Is Free Migration Compatible with a European-Style Welfare State?

Is free migration compatible with a European-style welfare state?

Philippe Legrain, Visiting Fellow, European Institute, London School of Economics

Expert report nr. 11 to Sweden’s Globalisation Council

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 1 008-04-088-04-08 17.03.5917.03.59 EXPERT REPORT NUMBER 11 TO SWEDEN’S GLOBALISATION COUNCIL © THE GLOBALISATION COUNCIL 2008

AUTHOR Philippe Legrain GRAPHIC DESIGN Nina Rosenkvist PRINT Edita, Västerås 2008

ISBN 978-91-85935-05-5 ISSN 1654-6245

ORDER The Globalisation Council PHONE 0046 8 405 10 00 E-MAIL [email protected] www.sweden.gov.se/globalisation

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 2 008-04-088-04-08 17.03.5917.03.59 Preface

Free immigration is widely believed to be incompatible with a welfare state, on the left as well as on the right. This report examines in greater depth the possibility that rich countries act as “welfare magnets” for people from poorer countries. More careful consideration reveals that this view is too simplistic. Looking narrowly at the impact of free migration on public finances ignores its broader economic benefits. These are potentially huge, and would make it easier to pay for the welfare state. Migration should be seen as an opportunity, not a threat. It is a matter of human rights and humanitarianism as well as self-interest.

The 11th report to the Globalisation Council treats the question on how to combine free immigration and a developed social insurance system in a welfare state. The Swedish government already allows free migration from the EU. It is now proposing a reform of immigration law in the latter half of 2008 that would open up more channels for those outside the EU wishing to come to Sweden to work. The author believes that this would be a big step forward creating a simplified procedure for recruiting non-EU workers based on labour-market demand that is flexible, transparent and aims to be sustainable in the long term. Still, it is argued that in order to realise the full potential of immigration, further liberalisation is needed.

The author Philippe Legrain is the author of Immigrants: Your Country Needs Them. He is a visiting fellow at the London School of Economics’ European Institute. He is also a commentator on globalisation, migration and European issues for publications such as the Financial Times, the Guardian, The Times, as well as for BBC TV and radio. The author takes full responsibility for the results and analysis presented in the report.

Stockholm, April 2008 Pontus Braunerhjelm Principal Secretary, The Globalisation Council

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 3 008-04-088-04-08 17.03.5917.03.59 Globalisation Council members

The Swedish Government has established a Globalisation Council to promote a dee- per knowledge of globalisation issues, draw up economic policy strategies and broa- den public dialogue about what needs to be done to ensure that Sweden can compete successfully in a world marked by continued rapid globalisation. The Council’s work is expected to lead to proposed measures whose purpose, broadly defined, will be to boost Sweden’s competitiveness and attractiveness on the international scene. In addition to regular Council meetings, background reports will be written by in- dependent researchers and other experts. These will be quality assessed by reference groups composed of representatives from academia and the Government Offices and by leading economists on the Council’s Advisory Board. The work of the Council, which must be completed well before the 2010 general election, will be documented in a final report along with economic policy recommendations. Plans are also being drawn up for a number of external activities, such as conferences and seminars. The Council comprises representatives from the business sector, the Government, social partners, the government administration, the media and the research community. It is chaired by the Minister for Education and Research, Lars Leijonborg. The Principal Secretary is Pontus Braunerhjelm.

The other members are: Kristina Alsér, Mercatus Engineering AB, County Governor, Kronoberg County Hans Bergström, columnist and reader in political science Carl Bildt, Minister for Foreign Affairs Urban Bäckström, Director-General, Confederation of Swedish Enterprise (Svenskt Näringsliv) Lars Calmfors, professor of international economics Per Carstedt, CEO, SEKAB Group Dilsa Demirbag-Sten, journalist, author Anna Ekström, Chair, Swedish Confederation of Professional Associations (SACO) Lars Leijonborg, Minister for Education and Research Sven Otto Littorin, Minister for Employment Wanja Lundby-Wedin, President, Swedish Trade Union Confederation (LO) Karin Markides, President, Chalmers University of Technology Elisabeth Nilsson, President, Swedish Steel Producers’ Association (Jernkontoret) Aina Nilsson Ström, Head of Design, AB Volvo Sture Nordh, Chair, Swedish Confederation of Professional Employees (TCO) Mats Odell, Minister for Local Government and Financial Markets Maud Olofsson, Minister for Enterprise and Energy and Deputy Prime Minister Carl-Henric Svanberg, President and CEO, Ericsson Lena Treschow Torell, President, Royal Swedish Academy of Engineering Sciences (IVA) Harriet Wallberg-Henriksson, President, Karolinska Institutet Marcus Wallenberg, Chair, International Chamber of Commerce (ICC) Olle Wästberg, Director-General, Swedish Institute (Svenska Institutet)

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 4 008-04-088-04-08 17.03.5917.03.59 Table of contents Preface 3 Globalisation Council members 4 Abstract 6 1 Introduction 7 2 Are rich countries welfare magnets? 9 3 Are immigrants a burden on public finances? 16 4 Labour rights without social rights? 24 5 The economic impact of free migration 29 6 Does immigration undermine political support for the welfare state? 35 7 The impact of Sweden’s proposed reforms 39 8 Conclusion 41

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 5

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 5 008-04-088-04-08 17.04.0017.04.00 Abstract

This report examines the interaction between free migration and a European-style welfare state, with particular reference to Sweden. It considers whether rich-country welfare states act as a magnet for migrants from poorer countries, examines immigrants’ net impact on public finances, and suggests ways of reconciling free migration with a generous welfare state. It looks at how the broader economic impact of free migration would affect the affordability of the welfare state and examines the claim that greater diversity reduces political support for the welfare state. It concludes that while free migration may pose challenges to a European-style welfare state, the two are not incompatible. On the contrary: by boosting economic growth, free migration could actually make the welfare state more affordable. Philippe Legrain is the author of Immigrants: Your Country Needs Them (Little, Brown, 2007), which was shortlisted for the 2007 Financial Times Goldman Sachs Business Book of the Year Award. He is a visiting fellow at the London School of Economics’ Euro- pean Institute, a journalism fellow of the German Marshall Fund of the United States and a contributing editor to Prospect magazine. He is also a commentator on globalisation, migration and European issues for publications such as the Financial Times, the Guardian, The Times, as well as for BBC TV and radio. Previously trade and economics correspondent for The Economist and special adviser to World Trade Organisation Director-General Mike Moore, his first book was Open World: The Truth about Globalisation (Abacus, 2002). He blogs at www.philippelegrain.com.

6 • EXPERT REPORT TO SWEDEN’S GLOBALISATION COUNCIL

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 6 008-04-088-04-08 17.04.0017.04.00 1. Introduction

It’s just obvious that you can’t have free immigration and a welfare state. Milton Friedman1

Milton Friedman’s claim that free immigration is incompatible with a welfare state is widely believed, on the left as well on the right. The logic behind it is simple: if people from poorer countries can migrate freely to rich ones and claim welfare benefits there, and are better off doing so, then many will – and this will pose such an economic burden on rich-country taxpayers that political support for the welfare state will be undermined. On the surface, Friedman’s argument seems plausible. But more careful consideration reveals that it is narrow and simplistic. While it is certainly conceivable that free migration could make a European-style welfare state economically and politically unsustainable, this is neither inevitable, nor indeed likely. Friedman’s argument has parallels to the notion that globalisation is inexorably destroying the welfare state through a “race to the bottom”, as the movement of people and companies to low-tax economies erodes the tax base in high-tax ones. This belief, also widely held across the political spectrum, is demonstrably untrue: Sweden, for one, com- bines a highly open economy with very high taxes. While Sweden’s taxes are arguably too high, and doubtless cause some people and companies to relocate, globalisation does not render them unsustainable. Although Swedes are free to move anywhere within the Euro- pean Union (EU), only a few have emigrated for tax reasons. Fears about a race to the bottom have not been realised for several reasons. First, taxes are not simply costs: they generally pay for benefits, such as socialised medicine and state pensions, too. Second, even for individuals who pay more in taxes than they receive in benefits, Sweden’s other attractions may outweigh the lure of lower taxes elsewhere. As I wrote in Open World: The Truth about Globalisation,

1 Quoted in Peter Brimelow, “Milton Friedman at 85”, Forbes, 29 December 1997, page 52.

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 7 “We are rooted to places by family, friends, language and culture. For every Bjorn Borg, who claims residence in Monte Carlo in order to avoid Sweden’s high taxes, there are countless Svens who are still willing to fork out.”2 There is more to life than a lower tax bill. Third, open economies tend to enjoy faster growth, which lightens the burden of paying for the welfare state. Far from making Sweden’s welfare state unaffordable, globalisation helps pay for it. Since Swedes are not emigrating en masse in order to slash their tax bills, why should one assume that huge numbers of people from poorer countries want to move to Sweden to claim its generous welfare benefits? EU citizens are free to move to Sweden, yet remarkably few poor Poles and other east Europeans have done so – and overwhelmingly to work rather than to claim welfare. Far from overwhelming the welfare state, allowing non-EU citizens to come and work in Sweden freely would give a huge boost to the economy, helping to sustain public services and welfare provision. Some of the important terms used in this report are defined as follows. Free migration entails the absence of border restrictions on foreign nationals participating in a country’s labour market on the same terms as citizens. Immigrants are foreign-born residents, whether short- term or longer-term. The welfare state is the sum total of social insurance, welfare benefits, social investment and public services provided by governments to citizens and/or residents. The report is divided into eight sections. Section 2 examines in greater depth the possibility that rich countries act as “welfare magnets” for people from poorer countries. Section 3 argues that looking at the welfare burden that immigrants do, or might, pose ignores their contribution as taxpayers and employees, and considers the net impact of immigration on public finances. Section 4 explores welfare reforms that would mitigate economic and political fears about immigration, and argues that allowing foreigners open access to the labour market need not imply granting them full social rights immediately. Section 5 argues that looking narrowly at the impact of free migration on public finances ignores its broader economic benefits. These are potentially huge, and would make it easier to pay for the welfare state. Section 6 considers the political impact of immigration on the welfare state and weighs up the argument that greater diversity erodes voters’ willingness to pay for social insurance. Section 7 briefly considers how the Swedish government’s proposed immigration reforms might inter- act with its existing welfare system. Section 8 concludes.

