Immigration in the European Union:

Economic Issues and Policy Responses

By

Saša Mešter

Master Thesis

A thesis is presented to the Center for European Integration Studies

in partial fulfilment of the requirements of the
Master of European Studies – Governance and Regulation
to achieve the degree of a Master of European Studies

Bonn, 31.08.2015.

Supervisor: Prof. Dr Volker Nitsch

Acknowledgements

Special gratitude is kept for the Konrad Adenauer Stiftung, without whose support this
Masters’ journey would be mission impossible. KAS is comprised of special, supportive and
friendly people and this thank you goes to them.

I would also like to take the opportunity to thank my supervisor, Prof. Dr Volker Nitsch, for
his openness and willingness to provide me with necessary support in delivering this thesis.

Exceptional appreciation is reserved for my parents and friends across Europe who
supported and encouraged me during the entire process, from applying until the completion
of this Master programme. I owe this Master’s Degree to them.

1
 TABLE OF CONTENTS

1. INTRODUCTION ...............................................................................................................6
1.1. RESEARCH QUESTION AND THE HYPOTHESIS ....................................................................8
1.2. RESEARCH AIM AND PURPOSE..........................................................................................10
1.3. THE STRUCTURE OF THE THESIS .....................................................................................11
1.4. METHODOLOGY AND DELIMITATIONS OF THE SCOPE OF THE THESIS ............................12
1.5. IMMIGRATION – AN ESSENTIALLY CONTESTED CONCEPT OR NOT? ................................14
2. LITERATURE REVIEW AND THEORETICAL FRAMEWORK ............................18
2.1. STATE OF RESEARCH ....................................................................................................18
2.2. THEORETICAL FRAMEWORK ...........................................................................................20
3. IMMIGRATION TO THE EU – FACTS AND FIGURES ..............................................26
3.1. FACTS ON THE IMMIGRATION TO THE EU .......................................................................26
3.2. STATISTICAL FIGURES .....................................................................................................28
4. ECONOMIC ISSUES OF IMMIGRATION TO THE EU ...........................................32
4.1. LABOUR MARKETS .......................................................................................................35
4.1.1. Demographics as indicators of the labour market demand for immigration .........36
4.1.2. The structure of immigration labour in the EU ......................................................38
4.1.3. EU labour market needs ...........................................................................................40
4.2. PUBLIC FINANCES ........................................................................................................41
4.2.1. Free riders or a solution to the ageing problem? ....................................................42
5. EU IMMIGRATION POLICIES.....................................................................................44
5.1. CRITICAL ASSESSMENT OF THE CURRENT IMMIGRATION POLICY FRAMEWORK ........44
5.2. EVALUATION OF THE RESEARCH QUESTION AND THE PROPOSED HYPOTHESES ..........48
5.3. SEVERAL POLICY IDEAS AND RECOMMENDATIONS .........................................................49
6. CONCLUSION ..................................................................................................................51
7. LIST OF REFERENCES .................................................................................................53
ANNEX I: LIST OF GRAPHS, FIGURES AND TABLES .................................................56

2
List of Abbreviations

Cedefop - The European Centre for the Development of Vocational Training

Council – Council of Ministers of the European Union

DG – European Commission’s Directorate-General

EU – European Union

EU-15 - Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom

EU-8 - Estonia, Latvia, Lithuania, Poland, Czech Republic, Slovakia, Slovenia, Hungary

EC – European Commission

FRONTEX - European Agency for the Management of Operational Cooperation at the

External Borders of the Member States of the European Union

MS – Member States of the European Union

OECD - Organisation for Economic Co-operation and Development

IOM – International Organization for Migration

UN – United Nations

Keywords

Immigration, European Union, Economic Issues, Labour Markets, Public Finances,

European Immigration Policy.

3
List of figures, graphs and tables

Graph 1: Measuring the immigration surplus: homogeneous labour, fixed capital

Figure 1: Correlation between immigration levels and unemployment rate in the EU-27
Figure 2: Foreign-born and Native unemployment rates; Average 1995-98
Figure 3: Net migration to the EU, Japan, USA, 1960-2011
Figure 4: Share of non-nationals in the resident population, 1 January 2014
Figure 5: Population change by component (annual crude rates), EU-28, 1960–2014 (per
1.000 persons)
Figure 6: Total population change in low-income countries (overview and prediction) 1950
2100
Figure 7: Total population change in high-income countries (overview and prediction) 1950-
2100
Figure 8: Main scenario and “zero” migration scenario – Projected population for the EU
Figure 9: Number of persons having acquired the citizenship of an EU Member State, EU-
28; 2009–13 (thousands)
Figure 10: Tax revenue by economic function, EU-28, 2012
Figure 11: Age structure of the national and non-national populations, EU-28, 1 January
2014
Figure 12: Population structure by major age groups, EU-28, 2014
Figure 13: Median age of population, EU-28, 2001–14
Figure 14: Unemployment rate (among persons aged 25-64 years) by level of educational
attainment, 2013
Figure 15: Population pyramids, EU-28, 2014 and 2080
Figure 16: Persons issued with an order to leave the EU-28 compared to persons recorded as
having been returned to a non-EU country
Table 1: Immigration by citizenship, EU-28+, 2013
Table 2: Unemployment rate, 2003-13

4
Homo sum, humani nihil a me alienum puto.

Terence

5
1. Introduction

Since the end of the Cold War, increasing inflows of third country nationals to the
European Union have significantly increased the importance of the phenomenon of
immigration among policy makers and the general public that will remain highly relevant in
the decades to come. The contested issue of immigration has been on the top of the agenda
in Brussels especially since the setting up of the area of freedom, security and justice with
the Treaty of Amsterdam and Tampere agreement in 1999.
As one of the most frequent and sensitively discussed topics, immigration has been
mostly deliberated from a political and security perspective. Having in mind the nature of
the challenges such as terrorism and the existence of the failed states in Europe’s near
neighbourhood, being the main geographical source of immigration, it is obvious why that
has been the case. The complexity and the multitude of challenges associated with the
immigration sets its place on the top of the agenda for the most of the stakeholders in the
EU.
At the same time, understanding the structural origins and economic effects of
immigration has been frequently misconstrued by the policy makers and the media. Why is
that so?
Economic motives have been one of the main push factors of migration throughout
modern history, primarily causing movement of people from sending, lower-income to
receiving, higher-income countries. Economic effects for both groups of countries were
often ambiguous and problematic to assess1, therefore less deliberated in a public debate and
amongst the policy makers.
On infrequent occasions when the economic effects of immigration are being brought
up in the political discourse, two groups of concerns are the most commonly found; the one
group deals with the potential decrease of wage and the increase of unemployment levels;
the other one is focusing on the impact of immigration on public finances and fiscal
contributions. Even though many economists, international organizations such as OECD and
IOM, as well as the European Commission argue for the further reform and liberalization of
immigration rules, needed to timely respond to factual forewarnings on the negative trends

1
Especially, having in mind statistical (lack of data, or comparable data) and temporal (not being able to
take into account mid- and long-term consequences) limitations

6
of demographic and, accordingly, labour imbalances in Europe, stereotyped narratives such
as “immigrants are taking our jobs” or “immigrants cost us money” are highly popular with
the majority of the public in the EU2 and amongst the right-wing, conservative politicians,
especially in times of economic crises. These are illustrations of how ill-informed and poorly
substantiated is the debate on immigration within the EU. Furthermore, it warns against the
prospects of the realization of any kind of reform of the common immigration policy,
including its further Europeanization.
Immigration policy actions are often reactive towards dealing with immediate
imperatives, such as the purpose of, e.g. the EU's ten point action plan to tackle
Mediterranean crisis3. Consequently, they are rather proactive, towards building a
sustainable, longer-term framework that would encompass a complex scheme of not just
political and security, but also of economic and social challenges to address this phenomenon
in an effective and efficient manner.
The fact that the EU represents a single, borderless economic area4 puts more
pressure on national policy makers towards mutual cooperation in order to effectively realize
their national interests. On the other hand, not every Member state in the EU is equally
affected by immigration from third countries. Some of them have been more favoured target
destination than the others. Reasons for this might be multiple, ranging from historical to
economic or influenced by the necessity of family reunification. This results in
individualized approaches to shield distinct interests vis-à-vis immigration which are hardly
analogous across the twenty eight countries. Larger immigrant-receiving MS in deciding
upon how to respond to (potential) immigration, are often torn between stricter, rigid
mechanisms of control (such as setting the criteria, migration quota, temporary permits) and
more liberal, open policies that promote integration and allow for higher degree of mobility.
These discrepancies influence the possibilities and the range of common responses to
immigration challenges in the EU and are making them often unreliable and insufficient

2
European Commission, Directorate-General for Communication. 2015. Standard Eurobarometer 83; Spring
2015 PUBLIC OPINION IN THE EUROPEAN UNION. Available online at:
http://ec.europa.eu/public_opinion/archives/eb/eb83/eb83_en.htm Accessed on: 10.08.2015.
3
European Commission, Press Release Database. 2015. European Commission - PRESS RELEASES - Press
Release - Joint Foreign And Home Affairs Council: Ten Point Action Plan On Migration. Available online at:
http://europa.eu/rapid/press-release_IP-15-4813_en.htm. Accessed on: 02.08.2015.
4
This is the result of the implementation of the Schengen agreement and the Single European Act, adopted
in 1985.

7
since each MS decides on its own immigrant scheme which potentially could have a
distortive effect on the economic perspectives across the entire EU.
Regardless of the debate whether to allow or prohibit the inflow of immigrants, it
would be hard to imagine that the EU could be able to prevent excessive inflows of
immigrants in the future, having in mind the multitude of political, security and economic
issues. In juxtaposition to the previously said, it would be unlikely to expect that the
demographic problems facing the EU will be resolved without further influx of immigrants.
The reality and the effects of this phenomenon undoubtedly demand a common policy
framework through which the EU policy makers may exercise its allocated competences
more effectively and achieve higher gains than it could be possible at the national level.
This intrinsic necessity for a more European overlook, aimed at overcoming the
previously discussed challenges, will be in a state of increasing continuous demand as the
immigration pressures and demographic (labour) imbalances will continue to rise in the
future.

1.1. Research question and the hypothesis

The debate on immigration unwrapped many questions regarding not just the
aforementioned political, security and economic challenges but also whether and how the
policy framework should be structured in order to properly and effectively respond to these
challenges.
Demographic imbalances and the progressive decline of the European East-West
migration due to economic growth in the East are starting to force MS to admit more people
from third countries in order to fill in the labour shortages and decrease the negative balance
between the economically active and inactive population. Therefore, the general question
should not be whether the EU should follow a pro-immigration or no-immigration approach
but whether the current policy framework is able to manage these pressures to make a
complete advantage of the benefits from immigration and to properly respond to the
challenges arising as a by-product? Some of the additional questions have been focusing on
the results of implementation of the existing policies and whether they have ensured
favourable outcomes for the concerned stakeholders. Others have been concentrating on the

8
further possibilities of the common immigration policy by asking how much more can be
achieved concerning the institutional challenges and diverse national interests.
This thesis intends to answer a more specific research question defined as follows:
whether and to what extent policies on the EU level correspond to the economic issues
associated with immigration? In other words, whether and to what extent immigration
influences analogous policies in the EU through its impact on the economic conditions?
Author of this thesis examines the question in order to find an answer why has there been no
comprehensive and effective approach in the corresponding policy-making outputs in the
EU regarding the economic issues and demographic necessities correlated to immigration
and what could be the possible solutions to this issue.
The research question was inspired by several factors. Firstly, while reviewing the
relevant literature it became apparent that the economic impacts of immigration to the EU
alongside with the necessity of remedying the demographic imbalances were not sufficiently
analysed in correlation to the performance and development of the common immigration
policy.
Secondly, it was motivated by the fact that the thorough and comprehensible
economic analysis of immigration to the EU is lacking to the present days.
Lastly, yet equally important, finalized research question was to a large extent due to
the fact that, regardless of the current immigrant crisis, and the reports of even faster
progressing demographic decline of the native population, the ongoing policy development
in this area has given even less attention to the longer term effects (progressively evolving
consequences) and inabilities of the EU, being a complex multilevel governance system, to
properly and collectively respond to challenges that have not been adequately resolved
through actions on the national level.
Hypotheses, through which we will examine the research problem and seek to,
through obtained analysis results, answer the proposed research question, will be separated
into one main and two auxiliary.
The main hypothesis is defined as follows: Economic effects and potential
demographic remedies of immigration effectively shape corresponding policies on the EU
level, true or false?
Two auxiliary hypotheses will additionally focus on the particularities of the
economic effects presented in the Chapter 4. The first auxiliary hypothesis reads as follows:

9
The effects of immigration on the labour market structure and demand are effectively
considered and managed by the EU immigration policies, true or false?
The second auxiliary hypothesis reads as follows: The effects of immigration on
public finances are effectively considered and managed by the EU immigration policies, true
or false?
Research question and related hypotheses will be used for analysing common
immigration policy from the perspective of the economic effects of (in) adequate managing
of immigration, whether it is legal or irregular, interrelated with the (lack of) response to the
demographic imbalances in the EU, both affecting labour markets and public finances.

