutions and enterprises often lack capacities, e.g. information, policies, procedures and/or infrastructure, to compete effectively in global markets and take full advantage of the opportunities that are offered through regional and international trade channels (OECD Journal on Development, 2007).

EU model of economic governance regulates multinational trade operations on the basis of legal ground-rules, i.e. European treaties. These documents are signed and accepted by national governments to assist European producers, exporters and importers to do their business with the most possible effect. Therefore EU regulation framework has a positive impact on international trade, since it supports free trade flows; establishes single trade platform for trading organisations; and settles international trade disputes and controversies. To this end, European companies are able to enter international markets and enhance their potential within. Under the conditions of booming globalisation only the international market allows trade competitors to expand their size and access most of potential customers. In marketing terms, EU should establish liberal trade policies that allow traders to freely benefit from the unlimited flow of goods and services, and therefore multiply their revenues gained as a result of producing.

The as¬sumption of international mobility of capital implies that consumers can smooth consumption over time by borrowing and lending on international capital mar¬kets (Bayoumi 1998). In turn, Shibata and Shintani (1998) show that if capital is mobile, changes in private consumption should be independent from changes in net output, defined as gross domestic product minus government consumption and domestic investment. At that, the level of capital mobility prevailing within a group of core European Union (EU) countries is evaluated by means of co-integration based tests of the covered interest parity (CIP) by concentrating on long maturities, investigating three to ten-year assets, and employing swap rates as a means of covering foreign exchange risk. To this end, it is the mobility of long-term capital that is of critical importance (Vieira, 2003).

The integration of the transition economies of central and Eastern Europe into the international capital markets is one of the major challenges of the reform process. Attracting foreign savings to finance domestic investment can be of great value for the new market economies and can give them access to superior know how and technology. At the same time, the recent financial crises have shown that in¬creased integration into international capital flows can also expose countries to adverse external shocks (Molle, n.d.).

While econometric analyses of the impact of EU membership on capital mobil¬ity are hardly available, a considerable amount of evidence is available concern¬ing capital mobility in general. For Europe, as for other OECD economies, time series data tend to show an increasing degree of international capital mobility. For the time between 1960 and 1988, Argimón and Roldán (1994) find that domestic saving and investment were co-integrated in Spain, France, Italy, Denmark, Bel¬gium, and Ireland. Lemmen (1998) argues that it is more appropriate to assess the degree of capital mobility on the basis of short-run correlations between saving and investment because, from a theoretical point of view, long-run correlations should be close to one anyway. He does in fact find support for the hypothesis of long-run coefficients close to one while short-run correlations have been much smaller and have tended to decline over time. In the southern European econo¬mies, short-run capital mobility was below the OECD-benchmark of 0.6, albeit not necessarily to a significant degree.

At the same time, there remain differences in the structure of capital flows be¬tween the two groups of countries. Portfolio capital flows are less important for the eastern European countries than for southern Europe today but have a higher share already than in the latter prior to their accession. Still, the share of portfolio investment in total capital flows is likely to increase. A sustained effect on FDI, however, depends largely on policies at the domestic level which enhance the confidence of investors. If anything, the accession effect for the new members is likely to be smaller than for the southern members because much of the stock adjustment has already taken place (Brenton et al., 1998).

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The similarity of results for EU and OECD countries makes it difficult to isolate the impact of deregulation at the European level on capital mobility from global trends. Moreover, evidence on the degree of intra-European capital mobility is lacking. Although Armstrong et al. (1996) find extremely low correlations be¬tween saving and investment for a cross-section of EU countries and interpret this as evidence that the degree of capital mobility within Europe is similar to the de¬gree of capital mobility within countries; this interpretation seems premature for two reasons. First, their empirical results seem not to be consistent with other cross section estimates alluded to above. Second, the correlation between total national saving and investment does not allow a distinction between capital flows within and outside Europe and does thus not provide evidence on intra-EU capital flows.

EU membership is unlikely to boost capital market integration to a significant degree and to trigger huge capital in¬flows. Rather, changing patterns of capital flows may make the economies less dependent on specific types of capital inflows, and may thus enhance the sustainability of their balance of payments positions. This holds especially as member¬ship in the EU will require that the new members to abolish remaining entry barriers into their financial sectors and hereby import institutional stability. Seen from this angle, the benefits of further capital account liberalisation may outweigh the risks of such a strategy.

Overall, four factors were significant for capital inflows to transition economies in Central Europe: GDP levels, histories of low inflation, relatively high ratios of broad money to GDP, and relatively high margins between domestic and international interest rates. The latter two appear to be most important, which indicates the importance of financial sector development levels. In general, however, models based on macroeconomic indicators had low-medium explanatory powers. Macroeconomic stability seemed to be a required but not a sufficient condition for attracting large volumes of FDI. This suggests that more attention should be paid to analyses of the institutional framework of foreign capital flows. The institutional framework has both external components (association agreements with the EU, for example) and internal ones (Baláž, Williams, n.d.).

On the back of the recent EU enlargement the topic of corporate income tax competition and potential harmonization has gained renewed attention. The main reason for this debate is an observed fall in corporate tax statutory rates. In the environment of increasingly mobile capital it is believed that the freedom in setting corporate tax rates can produce a harmful tax competition between member states because differences in tax regimes can influence companies’ investment decisions and distort competition.

