Socio-economic effects of EU enlargement in the context of Wallerstein’s world-system theory by

Aneta Mach Joanna Nestorowicz Faculty of Economic Sciences, University of Warsaw, Poland

Migrants are an asset to every country, where they bring their labor. Let us give them the dignity they deserve as human beings and the respect they deserve as workers. Juan Somavia, Director General of the ILO

Paper prepared for the purpose of Socrates Intensive Program Poitiers 2007

Contents Introduction ......................................................................................................... 3 Ukraine ................................................................................................................. 4 General characteristics.................................................................................... 4 Pull-factors........................................................................................................ 4 Push-factors ...................................................................................................... 5 Costs and threats.............................................................................................. 5 Germany............................................................................................................... 7 General characteristics.................................................................................... 7 Experience with migration.............................................................................. 7 Costs and threats.............................................................................................. 8 Poland ................................................................................................................... 9 General characteristics.................................................................................... 9 Pull-factors........................................................................................................ 9 Push-factors ...................................................................................................... 9 Costs and threats............................................................................................ 10 Role of a semi-periphery................................................................................... 11 Brain drain......................................................................................................... 12 Remittances........................................................................................................ 14 General situation in ECA .............................................................................. 14 Impact on development ................................................................................. 15 Conclusions ........................................................................................................ 16 Appendix ............................................................................................................ 17 Bibliography....................................................................................................... 19

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Introduction

The pressure brought to bear by Western European states must be viewed against the background of an economic divide which - across a short geographical distance of approx. 750 km - is one of the most striking in Europe. Between Germany and Ukraine, the wage differential is 100 : 1, and between Germany and Poland still a hefty 10 : 1.1

Europe in general has been a migration destination since centuries ago. In the era of colonialism, during the Industrial Revolution and now in the times of intensive productivity and economic development it has been sending clear pull-signals to the rest of the world Currently with a high level of integration, a common market, diminishing borders and moreover further enlargement to-come it is gaining great bargaining power in the game of international economic relations. Being and economic leader, the core of the world’s global economy it is a gap-creating agent in the context of global development. There is no free lunch, we do not simply print or grow additional wealth, it must appear at the cost of others. Yet it might be useful to address this issue in our own community first. Therefore we have chosen to examine the issue of costs, benefits and development possibilities stemming from the ability, or disability, for international labour migration between three distinctive countries: Germany - an “old EU” member state, Poland – a “new EU” member state and Ukraine – a non-EU country. Such a choice of countries, as will be proven further in the paper, seems to be a good depiction of Walerstein’s core, semiperiphery and periphery countries. The theory itself will not be further discussed in depth, as it’s assumptions may be easily looked upon in outer sources.

Data warning According to many academics, with the existing reliability of data we can generally speak on trends but not on numbers. The definitions of migration of different time-span and of labor migrants in general seem incomparable in many cases. Moreover we might be encountering under registration of legal migrants and of course the discourse can not be complete if we do not consider significant illegal migration. 1

Germany - Poland - Ukraine: The Domino Effect, http://www.ffm-berlin.de/domino.pdf (28.07.2007, 13.45 pm).