2 Philippe Legrain, Open World: The Truth about Globalisation, Abacus, 2002, page 158.

8 • Expert report to Sweden’s Globalisation Council 2. Are rich countries welfare magnets?

“All you bleeding hearts want to invite the whole world in here to feed at our trough without a thought as to who’s going to pay for it, as if the American taxpayer was like Jesus Christ with his loaves and fishes,” says a racist lawyer in The Tortilla Curtain, T. C. Boyle’s book about immigration in California.3 The fear that immigrants are coming to “feed at our trough” is almost as old and deep-seated as the fear that they are “stealing our jobs”. At New York’s Ellis Island, the main entry point to the United States for the millions of Swedes and other poor Europeans who migrated in the late 19th and early 20th century, inspectors sought to weed out foreigners “liable to become a public charge”. Through the Aliens Act of 1905, Britain sought to keep out paupers and vagrants. More recently, critics of immigration have whipped up fears that foreigners come to sponge off welfare. Do they have a case? If people from poorer countries are better off on welfare in rich countries than working in their country of origin, this could conceivably motivate them to migrate – and if enough do, the welfare state could become economically and politically unsustainable. As George Borjas of Harvard University, a leading critic of immigration in the United States, puts it:

welfare programs will probably attract people who qualify for sub- sidies and repel persons who have to pay for them. A strong magnetic effect, combined with an ineffective border control policy, can literally break the bank. In addition, immigration can easily fracture the political legitimacy of the social contract that created and sus- tains the welfare state. No group of native citizens – whether in the United States or in other immigrant-receiving countries – can reasonably be expected to pick up the tab for subsidising hundreds of millions of ‘the huddled masses’.4

3 T. C. Boyle, The Tortilla Curtain, Bloomsbury, 2004. 4 George Borjas, Heaven’s Door: Immigration Policy and the American Economy, Princeton University Press, 1999, page 114.

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 9

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 9 008-04-088-04-08 17.04.0017.04.00 Borjas’s argument rests on exaggeration: he talks about subsidising “hundreds of millions” of destitute foreigners, even though such a huge flow of welfare migrants did not occur in previous decades when the US border with Mexico (and hence Latin America) was more or less open. But having stoked up readers’ fears, Borjas cannot substan- tiate them. He is forced to concede that:

there exists the possibility that welfare attracts persons who otherwise would not have migrated to the United States. Although this is the magnetic effect that comes up most often in the immigration debate, it is also the one for which there is no empirical support.5

Borjas’s escape clause is that that this magnetic effect is the “hardest to corroborate”, since “It is doubtful that many immigrants would willingly volunteer the information that they came to the United States to collect SSI benefits [welfare for the old and disabled poor] or Medicaid [public healthcare for the poor].” That is true, but in the absence of corroborating evidence, his assertion is no more than a hypothesis – and there is good reason to believe it is false. In 1996, the US Congress passed the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) – commonly known as the welfare-reform act – which cut off legal immigrants’ access to federal public benefits and imposed even more stringent restrictions on illegal immigrants (for details, see section 4 below). If many Mexicans were moving to the US to claim welfare, the act ought (other things equal) to have reduced immigration from Mexico over the past decade. In fact, immigration has increased – which suggests that most Mexicans are actually coming to work. By European standards, America’s welfare state is threadbare. Might Sweden’s more generous welfare state attract poor migrants? For a country to act as a welfare magnet, all of the following conditions must hold:

1. people in poor countries have to be desperate or ambitious enough to want to leave home in the first place – i.e., the expected costs of staying and/or the expected benefits of migrating must be so great that they outweigh the large financial, psychological and other costs and risks of migrating;

5 Ibid.

10 • EXPERT REPORT TO SWEDEN’S GLOBALISATION COUNCIL

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 1010 008-04-088-04-08 17.04.0017.04.00 2. they have to be able to migrate;

3. of all the possible locations they could move to, they have to prefer Sweden, or at least they have to end up there as a result of a chain of decisions and events;

4. adjusted for differences in purchasing power, welfare benefits in Sweden have to be higher than an immigrant’s expected income in his or her country of origin;

5. welfare benefits must be immediately available to newly arrived immigrants, or immigrants must have sufficient funds or other assistance to sustain them until they become available; and

6. immigrants have to prefer life on welfare to the greater rewards – higher incomes, fulfilment and status – of working.

While some people might conceivably become welfare migrants, it is highly unlikely that their numbers would be great enough to endanger the welfare state. For a start, relatively few people are willing and able to migrate in the first place. People are tied to their home by emotio- nal attachment, family, friends, jobs, property and assets that are not readily sold or retained in absentia, language, culture, hope, fear of change, fear of the unknown, and many other things. While some people are footloose and fancy-free, most aren’t. Most are risk-averse – and migrating is a huge leap in the dark. Even when life is dire, most people stay put, out of choice or ne- cessity. Despite the carnage in Iraq, only a minority have moved to neighbouring Jordan or Syria, let alone further afield. Although large disparities in income and quality and life exist among neighbouring African states that have little or no control over their borders, migra- tory flows are relatively small. A surprisingly large proportion of those who do take the plunge and migrate end up returning home: a third of the Europeans who migrated to America in the late 19th and early 20th centuries came back, for instance. Now that migration within the EU is cheaper and easier, the few who move mostly move temporarily. In short, most people don’t want to leave home at all, let alone forever. It is ironic that opponents of immigration, who tend to prize their “home”, “roots” and “nation”, fail to recognise that others might also be attached to their home, however poor it might be.

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 11

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 1111 008-04-088-04-08 17.04.0017.04.00 Together, the first two conditions ensure that relatively few migrate: the poorest and most desperate may want to, but may not be able to; the richer and less desperate may be able to, but not want to. Migrants are thus a self-selected minority, who tend to be more enterprising and hard-working than most – because only the ad- venturous are willing to take the risk of migrating, while only the industrious who have most to gain from it are willing to bear the costs of it. Just as people who are willing to incur the costs and risks of starting their own business tend to be more hard-working and enterprising than most, so too do those willing to incur the costs and risks of upping sticks in search of a better life abroad. Of course, the costs and risks of migration are not fixed: if borders are open, transport costs cheap, opportunities plenty, and cultural and other obstacles to migration low, more people will tend to move than otherwise. But even then, only a minority tend to leave. As US citizens, poor Puerto Ricans are free to move to the continental United States, yet relatively few do.6 Only a fraction of the 75 million people in the A8 countries, the eight ex-communist countries that joined the EU in 2004, have emigrated to the rest of the EU.7 Migrants’ destination is influenced by a host of factors. Econo- mics is clearly important: people tend to migrate to richer countries, although not always – there are lots of Westerners working in developing countries. History (such as former colonial links) is also an influence, as is geographical proximity – the biggest source of migrants to Sweden remains Denmark, with Finland in fourth and Norway in fifth place.8 Over time, though, they have become less so: Stockholm is increasingly cosmopolitan; London even more so. Government policy matters: since Sweden opened its borders to the A8, Poland has become the second-biggest source of migrants. Refugee policy is particularly important in Sweden: it received 17,500 asylum applications in 2005, and admitted 8,100 foreigners on humanitarian visas, with Iraq the third-biggest source of migrants overall.9 Once two countries have established links through migration, the dynamic tends to be self-reinforcing: the first migrants bring over

6 The US Census Bureau estimates that 126, 465 Puerto Ricans migrated to the US in the 1980s and 111,336 in the 1990s, out of a population of 3.2 million in 1980 and 3.5 million in 1990. That is 4% of the population over the 1980s and 3.2% over the 1990s. http://www.census.gov/population/www/ documentation/twps0064.html and http://www.census.gov/compendia/statab/tables/08s1290.pdf. 7 The A8 are the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia. 8 OECD, International Migration Outlook 2007, page 285. 9 Ibid., Table I.6, and page 285.

12 • EXPERT REPORT TO SWEDEN’S GLOBALISATION COUNCIL

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 1212 008-04-088-04-08 17.04.0017.04.00 their relatives, the existence of an established migrant community abroad makes it easier for others from the same country to come and settle in a foreign land, new trade and investment ties are created that stimulate further migration, and so on. Last but not least, personal reasons are often decisive: many people move to be with friends or family, because they want to learn a particular language, or because they are especially attracted to a country’s culture and way of life. Migration patterns thus reflect a complex mixture of economic incentives, government policy, political events, history, geography, family ties and personal reasons. While some migrants may favour Sweden, most prefer to go elsewhere. The belief that “everyone wants to come here”, which is often voiced in each rich country, is demonstrably false. For sure, Sweden’s generous welfare system may make it more attractive to potential welfare migrants than, say, the United States. Yet neighbouring Norway is arguably even more generous. Besides, migrants may not like cold weather; they may prefer to learn English; they may have relatives in Germany; and so on. In 2004, when Britain, Ireland and Sweden alone opened their labour markets to the A8 countries, very few opted for Sweden, despite its geographical proximity, historical ties, high living standards and generous welfare state. Since Britain and Ireland restricted A8 citizens’ access to social benefits for the first year, prospective welfare migrants should have opted for Sweden. Yet of the 324,000 Poles who emigrated in 2005, only one in 100 went to Sweden – overwhelmingly to work.10 The welfare-magnet argument also presumes that life on welfare in rich countries is more attractive than working in poor countries. Often, this is not the case. Basic welfare benefits in most rich countries are not particularly high. Adjusted for the higher cost of living in rich countries, they may not be higher than wages in developing countries. Allowing for the fact that most people would prefer not to uproot themselves to a strange, foreign land, and that moving is costly and risky, welfare benefits in rich countries have to be considerably higher than wages in developing countries for significant numbers to migrate for that purpose. It beggars belief, for instance, that an Afghan would pay a smuggler £5,000 in order to come to Britain and claim £50 a week in benefits as an asylum seeker.

