Migration Flows and Economic Sustainability In The Baltics

Here’s the third in the series of paper abstracts submitted to the Bologna conference in 2007 and which weren’t considered sufficiently interesting to be selected for presentation. This time the topic is migration and the Baltics, and the authors are Aapo Markkenen and Claus Vistesen. (for the two previous abstracts, and more about what this is all about, see here, and here). Evidently the subject is still highly topical. Only last Friday the Wall Street Journal had an article of the growing problem of human capital exodus in Greece. It is very important that people understand that when it comes to economic processes, no decision is ever completely free. There are always on-costs of some kind or another. In this case, a failure to act vigourously enough to restore competitiveness simply means that employment creation becomes far too slow, and people leave. This has the consequence that the population ages more rapidly, and that a return to economic growth is even slower. So more people enter despair and leave, and so on. Well, now for the abstract, and note the last paragraph:

Finally it will be argued that the directional and value component which is implicit in the current migration flows is quite simply unsustainable. Unless the Baltic States address the underlying issues of low fertility in the context of rapid ageing and to some extent reverse the ‘brain flight’ which has been so far associated with this, then absence of a sufficient supply of adequately qualified labour will in the space of a decade or so lead to a significant slowdown in the steady sectoral transition in economic activity and place a break on employment expansion in such a way that the economic growth process will either stagnate or even enter decline.

Migration Flows and Long Term Economic Capacity and Sustainability: The Baltic Case

Authors: Claus Vistesen and Aapo Markkenen

The World Bank has recently drawn attention to the level and extent of migration flows in Eastern and Central Europe whilst at the same time attempting an initial assessment of some of the longer term economic consequences of such flows (World Bank, 2007).

In particular the report highlights the rather substantial nature of migration in Central and Eastern Europe as well as the steady and continuing population drift from Central Asia towards the west. If we exclude movements between the countries themselves, such flows now account for approximately one third of total world immigration. In terms of the direction of the flows the major part of all Eastern European migration (42%) is now directed towards Western Europe, with notably Germany and the UK being the main recipients in numerical terms.

Within this general context the EU’s ‘inner sea’ (the Baltic) provides an interesting case study where some of the longer term implications of these processes can be examined. Despite the fact that their economies have been growing rapidly in recent years, young citizens of the three Baltic states of Estonia, Latvia and Lithuania still appear to find life more attractive somewhere else, at least this is the conclusion which may reasonably be drawn from their manifest willingness to out- migrate. However the differences which are to be found between migration patterns in each of these countries may well be just as important as the common trend. Lithuania, for example, has become – in relative terms – been the biggest source of intra-European migration, with more than 400.000 of its 3.4 million population out-migrating since the country joined the EU in 2004. During the same time period Estonia has seen a mere 1% of the total population leave.

What is interesting and instructive about the present migration patterns is how different they are from the traditional migration flows which have been observed both historically in other parts of Europe as well as increasingly today in many parts of the developing world (Williamson and Hatton, 2002). Traditionally migration could be thought to form part of a demographic transition process, and has largely tended to take off as countries achieve an initial growth impetus whereby development towards a modern growth regime occurs, under conditions where employment opportunities still do not increase rapidly enough to absorb all the young entrants to a labour market which is nevertheless expanding. Classically this migration process has to some extent been associated with the phenomenon known as the demographic dividend, insofar as an initial increase in living standards seems necessary to initiate the process.

Now the literature on the demographic dividend is normally at pains to emphasise that the dividend itself is far from automatic, and it would seem that the Eastern and Central European societies as a group provide one of the clearest indications of just how path dependent the whole demographic dividend and development process really is. By and large Eastern and Central European societies experienced a long term and sustained fertility decline without a concomitant increase in life expectancy to West European levels, and, even more significantly, without the arrival (due to the specific characteristics of the institutional structure which was in place) of a modern economic growth regime. By and large then these societies have commenced the second stage of their demographic transition in association with the institutional transformation which has accompanied the EU accession process, and rapid economic growth rates are now being experienced together with a slow and steady increase in life expectancy towards West and North European norms.