1.2. Research aim and purpose

The contribution to answering the abovementioned questions is strongly related to

the purpose of this thesis. The ambition of this academic work is to provide an additional
effort to the better understanding of how policy-makers5 in the EU have been creating and
implementing the common immigration policy, what have been the push factors of its
development until now and, most importantly, whether and to what extent are economic
effects of immigration and its necessity to respond to demographic imbalances considered
in the policy-making process.
Having in mind that the EU is a supranational organization, the main aim of this
thesis is to find an answer whether the economic effects provide further impetus for evolving
the collective response on the EU level in order to deal with pressures caused by (lack of)
immigration. At the same time, it is intended to demonstrate that if more coherent measures
on EU level are not undertaken, these pressures and challenges might turn out to be adverse
in time.
This thesis also provides a contribution to the economic share of the immigration
debate in the EU, unveils its central points and explains existing policy framework.
Furthermore, by means of using constructive criticism approach it assesses EU immigration
policy shortcomings to be able to offer relevant recommendations for the future development

5
Main policy makers in the EU are the EC, having the power of initiative, the Council which represents the
interests and is comprised out of individual MS’ representatives, and since the Lisbon treaty, European
Parliament, representing the EU citizens.

10
of the common policies in this area. Immigration produces various and multifaceted effects
which require deeper understanding and more sophisticated levels of coordination of the
policies among the multiple EU stakeholders. What is for sure is that the progress in this
area is exceptionally important in order to maximize the benefits and reduce the unwanted
costs. How is it affecting economic conditions and what is the understanding of this
phenomenon in the public and among the policy makers in the EU is a necessary part of what
will be examined in the following chapters.
For this we shall develop a framework to examine the fiscal and labour market
consequences of the continuous inflows of immigrants into the EU. Additionally, we will
review the present immigration policy instruments in order to find out whether economic
considerations are taken into account. In the end, we will recommend actions in order that
economic consideration find their place in the future policy-making.

1.3. The Structure of the Thesis

This thesis is comprised of five chapters and a conclusion. The overview of the
structure unfolds as follows:
First chapter presented an introduction which contains a background of the issue.
Further, we presented the research problem, a research question with associated hypotheses
and the aim and the purpose of the thesis. After that we will present the methodology and
delimitations to this analysis. Lastly, we will provide a clarification of the ambiguous and
often confusing concepts used to describe the phenomenon of immigration in the EU.
Second chapter presents the literature review and theoretical considerations in the
field of immigration studies and, specifically, in the economics of immigration.
Third chapter presents the key facts and figures on immigration to the EU.
Fourth chapter focuses on the economics of the immigration. It starts with theoretical
considerations, most relevant models of analysis and summarizes the reasons and the key
questions and dilemmas of the immigration’s impact on the EU economy. It continues with
depicting and reviewing the main findings on immigration correlation with the two mostly
discussed and analysed economic areas, labour markets and public finances in juxtaposition
to the demographic imbalances trends in the EU.

11
 Fifth chapter critically assesses the existing EU immigration policy framework and
recapitulates its foundations. Furthermore, it evaluates the research question and related
hypothesis in order to test their relevance at the end of the process. Lastly, it proposes
recommendations for the improvement of the economic foundations of the EU immigration
policies.
Conclusion will aim at encompassing this thesis’ contributions, and providing
finalized answer to the research question alongside with evaluating the correctness of the
proposed hypotheses.

1.4. Methodology and delimitations of the scope of the thesis

The purpose of this subchapter is to provide further information on the methods used
in conducting this research and to set delimitations on the scope of the research.
Methodology used in this thesis is ought to correspond to the main issues that are
being addressed in the main research question. Main method that will be used in this
interdisciplinary research, situated between economics and political sciences, is qualitative
method of research in order to design a comprehensive analysis of the complex structure of
this research. Especially, this method will be highly suitable when examining policy-making
process as it can provide better insights into its developing nature through focusing on
interpreting the narrative used in the immigration debate and in defining and writing the
policies. Having in mind the flexibility and the richness of the proposed method along with
its constructivist and interpretative features, it provides the indispensable apparatus for
conducting this integrated research. The essential beliefs of this method, that there is not a
single outlook and a reality, as it is based within a given context and can change over time,
could be easily linked to the immigration phenomenon.
Nevertheless, this thesis is not limiting itself by using only one approach, as it would
be hardly possible to deliver proper results in researching these issues. The predominantly
used method in the observed economic literature on economic effects of immigration to the
EU is causal-comparative method. Actually, in the previously mentioned literature, the
largest amount of developed indicators, results and conclusions are derived from the
economic literature of the economic effects of immigration to the U.S and on individual
countries.

12
 These methods will be used as the most adjustable practical and efficient tools in
order to properly address the research purpose and respond to the questions posed in the first
part of this chapter. Utilizing the use of both proposed methods will enable us to take better
advantage of their strengths and avoid the singular weaknesses.
To serve the purpose of the thesis and due to the magnitude of the immigration
phenomenon and the related issues, we have concentrated our research on two particular
segments. The first one, regarding the economics of immigration to the EU, will be dealing
only with the two main economic issues, labour market effects and public finances impact.
The second segment, regarding the construct and development challenges of EU
immigration policy, will analyse this matter mainly in relation to the previously investigated
economic issues.
Consequently, we considered several limitations in our research for this thesis.
Firstly, this research does not examine national policies inside the EU. Secondly, existing
policies and recent proposals regarding refugees and asylum seekers are excluded. Thirdly,
as we have suggested, only specific economic issues among vast number of immigration
concerns are studied in order to accurately address the defined research question. Fourthly,
it is necessary to bear in mind that part of animosity of the public opinion and certain political
groupings towards the potentially negative effects of foreign population is not focused only
on third country nationals, but also towards the EU migrants. Without going into the deeper
examination of the effects of EU migrants on the host countries inside the EU, the
conclusions of several studies are undoubtedly positive, regarding EU migration impact on
the labour markets (given the structure of migrant workers, mostly highly educated
individuals) and the net positive contribution to public finances. Undoubtedly, for the simple
comparison, many of the issues, circumstances and experiences of EU migrants coincide
with the ones of the immigrants, thus the differentiation in theory and in practice is often
deficient. Lastly, regarding irregular immigration, which represents a significant part of the
total number of immigration, statistical information is often modest and imprecise. On the
one hand, this is due to the fact that irregular immigrants are typically not detected by the
authorities as they are entering or staying in the EU outside the legal range. On the other
hand, the lack of uniform definition of the concept may result in the deficiency of comparable
statistics and may pose some difficulties in accurately characterizing the impact of this
phenomenon.

13
1.5. Immigration – an essentially contested concept or not?

In order to better understand research framework with its delimitations and,

subsequently, correctly answer the research question and accurately test proposed
hypotheses, it is fairly important to further distinguish the scope of analysis through defining
what is considered under the phenomenon of immigration in this thesis.
Immigration, including its various forms, is an indispensable topic in different
academic disciplines6, as well as in the public discourse. Like many other concepts in social
sciences, immigration could be characterized as an essentially contested concept. As such it
is exposed to different understandings and value-judgements therefore in need for a
distinctive and unambiguous definition of the concept. “The term essentially contested
concepts gives a name to a problematic situation that many people recognize: that in certain
kinds of talk there is a variety of meanings employed for key terms in an argument, and there
is a feeling that dogmatism ("My answer is right and all others are wrong"), scepticism ("All
answers are equally true (or false); everyone has a right to his own truth"), and eclecticism
("Each meaning gives a partial view so the more meanings the better") are none of them the
appropriate attitude towards that variety of meanings.”7 This holds to be especially true for
the definition of irregular (often named illegal, unauthorized, clandestine) immigration,
which we will try to define more precisely in the next paragraphs for the purposes of this
thesis.
For the general understanding of the term immigration we shall use widely accepted
definition, as outlined by the two major English dictionaries, Oxford and Merriam-Webster.
According to them, immigration represents the movement of people into a country of which
one is not a native, in order to permanently reside there.8 9 In other words, an immigrant is
an individual who enters or stays in a country other than the country of their citizenship, with
the intention to set up a permanent residency.

6
From security studies, international relations and economics to integration and cultural studies
7
Garver, Eugene. Rhetoric and Essentially Contested Arguments. Philosophy & Rhetoric Vol. 11, No. 3
(Summer, 1978), p.168 New York: Penn State University Press, 1978
8
Merriam Webster. Dictionary: Immigration. http://www.merriam-webster.com/dictionary/immigration
Accessed on: 01.08.2015.
9
Oxford Dictionaries. Definition: Immigration. Available at:
http://www.oxforddictionaries.com/us/definition/american_english/immigration Accessed on: 01.08.2015.

14
 For the purposes of this thesis in which we are examining the economic impacts of
immigration to the EU on policy processes we perceive immigration as a phenomenon that
is coming beyond the EU borders. Accordingly, the adapted definition will be read as
follows: an immigrant is a non-EU citizen who moves into the EU with the intention to set
up a permanent10 residency.

Furthermore, in order to distinguish whether one’s immigrant status is permissible

by laws or not, classification whether an individual is a legal immigrant or not is often used.
A legal immigrant is a person who has entered a country different from the country of
citizenship with the intention of establishing a permanent residence while previously
obtaining the appropriate authorization. An immigrant who enters a country different from
the country of citizenship with the intention to set up a permanent residence without
receiving beforehand the appropriate authorization has been often called an illegal or
undocumented immigrant.11

The term “illegal immigration” suggests that an act of moving across the borders is
not classified as legal as it was carried out against laws of the receiving country. In 2006
Communication on Policy priorities in the fight against illegal immigration of third-country
nationals, the European Commission had presented an official definition for what it
understood under the concept of illegal immigration. According to it the term “illegal
immigration” was used to describe a range of phenomena. “This includes third-country
nationals who enter the territory of a Member State illegally by land, sea and air, including
airport transit zones. This is often done by using false or forged documents, or with the help
of organised criminal networks of smugglers and traffickers. In addition, there is a
considerable number of persons who enter legally with a valid visa or under a visa-free
regime, but “overstay” or change the purpose of stay without the approval of the authorities;
lastly there are unsuccessful asylum seekers who do not leave after a final negative
decision.”12

10
Characteristic of permanency is crucially important for the analysis of statistics and initial differentiation
between immigrants and asylum seekers, temporary regimes’ participants etc.
11
Immigration assist.co.uk. What is an immigrant? Available at:
http://www.immigrationassist.co.uk/immigration/what-is-an-immigrant/ Accessed on 05.08.2015.
12
EUR-Lex. 2006. COMMUNICATION FROM THE COMMISSION on Policy priorities in the fight against illegal
immigration of third-country nationals. Available at: http://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=celex:52006DC0402 Accessed on 05.08.2015.