10 Ibid., Table I.2 and Chart I.7.

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 13

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 1313 008-04-088-04-08 17.04.0017.04.00 Sweden, though, has a particularly generous welfare system. The OECD calculates that welfare benefits – social assistance plus housing- related cash benefits – amounted to SEK103,640 a year in 2005 for a single person with no entitlement to unemployment benefits, rising to SEK167,500 for a couple with two children, who would also be entitled to family benefits.11 Converted into 2005 US dollars, this is $13,820 for a single person and $22,330 for a family of four.12 A further adjustment must be made for the higher cost of living in Sweden: the World Bank estimates that prices in Sweden are 24% higher than in the United States. Allowing for this difference, a single migrant is entitled to $11,145 in benefits, and a family of four, $18,010. That sounds like a powerful magnet – until one realises that average income per person in Poland is $13,600 adjusted for differences in purchasing power ($54,400 per family of four), while it is $7,790 in Turkey ($31,160), $3,550 in Morocco ($14,200) and $2,400 in Pakistan ($9,600).13 It clearly makes no sense for the typical Pole to move to Sweden to claim welfare benefits. It makes little sense for the average Turk either: one has to assume that Turks are desperate to leave their country, have a very strong preference for Sweden, and are not deterred at all by the costs and risks of migrating in order to believe that a 40% rise in income is enough to motivate many to move. But what about an individual Moroccan or Pakistani? With welfare benefits in Sweden around three times higher than average incomes in Morocco, and around four- and-a-half times higher than those in Pakistan, it might seem plausible that the Swedish welfare state would be a powerful magnet. Yet migrants cannot simply turn up in Sweden and start claiming benefits. While there is social provision for asylum seekers and refugees, visitors and prospective migrants are not immediately entitled to welfare. Migrants require a national registration number in order to claim most benefits, while unemployment benefits can only be claimed by those who have already worked in Sweden for a sufficient time.14 But perhaps the most important reason why welfare migrants are rare is that even if immigrants were better off on welfare in a rich country than back home, they would still be even better off

11 OECD, Social Policy Division - Directorate of Employment, Labour and Social Affairs, Benefits and Wages, “Sweden 2005”, http://www.oecd.org/dataoecd/39/29/39675469.pdf. Data is from http:// www.oecd.org/51/39/39662061.xls. 12 Calculations using World Bank’s International Comparison Program statistics, 2005. http://siteresources.worldbank.org/ICPINT/Resources/summary-tables.pdf. 13 Ibid. 14 See details in Table 2.

14 • EXPERT REPORT TO SWEDEN’S GLOBALISATION COUNCIL

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 1414 008-04-088-04-08 17.04.0017.04.00 working. Underlying the welfare-magnet argument is the belief that immigrants are lazy and don’t want to work. No doubt some migrants are work-shy – as are some Swedes, Americans and Aus- tralians – but most aren’t. For the fears of people like Borjas to be realised, immigrants would have to be both enterprising enough to migrate in the first place but then suddenly sapped of enterprise once they arrive in a rich country, such that they prefer a life on welfare to the much greater rewards of work. This is highly improbable. People who want a comfortable life don’t tend to go to the effort of uprooting themselves. Once immigrants arrive in a rich country, they have a very strong incentive to make the most of the greater opportunities available to them. They start at the bottom of the pile, economically and socially. They have to pay off the cost of migrating. They have to provide for themselves and save up for a better future for their family. They most likely want to send money home to their relatives and friends. Wor- king pays better than welfare. Undeniably, if borders were fully open, the cost of moving would be much lower and the potential for welfare migration would increase. But just as Swedes are not all rushing to Ireland to cut their tax bills, and Romanians are not all moving to Sweden to claim welfare, opening up migration to the rest of the world is highly unlikely to lead to a deluge of welfare migrants. The notion that free migration entails providing charity to the whole world is more of a rich person’s irrational fear than a likely occurrence.

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 15

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 1515 008-04-088-04-08 17.04.0017.04.00 3. Are immigrants a burden on public finances?

Immigrants may not move to rich countries in order to claim welfare benefits, but critics claim that they tend to end up a drain on the public purse all the same – because they may be disproportionately poor and unemployed, for instance. Some enthusiasts claim on the contrary that young immigrants’ taxes could pay for the generous pensions that rich-country governments have promised their swelling ranks of old people. Are immigrants a burden or a boon for public finances? The honest answer is: it depends. It depends on who immigrates and on what terms, as well as on the assumptions used in making the calculation. Estimating the net impact on public finances of anyone – let alone a diverse group of people lumped together under the label “immigrants” – is fraught with difficulties. It depends on immigrants’ characteristics – such as their age, education, employment status, income, and the number of children they have – and the terms on which they enter, such as how much tax they have to pay as well as which social benefits and public services they can access and when. Nor is it a simple matter of totting up how much an immigrant pays in taxes in a year and subtracting how much he or she receives in direct benefits. The calculation depends heavily on which methodology is used, which time-frame is considered, which expenditures and revenues are included, how they are allocated, and whether individuals or households are considered. Age is crucial. Over a lifetime, people are generally a net burden on the state while they are in state-financed education; net contributors while they are working; and a burden again when they are retired or require very expensive medical services. Immigrants who arrive as young adults, having completed their education abroad and with a full working life ahead of them, are likely to be net contributors over their lifetime if they remain in work. If they leave before claiming a pension, or tend to die young, they can make a significant contribution to financing natives’ pensions.

16 • EXPERT REPORT TO SWEDEN’S GLOBALISATION COUNCIL

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 1616 008-04-088-04-08 17.04.0017.04.00 Employment status is also vital: the unemployed are generally a burden on the state. Income clearly matters too: in a progressive tax system, people with higher incomes tend to pay more tax. Highly- paid migrants may make a particularly big contribution to public finances. But the poor do not necessarily receive the most welfare benefits: while direct assistance may be targeted at the poor, benefits in kind – such as a free university education – tend to benefit the middle classes disproportionately. The working poor may benefit less than middle-class children and pensioners. Families with young children receive more benefits than single people: free public education, as well as family benefits. But this apparent subsidy to children is partly an artefact of a short time-hori- zon and taking a household rather than an individual approach. If one considers children separately from their parents, couples with children do not receive bigger benefits than single people: everyone is subsidised as a child and most pay this back in taxes once they start working. If, however, children are educated in one country then move abroad, they may never pay back the public investment in their education. A snapshot – however it is calculated – of the taxes immigrants pay and the benefits they receive in any year is clearly less representative than an assessment over a lifetime. But an estimate of someone’s lifetime impact either must wait until they are dead or requires hugely uncertain projections of their tax and benefit profile over future decades. The most comprehensive measure of all involves an intergene- rational approach – estimating the net contribution that immigrants and all their descendents make – but this involves even more heroic assumptions. The time-frame used is particularly important in determining the impact of immigration on countries with large public debts and huge unfunded pension promises. If a government runs up debts to pay for current spending – such as generous pensions paid on a pay-as-you-go basis – and plans to pay them back over, say, the next 40 years, then a large influx of immigrants over that period will, in effect, help foot part of the bill. Shifting the burden of paying off the national debt onto future generations also shifts it, relatively, onto new immigrants. Broader questions arise about how collective spending is allocated among individuals at a point in time, and over time. Is a stay-at-home mother who pays no taxes but looks after her three children really a burden on the state, or is she providing childcare and other services which the state would be subsidising if she went out to work? If immigrants are often victims of crime and racial abuse, are they a cost

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 17

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 1717 008-04-088-04-08 17.04.0017.04.00 to the state, or should the costs be allocated to the (unidentified) crimi- nals? Do immigrants reduce the budgetary cost of roads – by spreading the burden of paying for them more widely – or do they add to it, by increasing the costs of building and maintaining roads disproportionately? Accounting for social investments is also tricky. Free education may provide huge social returns in the future; free healthcare likewise. Eliminating free language classes and skills training for immigrants may seem like a saving, but maintaining them may boost immigrants’ (and natives’) future productivity, and hence future taxes. In short, the per- mutations are endless and there is no right answer. Many studies have estimated the net fiscal impact of immigration. Those that follow immigrants over time generally conclude that immigrants and their descendants tend to pay in more than they take out – but only a little more.15 For what it’s worth, a study by Jan Ekberg of Växjö University suggests that immigrants are currently a net burden on Sweden’s welfare state.16 Looking at the United States, the National Academy of Sciences found that the average foreign-born resident was a net recipient of $3,000 from government over their lifetime, but that their children were net contributors to the tune of $80,000 each.17 Another study concluded that “the overall fiscal co sequences of altering the volume of immigration would be quite small and should not be a major consideration for policy.”18 A third agreed that immigration has little impact either way on the government’s fiscal position: “realistic changes in the level of immigration should be viewed neither as a major source of the existing imbalance, nor as a potential solution to it.” 19 The study estimated that if defence spending rose in line with the population, immigration worsened the fiscal situation; if it didn’t, immigration improved government finances. Also, if the US government put its finances on a sound footing now, the benefits of immigration were less than if the government delayed.

15 OECD, Trends in International Migration, 1997. 16 Jan Ekberg, Immigration to the Welfare State: Is it a Burden or a Contribution? The Case of Sweden, AMID Working Paper Series 48/2006. 17 J. Smith and B. Edmonston, The New Americans: Economic, demographic and fiscal effects of immigration, National Academy Press, 1997. 18 Ronald Lee and Timothy Miller, “Immigration, Social Security, and Broader Fiscal Impacts”, American Economic Review Papers and Proceedings 90(2): 350–54, 2000. 19 Alan J. Auerbach and Philip Oreopoulos, “Analyzing the Fiscal Impact of U.S. Immigration”, American Economic Review Papers and Proceedings 89(2): 176–80, 1999.