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Ukraine General characteristics As the European Union enlarged east Ukraine became an EU neighbouring country. Such a geographical position suddenly created new possibilities for Ukrainian citizens. Since mid-2004, Ukraine has been sharing its border with three new EU Member States, Hungary, Poland and the Slovak Republic. Since this year Romania has also become an EU partner for the Ukrainians. The ability to cross the border and be in an EU country surely creates new possibilities. Taking it a step further we must also note that Ukraine is the world’s fourth country in terms of hosting the largest number of international migrants, which in 2005 was 6.8 million people. Most of them come from the former Soviet Republics though and therefore constitute a very specific group if immigrants, the case of which will not be analysed in this study. The Ukrainian Foreign Ministry estimated several years ago that about 300,000 Ukrainians (zarobitchany) worked in Poland, 200,000 in Italy, up to 200,000 in the Czech Republic, 200,000 in Spain, and 150,000 in Portugal. Pull-factors Because of (thanks to?) openness of some “old EU” members’ labor markets to workers form the “new EU” member states Poland has experienced labor shortages. Especially in the areas of healthcare and construction, as stated in a report by The International Labor Organization2. Apart from that many shortages in these fields Poland also experiences shortages in people performing seasonal jobs such as fruit picking or crop collection. These markets have to be filled with other employees, especially it becomes a concern of crop owners, who either collect crops on time or loose all of their potential income. Labor force from the Ukraine seem to be able to fill up these holes at least to some extent. Another are in which Ukrainian labor seems to have a good network is household jobs and cleaning services. Even without speaking the language, especially if someone comes from the western part of Ukraine he or she is able to communicate with their employer. Overcoming the language barrier greatly decreases the social cost of migration.

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www.ilo.org (30.07.2007, 12.34 pm).

Push-factors Of course in this case the very important feature is relativity of pay received in Poland in comparison to the wages available in the Ukraine. Moreover, as in many cases, international labor migration and starting earn income in foreign markets is

a form of

diversifying risk for the household. In an unstable political situation, and therefore unstable situation in the economy and, more specifically the labor market, may give incentive to seek for others forms of earning for a living abroad. Due to geographical, historical and cultural characteristics Poland seems to be a very reasonable choice. Having a “richer neighbor” causes the effect of relative depravation. The feeling of being poor seems to be a crucial factor in making decisions concerning one’s economic activity. Moving abroad, earning relatively more and then benefiting from remittances transferred back to one’s home country seems to be a very good tool in order to decrease the differences and in a longer period affect the effect of convergence among two economies on micro, mezzo and possibly also macro levels. Costs and threats Unfortunately a great deal of such employment, in all the sectors mentioned above is carried out illegally. In order to be able to change this situation what is needed is a good policy in terms of employment regulations. Such temporary jobs , if carried out legally would be subject to all the regulations such as taxes, social insurance of the employee etc. Under these circumstances it appears unprofitable for the employer to hire anyone. Of course it is probably somewhat easier to hire someone of Polish citizenship illegally, rather then a foreigner whose stay on the territory of the country is monitored from the port of entry until the point of departure. The Polish Ministry of Internal Affaires estimates that yearly from 100,000 to 150,000 people come to work to Poland illegally. Becoming an EU border country brought both positive as well as negative impact on the Ukrainian labour market. On one hand such a position creates new opportunities for people, who might want to seek new jobs in the West. Brining more competition into the Polish market trade openness with in the EU stimulates the economy, what gives employers incentive to develop their businesses and therefore creates new job opportunities, which in many cases may be taken advantage of by Ukrainians. On the other hand though, Ukraine became one of the major countries of origin for the human trafficking, especially women and children, for the purpose of sexual exploitation and forced labour. As noticed by the ILO,

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these issues demand a strong, comprehensive and coherent response from both the government and the international community. One of major threats considered by many in terms of migration and development is human capital depreciation in the host societies, also known as the “brain drain”. This issue will be referred upon in the further parts of this paper.

