The EU Enlargement and Its Impact on the UK Labor Market - Literature review Example

 EU Enlargement and Its Impact on UK Labor Market The strategic use of regional integration as a successful device to accelerate economic growth and social welfare was the basic mission behind the formation of the European Union. This economic and political co-operation driven regional integration is gradually expanding. Induction of new European countries has both positive and negative impact on the pre existing members of the union. Europe is not homogeneous either in the sense of economy or in the sense of demography. There is considerable amount of differences between the socio-economic structure, strengths and the prospects of the European economies. The demographic differences like the proportion of working population, the degree of their skills, social security benefits varies in a notable way. The enlargement process is an initiative to harmonize the country specific disparities in the demand and supply of the economic inputs and distribution of economic outputs. The success of the integration is evaluated on the basis of associated benefits and costs of the process. Since there happens to be significant economic and demographic differences among the nations belonging to the union, the impact of new entries will bring about various substantial alterations in the overall socio-economic structure. The new admittances have well-defined structural differences with those of the United Kingdom. The U.K. is highly susceptible to ongoing immigration activities. So the importance of enlargement of European Union on the labor market can not be ruled out. The New Member States (NMS), who were recently being made a part of the E.U., consists of nations namely Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia. After the formal enlargement process was over in May 2004, most of the formal E.U. member states imposed several immigration restrictions on the NMS. They immigrants who wanted to work or to become residents faced stringent legislative barriers, curbing their intentions, which were in effect in these countries. Denmark, Sweden, Ireland and U.K. were the only four nations where the workers from the NMS could get relatively free access. “Based on the data available one year after the eastward expansion of the EU, Boeri and Brücker (2005) suggest that the immigration restrictions imposed by the majority of the EU-15 resulted in the diversion of NMS migrants from the traditional destination countries that border the NMS, that is Austria, Germany and Italy, to the EU-15 countries with more liberal immigration policies” (Barrell, FitzGerald & Riley, 2007, p. 2). Empirically, U.K. appears to be the most popular destination of the NMS workers. The net inflow of migration took a steep rise from around 50,000 to 150,000 during the last decade, but the impact seemed much smaller than that of Ireland due to the population size of U.K. The data structure suggests that it is most likely to happen, considering the routes of access (Salt and Millar, 2006) and the different liberal policy adoptions (Hatton, 2005), a huge, possibly largest immigration of foreign workers. While another way of explaining the U.K. immigration process can be done by considering factors like demographic changes, income differentials and a favorable market for the labors in U.K. when compared with elsewhere (Mitchell and Pain, 2003). The migratory behavior is expected to affect the major economic indicators of a nation; in this case United Kingdom is in a state of immigrated labor influx, like the GDP, GDP per capita, productivity, unemployment, current account balance and many others. The stability of an economy in all these regards favors the immigration process, as the immigrants cannot hold themselves back from taking the advantages of exploring a potential market. But the socio-economic developments as suggested by many theorists as some of the important consequences associated with the immigration process rendering positive effects are still some points waiting to be critically analyzed. U.K. managed the migration process to achieve some core objectives like—economic support & growth, encouraging international developments, ensuring public protection, and by promoting the social cohesion. In order to build up a successful integrated society, some key strategies are to be employed welcoming different thoughts and contributions by distinct communities, collectively framing the aggregate development pattern as explored by the consultation paper “Strength in Diversity”. In this context the U.K. Government’s chief economic objective is to improve the trend depicted by the sustainable growth rate of development. The migration policies adopted by the government are traditionally based on the typically market-oriented approach on relatively liberal framework. This effective assumption was realized when the level of employment went up to a record level of 1.9 million, since 1997, along with the lowest unemployment rate given by International Organization (ILO) in the G7. Moreover, the Treasury forecasts put forward the notion that the net inward migration comprises of 15% of the economic growth trend. “analysis by the ITEM