18 • EXPERT REPORT TO SWEDEN’S GLOBALISATION COUNCIL

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 1818 008-04-088-04-08 17.04.0017.04.00 Although the net impact of immigration on government finances over several generations is likely to be small, immigration could mitigate the looming pensions crisis in some countries. If a country such as Germany, where a shrinking workforce has to support a growing pensioner population, allowed in over the next few decades millions of young immigrants who had been educated abroad, this could deliver a one-off boost to public finances that eases the tax burden on native workers. Moreover, by increasing the number of future taxpayers, thereby spreading government debt over a wider base, immigrants automatically reduce the individual burden on native taxpayers. One study finds that immigrants who arrive in Germany between the ages of twelve and forty-five make a net contribution to public finances over their lifetime – as much as $136,800 if they arrive aged thirty.20 Since three-quarters of immigrants who arrived in 2000 were aged between twelve and forty-five, the authors estimate that the average immigrant will make a net contribution over their lifetime of $55,400. If Germany continues to admit 200,000 primarily young migrants a year and their impact on taxes and government spending is similar to that of current immigrants, immigration could reduce natives’ net tax burden by around 30% – and by as much as 45% if the number of immigrants rose each year so as to keep the German population stable. In short, because Germany’s population is set to age much more dramatically than America’s, and because this will leave a huge hole in government finances given the generous pensions that the German government has promised to pay its citizens, immigrants could potentially make a much bigger contribution to righting Germany’s fiscal woes. The same may be true of Sweden. While immigration may help some countries with their transitional pensions problems, it cannot offset the ageing of their population. After all, immigrants grow old too. The population of most rich countries is set to shrink and age over the first half of this century, because people are having fewer children and living longer. Already in 2000, the average American woman was having only two children, below the 2.1 needed to sustain the population, while the average European woman was having a mere 1.4. With fewer children being born and more old people around, the number of people of working age

20 Holger Bonin, Bernd Raffelhuschen and Jan Walliser, “Can Immigration Alleviate the Demographic Burden?”, Finanz Archiv 57(1): 1–21, 2000.

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 19

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 1919 008-04-088-04-08 17.04.0117.04.01 (aged 15-64) potentially able to support each old person (over 65) – which is technically known as the “dependency ratio” – had fallen to five in the United States and four in the EU-15. To prevent the dependency ratio falling below three would require an annual inflow of nearly 3 million migrants a year into the EU – roughly twice the current legal and illegal flow from outside the EU.21 Despite the complexity of estimating the impact of immigration on public finances, some broad-brush generalisations can be made. Young immigrants who come to work temporarily without their families will clearly be net contributors to public finances. They were educated abroad and will retire abroad too, but are paying taxes while working in Sweden. Since studies show that immigrants do not typically harm the job prospects of native workers, they will not raise social spending on natives.22 Workers who stay only temporarily therefore tend to swell rich-country governments’ coffers. But what if immigrants who settle permanently tend to end up unemployed and on welfare for long periods, and their children likewise? In Sweden, the employment rate in 2005 among the native born was 74.6%, while among the foreign-born it was 60.7%. Unemployment was 7.9% among the native-born and 14.9% among the foreign born.23 This gap is significant. Yet there is nothing inevitable about it: while employment and unemployment rates among the native-born did not change much between 1995 and 2005, the employment rate among the foreign-born rose by 7.2 percentage points, while the unemployment rate fell by 6.8 percentage points. While immigrants’ children tend to do better than their parents, they tend to fare less well than those of native Swedes. (The children of immigrants are often called “immigrants” too, but they are not: they were born in Sweden.) The OECD statistics in table 1 capture this phenomenon, which applies to both men and women of all education levels. Clearly, this is a serious problem, not least for immigrants and their children. But one cannot – and should not – conclude, as many do, that immigrants have lower employment rates because they are work-shy, for cultural or other reasons. Nor does Table 1 prove – or even suggest – that free migration is incompatible with a welfare state.

21 United Nations Population Division, “Replacement Migration: Is It a Solution to Declining and Age- ing Populations?”, 2000 http://www.un.org/esa/population/publications/migration/migration.htm. 22 See Philippe Legrain, Immigrants: Your Country Needs Them, Little, Brown, 2007, chapter 5. 23 OECD, International Migration Outlook 2007, Annex Table I.A1.1.

20 • EXPERT REPORT TO SWEDEN’S GLOBALISATION COUNCIL

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 2020 008-04-088-04-08 17.04.0117.04.01 Table 1. Employment rates, %, Sweden, 2004, 20-29 years old, not in education24

Low Medium High education education education Total Men Women Men Women Men Women Men Women

Foreign-born 45 37 66 59 53 53 52 46

Native-born, both parents foreign-born 52 50 75 73 77 79 68 69

Native-born, one parent foreign-born 58 54 80 76 82 82 75 73

Native-born, both parents native born 66 58 86 82 87 88 83 81

Note: “Low” refers to below upper secondary education; “medium” to upper secondary and post-secondary non-tertiary and “high” to tertiary education.

For a start, some of the gap may be due to discrimination. It is striking that university-educated women with foreign-born parents have an employment rate nine percentage-points lower than those with native- born ones. The daughters of immigrants who strive to obtain a university degree are hardly likely to be unwilling to work. If discrimination accounts for all of that gap, it could explain almost all the difference in employment rates across genders and education levels. If discrimination is a big problem, the solution – which is desirable irrespective of immigration – is surely to enforce anti-discrimination laws more effectively. Second, some of the gap may be due to other inequalities of opportunity: the children of poor immigrants may receive a worse education, for instance. Among the children of immigrants, 23% of men and 31% of women in their 20s have completed a university degree; among the children of native-born Swedes, 30% of men and 42% of women have. While this gap cannot directly explain the differences in employment rates in Table 1, it may suggest that immigrants’ children have fewer

24 OECD, International Migration Outlook 2007, Annex Table I.A1.4.

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 21

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 2121 008-04-088-04-08 17.04.0117.04.01 educational opportunities. Those who do obtain university degrees may tend to have less good degrees than native Swedes, and they may have fewer useful contacts. If so, the solution lies in more vigorous policies – which are also desirable irrespective of immigration – to promote equality of opportunity for everyone born in Sweden. Third, the higher unemployment rate among immigrants in general may be due to the fact that they were disproportionately employed in sectors of the economy affected by structural change, and that they have been unable to find other work. Such problems call for a host of responses, including more active labour-market policies to encourage retraining and welfare reforms to increase incentives to work. Fourth, and perhaps most importantly, the gap in employment rates for immigrants and their children may be due to labour-market regulations and institutions that privilege insi- ders at the expense of outsiders. These include high payroll taxes, job-protection measures that increase the cost and risk of hiring an unknown quantity, restrictive union agreements, and so on. Since immigrants are by definition outsiders, and their children may be too, such labour-market restrictions may disproportionately affect them. Indeed, it may be precisely these barriers which have deterred Poles and other A8 workers from migrating to Sweden in large numbers. It is not correct, then, to blame immigrants’ higher unemployment rates on immigrants themselves. In effect, border controls are not the only barriers that may keep migrants out of the Swedish labour market. So may domestic regu- latory barriers and labour-market imperfections, such as information and reputation issues, a failure to recognise foreign qualifications and experience, discrimination, and wage rigidities. (Such barriers may also apply to native-born Swedes, of course. Young people of a working-class background, for instance, may to find it harder to find a job than a more experienced middle-class person with more contacts.) While immigrants’ characteristics, such as their skills, aptitude to work, and language ability, may be an issue, it is unlikely to be the predominant one. As an excellent study by Benny Carlson of Lund University shows, similar Somali immigrants fare far better in Minne- sota (where there are many people of Swedish origin) than in Sweden. This suggests that the problem lies more with Swedish institutions than with the characteristics of Somalis themselves.25

25 Benny Carlson, Somalier i Minneapolis – en dynamisk affär (Somalis in Minneapolis – a dynamic deal), Zufi, 2006. A short summary in English is published in Ulf Johansson Dahre (ed), The Role of Diasporas in Peace, Democracy and Development in the Horn of Africa. Lund: Research Report in Social Anthropology 2007:1.

22 • EXPERT REPORT TO SWEDEN’S GLOBALISATION COUNCIL

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 2222 008-04-088-04-08 17.04.0117.04.01 If the problem lies primarily with institutions not immigrants, throwing out all immigrants would not reduce unemployment among native-born Swedes; it would increase it. Conversely, free migration would not necessarily raise the overall unemployment rate; it would alter its composition. Irrespective of Sweden’s openness to immigration, efficiency and equity argue in favour of labour-market reforms that better combine security, flexibility and opportunity. Likewise, it is in Sweden’s interests to reduce discrimination, increase equality of opportunity, promote active labour-market policies, make labour markets fairer and more efficient, and reform the welfare state in ways that improve incentives to work. Doing so will also help maxi- mise the gains from free migration, both to public finances and the economy as a whole. But in any case, free migration is compatible with the welfare state, because granting foreigners the right to work need not imply granting them access to the same welfare benefits as long-term residents and citizens.

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 23

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 2323 008-04-088-04-08 17.04.0117.04.01 4. Labour rights without social rights?

In a sense, the debate about the potential impact of immigration on public finances is a red herring. While free migration implies that governments do not attempt to limit the type and number of immigrants, they are still free to modify the terms on which foreigners are admitted. In particular, if governments are worried about the potential burden that immigrants might pose to the welfare state, they can restrict access to social rights for an initial period. This not only eliminates the remote possibility of welfare migration; it also ensures that immigrants do not end up a burden on the state – and are most likely net contributors to it. Some might object that this compromises the integrity of the welfare state, which supposedly demands that everyone on a territory have the same social rights. It is certainly true that most welfare states – including Sweden’s – have over time granted increased social rights to long-term residents, and often rights equal to those of citizens.26 It also true that every civilised society’s ability to discriminate among people on its territory is constrained by certain principles, which vary country by country and evolve over time: preference cannot usually be given to people of a certain race (although affirmative action programmes do); generally, preference cannot be given to people of a certain religion (although some European governments subsidise Christian schools but not Muslim or Hindu ones); emergency healthcare is typically available to all; men and women generally have similar social rights (although household-based welfare systems may favour men, or women); and so on. But no government offers the same social – let alone political – rights to visitors, tourists, foreign students, foreign business- people, short-term contractors, au pairs, temporary workers, short- term residents and illegal immigrants as they do to long-term residents and citizens. Even welfare states with universal aspirations in practice reserve most benefits to residents, citizens and contributors.