In 2005, some old member states lowered their corporate taxation level, for example Austria cut its rate from 34% to 25%, Finland from 29% to 26% and Greece from 35% to 32%. The trend to decrease statutory rates continued: the Czech Republic reduced its rate to 24% in 2006, Estonia by 2 percentage points annually over two years to 20% in 2007, and among the old member states cuts were planned in Germany: the government approved a fall in state tax from 25% to 19%. The motivation behind all these cuts the expected growth in investments and fall in unemployment. Judging by the numbers one could note that some kind of race to the bottom is observed in corporate taxation. The dynamics of this process accelerates. The potential accession of Romania and Bulgaria in 2007 increased the competition for investments and jobs as the corporate taxation rates in these countries were below the EU level: in Bulgaria the government reduced the corporate tax rate from 19.5% in 2004 to 15% in 2005 and in Romania a flat rate of 16% for income and corporate taxes was introduced in 2005. Although the cuts in statutory corporate rates are significant it is not clear if the result is a higher inflow of capital (Jakubiak and Markiewicz, 2005).

The continuous process of European integration is largely shifted by globalisation challenges. Therefore, EU legal framework in terms of economic governance has considerably expanded and became more diverse than ever. Under the conditions of external dimension, the European Commission is authorized to represent the European Community in international trade negotiations, as well as relations regarding the flow of labour and capital within the continent. Thus, EU eagerly attempts to apply the principle of multilateralism to non-discriminate trade matters in its relations with the partners. European regional integration based on multilateralism enables liberal interpretation and implementation of common commercial policy. However, there is a considerable difference between feasibility at the regional (the European) level and the global level mainly due to the similarity of economic and social values, and a well-established legal order. Once attained within the EU, the joint governance of the economic interdependence serves as a strong basis to regulate and govern such important constituents as labour and capital flows.

The increasing globalisation of economic and production exchange, along with the inadequacy of international rules, caused unilateral actions aimed at extraterritorial dimension to competition policy. The continuous extension of the international trade agenda enables the European Commission with legal powers to represent the EU in negotiations exclusively with respect to trade in goods. European integration was aimed at the joint management of increasingly interdependent mixed economies. As EU developed a complicated package of liberalisation and regulation provisions. However, regional integration has not changed the mixed character of European capitalism fundamentally.

Thus, globalisation in a market and technology-driven process raises important questions of economic governance and regulation. This is explained by the permanent necessity to govern wealth-creating effects of globalisation, on the one hand, as well as inequalities, environmental damage, social disruption and other adverse externalities, on the other hand. At that, EU should further promote institutions and rules to enable the genuine effectiveness of global economic governance.

European integration is an inevitable constituent of globalisation processes. The processes of liberalisation of capital and financial services prove this statement right. At that, regional integration should enable EU to effectively tackle the challenges of global interdependence by establishing collective forms of management and regulation, as well as impacting the international decisions.

The issues of labour and capital mobility within EU were addressed in this research to highlight EU responses to major challenges posed by globalisation to the European model of economic governance which necessitate more effective policy and legal responses so far. In due respect, the economic governance model of EU membership should provide a sufficient framework for governments seeking to enhance the credibility of trade reform and to provide national companies with a more predictable external trading environment. In the meantime, successive rounds of multilateral trade liberalisations should highlight the difficulties that many low-income countries are facing in capturing the benefits of more open markets. In these countries, governments, institutions and enterprises often lack capacities, e.g. information, policies, procedures and/or infrastructure, to compete effectively in global markets and take full advantage of the opportunities that are offered through regional and international trade channels (OECD Journal on Development, 2007). Thus EU model of economic governance regulates multinational trade operations on the basis of legal ground-rules, i.e. European treaties. These documents are signed and accepted by national governments to assist European producers, exporters and importers to do their business with the most possible effect. Therefore EU regulation framework has a positive impact on international trade, since it supports free trade flows; establishes a single trade platform for trading organizations; and settles international trade disputes and controversies (Multilateral Trading System, 2007). To this end, European companies are able to enter international markets and enhance their potential within. Under the conditions of booming globalisation only the international market allows trade competitors to expand their size and access most of potential customers. In marketing terms, EU should establish liberal trade policies that allow traders to freely benefit from the unlimited flow of goods and services, and therefore multiply their revenues gained as a result of producing (Business to Business, 2000).

The positive impacts of the European economic regulation model will further depend on the ability to conduct trade operations on the basis of non-discrimination principle that would enable fair and undistorted competition. Furthermore, the EU regional regulations should benefit national producers by enabling them to import goods (incl. services, trademarks, copyrights and patents) on international markets. This should be done by promoting free trade, lowering trade barriers (customs duties (tariffs) etc. At that, European model should transfer into a development-oriented structure that plays a key role in providing the necessary political incentives to increase effectiveness, strengthen the scrutiny, monitor the economic and trade processes on a global level and thus encourage better regional accountability mechanisms (OECD Journal on Development, 2007). In due context, further trade policies and regulations should include the following components: training of trade officials; analysis of proposals and positions and their impact; support for national stakeholders to articulate commercial interests and identify trade-offs; dispute issues; institutional and technical support to facilitate implementation of trade agreements and to ensure that countries adapt to, and comply with, rules and standards (OECD Journal on Development, 2007). However, based on the evaluation of past trade-related assistance programmes, experts outline three main priority areas for improvement that have so far proven particularly difficult to tackle:

  1. The establishment of a national dialogue to formulate and implement trade policies;
  2. The mainstreaming of trade policies into national economic development and external assistance strategies; and
  3. The alignment of Aid for Trade with aid effectiveness principles (OECD Journal on Development, 2007).

