IW proposes labour market-oriented immigration policy

In December 2004, the Cologne Institute for Business Research (IW) published a study calling for a labour market-oriented immigration policy. IW has developed a model that examines whether or not a shortage of skilled workers exists in over 300 occupations. For example, an empirical investigation of the unemployment rate, vacancies, employment growth and skill intensity finds that, in September 2002, there was room for about 22,000 immigrants in occupations in the engineering, healthcare and business services sectors. These vacancies exist despite the high overall rate of unemployment.

In December 2004, the Cologne Institute for Business Research (Institut der deutschen Wirtschaft Köln, IW) published an article that proposes gearing Germany’s immigration policy towards labour market criteria. This contribution to a current debate was published in an academic journal issued by the IW. According to IW, since the introduction of the recruitment ban on 'guest workers' (Gastarbeiter) in the 1970s, Germany has, to a great extent, not had a controlled immigration policy that is oriented towards economic needs. IW demands a change in this policy. The reasons for this are twofold: the 'welfare gains' as well as the extent of integration costs are strongly associated (positively in the case of economic gains, negatively in the case of integration costs) with the 'human capital' of individual immigrants.

Background

Not least because of Germany’s immigration policy over the last 30 years, in which economic efficiency criteria has played only a minor role, many low-skilled workers have emigrated to Germany. All too often this has resulted in unemployment, states IW. According to IW, this is partly because the employment prospects of people without vocational or educational qualifications have deteriorated dramatically over the last three decades. As a result, the unemployment rate amongst foreigners in Germany is about 19% - almost twice as high as the rate for German nationals.

In general, immigration has a positive effect on the economy of the 'receiving' country, the study finds. More workers mean that higher levels of output and welfare can be achieved. There are, however, also 'distributional effects': indigenous workers who compete directly with immigrants for jobs have to work harder, depending on their situation, either to retain their jobs or to find one. This can, according to IW, lead to resentment amongst the native population towards immigrants. As a result, economists from IW argue that the abilities of prospective immigrants should be considered very carefully.

However, a new immigration law agreed in 2004 (DE0406106F) establishes only a few possibilities for suitable immigrants to be selected from the large numbers of prospective immigrants. In general, immigration is only open to those with a degree - and, even then, immigration is only possible after high bureaucratic hurdles have been surmounted. According to IW, the new law does not allow for the systematic recruitment of skilled workers who are deemed, on the basis of labour market analysis, to be in demand.

Points system for recruitment

Proceeding from the idea that speedy integration into the labour market can be expected to be strongly dependent on the economic needs of the receiving country, IW has developed a model for future immigration based on labour market demands. According to IW, it would be possible to develop, on the basis of labour market demand, a 'points' system for the selection of immigrants. Such a system could consider explicitly the labour market suitability of the prospective immigrant along with other important characteristics, such as age, education and language ability. An assessment of labour market needs, carried out before any actual selection is made, could identify those jobs in which immigration could help to counter potential skilled-labour shortages, and, at the same time, lead to increased economic output. Such a system might have three steps, as follows.

1. Vacancies. With the help of job-specific unemployment and vacancy ratios (the relationship between the number of job opportunities and the number of applicants), it would be possible to determine the extent of any over- or under-supply of workers in any one occupation. A below-average unemployment rate and an above-average number of job vacancies strongly suggest that the labour market in such an area could benefit from immigration.

2. Employment developments. A long-term assessment of employment developments would show whether or not jobs are being lost or gained in any one vocational area. Only those areas that, at the very least, do not show a long-term reduction in the number of jobs should be open to immigration. Otherwise, the possibility cannot be ruled out that an immigrant, though able to find a job in the short term, would lose that job over the long term because of structural changes in the economy.

3. High demands. With an assessment of the qualification structure, it can be ascertained that immigration should occur only in those areas that require high levels of training or education. Only in such areas are high levels of immigration possible, as additional workers in those areas will not lead to the displacement of indigenous workers.

According to Holger Schaefer, the author of the study: 'The aim is, therefore, to identify jobs that, firstly, show signs of labour shortages; secondly, are able to show, over the long term, an increase in employment; and thirdly, are characterised by a high qualification level. Finally, by building on these three factors, it will be possible to determine the quantitative level of necessary immigration. This study, therefore, differentiates itself from attempts to manage immigration based on prognoses about the future development of different parts of the labour market (Teilarbeitsmärkte).'

Specific labour shortages despite high unemployment

Empirical testing of this three-phase 'filter system' indicates to IW that, despite high overall unemployment, there are job areas in which immigration would be sensible - see the table below. Using its model that examines whether or not a shortage of skilled workers exists in occupations, it conducted an empirical investigation of the unemployment rate, vacancies, employment growth and skill intensity in more than 300 jobs in September 2002. On the basis of 2002 data, areas with good immigration potential include healthcare, management and marketing, as well as technical/scientific jobs in the metalworking sector. The analysis also enables, according to IW, the number of needed immigrants to be determined. This figure for 2002 is, at about 22,000, relatively low; however, such figures are, in IW’s view, likely to increase rapidly in the light of an improvement in the labour market. The model must, therefore, be recalculated regularly with the most up-to-date data as soon as they become available. This has to be done to set the immigration needs as flexibly as possible, as these needs are likely to change dramatically over time.