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Impact of EU Enlargement
on the European Labour Market
Bernd HUEBBERS
Gaston MICHEL
Thi Huong Giang HOANG
Thi Thai Hanh DOAN
Labour Market
Positive Effects Negative Effects Discussion
Funding & FDI Inflation Poland
Trading Labour-Movement Survey
Job creation Conclusion
Keynes
Major Funds available
Phare (€ 1,4 billion): technical assistance for institution-building
and ameliorate administrative capacity
Ispa (€ 1 billion): finacial aid of large transport and
environmental projects
Sapard (€ 520 million): agricultural fund
The Budget Allocation
Only 10% of the budget is going to be allocated to the CEEC
About 1,27% the collective GDP
CEE 10
Rest of
budget
Are the funds sufficient for the EU-Enlargment?
What is the per capita Transfers to CEEC Compared to
spending for new member German Unification from 2006 on
states 800
CEEC: 75 €
600
400
Portugal: 400 €
Greece: 412 € 200
We think that funds are not 0
sufficient to realise the full German
CEEC
potential of the accession unification
Ireland Greece
Focus on infrastructure,
Structural Education, training telecom-
often handing out contracts
Reform I unication, Infrastructure to politically friendly firms.
Used funds to promote
Structural Used funds to avoid structural
structural changes in
Reform II the economy changes
Turn budget deficit into a sur-
Poorest of all EU countries
Outcome plus and boost GDP from 60%
(GDP 72% of EU average)
to 120% of EU avarage
1800
1600
If structural reforms are well imple- 1400
mented, FDI will increase 1200
1000
800
FDI inflows from West to East will 600
increase by 1.5% of GDP from 2002 400
200
0
p.
ry
ia
nd
on
Re
a
la
ng
t
Po
Es
h
Hu
ec
Cz
Improved business environment through Funding
Higher FDI and Portfolio Investments
Increased productivity
Higher BIP
Employment opportunities rise
Will FDI increase after enlargement?
Short Term: No Long Term: Yes
Reasons
Accession has already been 1. Reduced country risk
anticipated and FDI projects 2. Reduced transaction costs
were already realized 3. Larger market (480m consumers)
Labour Market
Positive Effects Negative Effects Discussion
Funding & FDI Inflation Poland
Trading Labour-Movement Survey
Job creation Conclusion
Keynes
Free trade in the EU
– Complete reduction of tariff and non-tariff barriers will improve
international division of labour.
– Production, labour and capital will be used more cost-effective
– 480m consumers, compared with 370m in the existing members
– Larger “playing field” will allow for better allocation of resources
and economies of scale.
– Higher competition will yield higher efficiency
Impact of free trade on European Co. & regions
Need for higher efficiencies forces companies
to get rid off the inefficient areas
and concentrate on its core competence
Europe will be divided into regions each
with its specific core competence
Restructuring process to higher efficiencies leads to
a higher level of productivity
Impact of free trade on global market
Increased competitiveness in the internal market of the
enlarged Europe will help to meet global competition
in fact, competition in Europe will drive prices lower and
will increase product quality
Competitive advantage will raise therefore exports to
markets outside Europe
Higher exports have the potential to boost economic growth
with at least 60-80billion euros
Opening up the market will yield to more wealth under the
members of the EU
Which business will benefit from accession?
EU-based multinationals (fully)
– Benefit from reduction of remaining tariff and non-tariff barriers,
which will make their goods and services become more
affordable on local markets
– Face low costs in adapting to the new harmonized standards in
labeling, packaging, environment, etc.
Local companies (partly)
– Benefit: Those that are already exporting heavily in the EU
benefit from free access to a far larger market
– Detriment: face increased competition and increased marketing
costs in their domestic markets
Big shake-out of inefficient companies
Trade with the EU, 2002e, % of total
Will trade levels increase after Exports Imports
accession? Malta
Cyprus
Short-term: Lithuania
Bulgaria
Over 80% of exports enter the Slovakia
EU tariff-free already Romania
Slovenia
modest most candidates Latvia
already conduct between 50% and Czech Rep
75% of their trade with the EU Poland
Open up trade of protected goods Hungary
(agriculture) Estonia
20 40 60 80
Impact of enlargement on long-term trade levels
Change in structure of trade
Standardization of product quality, labeling requirements,
health and safety regulations and customs procedures
Cheaper and easier for Co. to export their goods
Encourage local firms in the new members to exploit
economies of scale and produce for a larger market, cutting
costs and increasing production
Change in scale of trade
Further trade liberalization leads to higher trade levels
Increase in trade particularly between the new members
Consequences on labour market
An increase in trading volume is an indicator for the ongoing
division of labour and the specialisation process where regions
focus on its core competences what will yield to higher growth
creation of wealth and decrease in unemployment
Labour Market
Positive Effects Negative Effects Discussion
Funding & FDI Inflation Poland
Trading Labour-Movement Survey
Job creation Conclusion
Keynes
Wage competition
Fear
Low-industries in the EU undercut by low wages prevailing in CEE
countries
Avg. wages in CEE are only 15% of the EU average
East Europeans taking west European jobs?
