Exodus may be 'catastrophic'
With immigrants leaving, some forecasters believe economic output will shrink by 4 per cent in 2009
Sunday November 23 2008
AS has been well said, you can have too much of a good thing. If reports that 100,000 people have left the country since the downturn were to be confirmed, the old adage could well apply.
True or not, it is a salutary reminder of how extraordinary Ireland's experience has been, as a result of the enlargement of the EU in 2004 and the decision to allow immediate free movement of labour from the eight new member states.
Government politicians, officials and most economists hold the view that this was a good thing. A large proportion of Irish citizens, it seems fair to say, think otherwise.
The latest poll on attitudes to the Lisbon treaty is instructive. Middle-income people are coming round to the view that, if some of their concerns are met, they would be prepared to vote 'Yes' in another referendum. Lower income folk are not for shifting.
The most striking aspect of the referendum was the high turnout in working-class areas and the size of their 'No' vote. That may have determined the result, and could well decide the result of any rerun.
It is hard to think of any explanation for this apparent sudden outbreak of EU hostility, other than the impact of the foreign workers. Nor should we be surprised, as the figures in a report from the EU Commission last week remind us.
The commission has been criticised here for its assertions before enlargement that there would be only limited flows of workers from the new member states. In fact, Brussels was correct -- when it comes to the EU as a whole.
Only half a per cent of the population of the EU-15 members of 2004 come from the 10 states which joined that year. Just 0.3 per cent are people who arrived since 2004. Hardly a flood. The numbers arriving from outside the EU were actually greater.
In Ireland, though, no less than five per cent of the population comes from those countries. Proportionately, Ireland received 10 times as many migrants from these nations as the EU-15 as a whole. Only Britain comes anywhere close but, at 1.2 per cent of the population, it is still just a quarter of Ireland's share.
This was not just a matter of who opened their borders. Sweden did so as well, but its inflow was no greater than the EU average, despite its proximity to the Baltic states and northern Poland. As far as one can gather, the English language was a great attraction, with many migrants recognising that it is a passport to the 21st-century world.
It is hard to think of any country ever going through a comparable experience. Even the mass migrations to the USA in the 19th-century were of a very different kind, to a very different place. The closest parallel may be the large movements in and out of US states as their economies wax and wane. Ireland had a mighty waxing, and now it is time for the wane.
As always, the view is clearer looking back. The commission report cites the general evidence that immigration increases economic output but, in the short run anyway, does not increase income per person.
There is little evidence that existing workers are displaced, or unemployment increased. Nor does immigration put pressure on wages in general, although it may do so in certain sectors. All of that seems to have been true in Ireland, but on a massive -- and perhaps as a result, damaging -- scale.
The availability of all that labour coincided with the credit bubble. Combining those two ingredients produced a explosion in growth. But, as the studies suggest, it did not increase productivity or growth per person. When the flow of debt and people stopped, that fact became all too clear.
With permanent immigration, economies adjust after the inflow stops. The migrants tend to move up the ladder in line with their original qualifications and their improving skills in their new homeland. In the end, in most cases, productivity and, therefore, real incomes, are higher than if there had been no immigration.
But these are not permanent migrants. The situation is quite different if large numbers of them leave quickly. Economist Danny McCoy, who is director of policy at Ibec, called such a possibility "catastrophic" in a briefing to members last week.
That may seem surprising. Surely, one might ask, it is better that they go away than hang around with no work and push up the welfare bill? This may also be true as a general principle but, again, it is the scale of it that is the problem.
An outflow of 100,000 people will have the reverse effects. Income per person may not fall, but the size of the economy will -- perhaps dramatically. Several forecasts now expect output to shrink by 4 per cent next year, and their emigration figures are a good deal less than 100,000.
Anything like that could produce even worse figures, adding to the domestic and international loss of confidence in Ireland. And there would be a real loss from their spending and contribution to the economy. Finding out quickly what is going on could be money well spent.
