A report by the IMF about the movement of 18m from central and eastern Europe to western Europe since the fall of the Berlin Wall in 1990 says it has negatively affected the economies of the countries from which the migrants have come.
“The analysis suggests that labour outflows, particularly of skilled workers, lowered productivity growth, pushed up wages, and slowed growth and income convergence,” the IMF says. “At the same time, while remittance inflows supported financial deepening, consumption and investment in some countries, they also reduced incentives to work and led to exchange rate appreciations, eroding competiveness. The departure of the young also added to the fiscal pressures of already aging populations in Eastern Europe.”
The report was published on the IMF website on 20 July.
The conclusion flies in the face of conventional thinking which is founded on the idea that the free movement of labour from areas with low wages to those with higher wages has a systemically positive long-term impact on both.
The report is the latest IMF report to challenge what has been known as the “Washington Consensus”, a set of macroeconomic policies developed in the 1980s that were then seen as having a positive effect on economic development.
The report says about 25m people have left the countries of central, eastern and southeastern Europe since the early 1990s. These comprise 11 that joined the EU between 2004 and 2013; six in the Balkan region that are not yet in the EU plus countries that were previously western regions of the former Soviet Union.
Most of the migrants have gone to EU countries. They were mainly younger and better educated than the average for the countries they left. Their motives included getting better and higher-paid jobs, the physical and social infrastructure in the counties they migrated too and dissatisfaction with governance in the countries they left.
The IMF says the migration has been good for the individuals concerned and the economies they have moved to. Remittances have lifted incomes in home nations, but the loss of talent, which is often permanent, has more than offset that benefit.
Economics2030 finds these conclusions unsurprising. People create value through iterative interactions at the level of the individual. These interactions enrich relationships that are the vector for service transactions.
Only a minority of human interactions are monetised or involve trade. Most involve individuals active within their families and communities in various roles for which no payment is made.
The loss of value-creating individuals from families and communities through migration consequently leads to a reduction in value-creation including in paid-for service transactions. The departure of young, ambitious, educated and skilful people can have a particularly damaging impact on low-income economies. This includes the weakening of family and community structures crucial for the support of the young, the weak and the aged.
These negative effects express themselves in subtle but serious ways, including in undermining productivity, creativity and social and economic dynamism.
The IMF has called for action to deal with factors that encourage people to leave central and eastern European countries. This includes the strengthening of institutions and economic policies to create an environment that encourages economic migrants to stay or return; increasing the participation and productivity of workers in the region; promoting more effective use of remittances and appropriate fiscal policies.
But these measures deal with the symptoms of what is now a global phenomenon: the dematerialisation of capital and its dispatch to places where after-tax returns are highest. In the EU, this overwhelmingly means the union’s advanced economies. So long as this capital movement happens, there will be an irresistible incentive for people to follow it.