Club – the economic forecasting group which uses the Treasury’s model of the UK economy – suggests that economic migrants from the eight new Member States could boost UK GDP by several billion pounds over the next 10 years” (Debate Hosted at the Slovak Embassy, 2004, p. 6). The new members being East-European fast growing countries genuinely added much dynamism to the EU economy which at times becomes slothful and at the same time inflexible. There are many different opinions regarding the EU enlargement scenario. We will now briefly discuss the main arguments in for or in against this historical move undertaken. There are several criticisms regarding the agreement and the organized participation process and detractors tried to provide with solid grounds in accordance to their belief. One of the major reasons is apparently quite evident. It is the mass immigration course which will create chances of increased organized crime. The logic behind this mindset comes from the simple logic that since the immigration process is being given the priority with this movement, more and more migrants will relocate themselves in search for better work opportunities. Their numbers will always more than the actual number of job vacancies (this is a case mentioned in the Harris-Todaro Rural-Urban migration model). So it is not possible that each of the migrants will be absorbed in the work field. This will rise to discontent in the minds of many and they will engage themselves in different criminal activities as a mode of living. The second reason is about the workforce migrating from the poorer nations who were engaging themselves into jobs offered by the richer ones. Companies will exploit by relocating them to countries where the labor cost is low and devoid of proper labor protection. The out-migration can cause this type of effect which can potentially result in labor dearth in the home countries. The better opportunities (in material sense) available across the domestic boundaries may prove to be harmful for the domestic production level and shortage of workforce which will consequently weaken the domestic economy base. Another problem as predicted by the critics is that it is not feasible enough for the richer nations to provide the poorer nations with huge subsidies. A lot of the current applicants of the union are impoverished backward. Many of the EU members do not even recognize states like Kosovo, and Bosnia has to construct a functioning yet. Turkey faces a different problem. In regard of its predominant Muslim population base, many people in France, Germany, Austria etc. possess conflicting outlook regarding whether Turkey should join EU. So these types of ignorance and disputes can play a negative role while coordinating or cooperating between the fellow members. The economic relations strongly depend on such aspects to accomplish the objective of attaining the optimality. In this perspective, another point comes by taking into account the difficulties which arises while trying to maintain the integrity of the EU, as it gets broader. The new east-ward extension may lead to a political gridlock and a collapse may get experienced as the economic hardships fail to materialize. In this present situation the recession has triggered the feeling of insecurity among the EU members in the anticipation of more low-cost competitions which may be another tough hurdle to face in this already grave scenario of joblessness. Many of these reasons together can prove to be a threat to the inter-nation integrity of the EU. Conclusively the disbelievers of the participation process come to the point that the ultimate conglomerated EU will surely come to a halt as excess number of members will not be able agree on any issues whatsoever. This almost can be explained by trailing the previous notions. The loss of integrity as discussed earlier can fuel the scenario of any kind of decision making regarding the socio-economic instability of less developed compared to the former EU members. In a recent summit of foreign ministry, Netherlands and Germany efficiently jammed the application submitted by Montenegro, since there was any progression made on that front it would have been arduous otherwise to block Serbia, Albania and Bosnia as they followed immediately. Current unstable conditions of nations like Latvia and Hungary will affect the members of the west making them much more alert & cautious of further extensions of the union. “Even before the foreign ministers' meeting, there were signs of trouble” (BBC News, 2009). Many of the exponents advocate the idea of the enlargement, since as per them is a process of a continent getting reunited which once suffered and got fragmented due the crisis during the Cold War. The promotion also comes up with various other positive aspects like distributing prosperity, stability and expansion of a single market rendering a greater weightage to Europe in the global stage. There are very specific responses towards the arguments against the enlargement process as discussed above. Firstly, as per the supporters, the immigration procedure helps in propelling the economic growth which should be the main objective of concern and the NMS will cooperate with the