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Germany General characteristics Germany, one of the most powerful and wealthy countries in European Union is a typical example of a core country. Its aging society has been in a natural decline for many years now, constituting a serious threat to German economy. For this reason in order to sustain economic development and maintain dynamic workforce, German government introduced various politics, providing certain privileges for newcomers, all aimed at encouraging labour immigration. Experience with migration One response to labour shortage after the war was a series of bilateral agreements with Italy, Spain, Greece, Turkey, Portugal and Yugoslavia that constituted the ‘guest worker’ programme. However, German society soon discovered, that the ever growing amount of immigrants can add to various social and economic problems rather than solve them. The turning point was year 1973, when Germany entered a period of economic recession, and the government declared a ban on recruitment of foreign workers. Though the inflow of new workers was restricted, the process of reunification of families caused new immigration, sufficient to sustain previous immigration rate at the same level. Still, though the inflow remained relatively unchanged, the employment rate among newcomers was falling. Shortly after the fall of the Iron Curtain, Germany entered the temporary labour market again, hoping to capture some of the migration potential and channel it to the labourthirsty sectors. In 2002, over 90% of all German immigrants came from Eastern Europe, mainly from Poland3. In this year over 50% of work permits for contract workers and over 85% of permits for seasonal workers were issued to Polish citizens4. For the ten years from 1994 up to 2003, Poland has been the country of nationality for the greatest group of German immigrants. The only exception was year 1999, when Yugoslavian war refugees outnumbered even Polish workers5.

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http://ec.europa.eu/external_relations/migration/un_high_level/report_desa_39_population_en.pdf . http://www.migrationinformation.org/Profiles/display.cfm?ID=235 . 5 Ibidem. 4

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Costs and threats Vast immigration has became a threat to German society as one of causes of increasing unemployment. Today, hardly any German can say he has no one unemployed in his family. Such situation has pushed the government to search more protection from immigrants, and impose various limitations. Since some of the main countries sending temporal workers, including Poland, Hungary and Czech Republic became members of EU on 1st of May 2004, German society was fearing to be ‘flooded’ by workers from these countries under the conditions of free movement of workers within the EU. Therefore, in response to those fears, Germany enacted certain restrictions to workers from the new member states, in order to limit the expected inflow of workforce. However, tightening the asylum and work permit law apart from restricting the amount of legal immigrants has also led to an increase in illegal immigration, as people tried to avoid all the required red tape. Summing up, though on one hand Germany needs additional workforce to bolster its development and solve problems with labor shortages in various sectors, on the other one, excessive immigration can add to social and economic problems. Illegal immigration is harmful both for the society as it lowers working standards as well as expected salary, and for the German budget. Additionally, language problems occur contributing to already existing conflicts and ethnic divisions. Therefore it is valid to keep the balance between flexibility and security in terms of immigration.

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Poland General characteristics For the whole period of transition Poland stayed in a close relationship with European Union. First, as a non-member state it was neighbouring one of the largest EU’s countries – Germany. After annexation in may 2004, the outer borders of European Union moved from Poland’s western borders to the eastern ones. Now it is a major entrance gate into the EU – a popular destination for people approaching the EU labor market from the East. It is also a source country of labor due to the common market agreements functioning in the Union. Pull-factors Most west-European countries suffer from insufficient birth rate. Problems with shrinking societies has caused labour shortages in the markets and hence pushed these economies to search for new work force in other countries. Especially the two recent enlargements provided a great source of new workers from the new members states. The fields in which most of the old EU members suffer greatest shortages and therefore seek employees in central and eastern Europe are the low paid jobs in sectors not requiring special education, where salaries are simply insufficient for most of the home workers. This is the case of the building and construction sector, as well as providing cleaning facilities and seasonal jobs. Still, additional labour force is also required in fields requiring higher human capital and specific education, as in healthcare sector. For these reasons many EU member states have already opened their labour sectors for immigrants from the eastern countries. Another characteristic feature of polish emigrants is that they tend to form national communities in foreign countries. These work as specific networks encouraging and helping new emigrants overcome initial difficulties with language or finding a suitable job. Push-factors Despite being an EU member state for a few years now, there are still great disparities between levels of wages in western Europe and Poland. This is one of the main incentives for Polish workers to seek employment abroad. Also, alongside with the rise of standards of living, the sole expectations of Polish workers concerning salary have risen, causing some jobs become unappealing for them, hence they in search of satisfactory employment they turned to foreign markets. Another cause of emigration is the threat of unemployment, which in Poland, ever since the fall of communism, has been one of the highest in Europe. 9