15
 There have been a plentiful of expressions used for “individuals who enter a receiving
country illegally, overstay their terms of legal residence, live in a country without a residence
permit, and/ or break immigration rules in a way that makes them liable to expulsion: The
adjectives irregular, illegal, undocumented, unauthorized or clandestine are combined with
the nouns migrants, immigrants, aliens or foreign nationals, and there are expressions like
sans-papiers, clandestinos, shadow persons.”13

However, in the last few years, various authors and organizations advocated for
substituting the most common used adjectives such as “illegal” or “clandestine” to a more
neutral one, “irregular” as they believed that prior ones could be understood as being
discriminatory and imprecise. According to organizations such as UNHCR, AI, OECD, and
even within the EU, ‘illegal immigration’ holds negative meaning and connotations of
criminality imposed on wide range of individuals, including children and women.

Instead, the term ‘irregular’ is considered as a more adequate. “Irregular migration

in this context denotes a form of migration that is “not regular”, “unlawful” or not according
to the rules (without necessarily being “illegal”, “illicit” or “criminal” in the legal sense).”14
According to Khalid Koser, the adjective “irregular” is more appropriate for describing the
given phenomenon. “The first argument is that most irregular migrants are not criminals.
Secondly, defining persons as illegal can also be regarded as denying their humanity. And
lastly, with a particular importance for UNHCR, is the possibility that labelling as “illegal”
asylum seekers who find themselves in an irregular situation may further jeopardize their
asylum claims.”15 Nowadays commonly used definition of irregular immigration by various
EU institutions and bodies reads as follows: “Irregular immigrants are third-country
nationals who do not fulfil, or no longer fulfil, the conditions of entry as set out in Article 5

13
Triandafyllidou, Anna. Irregular Migration in Europe in the Early 21st Century. in: Irregular migration in
Europe: Myths and Realities. edt. by Anna Triandafyllidou. England: Ashgate, 2010. p. 2
14
Jandl, Michael, Dita Vogel & Krystyna Iglicka; edited by Albert Kraler & Dita Vogel.. Undocumented
Migration: Counting the Uncountable. Data and Trends Across Europe. CLANDESTINO project final report:
November 2009, p. 7
15
Koser, Khalid. Irregular migration, state security and human security. A paper prepared for the Policy
Analysis and Research Programme of the Global Commission on International Migration. 2005. Available
online at: www.gcim.org

16
of the Schengen Borders Code or other conditions for entry, stay or residence in that Member
State”.16

Our study will have in its focus aggregate immigration from non-EU countries, with
particular emphasis on accompanying issues of irregular segment of immigration. When
discussing over immigration that is not defined as legal, the adjective “irregular” will be
used, alongside with the previously mentioned definition, as we also believe that using the
expression “illegal” will not contribute to better understanding of possibilities and challenges
of this phenomenon.

16
European Parliament, Briefing. Irregular immigration in the EU: Facts and Figures. April 2015. Available
online at:
http://www.europarl.europa.eu/RegData/etudes/BRIE/2015/554202/EPRS_BRI(2015)554202_EN.pdf
Accessed on 10.08.2015.

17
2. Literature review and theoretical framework

2.1. State of research

While reviewing the immigration literature, we have had to clearly distinguish

relevant studies from irrelevant ones for the research problem of this thesis. To do this, firstly
we had to confine our assessment with focusing on the effects of the immigration inflow
only on the host countries. Even then, there have been a range of vitally important issues that
are being assessed in overall literature. These included matters such as demographic and
environmental impacts, security concerns and challenges, consequences on the social and
cultural composition of the native societies. Notwithstanding the former, overall literature
provided us with sufficient theoretical considerations to the issues of the economic impact
of immigration on the host countries. The specific research of the economic impacts of
immigration to the EU has been rather scarce, to the greatest extent carried out by institutes
and organizations such as Migration policy institute17 and OECD18 supported by the EC.
Anyhow, these studies have been typically based on application of the comparative U.S.
based studies and developed models on analogous economic issues and policy reform
experiences and modifications.
Part of the studies on economics of immigration focused on the questions such as:
“Is immigration good or bad for the economy” 19 or cost-benefit articulated such as: “Are
immigration benefits bigger than the costs?”20 In order to resolve these dilemmas,
economists mostly concentrated on analysing the labour market impacts of immigration,
particularly on native wages and employment rates changes. Theoretical analysis and
arguably the most popular model developed by one of the main authors on economics of
immigration, George Borjas explaining the labour effects of immigration using the example
of the U.S experience, is often cited and used as a referent point for the most of the EU-

17
More on Migration Policy Institute and its research studies on: http://www.migrationpolicy.org/
18
More on OECD/EU reports and studies on: http://www.oecd.org/migration/ as well as in the remainder of
this thesis
19
Dustmann, Christian and Ian Preston. Is immigration good or bad for the economy? Attitudinal responses.
2006. Elsevier Ltd.
20
Brain Gain: Rethinking U.S. Immigration Policy

18
oriented studies on that subject21. Later theoretical contributions to the literature on
economics of immigration by three authors, Clark, Hatton and Williamson22 have extended
the previous model to include the effects of different non-pecuniary immigration costs.
In contrast to the analyses that have exclusively addressed labour markets impact of
immigration, the other have, inter alia, focused on the economic issues caused by
immigration on public finances, welfare systems and the provision of public services.
Questions and studies concentrated on the net fiscal contributions of immigrant population
combined with concerns on whether immigrants are abusing the welfare system by living at
the expense of the native taxpayers2324. EU-related studies focused more closely on the
questions such as whether dissimilar welfare benefits of individual MS have importance in
deciding upon immigration destinations.
Moreover, different economic studies often examined immigration impact on labour
markets and public finances of individual MS where the general public debate has been duly
established and more advanced, specifically in the UK25 and Germany26 in order to
contribute with a scientific set of arguments. Nevertheless, as it may be seen on the more
EU-oriented German study example, while it introduces “the model which could provide the
foundation of the future EU strategy”, it scarcely focuses on EU policy-making challenges
and distinct issues and development of EU immigration policy. That being said, these
studies, even though significant for the general public and academic debate on the economic
effects of immigration to the EU, is not fully appropriate for the purposes of this thesis.
Furthermore, literature has not dedicated enough attention to the correlation of
economic effects of immigration and immigration policy outlooks, especially considering

21
Borjas, George J. Self-Selection and the Earnings of Immigrants. The American Economic Review, Vol. 77,
No. 4., Sep., 1987, pp. 531-553
22
CHW
23
More on public finances and welfare effects of immigration in the EU in conjoint studies such as: Boeri,
Tito. Gordon Hanson and Barry McCormick. Immigration Policy and the Welfare System. Edit. New York:
Oxford University Press; The Williams Davidson Institute, 2002. and Borjas, George J. The Economics of
Immigration. Journal of Economic Literature, Vol. 32, No. 4. Dec., 1994, pp. 1667-1717.
24
Felbermayr, Gabriel J. and Wilhelm Kohler. Immigration and Native Welfare. In: Kohler, Wilhelm.
European Economic Integration, WTO Membership, Immigration and Offshoring. 2014. World Scientific
Publishing Co. Pte. Ltd.
25
More on the UK academic debate could be found in multiple higher-education institutions’ projects and
publications such as: Migration Observatory, Oxford, UK. Available online at:
http://www.migrationobservatory.ox.ac.uk/briefings Accessed on 10.08.2015.
26
One of the most relevant studies on the German experience; Zimmermann, K.F., Bonin, H., Fahr, R. and H.
Hinte. Immigration Policy and the Labor Market: The German Experience and Lessons for Europe. Springer,
Heidelberg: Springer, 2007

19
intensifying immigration levels and demography imbalances increasing labour market
demands which are not suitably filled with native labour.
Regardless of the persistent data constraints and econometric challenges, many of the
short-run effects for labour market outcomes and public finances have been forecast
reasonably well. Future studies on the key factors like re-migration and labour mobility of
immigrants are essential as they will lead to better understanding of the long-term impacts
of immigration on economies of the EU MS and thus facilitate enhanced formulation of long-
term immigration policies.
This thesis is sought to balance the extensive research regarding the experiences of
traditional receiving countries like the US with more recent European studies. This balance
is important given the substantial dissimilarities of the EU economic model, its labour
market structures and welfare systems to the US.
This thesis extends the existing literature by presenting analysis that joins key
economic issues of the immigration to the EU with its policy-making and development.

2.2. Theoretical framework

In order to convey this research and provide a basis for better understanding of this
thesis’ outcomes, it is essentially important to delineate and set an appropriate theoretical
framework. This framework should provide us with a set of techniques and models that will
facilitate the analysis, provide better results and insights and make this study consistent and
reliable.

Before introducing models that will give a theoretical form for this thesis, it is
important to briefly present the most adequate theories that have been used to explain the
nature of the process and the structure of the EU. Determining the most relevant theories on
the unique nature of the European Union should provide us with the better theoretical
perspective on understanding of the functioning of the EU institutions and policy-making.
Without it, the subsequent deliberations and the analysis itself would become less
meaningful.

The European integration process has influenced the development of theoretical

deliberations on the origins, reasons for development and the future direction of the

20
European Union. Theories like neo-functionalism, institutionalism and liberal
intergovernmentalism focused primarily on the European integration process and its
functional development. While the first two emphasized the role of the supranational
institutions, liberal intergovernmentalism, deliberated by Andrew Moravcsik, focused more
on the prevalent role of the national governments in moving ahead in the integration
process.27 Notwithstanding these theories, an explanation of the nature of the political system
and policy-making of the EU has been a part of another approach, mostly pronounced in the
work of federalists and systems theorists “who saw the EU as a political system characterized
by political demands (inputs), governmental actors, and public policies (outputs)”.28 The EU
as a political system receives demands from the surrounding, its institutions are responding
to these demands, either through discarding, reviewing or producing outputs, public policies.

In the next segment, we will present main theoretical models that will be used in
examining how policy-making processes work and how inputs are being transformed into
policies. These models are important, as they are equipped with instruments that make it
easier to simplify and clarify policy context and help identify important aspects of policy
challenges and produces. Additionally, they are helpful in providing the better and more
structured explanations of policy-making processes and predict its consequences.

Among the main theoretical models for analysis of policy-making processes, such as
institutionalism, rational policy-making model, game theory and the public choice theory,
for the purposes of this research as the most suitable theoretical model a systems model for
policy analysis will be used. This does not preclude testing its inefficiencies by
supplementing it with two other models, institutionalism and rational policy-making model
which should be able to shed more light on the elements of the process and the structure of
the policy-making, particular interests and other factors that influence individual choices.

According to the systems model, the policy-making process has been considered a
“black box which converts the demands of the society into policies”29. The systems model
to policy-making analysis could be described as following: “Inputs are seen as the physical,

27
Pollack, Mark A. Theorizing EU Policy-Making. In: Policy-Making in the European Union. Fifth Edition.
Edited by Hellen Wallace, William Wallace and Mark. A. Pollack. London: Oxford University Press. pp. 14-18
28
Ibid, p.66
29
Sapru, R.K. Public Policy: Formulation, Implementation and Evaluation. 2nd revised edition. New Delhi:
Sterling, 2004, p. 60

21
social, economic and political products of the environment. They are received into the
political system in the form of both demands and support. Demands are the claims made on
the political system by individuals and groups to alter some aspect of the environment. The
environment is any condition or event defined as external to the boundaries of the political
system. The supports of a political system consist of the rules, laws and customs, which
provide a basis for the existence of a political community and the authorities. At the heart of
the political system are the institutions and personnel for policy-making. They translate
inputs into outputs. Public policy is an output of the political system.”30

In the context of this study, the systems model could be interpreted as follows: inputs
analysed are restricted to economic products of the environment. Environment is represented
through the phenomenon of immigration, clearly being external to the boundaries of the EU
as a political system. The demands in this setting are consisted of the claims made by the
relevant stakeholders such as Member states, labour market forces, employers, immigrant
associations’ representatives, EU institutions, international organizations, EU
neighbourhood and border-sharing countries. The supports are reflected through EU
immigration policy and other relevant laws (particularly EU treaties). EU institutions,
representing policy-making structure, in particular EC, Council and EP translate
aforementioned inputs into EU immigration policy outputs through stipulated legislative
procedure.

