Yes, they’re leaving

15. septembris, 2009


Vjačeslavs Dombrovskis

Up until last Friday, we knew little about the effect of this crisis on migration. Yes, nearly everyone seems to know someone who left to the UK, Ireland, Australia, Canada… somewhere, but we had no reliable evidence on the big picture. It all changed when Mihails Hazans, definitely the best labor economist in the Baltic States (and probably the only serious labor economist in Latvia), gave us some figures on social registrations in the UK and Ireland. Turns out in the first quarter of 2009 there were more Latvians registering in these countries than in any other quarter in 2004-2008! Clearly, there is a new wave of migration.

Is it good or bad for those who stay? In the short run, it’s probably a good thing. Since those who migrate are likely to be the unemployed, this reduces the likelihood of the rerun of the February events. The families of migrants (if they stay behind) benefit from remittances. Migration may explain why the streets are relatively calm in spite of horrific unemployment figures. In the long run, however, it’s all bad. Many of those who left, probably, won’t come back. This means smaller GDP and greater per capita tax burdens required to pay the pensions, public debt etc.

Some may argue that labor pool can be ‘replenished’ by opening up to migration from non-EU countries. Actually, I doubt it can work in the foreseeable future. EU labor market is increasingly ‘free’, which means that migrants can effectively ‘shop’ between different countries in the EU. This raise two questions. First, can Latvian government really prevent a migrant from ‘moving on’ to a higher-wage EU country? Second, consider a relatively high skilled migrant who is choosing an EU country to move into. High skilled jobs require knowing the language of that country and learning languages is costly. Naturally, the migrant would consider things like size of the labor market, i.e. how easy it is to find a job. How many would choose Latvia over, say, Germany, or the UK, or France? I am afraid small countries that are sensitive about their languages are at a big disadvantage here.

Another point I’d like to stress is how little do we know about this important phenomenon. How many people leave ? Where do they go? For how long? Do they take families with them? How educated are they? Lots of very important but unanswered questions. And this in spite of substantial resources poured into lots of local ‘research’ which mostly produced silly ‘findings’ like “people migrate to UK because of higher wages”. Well, I eagerly await what the census (planned for 2011) would show…

Finally, the following should be crystal clear. This wave of migration is largely a consequence of the stabilization program that is centered on keeping the peg. Both devaluation and ‘internal devaluation’, in theory, produce equal reductions in the real wages. But it is ‘internal devaluation’ that operates through creating so much unemployment. And inability to find a job is a powerful force that’s pushing so many people out of the country.

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