EU to eradicate the chances of organized crime activities and trafficking. Since the societal scum can be negated by the enthusiastic and honest efforts of all the EU members, the economic prosperity is the only target which is to be achieved. In this scenario of potentially huge European market; when integrated together can surely serve the purpose by attaining the great heights of success and affluence that will be considered as an example set by EU in the world stage. This enlargement can provide EU with a much amplified labor market flexibility. It is worthy for the wealthy nations to employ cheaper labor and also better for the companies as they prefer to relocate workforce to Central Europe instead of China or India. In view of this, there is no doubt that the allowance of the labors from the Accession States holds a good economic sense. The new scheme undertaken to support this process in a more positive and realistic way is the Worker Registration Scheme. It works in a way without restraining the labor market flexibility, particularly monitoring the employment movements of the Accession State nationals. In this present era the most successful labor market in the whole Europe is located in U.K., and they have done well in striking a remarkable balance in allowing the flexibility and diversity along with appropriate regulatory level of the labors. The migration of laborforce to the eastern and south-eastern developing nations like India or China is not desirable since there is a significant amount of vacancies prevailing and is sufficient to absorb several workers in the sectors of hospitality, health and construction industries for those whop have the right skills and qualifications. The former affluent members of the EU will be able to earn much greater and gain substantially more than the pay out in transfers to the poorer nations, out of the single large market structure. The new participants can expect in this regard in engaging themselves in trade with the mammoth 13 trillion-euro EU market and extract substantial amounts of returns. Although the newcomers should have to abide by some pre-existing demands like complete liberalization of their economies, adept in tackling the corruption & political favoritism, and also to adopt the EU’s legal rules accreted, ultimately the incentive comes in a way as discussed earlier. Another logic in support of the enlargement is that the extended union can reach up to great depths. History has witnessed that since 1973 the expansion of EU has been steadily building up at regular intervals without losing its integrity. On the contrary, there is noticeable increase in its intensity. The European Community (as it was called then) with the membership of U.K. in 1973, has welcomed new members every eight years on an average. The most recent participants who joined in 2007, Romania and Bulgaria—missed the “big bang” expansion in 2004. The determination is much more and increasing day by day as they tackle the current global meltdown. “The EU will have to think hard, for example, about the way the single market for financial services is currently designed. The financial sector will emerge from the crisis as a more tightly regulated industry than it was before” (Tilford & Whyte, 2009). Lastly, the EU’s decision-making didn’t get immobilized as yet. The new constitution would have had much simpler procedural measures had it been passed. But in spite of the fiasco in creation of such a constitution, the assuming power of the union in carrying some resolutions still has got the robust fortitude of purpose. There is a lot of concern among the domestic population regarding the impact of unemployment and migration wage levels. The Worker Registration Scheme and various other data sources are there to supervise the effects of the participation of migratory workforces in the different sectors. The structural changes can be noticed in the sectoral distribution of GDP (PPP) in 2004 and it differs by a few margins to that of 2007. In the figures down below we can see the diagrammatic representation of the sectors for both the years of United Kingdom. It can be easily deciphered that the trend of the distribution didn’t change significantly over the span of four years. But it can also be seen that the alterations are mainly in the service and the industrial sectors. This can be explained as the migratory effect of the laborforce after the enlargement started off in 2004. The expansion of the service sector was also accompanied by the lowering of the unemployment rate and the number of people claiming benefits. From before the union expansion, there were favorable reasons behind the immigration process to get started as stated by Mr. Nick Brown, the then Pension Minister of U.K. “The UK has low inflation, sound public finances and low unemployment.” And he stressed “This, combined with a rise in employment and the fact that we are getting 10,000 new vacancies in Jobcentres every working day, shows that we are coping well with the uncertainties of the current international economic climate better than other countries and better than we have in the past” (BBC News, 2002). United Kingdom also witnessed a gradual rise in the GDP (PPP) from 1.666 