As we have mentioned in the beginning, this model has its restraints, such as
overlooking on an important element of the policy process, i.e. that “the policy-makers have
also a considerable potential in influencing the environment within which they operate”.31
This model rather sees the policy-making process as a value-free, which cannot entirely
explain how and to what extent economic impact of the immigration may and should
influence the policy-making processes as the value debate and polemics around this
phenomenon already illustrate the level of sentiments raised among multiple stakeholders
and political representatives.

Additionally, we shall introduce relevant elements of the theory of migration in order

to foster better understanding of economic issues of the immigration and the choice and

30
Ibid, p. 61
31
Ibid, p. 62

22
possibilities of policy responses. Theory of migration focuses its attention primarily on
factors determining the migration flows from and to one country or a region. These groups
of factors are usually known as a push-pull model for the explanation of migration causes32,
and are coupled with other phrases such as brain drain, resettlement, family reunification,
climate changes, criminal activities and the rule of law, wars and stability etc. Push
(“supply”) factors include incentives and reasons for emigration out of the country of origin,
while the pull (“demand”) factors encompass incentives and reasons for demand of
immigrants in the host country or a region.

Classification of multiple factors or incentives may be extended into four categories,

as proposed by B. Bodvarsoon and Van Den Berg33 to address in a comprehensive manner
the reasons and factors that affect or may affect the decision to migrate: 1) negative
incentives that push people to emigrate; 2) positive incentives that pull immigrants to the
destination country; 3) positive incentives that induce people to stay at home, and 4) negative
incentives that cause people to stay away from a foreign country. According to these two
authors, when the push and pull factors are stronger relative to stay and stay away factors,
immigration is more likely to occur, and vice versa, when the stay and stay away factors are
stronger relative to the push and pull factors, immigration is less likely to occur on a large
scale.34

Among a number of potential factors or incentives “an economic consideration, the

desire to become better off, has been predominant”.3536 The liberal theory of the economic
effects of migration is based on this assumptions, as the “homo economicus” continuously
chooses to act in accordance with its own best economic interests. Notwithstanding the
previous, “not every individual who has the opportunity of becoming better off through
migration has the desire or the opportunity to do so. Nevertheless, the movements which

32
Eurostat. Push and pull factors of international migration: a comparative report. 2000. Available online at:
https://www.nidi.nl/shared/content/output/2000/eurostat-2000-theme1-pushpull.pdf Accessed on
10.08.2015.
33
Bodvarsson, Örn, B. and Hendrik Van den Berg. The Economics of Immigration: Theory and Policy. New
York and Heidelberg: Springer, 2009. p. 6
34
Ibid, p. 6
35
Issac, Julius. Economics of Migration. Routledge, London: 1947. p. 23
36
Economic factor can be considered under proposed categories 1 and 2 as both a pull and a push factor
having in mind that economic opportunities but also economic existential needs should be conjointly
considered

23
actually took place were mainly due to economic reasons” 3738 Economic reasons on the
demand (“push”) side usually include motives such as poverty, low wages and
unemployment. Wage differentials, according to neoclassical economics theory, caused by
differences in the ratio of labour to capital brings workers from low-wage countries to
migrate to countries with high-wages39, thereby becoming better off in economic positions.
The theory predicts that this movement will lead to decreasing of the real income differences
between the supply and the host region through decreasing the supply of labour in the
country of origin and increasing the supply of labour in the host region. On the supply
(“pull”) side, the most common economic reasons are, among the others40, demand for the
labour41, higher economic freedoms and respect for the property rights.

Unquestionably, there are many additional complex and intertwined non-economic

factors that are usually connected to or are creating an economic impact on both, countries
of origin and the host country or a region which are to be considered. For some potential
immigrants, education and scientific opportunities are the primary pull factor. Other pull
factors include a set of freedoms, better social mobility structure, peace and the rule of law.
Non-economic push factors include, among the various, overpopulation, discrimination and
persecution (ethnical, religious and sexual), civil wars and crime, and social exclusion.
Individual reasons could be extended to reasons modelled by households42 such as family
reunification, remittances and minimising future risks through household diversification.

Regardless of the previously mentioned, there are many factors which influence and
may possibly better explain why the majority of population from traditionally emigrating
countries decides not to move. Following the previously selected classification these factors
are defined as stay and stay away factors. Among the stay factors, geographical and transport
barriers to immigration may be very dominant. Additionally, the costs of transport and
resettling are usually very high. There are as well opportunity costs, incurred during the
period of transition between departure and their arrival to a new home and adapting to a new

37
Ibid
38
With the exception of refugee and asylum seeking immigration
39
European Communities. Push and Pull Factors of International Migration: A Comparative Report.
Luxembourg: Office for Official Publications of the European Communities, 2000, p. 3
40
Including the already mentioned high wages (higher real incomes)
41
Having in mind labour shortages induced by demographic imbalances in most of the developed countries,
especially in the EU, according to UN and OECD reports analysed in this study
42
Eurostat. Push and pull factors of international migration: a comparative report. 2000, p. 4

24
environment and finding a job43. The psychological “costs” of leaving everything familiar,
family and friends, adjusting to a new culture, language barriers and uncertainty are some of
the “stay away” incentives. Possibility of being discriminated in the new surrounding that
“translates into lower income and more subtle costs in the form of lower life satisfaction”44
additionally influence individuals in weighing up a decision to emigrate or not.

Lastly, one should not lose sight of that very important share of legal rules and
barriers which may influence the prospects of migration movements. Immigration policies
of the host countries on migratory flows have an essential role in normal circumstances.
Particularly in extraordinary circumstances and periods of crisis45, these policies frequently
clash with the push and pull factors of immigration which unseals many complications
regarding their effectiveness in maintaining the system and of the role in managing the
positive and desired and reducing the negative consequences of immigration. Additionally,
immigration policies often lead to a rise of irregular immigration as the potential host
countries, especially in a borderless Schengen system such as the EU, are unable to solely
control the inflow of people into their territories. Unrelated to the preceding it is necessary
to mention that the legal exit barriers of the country of origin may also influence the decision
about emigration. However, the conditions and the impact of migration on countries of origin
is not part of the analysis of this thesis.

Economic theory on immigration and its models that will be used to analyse and
further expose economic effects of immigration to the EU on domestic conditions and
policy-making response on the supranational level will be presented in the introduction of
Chapter IV.

43
Bodvarsson, Örn, B. and Hendrik Van den Berg, 2009. p. 6
44
Ibid, p. 7
45
Economic crisis in the host countries or immigrant crisis aiming at the host countries

25
3. Immigration to the EU – facts and figures

This chapter will present essential facts and statistical figures concerning
immigration to the EU in order to make evident the key indicators of immigration and
provide the basis for better understanding of the economic effects and significance of
discussion about the policies regulating this phenomenon and its effects. 46

3.1. Facts on the immigration to the EU

Immigration to Europe is relatively a new phenomenon, as the Europeans had been

the main source of emigration, settling the new world, spreading to the most distant parts of
the world, throughout history. The first reversed, positive, net movements of people towards
Europe were recorded at the beginning of the 20th century. Europe gradually became more
noticeable immigrant destination with the recovery and fast economic and development
boom after the World War II. The relative economic prosperity and political stability in the
newly have exerted a considerable pull effect on immigrants 47. Zimmerman (1994, 1995)
characterises this period of European migration as a phase of “war adjustments and
decolonization”48 as these processes lead to larger shifts of people from former colonies or
Eastern Europe as a result of new geopolitical circumstances. Western Europe absorbed a
lion’s share of immigration since the 1950s, especially from Eastern and Southern European
countries. As the European integration process advanced, economic development followed
and immigration started to become a common reality for the EU of the six. The main part of
the immigration to Western Europe (EU-6) until the 1970s were labour migrants, so-called,
guest workers, temporary workers from poorer parts of Europe. Increasing labour market
demands were filled by nationals from southern Europe, former colonies and neighbouring
countries; “North Africa in the case of France and Belgium; the Caribbean and the Indian
subcontinent for the UK; and Yugoslavia and Turkey for Germany”49. They were expatriates

46
Zimmerman, Klaus F. Tackling the European Migration Problem. American Economic Association: The
Journal of Economic Perspectives Vol. 9, No. 2 (Spring, 1995), pp. 45-62
47
Eurostat. p. 2
48
Zimmerman, 1995, p. 46
49
N. Diez Guardia and K. Pichelmann. Labour Migration Patterns in Europe: Recent Trends, Future Challenges
. Brussels: Directorate-General for Economic and Financial Affair, September 2006 Available online at:
http://ec.europa.eu/economy_finance/publications/publication644_en.pdf Accessed on: 10.08.2015.

26
or refugees, mainly low-skilled workers, who filled necessary labour slots and contributed
to the post-war economic growth. Economic slowdown in Europe triggered by the failures
of the Bretton Woods’ system in 1971 and Oil Crisis of 1973. In this phase, which
Zimmerman defines as “restrained migration”, immigration policies of the Western
European countries lead to reductions in the temporary workers’ vacancies. Even though
labour immigration was practically “zero”, immigration continued through family
reunification and infrequent refugee and asylum seekers’ inflows. After the Southern
enlargement, Spain, Greece and Portugal received back a significant number of temporary
labour migrants as well as new immigrants from non-European neighbouring and former
colonized countries. The establishment of the Single Market, alongside with the
establishment of the Schengen borderless area, in 1985/6 created a basis for a more flexible
movement of persons once they are inside the EU. Furthermore, the dissolution of the Soviet
Union, the succession wars in former Yugoslavia and in the Caucasus lead to new waves of
immigrants, mostly through an increased volume of asylum seekers and refugees, especially
to Germany, the Nordic countries and the United Kingdom.
The requirements for better border controls and more sophisticated coordination
mechanisms on the EU level, introduced in 1999 Amsterdam Treaty amendments, were
intended to prepare a ground for the largest enlargement of the EU in history which will lead,
as it was estimated in several studies prior to the enlargement50, to movements of millions
of EU migrants from the CEE-8 towards the EU-1551. While the overall rates of migration
from the new to the old member states have been less significant, the actual size of intra-EU
migratory movements differed considerably from state to state, peaking in Germany which
absorbed more than a half of total intra-EU migration. Transitional mechanisms and labour
movement restrictions, applied in some of the EU-15 towards the new EU-8, did not stop
migrants from coming but changed the structure of the immigrants, from economic to non-
economic migration. Intra-EU migration, even though increased, reserved a considerably
lower share in overall migratory movements in the EU in contrast to the non-EU immigration
(see figure 4 and table 1). Among others, Germany and the UK have become MS with the

50
Bauer, Thomas K. and Klaus F. Zimmermann. Assessment of Possible Migration Pressure and its Labour
Market Impact Following EU Enlargement to Central and Eastern Europe. Bonn: IZA Research Report No. 3,
July 1999 and Boeri et al., 2001
51
These studies generally predicted that between 2 and 4 percent of the new member states' population
will move to the EU15 countries in the long run, which constituted about 1 percent of the EU15 population.

27
largest shares of migration from other EU countries, while at the same time remaining the
main destinations of immigrants from third countries (see again figure 4 and table 1). On the
other hand, the South European countries, such as Spain, Portugal and Greece, as well as
some of the new Eastern European members, particularly Romania and Poland have become
countries with a negative net migration, particularly due to the intra-EU outflow of the native
population to other, more developed EU countries.
Although the rate of immigration from non-EU countries continued to progress, with
the exception of a brief decline during the first years of the economic crisis, recent
developments of increased influx of asylum seekers and refugees (both potential immigrants,
either legal or irregular) are increasing pressures52 on policy-makers on both, the EU and
national levels. That being said, it is becoming ever more necessary to prepare a sustainable
immigration regulatory system at the EU level in the near future.

