- Philip Martin, 1977
Post-WWII Europe experienced its longest sustained period of economic growth between 1950 and 1962. But the effects of the growth varied across the different nations. As a result of this unevenness of growth, Europe witnessed a new phenomenon of voluntary movement of labor across national boundaries for temporary periods of employment. The continued economic growth encouraged the organized importation of labor, which at its peak in 1973 saw 11 to 12 million foreign workers living and working in Western Europe. By 1974, in the wake of the oil crisis and the recession that followed it, all the major labor importing countries were banning imported labor from non-EEC (European Economic Community) countries. EEC labor, on the contrary, is guaranteed intra-EEC mobility. This massive influx of foreign labor had resulted in a whole new set of social, political, and economic issues. As the call to cease the labor influx grew stronger, governments took steps to evaluate the costs and benefits of labor importation. This article tries to do the same. Consequences of migration occur in both sending and receiving societies as well as across many aspects of our lives. After first outlining the history or labor flows in Europe, we will discuss the affects as they apply to both the economic and non-economic spheres.
International labor flows had been relatively commonplace in Europe since the early 1800’s. Unclear international boundaries as well as the lack of any system of passports and border patrols made movement across borders easy. The industrial revolution spurred even more the desire for new labor, particularly as a means to escape the demands of organized labor domestically. Characteristic of these flows was their private and unorganized nature – individual employers arranged recruitment as well as accommodation and transportation into and out of host countries. The immediate postwar period brought economic reconstruction and with it the creation of the European Economic Community, which guaranteed free labor mobility within EEC member countries. Though it started slow, international migration soon overwhelmed certain areas of Europe that were disproportionately hit by population flows. At its peak in 1973, employment from foreign labor was estimated by the OECD to be at 8 to 9 million people.
Foreign workers differed demographically and occupationally from the indigenous population. Immigrants tended to be young, single males at prime working age who were largely uneducated and intended to stay in their temporary locales for about 5 years. The males disproportionately took jobs requiring unskilled manual labor, particularly in construction, while women were for the most part evenly distributed throughout the service sectors and manufacturing. As a consequence to these socioeconomic differences many immigrants faced prejudice and a clear division between them and the native populations. Countries were faced with deciding between integrating the alien population (which could cause an “overforeignization”) or to allow workers to remain separate and cast out from the societies in which they were making their homes, as temporary as they were.
The method used for evaluating the consequences of labor flows takes into consideration the differences between sending and receiving societies; is aware of levels of aggregation; and distinguishes the consequences of labor flows by social sphere. The traditional economic analysis focuses on the long-term mutual gains to be had by all parties involved. To begin, Martin poses a counterfactual where he asks, “Given a labor shortage, what alternatives to (organized) labor importation exist?” Actions to restore labor market equilibrium can include the following:
1. Increase effective hours worked by encouraging labor force entry; lengthening the working day, week, or year; increasing effort on the job; and/or encouraging shorter educations or delaying retirements
2. Decrease labor demand by subsidizing the introduction of labor-saving technology; by encouraging investment abroad; and by taxing commodities requiring a labor input considered too large
3. Policies could increase wage levels, inducing a rise in labor effort while encouraging employers to economize on labor use
Given these options then, why do most societies choose to import labor in response to domestic labor deficiencies rather than utilizing indigenous resources? Most simply, the alternatives to labor importation include:
1. Public cognizance
2. Long range planning and
3. Policy implementation
If it is difficult for a government to accurately assess the acuteness of a labor situation, then often times the policy to correct it will be difficult to implement.
