Euro emigration – safety valve or worker drain?
Four years of relentless austerity in many of the euro zone’s most debt-hobbled countries have forced many of their youngest and sometimes brightest workers to grab the plane, train or boat and emigrate in search of work. For countries with a long history of emigration, such as Ireland, this is depressingly familar — coming just 20 years after the country’s last debt crisis and national belt-tightening in the 1980s crescendoed, with the exit of some 40,ooo a year in 1989/90 from a population of just 3-1/2 million people.
The intervening boom years surrounding the creation and infancy of the Europe’s single currency and expansion of the European Union eastwards saw huge net migration inflows back into the then-thriving euro zone periphery — Ireland, Greece, Portugal, Spain and Italy — and created a virtuous circle of rising workforces, higher demand for housing/goods and rising exchequer tax receipts.
But all that has gone into reverse again since the credit, property and banking crash of 2008.
While the exodus takes short-term pressure off dole queues and national welfare bills, there is growing concern that the timing of this latest wave of young worker emigration comes as underlying societies are ageing, dependency ratios are rising and longer-term pressure on government finances from pension commitments is set to grow.
In a note to clients on Tuesday, Citi economist Michael Saunders details the extent of the renewed migration from the periphery and reckons prolonged austerity is exaggerating the shift and damage to the long-term financial sustainability of these countries’ already battered finances. With Europe’s impending pension shortfalls, he argues, they need higher working populations, not smaller ones.
Governments facing outflows of younger people may not find it any easier to make matching cuts in public spending, given the extent to which demand for public services is mainly generated by the elderly and children. As a result, a country that implements sustained fiscal austerity is likely to face sustained population outflows that damage future prospects for tax revenues, making it even harder to restore debt levels to sustainability.
Saunders interrogates the latest Eurostat data to show the extent of the problem. To put the past three years in context, Ireland’s working age population of between 15-64 years rose 1.8% a year on average in 19 years to 2009 and exceeded the euro zone average migrant inflows in each of those years. The growth of Spain’s working age population exceeded euro zone averages for 11 years to 2009, with average annual gains of 1.4%. And the bulk of these migrants were in the younger 15-35 year bracket.
But Citi said Eurostat shows that in the first half of this year, working age populations dropped 0.1% year-on-year in Italy and Greece, 0.6% in Spain, 0.7% in Portugal and 0.9% in Ireland. Workforce growth turned negative in Ireland and Portugal in 2008 and remains negative this year, Saunders points out.
What’s also clear is that a large share of the new emigrants are also in the 15-35 grouping. In Q2 of 2012, the 20-29 year-old segment of the population fell 8.8% year-on-year in Ireland, 4.3% in Spain and 3.5% in Portugal — bringing respective peak-to-trough declines for this age group to 25%, 17% and 18%. Big drops in graduates in the 25-29 age group were clear in Ireland and Spain, Saunders shows.
The recent declines in the 20-29 year age group in most EMU periphery countries are extraordinarily large, well in excess of those seen in the countries that joined the EU in 2004. Indeed, the drop in Ireland’s 20-29 year age group in 2011 (8%) exceeds that seen for this age group in any EU country in the last 40 years.