3.2. Statistical figures

Migration is a universal phenomenon. For the purposes of better understanding key

figures on immigration to the EU it may be beneficial firstly to take a look at a wider global
perspective and afterwards move to more concrete overview of the most recent EU statistics.
In 2013 it was estimated to be around 232 million migrants worldwide (approximately 3.2%
of the total world population, being a relatively small share). From that, around 72.4 million
of the world's migrants have been situated in Europe which hosts a highest share in
comparison to other regions.53 According to the UN, between 1990 and 2013, the number of
international migrants worldwide rose by over 77 million or by 50 per cent. However, while
net migration to Northern America declined from 1.4 million annually in 1990-2000 to 1.3
million per year in 2000-2010, it almost doubled in Europe from 1 million to 1.9 million per
year over the same period.54

52
Combined with the economic and Eurozone crises, and as a result of security crises in the closer EU
neighbourhood, from Ukraine, over Syria, to Libya.
53
United Nations, Department of Economic and Social Affairs (2013). Trends in International Migrant Stock:
The 2013 Revision-Migrants by Age and Sex (United Nations database, POP/DB/MIG/Stock/Rev.2013/Age),
p. 1
54
Ibid, pp. 2-3

28
 On 1 January 2015, the total population of the EU 28 was estimated at 508.2 million,
3 million more since 201355. Projection of population growth shows that the EU population
should continue to rise and reach its peak around the year 2050, amounting to 525 million
residents (see Figure 8).56 This projection includes an expected share of continuous
immigration inflows in the EU. This expectation of future immigration flows is a result of
the considered demographic requirements that are prerequisites for the anticipated economic
growth in the EU and projected effects of the economic-based push factors in developing
countries, historical countries of origin of the EU’s immigration. Another Eurostat projection
that does not include immigration variable leads to a drastically different outcomes (see
Figure 8)57. In the “zero immigration” scenario, population of the EU would dramatically
decline until the end of the projected period, bringing into question the viability of
hypothetical no-immigration policy and the sustainability of not only the economic but also
the political subsistence of the EU. By 2050 the total population will fall from 2015’s 508 to
466 million and, if the trend would continue, by 2080 end at the level of 399 million EU
residents.
The contribution of net migration to the EU-28 to total population growth has
exceeded the share of natural growth since 1992 (see figure 5) peaking in 2013 with 95 %
contribution share. The share of net migration in total population change was 85.5 % in 2014.
The moderately low contribution of natural growth to total population growth is the product
of two main factors: firstly, net migration in the EU-28 increased considerably from the mid-
1980s onwards58; secondly, the number of live births fell, while the number of deaths
increased. “Since the number of deaths is expected to increase as the baby-boom generation
continues to age, and assuming that the fertility rate remains at a relatively low level,
negative natural change (more deaths than births) cannot be excluded in the future. In this
case, the extent of population decline or growth will depend largely on the contribution made
by immigration”59.

55
Eurostat. Migration and Migrant Population Statistics. May 2015. Available online at:
http://ec.europa.eu/eurostat/statistics-explained/index.php/Migration_and_migrant_population_statistics
Accessed on 20.08.2015.
56
Eurostat. Population Projections. May 2015. Available online at:
http://ec.europa.eu/eurostat/web/population-demography-migration-projections/population-projections-
/database Accessed on 20.08.2015.
57
Ibid
58
Ibid
59
Ibid

29
 The 19.5 million of non-EU nationals that are residing in the EU60 amount to a 4%
of the total EU population. In addition, there were 14.3 million persons living in one of the
EU Member States with the citizenship of another EU Member State. During 2013 around
1.4 million of non-EU nationals took on themselves to immigrate to the EU. This figure, to
a certain extent, symbolises an average annual volume of the influx of immigrants in the past
years and a projected net migration inflow in the upcoming years, according to Eurostat. The
top five countries of origin of non-EU nationals residing in the EU in 2014 were from
Turkey, Morocco, China, India and Ukraine. When looking at a share of the total number of
non-EU nationals residing in an individual MS, the five countries with highest shares are
Germany, Italy, Spain, the UK and France, respectively. Regarding the shares of
immigration to individual EU countries in 2013, results are very similar, with Germany, the
UK, France, Italy and Spain coming at the top of the list. When looking at the net migration,
Germany holds the first position in total share of immigrants’ inflows, followed by the UK
and Italy, while, on the other side, Spain and eleven other MS have negative net migration
flow. Relative to the size of the total MS population, Luxembourg in 2013 recorded the
highest rates of immigration, followed by Malta and Cyprus.61 According to the OECD
report of 201462 the amount of foreign-born residents within the EU has been much higher,
reaching a total of 33.5 million in 2014, which represents a share of 7% of the total EU
population.
On the other hand, data on the number of irregular migrants is limited and statistically
calculated as a difference between the detected numbers of entries or overstays and realized
requests for return to countries of origin, per annum or as an aggregate figure. Wide ranging
estimates from 2 million to 8 million of irregular migrant stock were often quoted in policy
documents, while the official statistics provided much lower records. According to
Clandestino project63, the last comprehensive attempt to analyse the problem of irregular
migration to the EU from 2009, more accurate and credible estimates that could be of
relevance to policy-making, show that there have been around 1.9 to 3.8 million irregular
immigrants in the EU-27 ending with 2008, and majority of them have been assessed to live

60
This part of the statistics data only refers to documented non-EU citizens who established their usual
place of residence in the EU for a period of at least 12 months
61
Eurostat, ibid, p. 6
62
OECD. Factbook 2014: Economic, Environmental and Social Statistics. Paris: OECD Publishing, 2014.
63
Clandestino Project, Final Report, Ibid, p. 10

30
in the old member states (EU-15). In the recent years, FRONTEX provided data on the
number of irregular migrant annual inflow. In 2014, numbers rose to 276 113 migrants,
representing an increase of 138% compared to the same period in 201364, but still below the
lifelike figures.
Bearing in mind that the total number of immigrants is defined as the number of legal
third country nationals with residence status of over a year, it makes it more rigid to reach a
full understanding of not just the number of irregular migrants, but also of the total number
of immigrants. The numbers that are obtained by simple registering of the border crossings
(entry and exit) is not sufficient to give a clear picture of the real situation in the EU
countries.
Notwithstanding the previous, according to UN and EU demographic growth
projection reports, comparable trends of the increase of immigration pressures will continue
in the future. Multiple push and pull factors, mainly based on economic calculations of
individuals, households and probable high-income host countries, forced by continued
economic and population growth discrepancies (see figures 6 and 7)65 between high-income
and low-income regions lead us to rightfully expect that the immigration flows will remain
a permanent issue and a (necessary) reality in the EU for the coming decades.

64
FRONTEX, Annual Risk Analysis 2015. Available online at:
http://frontex.europa.eu/assets/Publications/Risk_Analysis/Annual_Risk_Analysis_2015.pdf Accessed on
20.08.2015.
65
Meaning that rapid population growth in developing countries is coupled with low economic growth
pushes people to emigrate, while low domestic population growth and economic boost coupled with
decreasing unemployment levels pushes developed countries to accept immigration

31
4. Economic Issues of immigration to the EU

Fourth chapter focuses on the economic issues related to immigration in the EU. It
starts with theoretical considerations, introducing most relevant models of analysis and
summarizes the reasons, key questions and results of the studies of economic impact of
immigration on the host countries. The next two subchapters will review more concrete
findings of immigration effects on labour markets and public finances, respectively, and
provide an analytical contribution with examining recent demographic data and projected
trends for the EU.
Impact of immigrants was greatly analysed by economists in the US. Most of them
welcomed the contributions of highly-skilled immigrants that helped the US build one of the
strongest innovative economies, or for providing labour for jobs less attractive to native
population.66 Conversely, George Borjas, in one of the major analyses on the economics of
immigration, has disputed these benefits for newer generations of immigrants, as he
contested their educational structure which has declined noticeably leading to lower labour
productivity. In addition, these immigration pressures on similarly (lower) skilled native
labour force might have been partly responsible for the decline in their earnings.
Consequently, he concluded that this change may have had an adverse fiscal impact as the
new immigrants participate in welfare programs more intensively than the previous
generations due to the aforementioned reasons.67
Borjas also developed one of the most popularly used theoretical models in the
economics of immigration. It draws on the work on internal migration and provides a
contribution to better understanding of immigration specifics. B. Bodvarsoon and Van Den
Berg focused on the development of Borjas model, by depicting two stages of its
development. The main assumption of these models is that incentives to migrate are driven
by the international differences in the average returns to labour and human capital between
the country of origin and the host country. According to the first model, more relevant for
our study, a decision to migrate depends also on individuals’ future position and gains in a
host country with a different distribution of skills, education levels and abilities from the

66
Hanson, Gordon H., Kenneth F. Scheve, Matthew J. Slaughter, and Antonio Spilimbergo. Immigration and
the U.S. Economy: Labor-Market Impacts, Illegal Entry, and Policy Choices. Washington: IMF, June 2001
67
Borjas, George. The Economics of Immigration. Journal of Economic Literature, Vol. XXXII (December
1994), pp. 1667-1717

32
country of origin. It hypothesizes that the migration rate will rise if the host country real
income rises, and vice versa. The Borjas model has been used to “predict the flows of
different types of workers between countries”68 and to show that the differences in income
and skill distributions affect the composition of immigration, thus providing a clear
suggestion for the policy-makers, meaning, that in situations when education qualifications
and professional skills are not easily transferable in the host countries, it becomes more likely
that mostly less qualified and skilled labour will migrate, ceteris paribus.69
Another view on the reasons to immigrate, which may be useful in predicting and
recommending policy actions extending the Borjas model, was developed by Clark, Hatton
and Williamson70. It included specific migration costs, such as individual-specific migration
costs. According to this model, potential immigrants with family in the destination country,
incur lower levels of these costs. Moreover, quantitative restrictions or “skill selective”
immigration policies, may increase or decrease certain types of immigration.
On the other side, when considering the immigration in the host country and its
impact on the economy, few issues and considerations are especially relevant. In economic
theory, the question of gains and losses of host country incomes or, more specifically, of
different natives’ groups remain in the centre of the debate.
B. Bodvarsoon and Van Den Berg provided relevant theoretical models, untying the
macro and micro levels. On the macro level, when looking at the situation with native and
exogenous immigrant71 workers forming a homogeneous labour force with assumption that
there is constant capital supply, native workers with the same set of skills and level of
education will incur loss as a result of reduced wage levels. At the same time, native capital
owners will gain the part of the income as a result of decreased wages payed for the labour
force (See Graph 1). At the same time, as a result of the increased labour force, more output
is made, and consumption increases. 72 As a result of the empirical evidence on the US 2006
data, the loss to native workers had been 1.9% of the GDP, while gain for the capital owners
was estimated to be 2%. When looking at the aggregate immigration outcome, net surplus
made seems to look rather insignificant, compared to potential distribution effects it

68
B. Bodvarsoon and Van Den Berg, 2009, p. 40
69
Ibid, p. 46
70
Ibid, p 47
71
Exogenous immigration means immigration pushed by supply factors, overlooking at possible
endogenous, demand-driven immigration, pulled by higher wages in the host countries
72
Ibid, pp. 109-111

33
produces, shifting income from native workers towards native capital owners. When
considering immigration-related policy-making, especially on the national level, it may aid
in understanding supports from business owners and industry associations and oppositions
from low and medium skilled workers to more liberalized policies.73 In the opposite case,
with variable capital inflow, available both domestically and internationally, increase in
labour force, leading to decrease in wage levels, leads to increase in capital inflow, as the
two are complementary. Two authors concluded that the net surplus of immigration does not
lead to adverse effect on native workers, as wages will rise again, as the result of increased
capital inflow.74
On the other side of the spectrum, if we suppose that, as a result of different set of
push and pull factors together with the immigration policies, different types of skilled and
unskilled labour force are immigrating into the host country75, situation becomes more
complex when examining the potential immigration net surplus outcome.
As the inflow of immigrants increases the labour force supply, capital owners gain
regardless of the structure of the immigrant labour force. On the other hand, when
considering outcomes for the native labour, we have to differentiate between different skills’
levels of natives and immigrants. If we suppose that the native labour force is predominantly
higher or medium skilled, as is the case in the EU, than the inflow of low-skilled economic
immigrants would cause the low-skilled jobs’ wages to fall while at the same time skilled
jobs’ wages would rise, as a result of relatively reduced supply. Immigration surplus in this
case goes to capital owners and skilled native workforce, while native low skilled labour
force suffers loses.76
Overall, as a result of theoretical and empirical, most notably US-related studies, net
immigration surplus produces insignificant impact while, on the other hand, distributional
effects on certain native labour groups are much more noteworthy.
Lastly, immigration is rarely considered as a demand-driving force in the host
economy, meaning that immigration produces outcomes through labour engagement but also
represents part of the consumer power, regardless of the level of remittances it sends (if any)
back to the country of origin. At the same time, as the product output rises, it is expected