26 See, for instance, Diane Sainsbury, “Immigrants’ social rights in comparative perspective: welfare regimes, forms of immigration and immigration policy regimes”, Journal of European Social Policy, Vol 16(3): 229–244, 2006.

24 • EXPERT REPORT TO SWEDEN’S GLOBALISATION COUNCIL

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 2424 008-04-088-04-08 17.04.0117.04.01 Even if one deems it desirable that states provide equal social rights to everyone on their territory, in practice none do. At the same time, there are limits to the extent to which liberal democracies can discriminate between the rights of people on their territory. But within that broad range of possibilities, there is plenty of scope for crafting welfare policies that are compatible with free migration as well as fairness and decency. As Lant Pritchett of Harvard University’s Kennedy School of Go- vernment points out, “Singapore manages to maintain an enormously high level of benefits for its citizens with massive mobility. Kuwait has one of the highest immigrant populations in the world, and you can’t ask for a more cradle-to-grave welfare state than what Kuwait gives its citizens. So it’s obviously possible to maintain whatever level of welfare state you want and have whatever level of labor mobility you want, as long as you’re willing to separate the issues.”27 Pritchett adds: “One of the awkward paradoxes of the world is that Bangladeshis and Pakistanis and Nepalis are enormously better off precisely because the Persian Gulf states don’t endow them with political rights. Because if you said to Kuwaitis, every Bangla- deshi who comes in is going to acquire the full entitlements of Ku- waitis, I’m sure the Kuwaitis would cut the flow of Bangladeshis to zero. The Bangladeshis have been made enormously better off by the ability to work in Kuwait.” Pritchett makes a good and important point, but that does not make Singapore or Kuwait role models for Europe. Temporary foreign workers often live in segregated conditions, with fewer labour rights than native workers, and with no possibility of eventually becoming residents and/or citizens with equal rights. And while many migrants are allowed in, they are not allowed in freely: they are selected, and they can be expelled at any time. In effect, the Singaporean and Kuwaiti systems are extreme versions of the German guest-worker model. What may be desirable for Europe is granting newcomers the right to work freely on equal terms to native workers while giving them few social rights initially. As a comparative study28 by Michael Fix and Laureen Laglagaron of the Urban Institute, a think-tank in Washington, DC, makes clear, rich countries allocate social rights in a variety of ways; all, though, distinguish between certain types of people. The study distinguishes

27 Interview in Reason, February 2008, http://www.reason.com/news/show/123912.html. 28 Michael E. Fix, Laureen Laglagaron, Social Rights and Citizenship: An International Comparison, Urban Institute, August 2002 http://www.urban.org/url.cfm?ID=410545.

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 25

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 2525 008-04-088-04-08 17.04.0117.04.01 between four general categories of residents, in descending order of social rights:

– citizens;

– EU citizens: citizens of any EU country are granted full social rights across the Union provided they are employed or self-employed;

– presumptively permanent non-citizens: long-settled non-citizens and other immigrants entitled by law to settled residence in the state (this group may include recognised refugees, persons authori- sed upon admission to reside permanently, and persons who attain such a right after a period of residence in the state);

– presumptively temporary non-citizens: non-citizens whose presence is invited or tolerated for a limited period of time and whose return is anticipated. Members of this group must change their legal status if they wish to reside or work in the host country after the period of time for which they have been admitted ends. Students, guest workers, asylum seekers can be included in this category.

These four types of resident have varying rights of access to: – the labour market, including immigrants’ ability to freely choose a career, a workplace, or to be self-employed;

– non-contributory social-welfare programmes (cash transfers, child assistance, housing assistance, healthcare and health-insurance programmes);

– contributory social-insurance programmes (old-age and pension programmes as well as unemployment insurance); and

– selected social-investment programmes, such as job training, grants and loans for higher education, integration assistance, and elemen- tary and secondary education.

The study considers nine countries: the United States, Canada, Australia, Israel, France, Germany, the Netherlands, Austria and Britain. I have produced similar results for Sweden, based on information kindly supplied to me by Camilo von Greiff of Sweden’s Globalisation Council (see Table 2). According to the most common

26 • EXPERT REPORT TO SWEDEN’S GLOBALISATION COUNCIL

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 2626 008-04-088-04-08 17.04.0117.04.01 typology of welfare states produced by Gøsta Esping-Andersen, Sweden has a “social-democratic” welfare regime.29 For comparative purposes, I have also included the results for Germany, which is said to have a “conservative” welfare regime, and the United States, which is deemed to have a “liberal” welfare regime (Tables 3 and 4). This is not the place to discuss the validity of this typology, merely to observe the differences that exist. Illegal migrants have scarcely any right to social benefits in any country – and they may be afraid to make use of any public services, such as emergency healthcare, to which they may be entitled. Le- gal migrants’ access to social benefits is also increasingly restricted in most rich countries. In the United States, the 1996 welfare-reform act barred legal immigrants (except refugees and those granted asylum) from all federal means-tested public benefits for five years after en- tering the country and barred them from Supplemental Security In- come (assistance for needy old and disabled people) and food stamps until citizenship.30 Asylum seekers and temporary workers are denied access to nearly all social benefits. Although some of these provisions have subsequently been relaxed, immigrants’ access to social benefits remains highly restricted. In Britain, temporary migrants, non-EU labourers and those admitted on family-reunification visas are not eligible for any social benefits, except housing assistance, for which eligibility varies locally. In France and Germany, temporary workers are denied most social benefits. Australia restricts immigrants’ access to social assistance, housing, healthcare and social security for the first two years. Canada severe- ly restricts temporary workers’ access to most social benefits. Those sponsoring a visa for a foreign relative have to sign a ten-year contract making them legally responsible for their food, clothing and shelter and guaranteeing that the relative will not apply for social assistance. If sponsors do not stick to their side of the bargain, they can be taken to court for repayment and their ability to sponsor another relative is impaired. Even Sweden, which aspires to a quasi-universal welfare state, places some restrictions on temporary migrants’ eligibility for welfare benefits (see Table 1). If Sweden were to allow people from outside the EU to come and work freely, but policymakers and/or voters were worried that this

29 Gøsta Esping-Andersen, The Three Worlds of Welfare Capitalism, Polity, 1990. 30 United States Congress, Personal Responsibility and Work Opportunity Reconciliation Act of 1996 §401, 411, 432.

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 27

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 2727 008-04-088-04-08 17.04.0117.04.01 would pose an unbearable burden on the welfare state, the government could at the same time restrict the availability of welfare benefits. When the British government granted A8 citizens free access to the UK labour market in 2004, it barred them from claiming most social benefits for 12 months. Although New Zealanders are free to move to Australia, since 2001 they no longer have access to social benefits until they become permanent residents. Even though welfare migration is a largely irrational fear, it might be politically expedient, if not ideal, for policymakers to grant foreigners the right to work but not to claim social benefits. Some will object that this is unfair, or even immoral: they believe that everyone in Sweden must be treated equally. That is generally a fine principle, but as we have seen, it is already breached. When I am paid to come and speak at a conference in Sweden, I do not expect that it automatically entitles me to the same social rights as others in Sweden, nor do others object that I should only be able to work in Sweden temporarily if I gain full social rights. Why, then, should a desire for conditional equality be used as an excuse to deny others the opportunity to come and work in Sweden? It is a peculiar notion of fairness that offers a few lucky foreigners full access to the Swedish welfare state at the expense of keeping most out. If the price of gaining the right to work in Sweden was not being able to claim welfare when they arrive, most immigrants would take it. This does not curtail their rights: nobody is forced to come and work in Sweden; if migrants would rather stay at home, they are free to do so. If Swedish voters are unwilling to offer foreigners free access to its welfare state, why is it wrong to offer migrants the opportunity of coming to work? Immigrants would not be competing unfairly with native workers: they would still be subject to the same employment laws, pay the same payroll taxes, and so on. The only difference would be in terms of access to social rights.

28 • EXPERT REPORT TO SWEDEN’S GLOBALISATION COUNCIL

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 2828 008-04-088-04-08 17.04.0117.04.01 5. The economic impact of free migration

Whatever the terms under which immigrants are admitted, and whatever their net impact on public finances turns out to be, conventional analysis of the impact of migration on the welfare state is unduly narrow. Migrants contribute to public services and welfare provision not only as taxpayers, but also as workers. Even if, as critics tend to focus on, migrants’ babies are born in a local hospital at taxpayers’ expense, migrants’ net contribution to national healthcare may be positive if one considers the taxes they pay and the contribution of foreign doc- tors, nurses, cleaners, hospital porters, security guards and so on. More importantly, such narrow calculations ignore the often-huge broader contribution that migrants make to the economy (not to mention society and culture). If, as a Swede, you were somehow trying to assess your own contribution to Sweden, I doubt you would solely count the tax you pay. If migration boosts the size of Sweden’s economy, or more importantly, if it raises natives’ living standards, then it makes the welfare state more affordable. Conventional wisdom has it that the net impact of immigration on the receiving economy is small. The basic standard analysis considers a labour market where migrants compete directly with – i.e., are perfect substitutes for – native workers and where the capital stock is fixed. Not surprisingly, it finds that migrants lower natives’ wages, but that these losses are slightly outweighed by higher returns to owners of capital and lower prices for consumers. In this narrow view, migration mostly involves redistribution from workers to owners of capital and consumers, with only a small net gain overall. Yet this model is partial, static and simplistic. In the real world, migrants are rarely direct substitutes for native workers – because, as critics of immigration are the first to admit, they are different. Often, they complement them: think of a foreign childminder who allows a local doctor to go back to work, where her productivity is enhanced by hard-working foreign nurses and cleaners. Nor is the capital stock fixed; on the contrary, it responds rapidly to changes in the labour