Therefore, seeking employment abroad is one way of diversifying the risk of loosing income in Polish households. Not without importance is also the sole opportunity of living abroad, in a country of higher average standards of living. Therefore Polish citizens start to seek abroad not only for employment, but also education. Costs and threats One of the main consequences of high emigration from Poland towards west European countries is a specific workforce shortage in some sectors. The cause is that many workplaces turned unappealing for local workers as people having an opportunity to work abroad, started to regard the salary in some sectors unsatisfactory. The problem is most visible in the building and construction sector, which suffer great difficulties with finding new workers. Also in agriculture sector, while harvesting, and in gastronomy sector, where, especially during the holiday season, entrepreneurs experience ever greater difficulties with finding needed workers. This leads to a situation, where the whole economy can suffer as it cannot use its whole potential. Farmers find it ever harder to harvest all the crops, and each year ever more agriculture goods are wasted. Similarly is in the construction sector, which cannot cope to face the demand in the market due to lack of skilled workers. This in turn affects other sectors, whose growth requires new roads and buildings. The situation has led to the creation of typically “migrant” workplaces, as for example seasonal jobs while harvesting. Nevertheless, the situation remains severe as European migration law limits the inflow of legal workers from non-EU countries, and the salaries offered in Poland are still to low to attract workers from other EU-member states. Apart from other consequences, a high outflow of people harms Polish population. The present negative total birth rate is caused mainly by the net emigration. If the trend continues on, it can become as serious threat to the economy, just as it is in the west-European countries.

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Role of a semi-periphery Over the last decade, Poland has moved from a typically emigrant country towards a country of destination for many immigrants. Such co-existence of high emigration and immigration is one of the main features characterizing a semi-periphery country according to Wallerstein’s theorem. The core countries are those that benefit the most from labour movements in capitalist world. The periphery regions are those most exploited through unequal trade relations. The semi-periphery region is then a buffer zone between the two extremes. They are usually regions that lost their economic privileges and are not core countries any more, or the previous periphery countries, that managed to improve their situation. The latter one is the case for Poland, which thanks to EU membership started to benefit from its position among other European nations. As a typical semi-periphery it is exploited by the core countries, but at the same time tends to use its privileges to exploit peripheries. In order to examine the migration flows in Poland, we analyzed the data from the national census conducted in Poland in year 2002. A semi-periphery region should experience outflow of citizens towards more developed countries, and at the same time, an inflow of workers from more backward countries. In fact, one can observe, that the countries of destination for Polish emigrants were the typically core-countries, mainly Germany (app. 32% of all the emigrants in years 1989-2002)6. On the other hand, the majority of the immigrants came from countries the typically regarded as periphery ones, with the largest group of Ukrainian citizens (app. 23%)7. The both groups of migrants – the incoming and leaving Poland differ not only in terms of country of origin. Among Polish emigrants in years 1989-2002 over 15% had higher education, and the percentage, with time, was ever greater, whereas people with at least master degree contributed over 30% of immigrants. In both cases one can observe high overrepresentation of human capital within migrant groups, an effect of the fact that such persons are more likely to find a suitable job abroad. Nonetheless, in both cases the final workplaces tended to require lower level of human capital than that possessed by migrants, hence one can say it was wasted. This is one role of a semi-periphery: to be a buffer zone preventing to much of the valuable assets, as human capital, be misused and therefore wasted.