However this move towards the modern growth regime has been accompanied by a very dramatic decline in fertility to levels which may be considered to be in the lowest-low category (1.2/1.3 Tfr). It is precisely this ‘trifecta’ combination (very low fertility, steadily rising life expectancy, and ongoing out-migration of the young and well-qualified) which should be sounding the alarm bells as regards the medium-term sustainability of the growth process in these countries as labour supply and human capital constraints begin to exert themselves.

One theory that might be considered to throw some light on the case of the Baltic Countries, is that of relative deprivation. (Stark & Taylor 1991.) This theory argues that economic growth in and of itself may not be sufficient to stem emigration if the benefits of growth are not distributed equally; that is if income levels within a community increase, but the impact of the increase remains distribution-neutral – and thus existing income differences are maintained or even widen – then the incentive for the relatively less well off to move away can possibly increase too. Such groups may in fact be slightly better off than previously, but they may perceive themselves to have become relatively poorer in comparison to their wealthier counterparts, and as a consequence the incentive to move may be considered to have increased.

Worthy of note is the fact that Stark and Taylor postulate that even if economic growth does involve some redistributional element it may still encourage migration outflows – especially when the availability of credit is not uniform – since households that have to some extent benefited from rising living standards may attain a theoretical threshold which makes it economically possible to leave to seek their fortune elsewhere.

Another factor which may be operative in current Baltic migration is a kind of generational ‘gridlock’, as the weight of earlier generations, and the ‘insider’ character of their employment situation effectively serves to frustrate younger and often better qualified labour market entrants who find themselves either unable to advance sufficiently rapidly, or to obtain a salary level which they feel to be commensurate with their true economic worth.

Given the fact that economic growth in all three Baltic Countries – and particularly in Latvia – has to date been largely concentrated in the more dynamic capital cities (Basarova & Titova, 2004), the possibility clearly exists that the inability of labour markets in provincial cities and rural areas to generate sufficient employment opportunities with the appropriate human capital element have lead these areas to become the greatest losers from out-migration, since seeing their capital-based compatriots reaping comparatively more substantial benefits from economic growth, they have decided to leave in search of better pay and improved life expectations in the United Kingdom, Ireland or Spain.

In this context the relatively better performance of Estonia in retaining a higher proportion of its more educated young people seems to be important. The present paper will examine institutional and generational factors in the transition in Estonia which may have contributed to its comparative success in this area, and will suggest institutional and other policy measures which may help to address the issues outlined.

Finally it will be argued that the directional and value component which is implicit in the current migration flows is quite simply unsustainable. Unless the Baltic States address the underlying issues of low fertility in the context of rapid ageing and to some extent reverse the ‘brain flight’ which has been so far associated with this, then absence of a sufficient supply of adequately qualified labour will in the space of a decade or so lead to a significant slowdown in the steady sectoral transition in economic activity and place a break on employment expansion in such a way that the economic growth process will either stagnate or even enter decline.

Bibliography

Basarova, Julia and Nellija Titova, “Distribution of Economic Activity In the Baltic States: Concentration and Specialization Patterns”, University of Southern Denmark 2004.
Stark O. and J.E. Taylor, “Migration Incentives, Migration Types: The Role of Relative Deprivation”, Economic Journal, 101 (1991): 1163-1178.

Williamson, Jeffrey and Timothy Hatton. What Fundamentals Drive World Migration? NBER paper 9159. 2002.

World Bank. Migration and Remittances, Eastern Europe and the Former Soviet Union. 2007.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

15 thoughts on “Migration Flows and Economic Sustainability In The Baltics

  1. From today’s perspective, those are happy who emigrated timely, already in 2000-ies, and now have establisched themsleves in the West.

    And during current crisis Latvia is absolutely happy about anybody who goes away.

  2. This seems to me a rather artificial concern.

    Why are we so concerned about the existance and continued existence of countries?

    So people leave Latvia, or Greece, or any other country and this is a positive feedback loop; in the end, if we for the sake of argument assume nothing changes, the country goes away. It is absorbed by a neighbour.

    What’s the problem?

    I feel countries fundamentally *do not matter*. It is *people* that matter. We can choose or choose not to have countries; we can see them going away. I do not see why we need particularly to have countries, or put special effort into maintaining the existance of these artificial constructs. They are a device, nothing more.

  3. It matters since people tend to identify themselves with larger cultural groups, including the sort (like the Latvians) which form the nuclei of the nation-states that dominate our civilization. Collapsing states provide niches for things to develop, many of which are bad; failed states are forms we want to avoid. States are just useful.