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 29

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 2929 008-04-088-04-08 17.04.0117.04.01 market, especially in a small economy with open capital markets. Nor is the existing pattern of production given: opening up labour markets permits more efficient specialisation. Above all, the economy is forever changing, and increased international labour mobility helps it adapt more readily, as well as making it more dynamic. The economic case for free migration is analogous to that for free trade. A global labour market would ensure that labour is allocated to its most efficient use. It would lead to a finer division of labour, increased specialisation and economies of scale, reduced prices and increased choice. Over time, it would boost competition, innovation and enterprise, and thus economic growth. These benefits are potentially huge. Even ignoring the dynamic gains, studies estimate that creating a global labour market could double the size of the world economy.31 Just as the freeing up of international trade and finance since the Se- cond World War has helped power a huge rise in living standards across the world, increased international labour mobility could deliver vast economic gains over the next fifty years. This should not be controversial. Most economists agree that free trade is generally beneficial; the same is surely true of free migration, since migration is, in effect, a form of international trade. Consider a European who requires medical care. He could be treated locally by a European doctor; he could go abroad to be seen by a foreign one; the foreign doctor could treat him remotely, over the telephone or the internet, for instance; or the foreign doctor could come to Europe to treat him. In the last three cases, Europe is importing medical care; the final case, which we classify as migration instead of trade, is simply a form of international services trade that involves a foreign provider coming to Europe to offer his services to consumers on the spot. But where services have to be delivered locally – old people cannot be cared for from afar; taxi-drivers have to operate locally; dishes have to be washed on the spot – international migration is the only form of international trade that is possible. As with any form of trade, most of the benefits of migration de- rive from the fact that migrants are different to natives. Among other things, they have a different age, skill and education profile, a different

31 Bob Hamilton and John Whalley, “Efficiency and distributional implications of global restrictions on labour mobility: calculations and policy implications”, Journal of Development Economics 14 (1-2), 61-75, 1984; Jonathon W. Moses and Bjørn Letnes, “The Economic Costs to International Labor Restrictions: Revisiting the Empirical Discussion.” World Development 32(10): 1610, 2004.

30 • EXPERT REPORT TO SWEDEN’S GLOBALISATION COUNCIL

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 3030 008-04-088-04-08 17.04.0117.04.01 opportunity set, and a variety of experiences and perspectives. The main economic benefits of increased international labour mobility to a country such as Sweden can briefly be categorised as follows:

1. increased innovation and enterprise – because of migrants’ individual efforts and collective diversity – and thus faster long-term productivity growth;

2. increased competition and dynamism – hard-working foreigners stimulate greater productivity gains by native workers;

3. increased flexibility and adaptability – just as it is beneficial for people to move from Gothenburg to Stockholm if their labour is in demand there, so too from Warsaw or Manila: job shortages can quickly be met by foreign workers, who tend to be more willing, once arrived, to move to where the jobs are, and to change jobs as conditions change;

4. efficiency gains from specialisation and a finer division of labour – low-skilled foreigners enable Swedes to specialise in higher-skilled jobs, high-skilled ones permit Swedes to focus on specialities that they prefer or excel at;

5. economies of scale and scope from a larger population and/or clustering effects from a greater concentration of certain types of worker and industry, as in Silicon Valley or the City of London;

6. gains to native labour from complementarities with migrant labour;

7. gains to capital from complementarities with migrant labour;

8. gains to consumers: lower prices and greater choice.

Other things equal, the benefits of free migration are greater when labour, product and capital markets are flexible and economic and cultural barriers to integration low. Set against these benefits are the short-term losses to labour and capital that are readily substitutable for foreign labour, and the ongoing costs of adjusting to continual economic change. Both of these costs can be mitigated by an effective welfare state, which the economic gains from migration can help pay for.

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 31

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 3131 008-04-088-04-08 17.04.0117.04.01 The biggest potential gains from migration come from increased innovation and enterprise, which provide most of the rise in living standards in the long term. The exceptional individuals who come up with brilliant new ideas often happen to be immigrants. Instead of following the conventional wisdom, they tend to see things differently, and as outsiders they are more determined to succeed. Twenty-one of Britain’s Nobel-prize winners arrived in the country as refugees. Their contribution is vast – but inherently unpre- dictable. Nobody could have guessed, when he arrived in the US as a refugee from the Soviet Union aged six, that Sergey Brin would go on to co-found Google. Had he been denied entry, and Google not been founded, America and the world would never have realised the opportunity that had been missed. European governments have doubtless turned away many potential Brins – not to mention their deterring ambitious types from trying to come in the first place. Immigrants’ collective diversity is also vital. Most innovation comes from groups of talented people sparking off each other – and foreigners with different ideas, perspectives and experiences add something extra to the mix. If there are ten people trying to come up with a solution to a problem and they all think alike, those ten heads are no better than one. But if they all think differently, then by bouncing ideas off each other they can solve problems better and faster, as a growing volume of research shows.32 Just look at Silicon Valley: Google, Yahoo! and eBay were all co-founded by immigrants who arrived not as graduates, but as children. Nearly half of America’s venture-capital- funded start-ups have immigrant co-founders.33 The value of diversity does not apply only in high-tech: an ever-increasing share of our prosperity comes from solving problems – such as developing new medicines, computer games and environmentally friendly technolo- gies, designing innovative products and policies, providing original management advice. Diversity also provides indirect gains, by acting as a magnet for talent. Go-getting people are drawn to cities like London and New York because they are exciting and cosmopolitan. As Richard Florida

32 See, for instance, Scott Page, The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools and Societies, Princeton, 2007, as well as Philippe Legrain, Immigrants: Your Country Needs Them, Little, Brown, 2007, chapter 5. 33 National Venture Capital Association, American Made: The Impact of Immigrant Entrepreneurs and Professionals on US Competitiveness, 2006.

32 • EXPERT REPORT TO SWEDEN’S GLOBALISATION COUNCIL

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 3232 008-04-088-04-08 17.04.0117.04.01 documents in The Rise of the Creative Class, “Regional economic growth is powered by creative people, who prefer places that are diverse, tolerant and open to new ideas”.34 The paradox of productivity growth is that while Sweden’s future prosperity depends on developing new high-productivity activities and nurturing existing ones, a large share of future employment will be in low-skill, low-productivity activities, precisely because such jobs cannot readily be mechanised or imported. The fastest area of employment growth in most advanced economies is not high-tech, but care for the elderly. But if natives are to specialise in high- productivity jobs, and to enjoy more valuable leisure time, immigrants have to be admitted to do low-skill jobs. Low-skilled migrants are thus highly beneficial to the Swedish economy. Low-skilled jobs account for over a quarter of employment in advanced economies, and this is unlikely to fall much in future. The US Department of Labor, for instance, forecasts that over half of employment growth in the 25 occupational categories in the Uni- ted States showing the largest absolute increases between 2000 and 2010 will be in low-skilled tradable services – jobs such as food pre- paration and service, retail, security guards, waiters, truck drivers, nursing aides, home health aides, cleaners, labourers, freight, stock and material movers, landscaping and caretaking, personal and home care, receptionists, hand packers and packagers. But the supply of low-skilled workers in Europe is shrinking fast, as less-skilled older workers retire and younger ones with higher aspirations replace them. Whereas only 72% of Swedes aged 55-64 have completed secondary school, 91% of 25-34 year olds have, and high-school graduates understandably aspire to better things, while even those with no qualifications do not want to do certain dirty, difficult and dangerous jobs.35 The growing importance of old-age care neatly captures the broader economic interaction between migration and the welfare state. The UN Population Division forecasts that the share of Sweden’s population aged over 60 will rise from 24% in 2006 to 31% in 2050, with the share of the over-80s – those most likely to need care – rising

34 Richard Florida, The Rise of the Creative Class: And How It’s Transforming Work, Leisure, and Everyday Life, Basic Books, 2002. 35 OECD, Education at a Glance 2007, Table A1.2a. http://www.oecd.org/document/30/0,3343,en_264 9_201185_39251550_1_1_1_1,00.html#data Indicator A1.

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 33

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 3333 008-04-088-04-08 17.04.0217.04.02 from 5.3% to 9.6% over the same period.36 But young Swedes generally do not want to work caring for the elderly. To persuade them otherwise would require a huge wage hike – which, in turn, would imply pensioners making do with less care, budget cuts elsewhere, or tax rises. In short, if the growing number of old people are to be cared for properly by native Swedes, spending on the welfare state will soar, and the economy will suffer, as Swedes are diverted from high- productivity activities that they would prefer. But immigrants face a different set of alternatives: since wages in Stockholm are a multi- ple of those in, for instance, Manila, Filipinos are happy doing such work. This is not exploitation: it makes everyone – migrants, taxpayers, Swedes young and old – better off. It does not undercut wages, since Swedes do not want these jobs in any case. And it does not undermine social standards: if there is abuse, legal migrants have recourse to unions and the law. Nor does it entail creating a permanent underclass. If migrants are temporary, as most aspire to be, their point of reference is their home country – and thanks to their work in Sweden, they return home relatively well off. If they end up settling, their wages tend to rise over time as they gain skills, contacts and experience. Their Swedish- born children ought to have the same opportunities as other Swedish children. If it turns out that some children are left behind, whoever their parents may be, it is a reason to redouble efforts to ensure equality of opportunity, not to keep out immigrants. To sum up, the economic opportunities from free migration are huge, and they could make it easier to pay for the welfare state, not less.

36 UN Population Division, Population Ageing 2006, http://www.un.org/esa/population/publications/ ageing/ageing2006.htm.

34 • EXPERT REPORT TO SWEDEN’S GLOBALISATION COUNCIL

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 3434 008-04-088-04-08 17.04.0217.04.02 6. Does immigration undermine political support for the welfare state?