Table 1: Top statutory tax rates on corporate income in the EU-15 and EU-8, 1995-2005

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Belgium

40.2

40.2

40.2

40.2

40.2

40.2

40.2

40.2

34

34

34

Denmark

34

34

34

34

32

32

30

30

30

30

30

Germany

56.8

56.7

56.7

56

51.6

51.6

38.3

38.3

39.6

38.3

38.9

Greece

40

40

40

40

40

40

37.5

35

35

35

32

Spain

35

35

35

35

35

35

35

35

35

35

35

France

36.7

36.7

36.7

41.7

40

36.7

36.4

35.4

35.4

35.4

35

Ireland

40

38

36

32

28

24

20

16

12.5

12.5

12.5

Italy

52.2

53.2

53.2

41.3

41.3

41.3

40.3

40.3

38.3

37.3

33

Luxemburg

40.9

40.9

39.3

37.5

37.5

37.5

37.5

30.4

30.4

30.4

30.4

Netherlands

35

35

35

35

35

35

35

34.5

34.5

34.5

31.5

Austria

34

34

34

34

34

34

34

34

34

34

25

Portugal

39.6

39.6

39.6

37.4

37.4

35.2

35.2

33

33

27.5

27.5

Finland

25

28

28

28

28

29

29

29

29

29

26

Sweden

28

28

28

28

28

28

28

28

28

28

28

United Kingdom

33

33

31

31

30

30

30

30

30

30

30

Czech Republic

41

39

39

35

35

31

31

31

31

28

26

Estonia

26

26

26

26

26

26

26

26

26

26

24

Latvia

25

25

25

25

25

25

25

22

19

15

15

Lithuania

29

29

29

29

29

24

24

15

15

15

15

Hungary

19.6

19.6

19.6

19.6

19.6

19.6

19.6

19.6

19.6

17.7

16

Poland

40

40

38

36

34

30

28

28

27

19

19

Slovenia

25

25

25

25

25

25

25

25

25

25

25

Slovakia

40

40

40

40

40

29

29

25

25

19

19

Existing surcharges and local taxes are included. There is only flat corporate taxation in the sample of EU-8. Source: 1995-2004: EC, 2004b, 2005: OECD Tax Database and country sources.

1.3 Labour mobility extension within the EU

Upon extension, EU policy is aimed at expanding labour and capital mobility. A greater extent of mobility between Member States fosters closer political integration in the EU. This trend is established in EU policies, framework papers and recommendations for further continental development. This research paper highlights the most recent developments within EU policy regarding labour force and capital flow mobility. In addition, previous policy and further perspectives are discussed. The paper also outlines barriers and obstacles that are analyzed to establish a realistic picture of how far capital and labour are mobile within EU zone.

Overall, European policymakers have been focusing on increased cross-border labour mobility within Europe as a sound and beneficial direction that enables individuals with new opportunities and better career prospects. At that, free movement of labour constitutes one of the central principles of the EU and is an important component of the completion of the single market. Furthermore, labour mobility within the EU promotes sustainable growth and development of less advantaged areas within on the continent. In its policies European Union widely promotes economic and social progress by enabling high levels of employment and achieving balanced and sustainable development.

This strengthens economic and social cohesion and active citizenship. For instance, European Commission's Action Plan on Skills and Mobility promotes the principle of the freedom of movement for workers, underscores the importance of labour market mobility in advancing the employment strategy, and opens the European labour markets. This involves equipping human resources with the skills required to face multifaceted challenges, adapt employment and labour force to changing circumstances in the most smooth and efficient manner, as well as to drive change in a competitive global economy.

EU mobility-aimed policies respond to the need and commitment to develop better quality jobs, as well as combine higher productivity and ensure greater flexibility and security of working relations (European Commission, 2007). At that, new eastern borders of the EU enlargement pose additional problems arising from the current openness of these borders and the historic national and ethnic ties which transcend the often artificial nature of the borders. Therefore, Piracha andVickerman (n.d) claim that “migration should be considered against a background in which there is widespread concern about the lack of mobility within the existing EU to provide the necessary labour market flexibility to ensure competitiveness and permit adjustment within the Eurozone” (p.3). Also, the reason for the limited use of mobile workers to address recruitment difficulties is the existence of various barriers to international labour mobility. At that, the biggest barriers are those which are policy related, notably the lack of integrated European-wide employment legislation, differences in tax systems and, to a lesser extent, differences in benefit systems. The most important ‘company-specific’ factors are also linked to policy (for example, the variation in the legal status of employees between countries and immigration issues) although differences in remuneration are also seen as important. The availability of employment opportunities for spouses and language skills are also seen by businesses as being significant obstacles to international labour mobility. It is also evident that businesses do not view the potential availability of a mobile work force or their ability to manage such a workforce as major barriers (PWC, n.d.). Finally, an inefficient allocation of labour resources negatively affects the longer-term level and growth rate of potential output, as well as limits economic growth (European Commission, 2002).

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In February 2001, European Commission Communication on “New European Labour Markets, Open to All with Access for all” has addressed most significant issues of labour mobility and migration (COM, 2001). This effort was aimed at raising the efficiency of labour markets, including the challenging issues of wage flexibility, occupational flexibility and mobility. At that, the Commission was mainly concerned with the barriers in front of labour mobility within the EU (House of Lords, 2002). These include:

In addition to this, European Central Bank experts stress that despite the legal provision for the free movement of labour, the low level of cross-border labour mobility across the EU-15 exists due to “the existence of legal and administrative barriers, the lack of familiarity with other European languages, moving costs, inefficient housing markets, the limited portability of pension rights, problems with the international recognition of professional qualifications and the lack of transparency of job openings” (p.5).

Further, the issue of the lack of mobility was raised by a High Level Task Force on Skills and Mobility in December 2001 relating to both occupational and geographical mobility, concentrating on the need to improve information and transparency in labour markets, including the provision of basic skills such that the benefits of mobility can be enjoyed by all skill groups. Consequently, final Action Plan established a clear link between factors influencing internal mobility in the EU and the EU’s immigration policy (Committee and the Committee of the Regions, 2002).

