Demography

Eastern Europe's Workers Go West, Where the Jobs Are


Elevated view of Frankfurt at night

Photograph by Guy Vanderelst

Elevated view of Frankfurt at night

Momchil Hristov, 33, doesn’t think he’ll go back to Bulgaria anytime soon. His girlfriend and his son live with him in Berlin, where he works as an engineer in a machine shop. He has friends in town, also Bulgarians, who look forward to retiring and spending their German pensions at home on the Black Sea. Igor Garcia, 38, has worked in Munich for eight years. He, too, might wait until retirement to return to Spain. The old are more valued there and besides, he says, “I would like to go to the beach.”

For the last three years, the euro crisis has masked and accelerated a quieter, long-term problem. Young Europeans, unhampered by visa requirements within the European Union, are moving north and west for work. It’s unclear whether they’ll move back while they’re still young enough to help the economies—and contribute to the welfare benefits—of their homelands.

Most of the economic research on migration focuses on two things: the effects migrants from developing economies have on both the wages and the welfare state of destination countries, and what remittances and returnees can do for the countries left behind. Both economic theory and real experience show that these effects are mostly positive. The EU offers an unprecedented experiment—free movement of people among sovereign states, all of them comparatively well developed. Yet when labor moves within the EU, it’s good for the workers but possibly devastating for the finances of the states they leave.

“We’ve all been stuck on the euro,” says Edward Hugh. “People have kind of forgotten the countries outside the euro but in the EU.” Hugh, a British economist based in Barcelona who contributes to Nouriel Roubini’s blog, EconoMonitor, has been worrying about the EU’s 10 former Soviet-bloc countries. Within 15 years, he points out, between 20 percent and 25 percent of the populations of these countries will be over 65. States in the region will be spending more on pensions and health care with taxes paid by a shrinking workforce.

The extremes are most pronounced in Bulgaria, Romania, and the Baltic states. Bulgaria, a country of 7.3 million, has lost almost 600,000 people in the past decade. Last year, Mihails Hazans, a Latvian economist, convinced the country’s statistics bureau to revise its estimates of outward migration over the same period—from 33,000 to 230,000. “It was a problem of statistics,” Hazans says, “but also a problem of not dealing with it as a critical problem.” A 2011 report for the European Commission determined that population shifts out of Bulgaria and Lithuania may permanently reduce economic output in those countries by 5 percent to 10 percent. Latvia and Estonia may see what the report calls a “permanent scar” of reduced output of at least 3 percent as well.

Earlier this month, economic research firm Jefferies (JEF) published a report suggesting that Spain may have the same bleak demographic future. According to the European Commission, the country’s population grew at an annualized 1.7 percent between 2004 and 2008. For 2013 and 2014, the EC expects Spain to contract at 0.2 percent. Marchel Alexandrovich, the report’s author, says it could become a self-reinforcing cycle: Austerity drives away young workers, forcing more austerity on those who remain. “Now it won’t be the Romanians and the Bulgarians,” he says. “It will be the Spaniards and the Portuguese. It’s a slow burn.”

Martin Kahanec, a Slovakian labor economist who worked in Germany, has himself had a hard time figuring out which state is supposed to pay his child credit. “It doesn’t mean emigration is undesirable,” Kahanec says. “The key question is whether they’ll come back. We don’t know right now, because there’s so little research on this.” Hazans, based on interviews of departing Latvians, says they plan to stay away. His data also show more families with young children leaving, a sign they plan to settle. “We are donors of human capital now,” he says, “and we are going to be human donors for the foreseeable future.”

The solutions all sound economically reasonable and politically implausible. It’s hard to imagine consensus around an EU-wide pension tax—similar to Social Security in the U.S.—anytime in the next decade. Economist Hugh advocates more immigration to the European east from the former Soviet Union, also a point of contention with the EU’s richer economies.

Europe needs a demographic union, says Hazans, with richer, growing states spending money to improve birthrates in places such as Latvia. He’s persuaded the Latvian government to take up this issue when it assumes the rotating EU presidency in 2015. Perhaps Europe will have solved its currency crisis by then and can turn its attention to another thorny problem.

The bottom line: As workers from inside the EU flock to Germany and other wealthy countries, poorer states are left with pension costs they cannot afford.

Greeley-brendan-190
Greeley is a staff writer for Bloomberg Businessweek in New York.

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