While free migration might not be an economic problem to the welfare state, some suggest it poses a political challenge. Research by the political scientist Robert Putnam suggests that in the United States increased diversity correlates with diminished feelings of trust within a community.37 Some argue that an increase in diversity through immigration could reduce social solidarity, and thus erode support for the welfare state. Critics often reason that since ethnically homogeneous Sweden developed a cradle-to-grave welfare state, while the more heterogeneous United States has only a threadbare social safety- net, an increase in diversity in Sweden will cause its welfare state to shrivel to be like America’s. Undeniably, immigration could conceivably pose a political challenge to universal welfare provision. For instance, white Swedes might be less willing to pay for social insurance for blacks – or white Poles. But the issue is not whether immigration could pose a problem, but whether it does, or is likely to. A simplistic juxtaposition of Sweden and the United States proves nothing: London and Ca- nada are both incredibly diverse while displaying much greater social solidarity than more uniform places such as Surrey or Wyoming. The- re is, in fact, no evidence that increased diversity is undermining the welfare state. Sweden is now a highly diverse society, yet its welfare state remains among the world’s most munificent. It is worth recalling that the driving force behind the establishment of the welfare state in Europe was not just the concern that socialists and others had for their poorer fellow citizens – it also came from enlightened elites who wanted to buy off the masses to stave off a potential revolution. Even if the rich do not care about the poor, then, they may still be willing to help them if they fear them. If so, even if immigration does undermine social solidarity, it need not undermine political support for the welfare state.

37 Robert Putnam, Bowling Alone: The Collapse and Revival of American Community, Simon & Schuster, 2001.

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 35

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 3535 008-04-088-04-08 17.04.0217.04.02 The universal welfare state not only provides the rich with security against the poor – it also provides everyone with security against becoming unemployed, sick or old. Social insurance is not simply a means of providing the poor with, for instance, decent healthcare – that could be done through a government programme targeted at the poor, such as America’s Medicaid – it is also arguably a more efficient way of financing healthcare provision for all. In short, people support socialised medicine not just out of concern that all should have access to healthcare, but mainly out of self-interest – because they believe a government-funded healthcare system works out cheaper and better for them than a private insurance system would. A society with less olidarity could still support a socialised healthcare system. The welfare state does not rest on solidarity alone. One may lo- athe and despise one’s jobless neighbour but still be willing to pay for unemployment benefits if one fears that one might one day end up out of work oneself – or if one is terrified that one’s penniless neighbour might otherwise rob one. Of course, people may be willing to be more generous towards those for whom they feel a sense of solidarity, but this can be based on many things other than ethnicity. If immigrants are generally seen as honest, fair and hard- working, why should their presence undermine political support for the welfare state? If young, healthy immigrants are net contributors to strained public finances, and many are looking after Swe- des’ elderly grandparents, their arrival will actually make generous welfare provision, such as higher state pensions, more affordable and popular. The particular generosity of Sweden’s welfare state cannot be ex- plained solely by the country’s previous ethnic homogeneity. Swedes may also tend to be more compassionate than most: Sweden has a long humanitarian tradition of generous overseas aid and welcoming political refugees. They may also tend to be more egalitarian and risk- averse than most. But in any case, Sweden is no longer ethnically homogeneous – one in eight of the population are foreign-born, the same proportion as in the US – yet the Swedish welfare state has hardly collapsed so far. As for the United States, a more plausible reason why it has not developed a generous welfare state is surely that Americans tend to be more individualistic and suspicious of government intervention than most: even the poor believe in self-reliance and the American Dream. This was true even in the early nineteenth century, when the country was mostly Anglo-Protestant; if anything, today’s more diverse

36 • EXPERT REPORT TO SWEDEN’S GLOBALISATION COUNCIL

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 3636 008-04-088-04-08 17.04.0217.04.02 America places greater calls on government than the more homogeneous America of yesteryear. The last big expansion of the welfare state, Lyndon Johnson’s Great Society, took place even as America’s repressed diversity was bursting into view during the more permissive 1960s. New York, that most diverse city, is also a bastion of high taxes and government social programmes. Alberto Alesina and Edward Glaeser, both at Harvard, and Bruce Sacerdote of Dartmouth College have considered the question “Why Doesn’t the US Have a European-Style Welfare System?”.38 They conclude that: Americans redistribute less than Europeans because (1) the majo- rity believes that redistribution favors racial minorities, (2) Americans believe that they live in an open and fair society and that if someone is poor it is their own fault, and (3) the political system is geared towards preventing redistribution. But they do not establish a general trade-off between diversity and solidarity. In truth, there is no obvious correlation between ethnic homogeneity and the size of the welfare state: America is diverse and has a threadbare welfare state, while Belgium is split between Flemish and French speakers, but has a developed one; Sweden was ethnically homogeneous with a big welfare state, while South Korea and Japan are still ethnically homogeneous, but do not have European-style welfare states. A comprehensive study of 21 countries concludes:

Despite several such findings for US society, in Europe it was not confirmed that rising ethnic diversity or even the rate of influx of foreign citizens had any significant detrimental effects on social cohesion.39

38 Alberto Alesina, Edward Glaeser and Bruce Sacerdote, Why Doesn’t the US Have a European-Style Welfare System?, NBER Working Paper 8524, October 2001. 39 Marc Hooge, Tim Reeskens, Dietlind Stolle, and Ann Trappers, Ethnic Diversity, Trust and Ethno- centrism and Europe: A Multilevel Analysis of 21 European Countries, paper presented at the 102nd Annual Meeting of the American Political Science Association, Philadelphia, 31 August-3 September 2006.

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 37

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 3737 008-04-088-04-08 17.04.0217.04.02 Another study finds that although social spending did rise more slowly in countries that saw a big increase in migration between 1970 and 2000:

there is no relationship between the proportion of the population born outside the country and growth in social spending over the last three decades of the twentieth century, controlling for other factors associated with social spending. There was simply no evidence that countries with large foreign-born populations had more trouble sustaining and developing their social programs over these three decades than countries with small immigrant communities.40

In any case, reforms to the welfare state could shore up public support for it. If new arrivals are seen as a drain on the public purse, they can be denied social benefits initially. If some people – wherever they were born – are perceived as lazy or undeserving of assistance, welfare rules can be tightened up. Welfare systems can also be refor- med to increase incentives to work and tie some benefits more closely to previous contributions. If the full benefits of free migration are to be realised, people need to be persuaded that it is a good thing. Voters’ fears, warranted or not, need to be either challenged or allayed. But free migration need not undermine political support for the welfare state.

40 The research paper is Stuart Soroka, Keith Banting and Richard Johnston, “Immigration and Redistribution in the Global Era,” in Pranab Bardham, Samuel Bowles and Michael Wallerstein, eds, Globalization and Social Redistribution, Princeton University Press and Twentieth Century Fund, in press. The quote is from Keith G. Banting, Canada as Counter-Narrative: Multiculturalism, Recognition and Redistribution, paper presented to the panel on Canada’s Contribution to Understanding Rights and Diversity, Canadian Political Science Association, University of Western Ontario, 2 June 2005.

38 • EXPERT REPORT TO SWEDEN’S GLOBALISATION COUNCIL

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 3838 008-04-088-04-08 17.04.0217.04.02 7. The impact of Sweden’s proposed reforms

The Swedish government already allows free migration from the rest of the EU. It is proposing a radical reform of immigration law in the latter half of 2008 that would open up more channels for those outside the EU wishing to come to Sweden to work.41 While this reform falls short of allowing free migration, it would be a big step forward. The proposals would create a simplified procedure for recruiting non-EU workers based on labour-market demand that is flexible, transparent and aims to be sustainable in the long term. Applicants would need to have received an offer of employment in order to be granted a work permit. The labour-market test currently conducted by agencies would be phased out; the employer’s assessment of the need to recruit from a third country would be a determining factor. The working conditions, salary and insurance conditions offered with the position would have to be in line with those offered to nationals. Work permits would be extended for up to four years, at which point migrants would be able to apply for permanent residency. No labour migrant would be forced to return home as long as he or she had a job. Those whose employment ceased would be able to stay in Sweden and seek a new job for a three-month period. The reform would also make it easier for a third-country citizen who fulfils the basic requirements for a Schengen visa to visit Sweden to attend, for example, an employment interview. Were a third-country citizen offered a job, it would be possible, in certain cases, to apply for a work permit from within the country. The government also intends to enable foreign students who have completed one term of a higher- education course, or one term as a guest student at postgraduate level, to apply for work permits from within the country.

41 Email from Sweden’s Ministry of Justice.

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 39

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 3939 008-04-088-04-08 17.04.0217.04.02 As far as I understand, the government’s proposed immigration reform involves no change in welfare entitlements for prospective immigrants, so Table 2 will still apply. Migrant workers would be able to obtain social benefits as soon as they had a national registration number. If they qualified, they would be entitled to unemployment benefits for up to three months if they lost their job. The reforms would appear likely to boost public finances. They would enable Swedish businesses to meet their employment needs, and thus Swedish consumers to obtain the goods and services they desire. They would boost the Swedish economy through greater specialisation as well as through complementarities between foreign labour, native labour and capital. Over time, they could also bolster innovation. Since migrants would be able to come to Sweden only if they had a job offer, the potential for welfare migration is negligible. So long as migrants remain in work, they will tend to be net contributors to public finances – and if economic growth is faster, the welfare burden will fall.

