We have a lot to gain by bringing our emigrants back home
Published 05/04/2015 | 02:30
Migration is a hot topic in many developed countries. It was a hot topic in the lead-up to the creation of Europe's single currency because most economists believed that more migration within the euro area would be needed to make the project work well.
They believed that because migration can work as a sort of shock absorber or safety valve, much as the conventional wisdom in Ireland has long held that high and persistent outward migration contained the political costs of economic underperformance.
In big economies, such as the eurozone and the US, different regions will inevitably perform very differently over time. In the most extreme case, one region could suffer a depression - owing, for instance, to the collapse of an industry upon which it is dependent - while the rest of the currency bloc could be growing nicely. As the central bank would not cut interest rates to suit one region and risk overheating the rest of the economy, the area in a slump would endure a too-tight monetary policy.
Here is where labour mobility comes into play. In the US, when one state or region does badly, Americans pack up their U-Haul trailers in large numbers and move to places where economic prospects are sunnier. People relocating to where jobs are plentiful, and away from where they are scarce, should lessen the depth of slumps in afflicted regions and make the overall economy more efficient owing to a better allocation of labour resources.
(It is worth noting, in this property-obsessed nation, that high levels of home ownership make people less mobile, thus - in theory - hindering the efficient allocation of labour.)
Historically in the EU, people have moved from country to country in very small numbers, Ireland being a long-term exception and the former communist countries being a more recent exception. That limited labour mobility was one reason, among others, that some economists warned against creating the euro.
As it turned out, the euro's greatest weakness was in the financial system - something spoken of far less in the 1990s - but the issue of labour mobility is still important, not least because it hasn't increased much. This was highlighted in a new study* by economists at the European Commission. Moreover, there is no evidence that the creation of the euro has increased mobility, according to the same study.
On average across the bloc, less than one in 25 working-age people resident in EU member states is from another EU country - a tiny fraction compared with the share of Americans resident in one state but born in another.
The still limited flows of labour across borders within the EU, despite many decades of the citizens having the right to free movement, are underscored by the fact there are on average twice as many non-EU nationals than EU nationals living in the bloc's member states.
But, as averages often do, this average masks a very wider variation, as the chart shows.
Ireland has the highest proportion of other EU residents, bar Luxembourg (the Grand Duchy is not shown in the graphic because it is "off the chart" and would make it more difficult to see differences among all the other countries).
Today, more than one in eight working-age people resident in Ireland were born in another EU country. Add to that the one in 20 people who are resident in the State but who originate from outside the EU, and Ireland has the third highest share of non-nationals in the eurozone.
With an estimated one million Irish-born people resident outside the State, Ireland has one of the most open labour markets in the developed world - if not the most open.
This should in theory have contributed to the adjustment to the shock of the property and construction crash. In practice, however, there is reason to question that. A 2013 study** by University College Cork academics Irial Glynn, Tomas Kelly and Piaras MacEinri, showed that half of all those leaving Ireland in the five years to 2013 did so despite having full-time jobs. When part-time workers were included, 60pc of those leaving had jobs. It can be taken as certain that employers did not have to fill all of those positions.
Although no figures exist, some firms will have used the exits as a way of cutting their wage bill in recessionary times.
The study also shows that just over one in five emigrants were unemployed when they left and that just 1pc of emigrants were in the lowest educational category (ie, those who had no qualifications beyond junior certificate).
A relatively generous welfare system is likely to be a factor in lessening the incentive for those out of work to move abroad to find employment, particularly for the low skilled. If that is a significant factor - and it is likely to be - it would mean that the shock absorber effect of outward migration is muted.
All this suggests that, in the Irish case at least, outward migration is less beneficial than theory would suggest. It could even be negative if a large share of jobs vacated by those emigrating are not filled - the disappearance of the job and of the individual's human capital is a straightforward loss to the economy. To my knowledge, nobody has attempted to measure this effect.
But let's conclude on a positive note. While the loss of human capital that takes place as a result of emigration is a clear downside; if emigres come home again, the know-how, knowledge, networks and horizon-broadening experience they bring with them are hugely valuable.
The barriers to returning have fallen as technological change has made keeping in touch with one labour market while living in another so much easier (indeed, given how much recruiting and job advertising is done online these days, one could plausibly argue that distance has almost died when it comes to job hunting).
In his column in the Irish Independent last Wednesday, David McWilliams proposed some policy measures that could be taken to reduce the barriers further, thus adding to the incentives that exist for the diaspora to return. These proposals included allowing those who move back to offset rent against tax while they are looking for work; facilitating the use of foreign credit histories to make opening bank accounts easier; and giving Enterprise Ireland a wider remit to attract non-resident Irish entrepreneurs.
These proposals might not make the euro area as a whole work better, but they could be good for this country. Doing more to bring Irish human capital home is worth serious consideration.
Sunday Indo Business