EU expansion to 25 Member States in May 2004 naturally raised the concerns over the possibility of intense migration, particularly from the ten new Member States to the EU-15. The receiving countries were mainly disturbed with a potentially negative impact on wages and employment of the native population and the increased use of social security systems, particularly by migrants. As a result most EU-15 Member States (except the United Kingdom, Ireland and Sweden) maintained restrictions on the cross-border mobility of labour from the EU-8 (save as Malta and Cyprus), which delayed the migrant flow between the EU-8 and EU-15 Member States for up to seven years.

Eventually, starting 1 May 2006, Greece, Portugal, Finland, Spain and also Italy (since July 2006) decided to lift restrictions, while Belgium, Denmark, France, the Netherlands and Luxembourg decided to alleviate them. Meantime, these restrictions remain unchanged in Austria and Germany. In this regard, the European Commission’s February 2006 report said that very few citizens from the new member states were actually moving to the EU-15 countries. According to the report, EU-10 citizens represented less than one percent of the working age population in all old EU member states except Austria (1.4%) and Ireland (3.8%) (EurActiv, 2006).

To this end, PriceWaterhouseCoopers experts indicated core background issues that historically feature labour mobility in Europe:

  1. Compared to that of the US, the level of labour mobility in the EU has always remained low; however the rate of migration has changed little during the 1990s;
  2. The importance of the foreign-born workforce varies considerably between countries in Europe with the highest rates in Luxembourg, Austria and Germany and the smallest in Spain and Italy; and
  3. Mobile EU citizens (from other Member States) are most important in Luxembourg, Belgium and Ireland and least important in Greece and Italy.
Size and composition of the foreign labour force in the EU

Figure 1.1 Size and composition of the foreign labour force in the EU (PWC, 2002)

Therefore, it is apparent that workers’ mobility is a key element in the EU agenda for a more competitive European economy. In actual fact, in 2003 there were only 1.5% of EU citizens who currently lived and worked in a member state other than their country of origin. That figure has not changed for 30 years, despite the increase in facilities for settling abroad. To change the situation for better support for mobility, the European Commission announced in 2006 the European Year for Workers Mobility. This effort intends to establish more efficient European labour market, providing workforce with the right to look for a job, the right of residence and the right to remain (EurActiv, 2006).

In terms of clear comprehension of the importance of labour mobility Brücker (2007) developed a simulation model that compared the short-term versus the long-term impacts of migration on GDP, earnings of both blue- and white-collar workers in receiving countries, unemployment, and migrant income. Particularly, in the short-run, labour migration contributes to:

Substantial gains in GDP:

On the other hand, in the long-run, assuming capital adjustment, migration will lead to:

Considering the 1 January 2007 enlargement, which brought Romania and Bulgaria into the EU, many former EU member states are more reluctant to open their labour markets. All EU-15 countries with the exception of Sweden and Finland decided to restrict Bulgarians’ and Romanians’ access to their labour market. Italy considers allowing Romanians and Bulgarians in once a European agreement on combating organised crime is found, and France announced that it will include workers from the two countries into its scheme of sectored barrier-lifting. All EU-10 decided to open their labour markets - with the exception of Malta, which constricts access, and of Hungary, which imposes some conditions (EurActiv, 2007).

Economic effects of EU NMS (new member states) immigration on the UK economy

Over the last decade the percent of annual net migration to the UK has increased from 50 thousand a year to 150 thousand a year. One of the main factors that caused such a growth was the EU enlargement which changed the trend of the work immigration to the UK forever. According to Salt and Millar (2006), 2005 marked the highest growth of the foreign workers’ immigration to the UK.

Table 2: Share of immigrants in the working age population (aged 16–64) by Country of birth, Per cent of population, 12.00 (of which) A8, Africa & Middle East, Indian Sub-Continent, EU14, Americans, Rest of Asia, Rest of Europe, Australia & NZ.

All Immigrants

New Immigrants

2006

1995

Change (pp)

2006

1995

Change (pp)

12.00

8.16

3.84

1.29

0.52

0.77

0.87

0.10

0.77

0.40

0.02

0.38

2.97

1.64

1.34

0.21

0.10

0.11

2.52

1.85

0.67

0.17

0.16

0.11

2.10

2.23

–0.14

0.17

0.14

0.03

1.25

1.00

0.25

0.12

0.07

0.05

1.07

0.63

0.43

0.10

0.07

0.04

0.82

0.46

0.36

0.07

0.04

0.03

0.39

0.24

0.15

0.05

0.03

.01

Following the EU expansion on 1 May 2004, the UK became open to the immigrants from the EU new member states including Central and Eastern Europe (referred to as A8 countries), as well as Cyprus and Malta. The labour immigration restrictions are envisaged in the document known as the Worker Registration Scheme.

Table 3: Average annual migration 1997–2006 (Thousands)

Non-British

British

Total

Gross Immigration

391

98

489

Gross Emigration

158

170

327

Net Immigration

234

–72

162

Source (House of Lords, 2008)

According to the Home Office quarterly statistics (2007), 682,940 migrant workers applied to the scheme during 1 May 2004 - 31 June 2007, and 656,395 were successfully accepted.