40 • EXPERT REPORT TO SWEDEN’S GLOBALISATION COUNCIL

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 4040 008-04-088-04-08 17.04.0217.04.02 8. Conclusion

Free migration could bring huge economic benefits to Sweden – and the world – just as free trade does. But Sweden’s universal, residence-based welfare state is certainly a complicating factor. While it is highly unlikely that people will migrate with the ex- plicit aim of claiming welfare, poorer immigrants may end up a burden on public finances, especially if labour-market restrictions and other factors make it hard for them to find jobs, while generous social benefits make it possible to survive comfortably without working. The solution is four-fold: first, put new emphasis on policies to combat discrimination and ensure equality of opportunity; second, reform labour markets to increase flexibility and employ- ability; third, enact welfare reforms which minimise disincentives to work; four, separate open access to the labour market from the al- location of social rights. The first three are desirable in any case; the fourth, while not ideal, may be politically expedient. In so far as migration is increasingly temporary in a global economy where the pattern of supply and demand is forever changing and the costs of mobility continue to fall, the matter ends there. But when migrants end up settling, and acquiring full social and political rights, broader political questions arise, notably whether a more ethnically and culturally diverse Sweden is willing to continue supporting a generous welfare state. The evidence so far suggests it is; as does international experience. There is no reason why a more diverse Sweden should adopt American attitudes to the welfare state. More broadly, the case for free migration and greater diversity must be made at a political level. Voters must be persuaded that migration is an opportunity, not a threat. It is a matter of human rights and humanitarianism as well as self-interest. Ultimately, the choice is between an open, dynamic and progressive society, and a closed, stagnant and reactionary one.

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 41

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 4141 008-04-088-04-08 17.04.0217.04.02 Table 2. Summary of benefit eligibility in Sweden42

Safety net Social insurance Social investment

Status Social Rental Public Child Health- Old-age Unemploy- Integrati- Educat- Educati- Job Access assist- assist- housing43 assist- care and pens- ment in- ion assist- ion ion for training to labour ance ance ance insurance ion44 surance45 ance children market

Citizens46 yes yes na yes yes yes yes yes yes yes yes open

EU citizens yes yes na yes yes yes yes yes yes yes yes open

Presumptively permanent Permanent/ long-term residents yes yes na yes yes yes yes yes yes yes yes open

Recognised refugees yes yes na yes yes yes yes yes yes yes yes open

Presumptively temporary Asylum limit- limit- limit- limit- restrict limit- seekers ed ed47 na ed ed48 no no no -ed49 yes ed open

Temporary migrants restrict- restrict- restrict- restrict- restrict- restrict- restrict- limit- and visitors50 ed51 ed52 na ed53 ed54 ed55 yes ed56 yes yes ed57 ed58

42 • EXPERT REPORT TO SWEDEN’S GLOBALISATION COUNCIL

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 4242 008-04-088-04-08 17.04.0217.04.02 42 Sources are Sweden’s Ministry of Education and Research: interviews with representatives from different departments; Swedish Migration Board: inquiry answer and different publications; Swedish Social Insurance Agency: inquiry answer and different publications. Note that cross-country comparisons are difficult due to the possibility of different understanding of the definitions. The answers should therefore be interpreted with some caution. 43 Strictly speaking, there is no public housing in Sweden. However, immigrants can stay for free in refugee camps and some apartments outside the camp that belong to the Immigration Board. 44 For those who work in Sweden. 45 For those who work in Sweden and fulfil the requirements that apply to Swedish nationals (previous employment for a certain time, and so on). 46 These benefits are available to EU citizens who have joined the permanent labour force, not to visitors or travellers. 47 Means-tested: those who cannot afford rent can live for free in a refugee camp. 48 Adults: only emergency situations; children: full access. 49 Only training in Swedish in refugee camps. 50 Excluding tourists. 51 Individuals with national registration: yes; individuals without national registration: no. 52 idem. 53 Individuals with national registration and parents with a residence permit: yes; individuals without national registration: no. 54 Individuals with national registration: yes; individuals without national registration: no. 55 idem. 56 idem. 57 idem. 58 Guest students: yes; visitors: no.

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 43

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 4343 008-04-088-04-08 17.04.0217.04.02 Table 3. Summary of benefit eligibility in Germany59

Safety net Social insurance Social investment

Status Social Rental Public Child Health- Old-age Unemploy- Integrati- Educat- Educati- Job Access assist- assist- housing assist- care and pens- ment in- ion assist- ion ion for training to labour ance ance ance insurance ion60 surance61 ance children market

Citizens yes yes yes yes yes62 yes yes na yes yes yes open

EU citizens63 yes yes no yes yes yes yes no yes yes yes open

Presumptively permanent Unlimited residence64 yes65 yes66 yes67 yes68 yes69 yes yes no yes yes yes open

Limited yes71 yes yes72 yes73 yes74 yes yes75 no yes yes yes restrict- residence70 ed76

Recognised refugees yes yes na yes yes yes yes no yes yes yes open

Presumptively temporary Asylum very emergency very seekers77 modest78 yes yes79 no care only no yes no yes yes no limited80

Temporary emergency workers81 no no no no care only82 no83 no84 no no no no closed85

44 • EXPERT REPORT TO SWEDEN’S GLOBALISATION COUNCIL

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 4444 008-04-088-04-08 17.04.0217.04.02 59 Michael E. Fix, Laureen Laglagaron, Social Rights and Citizenship: An International Comparison, Urban Institute, August 2002, Table 5 http://www.urban.org/url.cfm?ID=410545 60 After being employed for a certain time. 61 idem. 62 For employed, registered unemployed and their families. 63 For those who have joined the labour force, and their spouses. 64 This permit can be acquired at the earliest after 8 years of residence. 65 Use of social assistance or even fulfilling the conditions for it (i.e., lack of means) by non-citizens who have an ordinary (limited) permit may result in non-renewal of residence permit. But even for holders of an unlimited residence permit, the range of types of assistance to which they have a legal claim is limited; all other types of assistance may be granted ”insofar as it is justified in the individual case at hand”. 66 Only with a certain type of residence permit. Does not count as own income during residence permit renewal process. Lack of sufficient income can lead to non-renewal of residence permit. 67 No discrimination against non-citizens with respect to access to publicly subsidised housing. 68 Only with a certain type of residence permit. Does not count as own income during renewal process. Lack of sufficient income can lead to non-renewal of residence permit. Not for children living abroad. 69 For employed, registered unemployed and their families. No health insurance for family members living abroad. 70 May be limited or unlimited, can be acquired at the earliest after 5 years of residence. 71 Use of social assistance or even fulfilling the conditions for it (ie, lack of means) by non-citizens who have an ordinary (limited) permit may result in non-renewal of residence permit. But even for holders of an unlimited residence permit, the range of types of assistance to which they have a legal claim is limited; all other types of assistance may be granted ”insofar as it is justified in the individual case at hand”. 72 No discrimination against non-citizens with respect to access to publicly subsidised housing. 73 Only with a certain type of residence permit. 74 For employed, registered unemployed and their families. No health insurance for family members living abroad. 75 If unemployed for more than a year and the Federal Employment Agency determines that the individual will not be able to find a job, the claim may be denied. Turkish nationals not subject to this scrutiny. 76 Restricted to occupation, occupational field or contract. Holders of an unlimited permit are free to take up any employment. 77 If asylum proceedings take longer than a year, asylum seekers are entitled to benefits according to the federal law on welfare. 78 Only asylum seekers and de facto refugees receive limited in-kind social assistance instead of cash assistance. 79 Asylum seekers must be housed by local authorities while their asylum application is pending. 80 Non-EU members can only accept a job if no German, EU member or migrant with equal status can fill the position. 81 Project-tied or seasonal. 82 Contract labourers may not claim social insurance benefits because they should be insured in their home country. However, they may claim emergency medical care, if necessary. 83 Contract labourers may not claim social insurance benefits because they should be insured in their home country. 84 idem. 85 Non-EU members can only accept a job if no German, EU member or migrant with equal status can fill the position.

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 45

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 4545 008-04-088-04-08 17.04.0217.04.02 Table 4. Summary of benefit eligibility in United States86

Safety net Social insurance Social investment

Status SSI/ TANF State/ Housing CHIP Medic- Social Unemploy- Higher Education Job- Access Food local publ. assist- aid security ment in- education for training to labour Stamps benefit ance87 surance for children children market

Citizens yes yes yes yes yes yes yes yes yes yes yes open

Presumptively permanent Legal no not first state yes not first not first yes yes yes yes yes open permanent 5 years, option 5 years, 5 years, residents then state then then state option eligible option

Legal not first not first eligible yes not first not first yes yes yes yes yes open permanent 5 years, 5 years, 5 years, 5 years, residents88 then then state then then state eligible option eligible option

Recognised eligible not first eligible yes yes not first yes yes yes yes yes open refugees first 7 5 years, first 5 7 years, years then state years, then then state option89 state option90 option

Presumptively temporary Asylum no no no91 limit- no no93 no no no yes no restrict- seekers ed92 ed94

Temporary no no no95 limit- no no97 no no sno yes no restrict- workers ed96 ed98

46 • EXPERT REPORT TO SWEDEN’S GLOBALISATION COUNCIL

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 4646 008-04-088-04-08 17.04.0217.04.02 86 Michael E. Fix, Laureen Laglagaron, Social Rights and Citizenship: An International Comparison, Urban Institute, August 2002, Table 9 http://www.urban.org/url.cfm?ID=410545. 87 Rental assistance and public housing. 88 With 40 quarters of work. 89 Refugees are given Refugee Cash Assistance for their first 8 months in the US if they do not qualify for Temporary Assistance for Needy Families (TANF). 90 Refugees are given Refugee Medical Assistance for their first 8 months in the US if they do not qualify for Medicaid. 91 States may provide state and local public benefits to unqualified immigrants only if they pass a law after 22 August 1996. 92 Time limit of 18 months unless living with a citizen or a legal permanent resident. 93 Emergency care only. 94 Asylum seekers are barred from the labour market for 180 days. After this time period, employment authorisation is subject to Immigration and Naturalization Service approval. 95 Refugees are given Refugee Cash Assistance for their first 8 months in the US if they do not qualify for TANF. 96 Time limit of 18 months unless living with a citizen or a legal permanent resident. 97 Emergency care only 98 Restricted to employer or occupational field.

IS FREE MIGRATION COMPATIBLE WITH A EUROPEAN-STYLE WELFARE STATE? • 47

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 4747 008-04-088-04-08 17.04.0317.04.03 48 • EXPERT REPORT TO SWEDEN’S GLOBALISATION COUNCIL

00212.36_Inlaga_080408b.indd212.36_Inlaga_080408b.indd 4848 008-04-088-04-08 17.04.0317.04.03