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Imigracja do Polski w œwietle wyników Narodowego Spisu Powszechnego 2002, [online:] http://www.migracje.uw.edu.pl/obm/pix/013_71.pdf 7

Ibidem

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Brain drain Many consider the brain drain as a very negative externality derived from labour migration. It has been of greater concern especially lately, when many immigrant receiving countries have restricted their immigration policies only to those foreigners, who may bring in some added value to the host country and to the development of the country’s economy. Some have brought more insight into the topic though and tried to prove that brain drain may somehow give good incentives for the host society. Firstly, as notated by Oded Stark in his papers published in 1997 and 1998 the perspective of being able to migrate and then earn a higher wage might give great incentive to acquire skills, which in other circumstances would never be gained. So the level of education in the home country may be higher, despite some bran drain type of migration. This is a benefit. Another issue combines brain drain migration with the feature of remittances. Wither higher skilled migrants, who will occupy higher paid jobs the flow of remittances might also be higher. Another benefit. Of course others would say that such people, earning relatively more may be able to invite their family to the host country and decide to stay there permanently (not contributing to any remittances therefore), but such a practice would concern only the top-level entrepreneurs etc. So definitely not the majority of migrant workers in the world. A second path in terms of increasing human capital one might take is to continue their education the host country in order to increase the probability of being hired. This would decrease the enrollment rate in the home country, but would increase enrollment in the host country somehow giving a blurred picture of the state of human capital. But if these people would return to their home countries they would inevitably increase the overall level of education. In a study by Miyagiwa (1991) we can read that the outflow of educated migrants will probably most affect other skilled workers, who did not leave the country. The less-skilled might be less affected. This is said to be caused by the fact that the skilled workers could benefit from the scale externality in the pre-brain drain stock of skills. Generally we must not be over optimistic in terms of the benefits from sending the most skilled workers to foreign countries. The first thing is that even with a relatively high flow of remittances money seems to be the fish and not the rod. The rod are the people, with 12

high level of human capital which are not working for the benefit of their host country, but for the advantage of a host society, increasing their level of e.g. research and development and innovations which seems to be a major engine of development. If properly managed labor migration can surely bring some benefits to all. It is just a matter of sensible political regulatory action.

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Remittances General situation in ECA In East Europe and Central Asia, the current migration flows are driven mainly by economic motivations. Therefore, also the migrants remittances as a portion of GDP, are quite large in the region. In 2004, the officially recorded remittances accounted over $19 billion8, which is app 8% of global remittances. Still, these estimates are undercounted as they do not include informal channels of transmitting migrants’ funds back to their families. For many countries in the region migrants remittances are the second most important source of external financing, after FDI, and an important factor helping to stabilize various economic turbulence in transition countries. Examples of such countries are Moldova and Bosnia and Herzegovina, where migrants’ funds accounted over 20% of GDP.

In the new EU member states (EU8) where the income levels are higher, emigrants do not have such great incentives to send their income back home and support their families’ consumption. Hence the significance of remittances for these economies is much lower. Still, the EU8 countries are the third largest source of remittances for ECA countries, accounting just below 10% of the total. The EU as a whole is a source of app 75% of all remittances in ECA.

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World Bank Organization.

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Impact on development Recent empirical studies by WBO indicate that remittances can have a positive, yet mild effect on a long-term macroeconomic growth. It can lead to improving standards of living and income levels. Additionally, it can be used as a mean to reduce poverty in the poorest households, as it adds to home’s budget without lowering anyone’s income. According to various estimations9 a 10% increase in the migrants’ share in a population can lead up to a 1/9% decrease in the share of the poorest households10.

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Ali Mansoor, Bryce Quillin, Migration And Remittances, Eastern Europe and the Former Soviet Union, World Bank Organisation, 2006 [online:] http://siteresources.worldbank.org/INTECA/Resources/2578961167856389505/Migration_FullReport.pdf. 10 People living on less than US$1 a day.