Martin’s article appraises the costs and benefits of labor migration at the personal level, at the enterprise level, and from societal perspectives, while attempting to distinguish between those costs and benefits which are nonrecurring and those which increase and decrease over time. To the extent that foreign workers are drawn from the agricultural sector, both sending and receiving societies can benefit from labor migration. Employers in the sending country will reap the long-term benefits of not having to train their agrarian labor force and will be met with a much stronger stock of human capital upon return of the migrating workers. Receiving societies can also benefit as imported labor will help to hold down wage costs as well as costs for capital goods ultimately imported by sending societies on their way to industrialization. Though the extent of this decrease in cost of capital goods may be relatively small, worker remittances as of 1972 had become the largest generator of foreign exchange in sending societies. Without such remittances, sending societies risked emigration as the ratio of the nonworking population to the rest of the population would increase. Further benefits to the receiving society include, amongst others, individuals being released from the burden of doing disagreeable tasks, the acquisition of an underclass, which is thought to provide upward mobility, lower unit labor costs for employers, and, to the extent that foreign labor mobility increases the elasticity of labor supply, employers enjoy a favoring of profits with continued economic growth. Furthermore, insofar as the wage structure is relatively rigid, an increase in wages at the bottom of the job scale in order to fill positions necessitates an across-the-board raise in pay to the top of the scale. The resulting inflation provides us with a rational argument for labor importation rather than wage increases.
The long-term costs are particularly important to the author as he sees their trend increases as outweighing trends in aggregate benefits for both sending and receiving societies. Employers in sending societies experience an immediate negative result as labor reductions push up wages as well as long-term effects of the increased bargaining power of their work force who have come home experienced labor leaders. The social costs to sending societies depend on a number of factors including the composition of the outflow and inflow, the degree to which labor can readjust upon returning home, and the extent to which sending and receiving societies are different. From this there is an optimal quantity/quality emigrant combination for each sending society. As long as employers are calculating this combination and not domestic governments, these long-run negative effects are likely to continue according to Martin. The cost to an individual in a receiving society logically relates to his/her position in the labor market with respect to the immigrant labor. Over time the competition in this area will increase as foreigners decide to stay in their host countries for longer periods of time. They and their dependents necessarily compete with natives for the resources offered by social services, though we should note that they also will have been paying domestic taxes by this point so it would be improper to call this a drain on the social services.
For employers of foreign workers costs must be incurred with regard to steps that would not otherwise have to be taken with domestic labor (i.e. translators, recruitment, accommodations, etc). Furthermore history has shown certain risks with groups forming sects within labor unions according to nationality. This increased labor unrest was seen in the Turkish wildcat strikes at the Ford plant in Cologne in 1973. Finally as resources dry up locally and nearby, employers are forced to search more distant lands for the labor supplies.
Almost all of the social costs are long-term and appear to grow more than proportionately with increases in the number of foreign workers, suggesting some kind of critical mass or threshold at which cost or benefit functions are discontinuous. Higher crime rates among foreigners are have been documented, though they should not be taken to seriously inasmuch as foreign crime merely tends to be reported more. Increased labor unrest tends to also exist amongst immigrant labor groups. The assumed trend increase in the duration of stay proves to be bad for both sending and receiving societies. Increased demands on social services as well as decreased labor mobility hit receiving societies with longer durations. If long-term social costs exceed benefits it becomes necessary for host countries to reevaluate their immigration policies. However once a country becomes dependent on imported labor, such policy changes will likely come at a cost, implying a certain floor under which further reductions would result in more severe dislocations. One option is to offer shorter permits to migrants, which would reduce the costs incurred with long-term stays. But for the employer it is to his advantage to keep laborers as long as possible given the costs they incur for training. Receiving societies could minimize their long-term costs by doing the following:
1. Recruiting people as compatible with the domestic population as possible. This makes it easier for an immigrant to assimilate into a society, thus reducing the long-term costs associated with language/cultural barriers.
2. Limiting the duration of stay
3. Reducing concentrations of migrants as much as possible
4. Forcing employers to bear the costs of extra social services, and
5. By fixing some numerical percentage as the upper limit to labor influxes
Most importantly receiving societies must decide whether to integrate their immigrant populations into long-term society are simply recycle them over the short-term. Sending societies do not have this same degree of choice; they can merely respond to demand by either allowing or prohibiting emigration. Long-term conflicts will arise as either those who have experienced higher wages and freedom return home to create new social tensions, or simply by the resentment toward a regime that will not allow emigration.
The existence of these underlying conflicts of interest is what to this point has prevented the explicit formulation of a consistent labor policy. We must first identify the costs and where possible their causes, after which government should attach weights to its various priorities. Until these steps are taken, individual decision making rather than multilateral agreements will only exacerbate the problems of the temporary migration of labor.