Friday

14th Dec 2018

Opinion

Visegrad migration policy risks undermining own economy

People's migration fears have been an easy one to exploit for electoral opportunism by many politicians in Europe.

Particularly in the Visegrad states of Czechia, Hungary, Poland and Slovakia, it has either brought nationalist anti-immigration parties into power or helped consolidate their grip on it.

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Yet, much more attention ought to be given in those countries to how much migrants are needed for their booming economies' labour markets.

This has been a result of consequent high economic GDP growth of 3-4 percent in the past five years, compared to the EU's average of two percent growth.

In 2017, these were 4.8 percent (Poland, PL); 4.3 percent (Czechia, CZ); 4.1 percent (Hungary, HU) and 3.2 percent (Slovakia, SK) respectively.

In parallel, unemployment dropped heavily to 4.9 percent (PL); 2.9 percent (CZ); 4.2 percent (HU) and 8.1 percent (SK) by 2017.

Latest European Commission forecasts show these will continue decreasing sharply to 2.9 percent (PL); 2.5 percent (CZ); 3.3 percent (HU) and 6.3 percent next year, well below the five percent normal unemployment rate.

As good as that might sound, a side-effect has been that many vacancies remained unfulfilled.

The amount of open vacancies has more than quadrupled in the past five years. Especially in Czechia and Poland this is causing serious problems, despite the latter's profiting from Ukrainian migrants.

The need of more workers

The commission's Spring and Autumn forecasts highlight these risks, which could undermine long-term growth, or even overheat the economy in the case of Czechia.

For Poland, despite the Ukrainian influx, there are doubts whether they can continue filling some of these shortages.

Business surveys confirm labour shortages limit production, building activity and business.

In industry, 43.7 percent (CZ); 83.3 percent (HU); 49.9 percent (PL); and 34.9 percent (SK) of surveyed companies state this is a problem.

For the construction sector, 37.8 percent (CZ); 64.4 percent (HU); 49.0 percent (PL) and 30.3 percent (SK) do.

Moreover, in services 17.3 percent (CZ); 38.3 percent (HU); 28.9 percent (PL) and 18.6 percent (SK) attest.

The labour shortages have also led to wages rising much faster than the rise in productivity.

In Slovakia and Hungary, Volkswagen and Kia for instance were forced to significantly increase wages because of strikes. Generally, labour costs are spiking in the Visegrad states.

While benefitting workers in the short-term, the economy could suffer in the long-term, as they undermine their low-wage economic models. It also jeopardises essential foreign investment that has helped drive growth.

Demographic troubles

In addition, the V4 is set to suffer as well from its demographic situation. Emigration and low fertility rates remain serious problems, dating back to their economic shock-therapy transitions where many struggled and had no jobs.

Due to this, populations remained stagnant since 1990.

The 2004 EU accession, particularly, caused many to emigrate abroad in search of (better paid) work abroad: circa three million people (registered) left the V4 between 2004 and 2016.

While profiting from remittances, this caused brain drain and the outflow of high-skilled labour. In turn, it also undermined welfare spending and made government budgets less growth friendly.

Demographics could constrain economic growth and governmental budgets again in the future.

Baseline projections for 2020 up to 2060 show the Visegrad Four's population could decrease by another 6.5 million people. In addition, the dependency ratio is set to increase sharply as well.

The need of migration

The dire demographic situation and labour shortages imply action is needed. Tight labour markets have already limited economic expansion in different sectors.

Overcapacity problems increase slowdown of the economy. Rapidly rising wages that do not translate into sufficient growth in productivity rates also make matters worse

While in Poland Ukrainian labour prevented worse labour shortages, it is unclear how many more will come or stay. This means for Poland, as well as for the others that additional migrants from elsewhere will be needed.

More could be done as well to promote people having children and attract former emigrants. It should also make sure to keep current migrants, especially Ukrainians in the case of Poland.

Current hostile rhetoric on migration could backfire economically as many more migrants are needed to fill labour shortages and keep economies running smoothly.

This also requires honest debates in which the pros and cons of migration are discussed, as well as the Visegrad's overall demographic problems, since dependency ratios will continue to increase.

Therefore, rather than focusing on the imagined threat of migration and exploiting fears for electoral opportunism, the Visegrad's politicians would be wise to focus on the actual threat of how the lack of migrants could undermine their economic models, and with it their future prosperity and welfare.

Moreover, while migration has been a successful strategy to win elections in the short term, it could backfire in the long term.

Robert Steenland is an author at Visegrad Insight (where a longer version of this piece first appeared), and an associate at the Warsaw-based Centre for International Relations

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