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Conclusions All in all we might say that Wallerstien’s theory somehow still holds in the contemporary European context. The reason for such a theory to hold may be that, according to a study by Bourginion and Morrison from 2002 the inequalities nowadays are at the level of inequalities from 1820. The relative development issues, including labor migration, may therefore be quite alike to the processes observed at the end of the colonial era and in more contemporary times. On the example of Ukraine, Poland and Germany we can see that creating preferential conditions on the labor market by enlarging such a community as the European Union does at the same time give incentive for others to take advantage of such an entity. Due to such economic dependencies there is the possibility of catching the dynamic effects of Wallerstein’s migration theory and observe convergence among states which may further lead to development of peripheral regions, to become semi-peripheral and later core regions even, for other, then-newly-emerging, markets. The whole system is about relativity, a semi-peripheral region in one case, may be a core region if we take into consideration a different economic system of interconnections between different states. Such a process may be observed historically with reference to Poland. A similar fate may be assigned to Ukraine. Differences in the world today, differences in endowments of natural resources, capital, different policies and development strategies are unlikely to make Wallerstein’s theory prove right in terms of the invalidity of a capitalist system at the advantage of a socialist economy. But with all the open and free market ideals in mind we must remember that what is crucial nowadays, is to create a more and more inclusive economy on regional level, as examined in this case. Otherwise we maybe dealing with the negative externalities stemming form migration, such as brain drain, human trafficking or development lags and gaps.

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Appendix

Setting the scene: socio-economic data (latest available in 2004) GDP per capita PPP 000’UDS Luxembourg United States Austria Canada Germany Slovenia Czech Rep. Hungary Slovakia Estonia Lithuania Poland Croatia Latvia Russia Romania Bulgaria Ukraine Armenia Kyrgyzstan Tajikistan

55.1 37.8 30.0 29.8 27.6 19.0 15.7 13.9 13.3 12.3 11.4 11.1 10.6 10.2 8.9 7.0 7.6 5.4 3.5 1.6 1.0

Population below poverty line (national definitions) 12.0 3.9

8.6

18.4

25.0 44.5 13.4 29.0 50.0 50.0 60.0

Source: presentation by Kupiszewski and Saczuk for IOM and CEFMR, Trieste 2004.

Unemployment

3.6 6.0 4.4 7.8 10.5 11.2 9.9 5.9 15.2 10.1 10.3 20.0 19.5 8.6 8.5 7.2 14.3 3.7 20.0 7.2 40.0

Source: presentation by Kupiszewski and Saczuk for IOM and CEFMR, Trieste 2004.

Bibliography

1. Bookman Milica Z., Ethnic groups in motion. Economic competition and migration in multiethnic states, Frank Cass Publications, London 2002. 2. Borjas Georg J., Crisp Jeff (ed.), Poverty, international migration and asylum, Palgrave Macmillan, New York 2005. 3. Ali Mansoor, Bryce Quillin, Migration And Remittances, Eastern Europe and the Former Soviet Union, World Bank Organisation, 2006 [online:] http://siteresources.worldbank.org/INTECA/Resources/2578961167856389505/Migration_FullReport.pdf. 4. World Migration Report, European Employment and Working Conditions, International Organization for Migration, 2007, [online:] http://www.ilo.org/wow/Featuredbook/lang--en/WCMS_082052/index.htm. 5. Economic and Social Council, World population monitoring, focusing on international migration and development, UN, Commission on Population and Development, 2006 [online:] http://ec.europa.eu/external_relations/migration/un_high_level/report_desa_39_popula tion_en.pdf. 6. Ewa Jaêwiñska, Imigracja do Polski w œwietle wyników Narodowego Spisu Powszechnego 2002,CMR Working Papers, University of Warsaw, 2006 [online:] http://www.migracje.uw.edu.pl/obm/pix/013_71.pdf . 7. Veysel Oezcan, Germany: Immigration in Transition, 2004 [online:] http://www.migrationinformation.org/Profiles/display.cfm?ID=235. 8. Krystyna Iglicka, Olga Olszewska, Andrzej Stachurski, Joanna Ýurawska, Dylematy polityki migracyjnej Polski, Instytut Studiów Spoùecznych Uniwersytet Warszawski, 2005 [online:] http://www.migracje.uw.edu.pl/obm/pix/058.pdf .

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