73
Ibid, p. 112
74
Ibid, p. 113
75
As it is the case in general with developed regions, such as the EU
76
Ibid, pp. 115-116

34
that as a result of lower wages and net immigration surplus incurred by capital owners, prices
of the goods and services will fall77, thus producing additional gains for native population,
ceteris paribus.
Some of the theoretical models, in respect to the understanding of this thesis, may be
misleading, bearing in mind that they are not fully adaptable as they do not make a distinction
between immigrants and EU migrants. Consequently, their conclusions and estimates
provide overall understanding for both groups of migrants regardless of their distinctive
characteristics. These distinctive characteristics will be further reviewed in order to avoid
misleading assumptions, as this thesis’ focus is only on the immigrants, third country
nationals.
Within the succeeding pages we will present an assessment of the recent empirical
evidence and statistical data linked to the immigration impact on labour markets in the EU
as a base for the consecutive clarification of the current and potential effects of immigration
on public finances. We have followed this order as the labour markets are a key source of
tax revenues in the EU (see figure 10). At the same time, the effect of immigration on labour
market conditions78 alongside with the current policies’ inabilities to cover all types of
immigrant workers under the taxpayer status, directly affects the budget and, specifically,
the allocations for the welfare benefits.

4.1. Labour Markets

This subchapter provides an extension of the survey of the obtainable empirical

evidence concerning the effects of immigration on wages and employment of native labour
force.
When evaluating immigration impact on the labour markets in the EU, one should
care to note their complexity, fragmented nature but also a number of factors that determine
labour supply and demand. Resulting characteristics of the EU labour markets, such as

77
Ibid, pp. 122-125
78
Inter alia, its impact on unemployment levels accompanied with an increase in the number of
economically inactive persons, usually their family members (potential recipients of the host countries’
social benefits)

35
different unemployment levels (see table 2), cultural-language barriers and, especially
significant, diverse social security systems79 have to be also considered.
Numerous empirical studies in the economics of immigration literature were oriented
towards estimating the impact of immigration on wage levels and unemployment of native
labour force. Majority of these studies have been about the US experiences, but there are
also several EU oriented studies, particularly the ones that assessed experiences of Germany
and the UK. Most of them found either insignificant negative or positive effects, while also
showing that it differently affects various segments of native labour force and, distinctly,
previous waves of immigrants. For example, Friedberg and Hunt80 when analysing the US
labour market reported that a ten percent increase in the fraction of immigrants in the
population reduces native wages by at most one percent. A study of immigration impact on
German labour market found that foreign labour depressed the wage rate of low skilled
native labour force (blue collars) and increased that of high skilled ones (white collars)
during the observed period.81 According to a relevant OECD report, immigrants in the EU
are likely to have a considerably higher rate of unemployment than the native population
(Figure 4 and 14) and earn less than natives at the time of arrival into the host country. The
differences between the unemployment rates of foreign-born immigrants and the native
population decrease over time, as immigrants improve their language skills and
qualifications.82
In the next segment, by weighing the EU demographic and labour market statistical
data and projections, and analysing the forecasts of the structural changes in demand of the
labour markets in the EU, we will try to “simulate” the probable labour market effects of and
demands for immigration in the EU in order to formulate an indicator for evaluating the
policy responses on the EU level to the actual labour market conditions.

4.1.1. Demographics as indicators of the labour market demand for immigration

79
Social security systems are one of the key reasons of, on the one hand, the labour force immobility and,
on the other hand, of immigrants’ decision to choose a certain country as a destination
80
Friedberg, Rachel M. and Jennifer Hunt. The Impact of Immigrants on Host Country Wages, Employment
and Growth. The Journal of Economic Perspectives, Vol. 9, No. 2. (Spring, 1995), pp. 33-44.
81
De New, John P.I. and Klaus F. Zimmermann. Native wage impacts of foreign labor: a random effects
panel analysis. Journal of Popular Economics. 1994, pp. 183-184
82
Ibid

36
 Most of the developed world is confronted with the effects of population ageing. The
European Union is particularly progressive case of the negative natural population growth
(see figures 10, 11, 12, 13, 15). This raises concerns regarding the potential lack of labour
force in the future to cover for the upcoming retirees’ jobs and for sustaining further
economic growth. Continuing low birth rates and higher life expectancy has been
transforming the shape of the EU-28’s age pyramid with probably the most important
change, the transition towards a much older population structure (see figures 12, 13, 15)83.
As a more concrete result, the proportion of people of working age (15-64) in the EU-28 is
going to shrink by 16% while the relative number of those retired (65+) will see an increase
of 35% by 2050 and will maintain a rising trend. On the other hand, the share of the
population aged less than 15 years in the EU-28 population will decrease by 4 percentage
points until 2050.
Some of the leading proposals used to offset aforementioned demographic trends in
order to carry on with the economic development and growth, is that supplementary workers
have to be found, whether among the native population through increasing the participation
rates of women and persons older that 65; EU migrants by providing more flexible
mechanisms and reducing rigidities of the labour markets, or through increasing non-EU
immigration levels, by implementing well-managed immigration policies. While the first
two options are less relevant for the scope of this thesis, the third option will be further
examined.
At the moment, the 19.5 million non-EU nationals residing in the EU amount to 4%
of the total EU population and constitute around 5% of the aggregate working age population
in the EU. It is further estimated that 78% of non-EU nationals are part of the working age
(15-64) population. Immigrants to the EU in 2013 were, on average, much younger than the
already residing residents. On 1 January 2014, the median age of the EU-28 population was
42 years. By contrast, the median age of immigrants to the EU-28 in 2013 was 28 years. An
analysis of the age structure of the population shows that, for the EU-28 as a whole, the
foreign population is younger than the national population (see figure 5). As a reminder, the
main determinant of natural population growth in the EU, has been net migration, accounting
for an increase of nearly 1.0 million persons in 2014 (see figure 3).

83
Eurostat, ibid

37
 Having in mind the previously mentioned characteristics, immigration should be
rightfully emphasized as the most adequate, flexible and ever-needed solution for balancing
demographic and demand for labour in the EU.
As demographic challenges have been considered as a source of great concern by the
policy-makers in the EU, effects of it on the development of common immigration policies
are yet to be systematically evaluated in the V chapter.

4.1.2. The structure of immigration labour in the EU

In order to better comprehend the complex set of factors influencing the labour
market responses to immigration and demands for additional labour force, it is crucial to
distinguish between various types of immigration. As different types of immigration vary in
skill and education levels, but also in economic and legal rights and obligations, such as
welfare rights, unemployment benefits and taxation, changes of their inflows are differently
affecting economic conditions in the respective recipient countries.
Economic immigration represents the rather regulated labour migration from third
countries which primary reason has been to fill the labour needs of the host countries, on a
temporary or a permanent basis. Being regulated by the set of laws means that they are
provided with a certain set of economic and social rights and obligations, and are included
in the national taxation system. They are entitled to a limited set of social benefits, but also
they are contributors to the budget taking into account that their incomes are taxed.
Non-economic immigration is the most heterogeneous segment of third country
nationals which may participate in the host countries’ labour market force. Even though the
primary reason of their immigration is predominantly family reunification, education, or
being former refugees, their participation on the labour market, whether regular or in the
shadow economy, should be included when considering the labour market impacts of
immigration. They often receive social benefits (e.g. as family members accompanying legal
labour immigrants) and, even though active on the labour market, as part-time workers or
even unregistered, do not often contribute directly to the budget as they are not direct wage
taxpayers. Their contribution may be measured through consumption taxes, such as VAT,
or, based on the economy of scale, by paying for different public services, such as public
transport.

38
 Irregular immigrants are especially important as they are mostly unregistered with
the authorities and are not legally present on the labour market but yet relevant as the most
distinct segment of immigration to the EU. Regardless of the lack of data concerning the
number of this group of third country nationals, being not legally regulated implies that they
are, on the one side, not entitled to any social welfare benefit and, on the other, are not
directly contributing to the budget through paying e.g. wage taxes. Nevertheless, similarly
to the previously discussed heterogeneous group, they contribute to the public revenues
through consumption taxes, no matter how modest it is. External and internal policy
expenditures on preventing and managing this group of immigrants, alongside with
opportunity costs of being rather excluded from the legal and taxation framework of the host
country, then recognized, will be further discussed in the V chapter of this thesis.
Furthermore, additional differentiation between immigrants and native labour force
with respect to education and skills may prove to be very useful in understanding of the
different labour market outcomes when considering the immigration impact. Education level
is one of the key determinants of labour market outcomes for any participant, whether native
or immigrant. “Immigrants are usually overrepresented on both ends of the qualification
scale, but have on average slightly fewer years of education than the native-born”84.
Moreover, more recent immigrants are usually higher educated than preceding waves
of immigrants. According to OECD estimates for the EU, recent immigrants have almost the
same number of years of education as the analogous native labour force. However, returns
to foreign qualifications are lower than the returns to host-country qualifications, in terms of
employment, job quality and the level of earnings.85 This is a result of the understanding that
the host-country educational qualifications are more valued and “appropriate” to host-
country labour markets, and the possession of host-country qualifications seems to be more
relevant in terms of labour market outcomes than the matters of the country of origin. To
summarize, not only are immigrants in relation to the native labour force at a disadvantage
as regards to their origin, language skills and lower overall educational levels but also as the
discriminative evaluation of foreign qualifications poses an additional barrier and often

84
OECD, European Commission. Matching economic migration with labour market needs in Europe.
September 2014. Available online at: http://www.oecd.org/els/mig/OECD-
EC%20Migration%20Policy%20Brief%2009-2014.pdf Accessed on 15.08.2015., pp. 3-7
85
Ibid

39
resulting in the absence of the most productive employment in the labour market of the host
country.

4.1.3. EU labour market needs

Notwithstanding the previous, the questions of the interrelation of immigration and

labour markets in the EU, go beyond the demographic particularities and native-immigrant
worker dynamics, thus focusing on the ever-changing and growing labour market
occupations.
Changing the centre of gravity in the EU towards the development of dynamic
knowledge-driven economies86 and the Digital Single Market87 have increased the demand
for highly educated labour force. “In some sectors, such as information technology (IT), the
increase has been sizeable and rapid and made it difficult for employers to find suitably
qualified workers.”88
According to Cedefop Skills forecast 2015 estimates89, total new job openings by
2025 will stem from the rise of the ones requiring high qualifications, while jobs needing
low qualifications will suffer a significant decrease. In the EU-28, changes in the skill
composition of employment between 2013 and 2025 are expected to show a sharp increase
in the share of jobs employing higher-educated labour (by 23%), while demand for medium-
level jobs is expected to increase moderately (3.5%). In contrast, lower-skilled workers is
expected to decrease significantly, by 24%.
Regardless of the estimated aggregate demand for highly qualified labour force in
the future, this should not neglect the meeting of the supply and demand on the micro-level.
According to the 3rd European Company Survey, it was found that 40% of EU-based
companies have experienced difficulties in finding adequate labour force, even though
adequate labour force on the aggregate level was available. “An overall balance between

86
Firstly introduced with Lisbon Agenda from 2000. More on that: European Council. Presidency
conclusions, Lisbon. 23 and 24 march 2000. Available online at:
http://www.consilium.europa.eu/en/uedocs/cms_data/docs/pressdata/en/ec/00100-r1.en0.htm
87
More on the EU priorities in this area: European Commission. Digital Single Market. Available online at:
http://ec.europa.eu/priorities/digital-single-market/ Accessed on 10.08.2015.
88
OECD, European Commission, Ibid
89
Cedefop. Briefing note - Europe’s uneven return to job growth. 2015. Available at:
http://www.cedefop.europa.eu/en/publications-and-resources/publications/9098 Accessed on:
15.08.2015.