Table 4: EU enlargement and migration: Impacts on GDP (% difference from base)

Country/Year

2005

2006

2007

2008

2009

2015

Denmark

0.04

0.08

0.09

0.11

0.13

0.16

Ireland

0.09

0.21

0.39

0.65

0.92

1.66

Sweden

0.02

0.04

0.05

0.07

0.08

0.13

UK

0.16

0.26

0.32

0.38

0.44

0.64

Austria

0.03

0.05

0.07

0.08

0.10

0.17

Germany

0.02

0.03

0.03

0.05

0.06

0.14

Italy

0.03

0.05

0.05

0.06

0.07

0.09

Czech Republic

-0.02

-0.03

-0.05

-0.08

-0.10

-0.20

Estonia

-0.03

-0.08

-0.13

-0.16

-0.18

-0.25

Hungary

0.00

-0.02

-0.05

-0.09

-0.13

-0.22

Latvia

-0.12

-0.23

-0.34

-0.46

-0.54

-0.62

Lithuania

-0.19

-0.33

-0.41

-0.48

-0.56

-0.82

Poland

-0.16

-0.25

-0.24

-0.23

-0.31

-1.05

Slovakia

-0.05

-0.13

-0.22

-0.29

-0.32

-0.38

Slovenia

-0.01

-0.01

-0.02

-0.03

-0.03

-0.04

Another reason for the unprecedented increase is connected with the related to the comparatively liberal immigration policy in the UK (Hatton, 2005). The third reason for the change in the immigration flow is due to the increasing demographic shifts as well as the income attractiveness, liberal immigration approaches, and favourable labour market within the UK and Ireland (Mitchell and Pain, 2003). All these factors have recently attracted thousands of labour immigrants from the NMS to the UK and Ireland (Boeri and Brücker, 2005).

Table 5: Change in new Member States (NMS) residents in the UK following the EU enlargement May in 2004 (in thousands).

New Member State

UK

Czech Republic

13.5

Estonia

3.0

Hungary

8.0

Latvia

15.7

Lithuania

29.7

Poland

167.5

Slovakia

27.3

Slovenia

0.3

Total NMS

265.0

Percent of total population

0.45

Percent of working age population

0.72

According to the UK Labour Force Survey, as of the 3rd Q 2006, 265 thousand NMS nationals resided in the UK. This figure was measured after the accession (Blanchflower et al., 2007). These changes have caused certain macroeconomic effects to the UK economy. In particular, the most significant affects were caused to inflation and unemployment.

Table 6: Projected changes in the UK population: Age and Structure 2006-2081

Projection

Net migration

Population (Millions) 2006 2031 2056

2081

Change 2006–81

No Migration (Natural Change) Balanced Migration Low Migration Principal Projection High Migration

0

0

130,000

180,000

250,000

60.6 60.6 60.6 60.6 60.6

63.8 65.1 69.2 71.1 73.0

61.5 65.2 74.3 78.6 82.8

57.3 64.3 78.6 85.3 91.9

"3.3

3.7

18.1

24.7

31.3

Projection

Net migration

Dependency Ratio (Percent) 2006 2031 2056

2081

Change 2006–81

No Migration (Natural Change) Balanced Migration Low Migration Principal Projection High Migration

0

0

130,000

180,000

250,000

60.7 60.7 60.7 60.7 60.7

68.2 66.5 64.6 63.9 63.1

73.6 68.2 65.1 63.9 62.9

77.3 71.3 68.6 67.7 66.9

16.7

10.7

7.9

7.0

6.2

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Labour market equilibrium changed owing to the adjustment costs. As well as this, immigration changes to the UK were more considerable than those initially anticipated prior to the EU enlargement. This resulted in the situation when the capital stock required to satisfy the demands of the immigrant workers was not sufficient.

Table 7: EU enlargement and migration: Impacts on the current account (% point difference from base)

2005

2006

2007

2008

2009

2015

Denmark

-0.01

0.01

0.02

0.02

0.02

-0.01

Ireland

-0.14

-0.32

-0.38

-0.31

-0.27

-0.47

Sweden

0.00

0.00

0.00

0.00

0.00

0.00

UK

-0.12

-0.12

-0.11

-0.11

-0.12

-0.16

Austria

-0.02

-0.03

-0.02

-0.01

0.00

-0.01

Germany

0.01

0.00

0.00

-0.01

-0.02

-0.05

Italy

-0.01

-0.01

0.00

0.00

0.01

0.01

Czech Republic

0.03

0.05

0.03

0.01

0.00

0.00

Estonia

0.08

0.12

0.11

0.09

0.07

0.01

Hungary

0.03

0.03

0.00

-0.03

-0.05

-0.02

Latvia

0.20

0.41

0.49

0.42

0.30

0.09

Lithuania

0.21

0.32

0.29

0.21

0.15

0.05

Poland

0.09

0.13

0.09

0.02

-0.05

-0.04

Slovakia

0.11

0.20

0.22

0.18

0.14

0.04

Slovenia

0.02

0.04

0.04

0.04

0.03

0.02

As a consequence, labour demand remained unchanged at given wages. Hence, labour migrant from NMS displaced the British and Irish workers or alternatively became unemployed. The increased unemployment reduced the set market wages as well as an average wage level. Consequently, the unemployment level rose since the labour supply curve descended upon the labour demand curve. However, such effect was temporary since labour demand shifted upwards, and capital accumulated, and eventually the level of unemployment returned to its average equilibrium rate.