trillion US$ in 2004 to 2.279 trillion US$ in 2008, with an inflation rate (consumer prices) of 3.6% in this period of global economic meltdown (EconomyWatch: UK Economic Indicators). Here we see from the demand side equilibrium effect of the labor market. As the labor demand level rises from Ld to L’d, the market wage and the employment rises as shown by the vertical and the horizontal arrows. However in this case the labor demand & supply (Ls), both the curves has been considered to be elastic, so there is a scope for the employment generation by government expenditure and creation of new demand in the market. Hadn’t this been the case, the wage would have only increased and the employment would have stagnated. So according to the Classical case, since in the long run aggregate labor supply curve becomes vertical or fully inelastic, new employment generation becomes impossible in contrast to the Keynesian framework where the government employment generation policies are effective. Therefore the wage cost rises. This is the demand pull side of the labor market structure. Here we see from the supply side of the labor market. In this diagram, increase in the supply of the workforce implies increase in the volume of employment as well as a more competitive wage structure can be framed by the employers. The immigration process can be explained in this regard too. As the number of migratory workforce increases in the U.K. labor market, the wage rate is pulled down (like the labor supply curve is shifting rightwards in this figure). This creates a widespread discontent among the resident workers of United Kingdom as their ability to charge a higher wage faces a competition with the participation of the immigrant labors in the job market. On the other hand, according to the HM Revenue & Customs department the current rates of minimum wage rate £5.73 per hour of work for a worker whose age is 22 years and above, £4.77 per hour for 18-21 years of age (development rate) and £3.53 per hour for below the age of 18 years. However, the more destitute laborers who are migrating from comparatively poorer nations in search for a better job opportunity and thereby a better living, are much comfortable with this kind of wage rate as its much more than their domestic rate. Thus easy supply of labor force also enables the employers to fix a competitive market wage rate and quick employment generation is realized. (Bradley & Associates, 2009) The overall benefits from the agglomeration and the subsequent immigration process of United Kingdom is noticeable, but there has to be balanced reciprocity towards the NMS as well ensuring their gains from this whole expansionary and other associated activities. So that the current pattern of excelling market scenario does not falter as immigrated workforce plays an important role here. The new era in the history of EU will be experiencing further enlargements in the fields of politics, economy and culture. Betterment in each of the scenario has already started off and the socio-political & economic developments are the net benefits as pre-targeted. U.K.’s policies towards migration are greatly in support with its fast-gaining economic strengths and this is the perfect condition for grasping the opportunities as quick as possible. The enlargement has provided success so far and now it is the responsibility of the former as well the NMS of the union to carry forward this process harnessing greater prosperity, partnership and peace between the nations. References 1. Bradley & Associates, 2009 NATIONAL MINIMUM WAGE, available at: http://www.bradleyandassociates.co.uk/National%20Minimum%20Wage.php (accessed on March 31, 2009) 2. Barrell R., FitzGerald J. & Riley R., 2007, EU enlargement and migration: Assessing the macroeconomic impacts, available at: http://www.niesr.ac.uk/pdf/300307_110939.pdf (accessed on March 31, 2009). 3. BBC News, 2007, Q&A: EU enlargement, available at: (http://news.bbc.co.uk/2/hi/europe/2266385.stm (accessed on 30th March 2009). 4. BBC News, 2009, Viewpoint: EU enlargement woes, available at: http://www.cer.org.uk/articles/article_bbc_barysch_16mar09.html (accessed on 31st March 2009). 5. EconomyWatch (n.d.): UK Economic Indicators, available at: http://www.economywatch.com/world_economy/united-kingdom/uk-economic-indicators.html (accessed on March 31, 2009). 6. IPPR and CER Debate Hosted at the Slovak Embassy, 2004, Migration in an enlarged EU: new opportunities for all?, available at: http://www.cer.org.uk/pdf/browne_speech_16june04.pdf (accessed on 30th March 2009) 7. Riadh B. J., RURAL-URBAN MIGRATION: ON THE HARRIS-TODARO MODEL, available at: http://www.arab-api.org/cv/riyadh-cv/pdf/Riadh3.pdf (accessed on 30th March 2009). 8. The World Factbook, 2008, available at: (http://www.bartleby.com/151/fields/73.html (accessed on March 31, 2009). 9. Tilford S. & Whyte P., 2009, New CER report: THE LISBON SCORECARD IX How to emerge from the wreckage, available at: http://www.cer.org.uk/pdf/pr_882_lisbonix.pdf (accessed on 31st March 2009). 10. United Kingdom Economy, 2008, SOURCE: 2008 CIA WORLD FACTBOOK, available at: http://www.theodora.com/wfbcurrent/united_kingdom/united_kingdom_economy.html (accessed on March 31, 2009). Read More