40
aggregate labour supply and demand can, however, hide micro-level qualitative mismatches
as a result of different barriers to mobility or asymmetric information between employers
and workers.90 These challenges are even more emphasized when assessing the potential role
of immigrant labour force in satisfying targeted demand, because of additional barriers on
the established labour market for newcomers, such as language, unfamiliarity with the
business milieu and reduced mobility as a result of specific conditions of residence.
In any case, in the EU over the past decade, new immigrants represented 15% of
entries into intensely emergent occupations, such as science, technology and engineering.
Migrant workers are thus playing a significant role, regardless of the multitude of challenges,
in responding to labour demand in the most dynamic sectors of the economy91.
This assessment tried to draw a complex correlation of factors, trends and possible
outcomes as a result of immigration impact on the labour markets in the EU. Not just that
immigrants shape labour markets in the EU producing rather ambivalent consequences, but
the labour markets demand immigration of various skills and qualifications in order to
function properly, bearing in mind demographic necessities and occupation-related needs.

4.2. Public Finances

The central question that closely describes the purpose of this subchapter is whether
immigration represents a burden for the public finances in the EU, which goes beyond the
contributions that immigrants pay in return through a variety of taxes and fees back to the
budget.
Immigration affects both segments of the public finances, tax revenues and public
expenditures. Calculating the fiscal consequences of immigration, while straightforward
conceptually, is difficult in practice. The results vary depending on the methodology used,
the time period, immigrant structure and types, and whether they are focusing only on the
expenditures side, or they include revenues and, even, additional economic and non-
economic gains and losses.

90
European Commission. COMMUNICATION FROM THE COMMISSION Annual Growth Survey 2013.
Available online at: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:52012DC0750 Accessed on
20.08.2015.
91
OECD, European Commission, Ibid, p. 8

41
 Immigrants are less likely to receive social benefits. If and when they do, they receive
lower levels of such transfers than the native population with comparable features. Low-
skilled labour immigrants with large non-economically active members of families tend to
be a greater burden on public expenditures. Overall, they use public transport, receive social
benefits and attend free public education. On the other hand, they pay income, wage, sales,
VAT, property and other taxes. Lower-skilled immigrants make lesser net contributions,
while higher-skilled immigrants produce larger benefits for the host countries. Temporary
migrants are more likely to move without families, therefore having lower impact on social
benefits. In contrast, permanent immigrants, especially non-economic groups such as
refugees, accepted asylum seekers, students have relatively much higher impact on welfare
systems. Lastly, younger immigrants produce a net gain, while the older groups produce a
net cost. Several studies showed that net fiscal contributions or losses depend on the skill
and age level, and differentiate between short-term (usually more negative) and long-term
effects (usually more positive)92. Majority of the studies focused only on legal immigrants,
as irregular immigrants are not often “caught” by statistical data, though their impact would
contribute to more ambiguous results. One is clear, as irregular immigration do not have
access to many services, but are actually paying consumer taxes, when focusing only on the
net impact on the host economy, irregular immigrants may have been net contributors.93

4.2.1. Free riders or a solution to the ageing problem?

Impact of immigration on public finances is frequently seen as a problem as certain

groups of immigrants seem to misuse welfare system, by contributing significantly less than
gaining from the set of public service thus becoming free riders. We have tried to answer the
dilemma whether they may be a burden on the welfare state or do they impart economic
gains through increased productivity and higher tax revenues, in the previous segment.

92
Sinn and Werding (2001) for Germany, differentiated between short-term and long-term net effects;
Bonin (2000), again on the German case, proves that throughout the lifespan, immigrants, having in mind
their usual arrival years (young, but with finished education in the country of origin) produce a significant
but small net contribution. Rowthorn (2008) in his study on majority of EU countries concluded that the net
fiscal contribution was less than 1% of GDP, whether positive or negative.
93
Bodvarson, 2009, pp. 308-309. Similar empirical results were presented in the Special Report (2006) by
the Texas Comptroller of Public Accounts

42
 On the other side, it may also be seen as a solution. Increasing and changing the
population age pyramid through immigration is a legitimate remedy for solving one of the
vitally important demographic and economic issues inevitably facing the EU, that is
population ageing. As we have mentioned before, the proportion of the working age
population in the EU will decline, which will increase pressures on the public welfare
services. The old age dependency ratio may be a worthy indicator of intrinsic challenges to
public finances as a consequence of earlier presented statistics and projections on population
ageing and shares of working age population. This ratio, which measures the number of
elderly people as a share of those of working age, shows, according to Eurostat estimates,
will rise from 4 persons of working age to one person over 65 in 2012, to 2 persons of
working age to one person older than 65 years by 2060. The total age dependency ratio,
including the youth dependent population younger than 15, is projected to rise from 51.8 %
in 2014 to 77.9 % by 2080. This will, as a result, lead to an increased burden on working age
population to provide for the increased social expenditures.
Two additional question that are rarely addressed but relevant for the understanding
and calculation of net contributions of immigrants are the remittances and return
immigration. In both examples, a certain amount of aggregate net contributions is being
transferred outside of the host country, thus lowering the final outcomes of net contributions
of immigrants on the host economies.
Major economic studies do not provide any definitive predictions concerning the
labour market or public finances impact of immigration. Whether the native population or
host countries’ economies may expect gains or losses from immigration depends, inter alia,
on the structure and the size of the immigration flow, labour market characteristics and its
structure (e.g. wage or movement flexibility). Nevertheless, necessity of immigration is
unquestionable in the terms of balancing the demographic, but also the labour market
demands. As previously mentioned, the labour markets in the EU are an essential source of
financing of the fiscal policies. In order to achieve sustainable and high returns optimal fiscal
policy needs a productive use of available human capital on the labour market. This is the
setting in which immigration policies need to play a role in shaping and redesigning of this
(originally) external phenomenon for the sake of domestic economic outcomes.

43
5. EU immigration policies

This chapter will start with a critical assessment of the current immigration policy
framework on the EU level, bearing in mind the explored facts so far, in order to lead to the
answer of the research question, accordingly, whether and how policies on the EU level
correspond to the economic issues associated with immigration? In order to properly deliver
the answer and test the correctness of the proposed hypotheses, we will include theoretical
considerations introduced in the first chapter. As a result, we expect to arrive at the
conclusion why there has not been comprehensive and effective approach in the
corresponding policy-making in the EU regarding the economic issues and demographic
necessities correlated to immigration. In conclusion, we will argue that there is a growing
need for a more Europeanized common immigration policy and then discuss alternative
options for such a policy and economic matters it has to manage.

5.1. Critical assessment of the current immigration policy framework

The EU is based on a several main principles and values forming the foundation of its
nature and functioning. Solidarity, as one of the main principles of cooperation among MS,
is a key in understanding the necessary legal and political implications of the EU policy-
making in areas that are differently affecting multiple stakeholders, such as the phenomenon
of immigration shows.
Treaty on the functioning of the EU, article 80, being the legal basis of the EU actions in
the immigration matter, states that “the policies of the Union set out in this Chapter and their
implementation shall be governed by the principle of solidarity and fair sharing of
responsibility, including its financial implications, between the Member States”.
Furthermore, as defined in the official EU communication, “a forward-looking and
comprehensive European migration policy, based on solidarity, is a key objective for the
European Union”94. Solidarity implies that MS have to share the responsibilities and the

94
European Commission, Annual Growth Survey, 2013, ibid

44
burden of different challenges and resulting externalities. Management in conformance with
the principle of solidarity would entail that all MS should aspire towards joint managing of
the immigration environment and equitable distribution of its consequences. However,
different national interests as a result of diverse levels of immigration impact on particular
MS, as well as tendency of national governments to consider mainly anticipated short-term
outcomes and issues connected to their election cycles, have influenced and will continue to
affect development of these policies and its further Europeanization, thus, remaining to be
insufficiently proactive and inadequate to respond to various challenges and issues posed by
immigration.
Another key principle, freedom of movement within the internal EU borders,
intrinsically linked to the phenomenon of immigration, has been often misinterpreted and
insufficiently stimulated for the purposes of promotion and development of more flexible
and unified EU labour market, more suitable and required to meet ever increasing demand
for competitiveness in a globalized world than the currently fragmented, 28 labour markets.
On the other hand, there is still the lack of understanding of not only policy-makers at
national but also at the EU level, that the increased mobility and flexibility of the immigrant
workforce may possibly lead to increasing of the net contributions and decreasing of
negative impacts on domestic conditions.
Further on, EU policy-makers formulated EU immigration policies as a balanced
approach to managing legal immigration and fighting against illegal immigration.
Even though the EU’s aim is to develop a uniform level of rights and obligations for
legal immigrants, comparable with that of EU citizens, multiple challenges have not been
approached with concrete policy mechanisms, such as the incentives and impact of non-
economic immigrants entering the labour market, and the current inabilities of the Blue Card
Directive to realize its objectives, has caused the response from the EU Commission to
initiate a public consultation in order to „gather opinions on how the shortcomings of this
scheme can best be addressed, and how it can be made more effective and attractive“95.
Additionally, MS still retain the right to determine admission rates for economic immigration
thus potentially distorting the conditions on the Single Market and making comprehensive,

95
More on that: European Commission. Public Consultation. Available online at:
http://ec.europa.eu/dgs/home-affairs/what-is-new/public-consultation/2015/consulting_0029_en.htm
Accessed on 20.08.2015.

45
sustainable and predictable approach, which, as such, can be implemented only from the EU
level in order to accommodate multiple economic issues and challenges which may influence
or are influenced by inflows of (in) adequate labour immigration.
Regarding integration competences96, the EU is providing incentives for MS measures,
but it is unable to initiate harmonisation of national laws, thus providing the basis for
ensuring the dismantling of barriers that impede labour market outcomes of economic
immigrants, regardless of their educational level, such as recognition of foreign qualification
rules or harmonizing on the EU level existence and functioning of different trainings and
integration programs aiming at providing the majority of economically active immigrants
better preparation and higher chances for entering the labour market of the host countries.
Without EU-level support fragmented implementation or even absence of such programs
and measures may lead to even less flexibility and mobility on the Single Market thus
resulting in lower net contributions and production outputs.
Despite the fact that irregular immigration is a reality not just on the external, but also
inside the EU borders, crucial and sole aim of the EU policy-makers has been, while
neglecting its domestic actuality and its impact on the economic and, particularly, labour
market conditions, to “prevent and reduce irregular immigration, in particular by means of
an effective return policy, with due respect for fundamental rights”97 seeing it as entirely a
security issue. Usage of terminology such as “fighting” and “battling” irregular immigration
in policy formulations, shows that there is even less understanding of the essence of the
challenges that irregular immigrants represent for the EU and its economy. As part of the set
of policies towards the irregular immigrants, such as investing in relatively expensive
"border defence” actions and mechanisms, focusing on ineffective and inadequate return
programs (see figure 16), and the directive sanctioning employers who are hiring irregular
immigrants de facto residing in the EU, may be seen as additional indicators of the
insufficient understanding of policy-makers at the EU level of the irregular immigration
characteristics and their failures to consider and include actual economic and social
consequences of this phenomenon. Promoting the more compassionate coinage “irregular

96
European Commission, Migration and Home Affairs. Legal Migration. http://ec.europa.eu/dgs/home-
affairs/what-we-do/policies/legal-migration/integration/index_en.htm Accessed on 20.08.2015.
97
European Commission, Migration and Home Affairs. Irregular Migration- Return Policy.
http://ec.europa.eu/dgs/home-affairs/what-we-do/policies/irregular-migration-return-
policy/index_en.htm Accessed on 20.08.2015.