Table 8: EU enlargement and migration: Impacts on unemployment (% point difference from base)

2005

2006

2007

2008

2009

2015

Denmark

0.04

0.04

0.02

0.01

0.00

0.00

Ireland

0.84

1.24

1.03

0.68

0.35

-0.29

Sweden

0.06

0.08

0.06

0.04

0.02

-0.02

UK

0.23

0.32

0.24

0.16

0.10

-0.04

Austria

0.04

0.06

0.03

0.01

0.00

0.00

Germany

0.04

0.05

0.03

0.01

0.00

-0.01

Italy

0.03

0.04

0.03

0.02

0.01

0.00

Czech Republic

-0.12

-0.18

-0.14

-0.08

-0.04

0.03

Estonia

-0.21

-0.29

-0.25

-0.21

-0.20

-0.18

Hungary

-0.10

-0.14

-0.09

-0.03

0.02

0.02

Latvia

-0.50

-0.74

-0.63

-0.53

-0.48

-0.47

Lithuania

-0.65

-0.94

-0.81

-0.73

-0.68

-0.56

Poland

-0.29

-0.45

-0.41

-0.32

-0.21

0.16

Slovakia

-0.34

-0.49

-0.41

-0.35

-0.33

-0.30

Slovenia

-0.08

-0.12

-0.11

-0.10

-0.10

-0.10

The adjustment process made the rate of inflation lower compared to its base rate. Lower wages temporarily dampened inflation which caused a monetary response, which reduced interest rates. Herewith, lower wages reflected lower productivity, which rate decreased since compared to capital the value of labour became cheaper and more abundant. This made British companies hire more staff to reach the same standard of output.

Table 9: EU enlargement and migration: Impacts on productivity (% difference from base)

2005

2006

2007

2008

2009

2015

Denmark

0.00

-0.02

-0.04

-0.03

-0.02

0.01

Ireland

-0.22

-0.46

-0.63

-0.72

-0.79

-0.63

Sweden

0.01

-0.01

-0.02

-0.03

-0.03

-0.02

UK

0.01

-0.06

-0.12

-0.14

-0.15

-0.08

Austria

-0.01

-0.04

-0.06

-0.06

-0.05

0.00

Germany

-0.02

-0.06

-0.09

-0.09

-0.09

-0.02

Italy

0.00

0.00

-0.01

-0.02

-0.02

-0.01

Czech Republic

0.04

0.09

0.14

0.18

0.20

0.18

Estonia

0.07

0.15

0.20

0.19

0.19

0.17

Hungary

0.04

0.08

0.12

0.14

0.15

0.08

Latvia

0.15

0.36

0.48

0.46

0.44

0.45

Lithuania

0.18

0.46

0.66

0.67

0.64

0.54

Poland

0.16

0.33

0.47

0.58

0.63

0.34

Slovakia

0.11

0.24

0.32

0.32

0.31

0.30

Slovenia

0.03

0.07

0.09

0.09

0.09

0.09

Higher rates of utilisation caused the rise in the rate of return on existing capital. Furthermore, since the employment rise exceeded the initial wage decline, consumption rates and household income increased. Considering the increase in the profitability of capital as well as the rise in consumption levels, British companies built up the capital stock and reconsidered their investment plans. At that, initially the capital stock increased at a lower rate compared to the expansion of the total output since corporate investment plans to more time to adjust than consumption.

Table 10: EU enlargement and migration: Impacts on inflation (% point difference from base)

2005

2006

2007

2008

2009

2015

Denmark

-0.02

-0.03

-0.04

-0.03

-0.02

0.00

Ireland

-0.24

-0.66

-0.86

-0.65

-0.30

0.14

Sweden

0.01

-0.02

-0.05

-0.07

-0.05

0.01

UK

0.07

-0.07

-0.16

-0.19

-0.16

0.01

Austria

-0.02

-0.04

-0.05

-0.05

-0.04

0.01

Germany

-0.01

-0.03

-0.05

-0.05

-0.05

0.01

Italy

-0.01

-0.01

-0.02

-0.02

-0.02

0.01

Czech Republic

0.01

0.02

0.02

0.01

0.00

-0.01

Estonia

0.02

0.08

0.08

0.04

0.01

0.00

Hungary

0.00

0.02

0.03

0.01

0.00

-0.01

Latvia

0.08

0.23

0.28

0.18

0.08

0.02

Lithuania

0.11

0.26

0.29

0.17

0.08

-0.01

Poland

0.02

0.07

0.13

0.16

0.15

-0.08

Slovakia

0.05

0.13

0.13

0.05

0.01

0.00

Slovenia

0.00

0.02

0.02

0.00

-0.01

0.01

As a result of the population changes caused by the labour immigration from the EU NMS to the UK, on average the UK unemployment rate increased by ¼ percent over 2006-2008. The increase of unemployment in the UK resulted in the downward pressure on wages and inflation reduction. On average, the inflation reduced by 0.1-0.2 percent over 2006-2008.

Table 11: EU enlargement and migration: Impacts on GDP per capita (% difference from base)

2005

2006

2007

2008

2009

2015

Denmark

-0.01

-0.02

-0.01

0.01

0.03

0.07

Ireland

-0.73

-1.15

-1.06

-0.78

-0.50

0.33

Sweden

-0.03

-0.05

-0.04

-0.02

0.00

0.05

UK

-0.08

-0.15

-0.11

-0.05

0.01

0.22

Austria

-0.03

-0.05

-0.05

-0.03

-0.01

0.06

Germany

-0.04

-0.07

-0.07

-0.05

-0.04

0.04

Italy

-0.01

-0.02

-0.01

-0.01

0.00

0.03

Czech Republic

0.12

0.19

0.19

0.17

0.14

0.05

Estonia

0.18

0.28

0.27

0.23

0.21

0.15

Hungary

0.10

0.15

0.13

0.10

0.05

-0.03

Latvia

0.43

0.71

0.68

0.56

0.49

0.44

Lithuania

0.53

0.88

0.91

0.83

0.77

0.54

Poland

0.28

0.51

0.58

0.58

0.51

-0.22

Slovakia

0.34

0.53

0.50

0.43

0.40

0.34

Slovenia

0.08

0.14

0.14

0.13

0.13

0.12

According to Borjas (1999) labour migration effects on the economy and labour market mainly depend on the skill mix possessed by the labour of immigrants compared to the skills possessed by the domestic workers. Furthermore, Dustman et al. (2005) state that there is equal distribution of professional skills for the Brits and labour immigrants. Nonetheless, such an assumption does not consider the immigration trends following the EU enlargement as well as the peculiarities of the EU NMS workforce.