  4. EU versus EU Member (Nation)

    Economists haven’t come up with a convincing analysis of economic integration between EU states and the importance of the nation state.

    At present the focus on a state (Spain, Greec..) ignoring it’s membership within the EU is Leading to the internale devaluation mantra.
    That can only be achived if the “german block” is leaving it’s devaluation path, or it will lead to migration patterns that might threaten the economic prospects of a country.
    Yes Germany is a net exporter of workforce.

    On the flip side, those economist lament about to little integration within the EU. (argument: language, workforce inmobility)

    In central Europe the concept of Nation wasn’t that influential, and many feel glad that it get’s weeker by EU membership.

  5. Hi Edward,

    Is the paper itself available somewhere?

    The abstract is interesting, but I think there are some issues, e.g. using Estonia as a case. Estonia is not exactly the best example if one wants to generalize fertility development in the Baltic States or Central and Eastern Europe.

    best
    Martin

  6. A shrinking population is a significant obstacle to achieving GDP growth, as increased productivity is required from the remaining residents merely to maintain GDP levels. Also, the burden of sovereign debt obligations must be shared by the lower number of remaining residents. As an aging population is less likely to be able to increase productivity, sovereign debt crunches become difficult to avoid.

  7. Ethnic solidarity was a tool that allowed the peoples of Europe to replace the autocratic/monarchic governments with states that were more responsive to the desires of the public. To me that is why we see some of the difficulties between countries in the Eurozone flaring up today. People in specific countries in the EU see their own governments as likely to be more responsive to their concerns than the EU structures. It takes a long time for federalist institutions to earn the trust of citizens in member states that the centralized systems will be fair. The history of the USA is a good example, and it is notable that it took that country a very long time to reach the level of federalism that it is at today.

  8. Scott Peterson wrote:
    > The history of the USA is a good example, and
    > it is notable that it took that country a
    > very long time to reach the level of
    > federalism that it is at today.

    It took about eighty years, starting from the New Deal. That’s not a long time.

  9. Randy McDonald wrote:
    > It matters since people tend to identify
    > themselves with larger cultural groups,
    > including the sort (like the Latvians) which
    > form the nuclei of the nation-states that
    > dominate our civilization.

    That’s seems to be a description of how things are, not a *reason* for having things the way they are.

    Let’s take it as a given that people tend to identify with a larger cultural group (although I for one do not and I wonder if this is not something which begins to change, or exists as strongly as it does *because* we have countries).

    How do we go from that to countries? why countries in particular? why not something else which also works for that given?

    > Collapsing states provide niches for things
    > to develop, many of which are bad; failed
    > states are forms we want to avoid.

    States which fail, in a catastrophic manner of some kind, are examples of large bodies of people and capital which are in a problematic situation of some kind.

    You can’t argue States in general are good and we should have them because *when States are in a problematic situation and fail what comes after can be bad*.

    Why not having something different in the first place? (which for the sake of argument we would assume is *not* in a problematic situation).

    > States are just useful.

    The current situation appears to be an example of where they are not useful. Borrowing has been done by the State but the State begins to evapourate.

  10. Hi!

    “You can’t argue States in general are good and we should have them because *when States are in a problematic situation and fail what comes after can be bad*.”

    That’s fair. In my case, that’s because I’ve no idea what other than a state would possess the authority necessary to administer a particular territory. Suggestions?

  11. jobs and migration in Michigan: A thought experiment by Daniel Little: http://understandingsociety.blogspot.com/2010/06/more-on-jobs-and-people-in-michigan.html

    It’s not only the Baltics, although the scope of problems is far greater there. Further, Iceland, too, is about to meet a level where outmigration is unsustainable. At the current rate, Iceland would be more or less depopulated in some 10-15 years! (interesting to know how the UK want to get their Icesave money in that scenario…)

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  15. Intresting pictures, Thanks for shnairg them. Dont know so much of Russia, but the few things i know about this huge nation. Is that it seems right now to be a hard life to many people to live there (if you are poor). And also the catastrofic birthrates in your country, its like a plague (prelude to disaster). I hope for Russia things turns around for the better. One thing is sure, something has to be done. Putin and his goverment doesnt appear to be the right people to rule this great nation.

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