46
immigrants”, while treating them like “security threat” shows inconsistencies and demands
for further reconsiderations of the current framework on the EU level, including its stipulated
narrative.
When the Commission published the European Agenda on Migration on 13 May 201598,
it reflected its intention to make immigration a central priority as a result of the crisis in the
Mediterranean. The Agenda proposed mainly reactive, immediate measures to cope with the
current crisis, while further emphasizing the need to improve the overall set of policy
measures in the years to come, without specifying the more concrete direction or expected
results. It has expressed two concerns, one regarding the fragmentation of immigration
policy-making and the need for more clear and rigorous common approach which reflects
EU interests, and the other one regarding the expected demographic decline and population
ageing. Nevertheless, the Agenda does not show open concern for economic causes and
consequences of the immigration or the demographic imbalances demanding for more
comprehensive management of immigration inflows, as it is mostly focused on ad hoc
actions towards guarding the security border position of the “Fortress Europe” 99 and mildly
reshaping the existing policy mechanisms regarding legal immigrants.
In addition to the aforementioned, statistics are helpful in reviewing the effects of the
EU and national immigration policies. According to Eurostat, number of residence permits
issued to non-EU nationals accumulated to 2.3 million in 2013 and have been fluctuating
around that number in the previous several years. That same year, main reasons for granting
residence permits were family reasons (28%), work (23%), education (20%) and other
reasons (29%). This shows that the current immigration policies, have not just been able to
adequately attract qualified economic migration and properly manage the inflow of other
types of immigrants, but further contributed to restructuring of the immigration inflows,
which directly concerned labour market outcomes and further considerations of the net
contributions of the misbalanced labour market demand coverage.
To sum up, immigration policies, although sometimes inadequate in responding or
managing parts of the immigration system or even ignoring particularities of certain types

98
European Commission, Migration and Home Affairs. European Agenda On Migration. Available at:
http://ec.europa.eu/dgs/home-affairs/what-we-do/policies/european-agenda-migration/index_en.htm
Accessed on 20.08.2015.
99
European Commission, Migration and Home Affairs. Ten Point Action Plan on Migration. Accessed on
20.08.2015.

47
of immigration, surely affected the structure of immigration inflows. At the same time, these
policies have been unable to stop undesirable outcomes such as increase in irregular
immigration. Furthermore, demographic imbalances and changes in labour market structure
and demand, even though taken into consideration in the Agenda and previous EC plans,
have not been seriously calculated and were left without a reaction by the EU policy-makers
yet again.

5.2. Evaluation of the research question and the proposed hypotheses

In the analysis presented in this thesis research question has been viewed, on the one
hand, from the perspective of the economic theory, presented empirical findings as well as
through understanding of demographic challenges and, on the other hand, through the
analysis of the existing immigration policies on the EU level. All that with a purpose to
arrive at an answer to the question posed at the beginning of the study. Recalling the research
question, hence, whether and to what extent immigration policies on the EU level correspond
to the economic issues associated with immigration, we have aimed at finding out why has
there been no comprehensive and effective approach in the corresponding policy-making in
the EU regarding the economic issues and demographic necessities correlated to
immigration.
The result of the later is rather unclear, as the complexity of the EU governance as a
system indicates that immigration policy outputs are below par consequentially linked with
the initial economic inputs. This is because various demands from different levels of
governance in the EU and supports of the existing legal basis of the Lisbon Treaty which
defines this area as an area of shared competences with the MS, and prior policy framework
in the area of freedom, security and justice, alongside with mixed results and multiplicity of
challenges, but also opportunities coming from the immigration environment (present-day
residents but also expected inflows) result thereby in the inconsistency.
While trying to answer the research question whether and to what extent policies on
the EU level correspond to the economic issues associated with immigration, one has to note
that the centre of gravity of the upcoming answer is not in answering whether, as it is clear
that economic considerations are included in parts of the legal framework of the common
immigration policies, but rather focusing on the extent to which these issues are

48
amalgamated into the respective policies. It is rather clear, from the evidence provided, that
the economic and, related, demographic effects of immigration have not been included,
while defining and making common immigration policies on the EU level, in an appropriate
and comprehensive manner to the encompassing and rather dynamic challenges.
From the previously presented deductions, we can stem the outcomes of the contested
hypotheses. Regarding the main hypothesis, we are able to derive a conclusion that the
statement made is false, as there has been no opposite proof that economic effects and
potential demographic remedies of immigration actually adequately shape common
immigration policies. Concerning the two auxiliary hypotheses, results slightly differ in
quality, but the final results turn to be false for both statements, as there is no substantial and
comprehensive policy consideration for either labour market or public finance issues
associated with immigration. It should be noted that the question of the impact of
immigration on the labour markets, though only the economic immigration is more
adequately taken into account, nonetheless with several deficiencies, discussed earlier.

5.3. Several policy ideas and recommendations

Several considerations and the possible solutions to the current immigration policies
will be proposed aiming at achieving positive and more balanced returns on immigration and
properly responding to the challenges arising as a by-product. This may represent yet another
portion of the leverage of this thesis to the better understanding of the research problem in
question and the range of possible policy-making outputs.
First and foremost, shared immigration and demographic challenges need a more
Europeanized and more solidary policy approach. Having in mind the complexity of the
phenomenon and its multi-layered and temporal particularities only supranational set of
institutions and mechanisms is able to provide an adequate policy framework, proactive and
easier implemented across the Single Market. On the other side, despite the clear benefits of
a common, harmonized policy and having in mind multiple challenges affecting the whole
region, MS will still try to protect its national competences. Consequently, if the immigration
policies are left to the national level, concerned segments of the general public may continue
to project higher degree of influence on the national policy-makers, thus, leading to less
efficient and less sustainable responses that disregard actual needs of the economy. That is

49
an additional reason why increasing level of supranational coordination and implementation
of immigration policies should be further promoted.
Secondly, as there is an underutilisation of the economic potential of immigrants,
with lower employment rates and occasionally higher over qualification rates, further efforts
have to be done in order to reverse the negative effects and, thus, even increase net
contributions as a consequence of being more integrated immigrant workforce. As part of
the same group of efforts, legal immigrants should be able to exercise freedom of movement
even less constrained within the entire Union.
Lastly, the EU immigration policies have been focusing solitary on discouraging and
combating irregular immigration. The problem is that despite the costs of its implementation,
the success in protecting external borders and preventing trespassing, having in mind its
characteristics (i.e. the Mediterranean Sea) and rising economic incentives for smugglers
and human traffickers, is rather uncertain. The EU should rather focus on increasing
predefined number of immigrants to be admitted and redefine the status of current irregular
immigrants that would satisfy reality check and the needs of the economy and, particularly,
labour markets. Additionally, in order to make the inflow of adequate labour force from third
countries more sustainable in the future and reduce the accumulated costs of the integration,
the EU should continue investing in complementary programs and policies such as the ENP,
in order to build and increase the quality and skill development of human capital in the
neighbouring countries.
Frequently discussed dilemma whether the EU should follow a pro-immigration or
no-immigration policies fails in the context of the earlier examined challenges and trends in
the economies of the EU. The key source of deliberation has to be oriented towards
rethinking the current policy framework in order to make it more responsive and sustainable
towards the economic and demographic pressures related to immigration.

50
6. Conclusion

Immigration represents a complex and widely spread phenomenon, as it encompasses

many interests, influences multiple stakeholders, produces various effects in different areas,
from politics to economy, and is often seen as the solution and the problem. Even so, neither
it is an occurrence that occupies a significant portion of the population, nor are all the
countries interested in admitting foreign nationals, regardless of their demographic or
economic conditions. Furthermore, it is often misunderstood as it produces nonlinear effects
on the environment.
The foregoing is the reason of the frequent disagreements on the impact and
purposes, advantages and disadvantages, gains and losses of immigration. Depending on
prejudices or as of a direct impact of immigration, for and against coalitions are made that
may influence policy-makers and their outputs. Temporal expression of this phenomenon is
an additional reason of often inadequate policies, often reactive, ad hoc, with limited scope
of activity.
Insufficient capacities and readiness for profounder and comprehensive reforming
and liberalizing of the EU immigration policies, while occasionally promoting a “Fortress
Europe” approach and closing the borders as a result of inabilities to cope with multiple
external and internal challenges associated with immigration, would most certainly lead to
“Elderly Europe”, ceteris paribus. Moreover, irreversibility of the rapid increase of
population ageing in the EU, with discontinued or decreased inflows of immigrants, the
characteristics and potentials of which should represent a vital part of the solution to the
ascending demographic problems, should not be regarded as a liable and justifiable strategy
of some of the main policy-makers within the EU. Being a sensitive question in public
discourse, more informed and extended debate need to be stimulated in order to increase the
legitimacy of immigration policies.

As this phenomenon is vital for the future progress of the EU society and economic
growth, immigration policies are needed and have to be a key instrument of support and
management in order to secure that potentially positive and necessary effects of immigration
on the economies and the demographic portrait of the EU do not develop into a pile of
frustration and losses.

51
 Relevant to the previous, immigration may be used as a tool to cover for specific
labour market shortages or public finance imbalances, only if it is well managed. Though,
as a phenomenon itself it will almost certainly not reverse the ongoing trend of native
population ageing and negative natural population growth. Nevertheless, it will remain a
reality and a necessary substance for the growing EU economies.

52
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 Annex I: List of graphs, figures and tables

Graph 1: Measuring the immigration surplus: homogeneous labour, fixed capital, Source:

Figure 1: Correlation between immigration levels and unemployment rate in the EU-27,
Source: OECD

56
Figure 2: Foreign-born and Native unemployment rates; Average 1995-98, Source: OECD

Figure 3: Net migration to the EU, Japan, USA, 1960-2011. Source: OECD

57
Figure 4: Share of non-nationals in the resident population, 1 January 2014

Figure 5: Population change by component (annual crude rates), EU-28, 1960–2014 (per
1.000 persons)

58
Figure 6: Total population change in low-income countries (overview and prediction) 1950
2100

Figure 7: Total population change in high-income countries (overview and prediction) 1950-
2100

59
Figure 8: Main scenario and “zero” migration scenario – Projected population for the EU

Figure 9: Number of persons having acquired the citizenship of an EU Member State, EU-
28; 2009–13 (thousands)

Figure 10: Tax revenue by economic function, EU-28, 2012

60
Figure 11: Age structure of the national and non-national populations, EU-28, 1 January
2014

Figure 12: Population structure by major age groups, EU-28, 2014

61
Figure 13: Median age of population, EU-28, 2001–14

Figure 14: Unemployment rate (among persons aged 25-64 years) by level of educational
attainment, 2013

62
Figure 15: Population pyramids, EU-28, 2014 and 2080

Figure 16: Persons issued with an order to leave the EU-28 compared to persons recorded as
having been returned to a non-EU country

63
Table 1: Immigration by citizenship, EU-28+, 2013

Table 2: Unemployment rate, 2003-13

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An Eides statt versichere ich, dass die Arbeit

Immigration in the European Union: Economic Issues and Policy Responses

von mir selbst und ohne jede unerlaubte Hilfe angefertigt wurde, dass sie noch keiner
anderen Stelle zur Prüfung vorgelegen hat und dass sie weder ganz, noch im Auszug
veröffentlicht worden ist. Die Stellen der Arbeit –einschließlich Tabellen, Karten,
Abbildungen usw. –, die anderen Werken dem Wortlaut oder dem Sinn nach entnommen
sind, habe ich in jedem einzelnen Fall als Entlehnung kenntlich gemacht.

I declare by oath that the thesis,

Immigration in the European Union: Economic Issues and Policy Responses

has been prepared by me alone and only with permitted means of help, that it has not been
submitted to any other institution for evaluation, and that it has not been published either in
whole or in part. All instances in the thesis –including tables, charts, graphs, etc. –where
other works have been quoted verbatim, paraphrased or consulted, have been clearly
indicated as references.

Bonn, 31.08.2015.

(Place, Date, Signature)

65