After the EU expansion in 2004, recent NMS labour immigrants predominantly concentrated on low-skill occupations. According to Riley and Weale (2006), 62 per cent of NMS labour immigrants are engaged in plant, processing and machinery occupations in comparison. However, this is not to say that NMS immigrants are low-skilled. To this end, Drinkwater et al. (2006) found out that Polish workers, for example, achieved comparatively lower educational results in the UK compared to other NMS residents. Fihel et al. (2006) sums up the current trend in the NMS labour immigration to the UK by describing it as transitory. This indicates that still much time is needed for the NMS immigrants to fully adjust to the UK labour market requirements and advance their professional skills.

UK Total International Migration from mid-1996 to mid-2006

Figure 1: UK Total International Migration from mid-1996 to mid-2006

As for the UK most recent labour immigration flows, statistical data suggest that immigration is mostly concentrated in the South East, and London. Over 1993 – 2005, regional breakdown of net international migration was as follows:

Country/Region

Net immigration 1993-2005

Percentage of total

Scotland

-10,000

-1%

Northern Ireland

-36,000

-2%

Wales

27,000

2%

South-East

144,000

9%

London

1,035,000

65%

Rest of England

437,000

27%

Table 12: Total international net immigration by region, 1991–2006

1991–2006

2004–2006

Thousands %

Thousands +598

%

England

+1,854 99.7%

93.6%

London

+989 53.2%

+230

36.0%

South East

+200 10.8%

+64

10.0%

Yorkshire and Humber

+182 9.8%

+80

12.5%

Rest of England

+483 26.0%

+224

35.1%

Wales

+27 1.5%

+7

1.1%

Scotland

–2 –0.1%

+26

4.1%

Total UK

+1,860 100.0%

+639

100%

In accordance with the assumptions of The UK Government Actuary Department, the net international migration to the UK will fall by approximately 30% and will show 145,000 per annum:

foreign net immigration to the UK by nationality

As a result of the tendencies in the international migration to the UK, the country’s population will increase by 6 million over 2004-2031 out of the total population growth of 7.2 m. This means that migration trends will constitute 83% of the population growth in the UK:

International Migration

(Source: ONS International Migration)

Migration flows from the 15-EU member states to the UK conventionally remain at the level of 8%. The situation is quite different with the Eastern Europe states which number account for about 1/5 of foreign immigration into the UK. About 2/3 of net foreign immigrants into the UK are from the developing countries.

Table 13: International Labour Migration Numbers Mid-2001-Mid-2006

North East

61

48

13

North West

196

148

48

Yorkshire and the Humber

213

104

109

East Midlands

151

87

64

West Midlands

166

105

61

East of England

221

154

67

London

892

491

401

South East

361

271

90

South West

184

147

37

Over mid-2005 to mid-2006, 210,000 labour immigrants from the East Europe registered for work in the UK. This number is added by dependants and self-employed workers. Interesting fact is that the labour immigrants from the EU NMS are not likely to return home, which confirms the fact that UK is one of the most favorable destinations for labour migrants in Europe.

foreign net immigration to the UK by nationality Figure 2: Scale and composition of foreign net immigration to the UK by nationality, 1991–2006 (thousands and %)

For instance in Scandinavian countries (Sweden and Denmark) labour migrants find less comfort compare to the UK. The situation is connected with cultural and linguistic barriers, let alone labour policies set up for the overseas immigrants (Migration Watch, 2009).

Labour migrants apparently cause economic impacts on the UK economy. The most recent findings suggest that there is a considerable impact on the country’s GDP.

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Table 14: Local Areas with the Highest Numbers of International Migration per 1,000 residents

Mid-2001 to mid-2006

Internal Migration

International Migration

Volume of Migration
per 1,000 population
1

Area

In

Out

In

Out

All
migration

International
migration

Westminster

88,700

95,200

65,700

37,700

259

93

Kensington and Chelsea

48,200

59,200

49,400

29,100

217

91

Cambridge

54,100

57,900

28,500

18,200

278

82

City of London

3,900

3,600

1,500

1,500

276

78

Camden

86,299

96,900

53,400

25,800

243

73

Oxford

66,000

/td>

70,800

31,900

17,000

258

68

Hammersmith and Fulham

66,900

83,200

33,200

22,900

242

66

Islington

77,300

90,200

29,000

17,200

234

51

Brent

71,100

109,200

46,900

20,300

184

50

Wandsworth

123,400

142,300

40,800

27,300

243

50

According to the data retrieved from the UK government, foreign labour migrants to the UK:

All immigration (including British nationals) by reason of visit, 1991–2006

Figure 3: All immigration (including British nationals) by reason of visit, 1991–2006

Most migrants are young and their children are predominantly UK-born, who are not accounted when measuring the migrant population.

Table: Total International Migration 1996-2005

Number (thousands)

Per cent

Year

Total

UK

Non UK

UK

Non UK

1996

264

144

120

55

45

1997

279

144

135

52

48

1998

251

125

126

50

50

1999

291

136

155

47

53

2000

321

155

166

48

52

2001

308

155

153

50

50

2002

359

171

188

48

52

2003

362

183

179

51

49

2004

359

200

159

56

44

2005

380

187

193

49

51

In due context, there has been no increase in the UK GDP per head since migrants equally add up to the GDP and the UK population.

Total International Migration by reason for visit (as of 2005)

Figure 4: Total International Migration by reason for visit (as of 2005)

Next, the lower employment rate of labour migrants compared to the UK nationals is due to the fact that they add up 10% to the UK working age population which is the same they add up to the UK GDP (Migration Watch, 2009).

Table 15: Total International Migration 1996-2005

Number (thousands)

Per cent

Year

Total

UK

Non-UK

UK

Non-UK

1996

264

144

120

55

45

1997

279

144

135

52

48

1998

251

125

126

50

50

1999

291

136

155

47

53

2000

321

155

166

48

52

2001

308

155

153

50

50

2002

359

171

188

48

52

2003

362

183

179

51

49

2004

359

200

159

56

44

2005

380

187

193

49

51

Furthermore, labour immigrants add to the UK production relatively at the same level they add up to the volume of the workforce. This makes the immigration trend grow at about 15 -20 % which currently shows 2.75%. This indicates that native population overall benefits 28 pence a week from the international labour immigration to the UK. As a result, the average contribution per head to the UK GDP from the international immigration is rather small. However, the impact on population growth is significant.

Table 16: Population Growth in the UK 1971-2006

1971–76

55,928

+58

766

670

+96

–55

+16

56,216

1976–81

56,216

+27

705

662

+42

–33

+18

56,352

1981–86

56,357

+65

733

662

+70

–5

..

56,684

1986–91

56,684

+148

782

647

+135

13

..

57,439

1991–96

57,439

+145

756

639

+117

29

..

58,164

1996–01

58,164

+190

706

623

+83

+107

..

59,113

2001–02

59,113

+210

663

601

+62

+148

..

59,323

2002–03

59,323

+234

682

605

+77

+157

..

59,557

2003–04

59,557

+289

707

603

+104

+185

..

59,846

2004–05

59,846

+393

717

591

+127

+266

..

60,238

With regard to the fiscal impact on the UK economy, the findings of Home Office and the Institute for Public Policy Research suggest that labour migrants contribute the UK economy with about 2.5 b. in taxes as well as national insurance contributions.

Table 17: National Insurance Registrations of the Non-UK nationals

Region

All countries

Top ten countries

Poland

India

Rep

Pakistan

Australia

Lithuania

France

Africa

Germany

All registrations

713,450

222,760

49,330

28,840

25,320

24,400

24,110

20,230

16,920

15,240

North East

13,270

4,120

1,680

300

430

190

230

290

140

230

North West

51,550

20,190

3,100

2,660

3,460

710

1,050

840

650

860

Yorkshire and the Humber

41,640

16,390

2,260

2,750

3,310

480

1,160

580

520

490

East Midlands

41,000

18,190

3,280

2,240

890

390

1,800

530

620

520

West Midlands

48,000

18,600

4,140

2,830

3,010

430

1,070

830

550

740

East of England

53,370

19,840

3,360

2,570

1,390

920

3,120

990

1,190

940

London

244,090

43,420

18,550

4,910

8,800

15,000

8,330

10,640

7,830

6,510

South East

80,130

24,400

5,340

3,520

2,120

2,110

1,930

2,160

2,900

1,980

South West

41,710

17,560

1,920

2,080

330

910

1,090

910

950

870

Wales

17,020

6,780

1,400

910

350

260

400

320

180

290

Scotland

52,460

23,140

3,460

1,730

1,180

1,690

1,070

1,160

770

990

Northern Ireland

19,610

8,900

520

1,810

40

170

2,560

210

110

150

Overseas Residents

9,590

1,230

350

540

10

1,140

300

800

520

680

Net contribution national insurance and taxes received from labour migrants exceeded those received from the UK nationals over 1999-2000 (Migration Watch, 2009).

Table 18: Alternative Estimates of the Fiscal Impacts on Labour Migrants in the UK 2003–04

Indicator

Tax
£ billion

Expenditure
£ billion

Balance
£ billion

% GDP

% Individual
Consumption

Original (IPPR)

41.2

41.6

0.4

0.04

0.07

Adjustment

Children of mixed parentage

4.9

After first adjustment

41.2

46.5

5.3

"0.47

0.83

Adjustment

Defence

3.0

After second adjustment

41.2

43.5

2.3

"0.20

0.36

Adjustment

Budget balance

4.9

After third adjustment

46.0

43.5

2.6

0.23

0.40

2008-2009 marked the relative balance in the numbers of labour migrants from the EU to the UK. Most experts suggest that working immigration boom has declined in times of the global economic slowdown. Considering this, it is highly unlikely that working immigration will become a serious problem to be faced by the UK economy in the coming years.

Table 19: Projected changes in UK population, 2006–2081 (millions)

Assumed net immigration

Population projections

2006

2031

2056

2081

High Migration

0.250

60.6

73

82.8

91.9

Principal Projection

0.190

60.6

71.1

78.6

85.3

Low Migration

0.130

60.6

69.2

74.3

78.6

Balanced Migration

0

60.6

65.1

65.2

64.3

No migration (natural change only)

0

60.6

63.8

61.5

57.3

Conclusion

After the UK labour market was opened to the labour migrants from the EU NMS (hereinafter also A8 countries) in May 2004, the UK Government set up a Workers Registration Scheme. As a result, about one million people from A8 countries registered to work in the UK. According to the Labour Force Survey, which is considered to provide the most accurate data in this respect, 25,582,000 UK residents comprised the country’s working population. At that, 482,000 arrived to Britain from A8 countries. This figure marked the 6% decline compared to the 3rd Q 2008, however it was similar to the 4th Q 2007 numbers. This once again proves that the UK has won the status of a rather comfortable destination among the East European migrants. More than that, the overwhelming majority of the East European workers wishes not to return home from the UK (Migration Watch, 2009).

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References