Rather, the structure of the supply chain changes:
East Europeans might do the labour-intensive aspects of
production
West Europeans are involved in other stages of the production process
Direct competition between CEE countries and low-cost location among
current EU member states
Wage level in CEE-10: Wages in the CEE-10 as a percentage
of the EU-15 average
Avg. wages are (excluding indirect labour costs)
certainly lower in CEE 50
than in the EU, on avg.
40
only 15% of the EU
30
avg.
20
Only Slovenia is 10
closer, but still far 0
away, from the EU
A
HU ND
0
A
TH IA
RY
LA A
RE NIA
PO C
BU NIA
IA
-1
RI
NI
NI
I
K
BL
TV
LA
EE
A
E
TO
A
A
UA
A
NG
PU
LG
V
V
M
C
avg.
ZE LO
ES
O
RO
SL
S
LI
H
C
C
Productivity matters too
Productivity in CCE
considerably low as shown Unit labour costs in the CEE countries
by the unit labour costs 1.3
(the cost of labour required to 1.2
1.1
produce one unit of output) 1
0.9
0.8
Low productivity in the 0.7
lowest-cost countries a major 0.6
O ND
O IA
Y
TH IA
LA IA
PO NIA
TO A
PU IA
NG IC
M A
deterrent to investment
AR
ES NI
RO NI
SL AN
AR
LI TV
RE AK
HU BL
SL LA
UA
VE
LG
V
Skills upgrade
BU
H
necessary to become
EC
CZ
direct competitors
Increased free movement of labour
Global competition for jobs
Improved skill level
of labour market
Increased competitiveness of
European Industry as a whole
Increasing employment creation in the EU
How many jobs might
“Leveraging the possibilities
enlargement create? in countries like Hungary
Rough estimate based on the boost maintains the
enlargement will give to output competitiveness of the
Conservative estimate: European consumer
EU-15 GDP 0,2% electronics industry
creation of over 30.000 jobs in worldwide, thus
the existing EU-15 member safeguarding jobs and
states development capacities in
More likely estimate: Western Europe.”
based on increased
competitiveness, FDI, etc. Phillips Hungary Ltd
300.000 jobs
Labour Market
Positive Effects Negative Effects Discussion
Funding & FDI Inflation Poland
Trading Labour-Movement Survey
Job creation Conclusion
Keynes
Keynsianic Total Modell
In this part we will focus what impact investment activities
(Funding, FDI) and Innovation have on production and the
unemployment rate
In order to make the model more simple, the IS-LM, the real money
Supply and the nominal income modells will be neglected
Focus on Labour Market and Production Function
The product market
The equilibrium on the product market depends
on the demand for goods.
Implications
The Saysmatic Theorem does not apply anymore to the
Keynsianic Total Modell.
Not supply creates demand, but demand creates supply
Classic ≠ Keynes
What are the determinants of demand
YD = C + I The macroeconomic demand is equal to the
request for Consumption and Investments goods.
Consumption Investment
C = Ca + c*Y I = IP + INP
– Ca = autonom Consumption – IP = private Investment: depend
– Marginal Consumptionpreference on the rentability
– INP = public Investment: depends
c = C/ Y
INP = I - IP
Income & Expense Modell
45° Implications:
C,I,YD
Every production unit after
YD= Ca + c*YS + I the intersection point Y* with
Y*
C(Y) YD would lead to over-
production
I
Ca Reduction of overcapacity
S
Y* Y
unemployment
Investment Multiplicator
– Because the demand for products induces the level of the BIP and
therefore the rate of employment, a decrease in unemployment is
only possible on the demand side.
– The only way to escape the equilibrium in underemployment is by
increasing private and public investment activities
- According to the Investment Multiplicator, the BIP increases more,
than an increase in Investment
derivation
YD= Ca + c*YS +I 1/(1-c)
Labour Market – Production Utilisation: Higher Investments
Y=f(L,K) L Explanation:
LD LS I
Y*
LS
LD
w/P
Y* w/P
L S= Supply of Labour w/P = real income
LD= Demand for Labour Y* = BIP
Totalmodell: Higher Innovation & Higher Efficiency
Y=f(L,K) L Explanation:
LD LS Processinnovation
Y higher
productivity
Y*
LS
LD
Y* w/P
L= Labour w/P = real income w/P
Y* = BIP
Implication for the European Union
Higher BIP & higher employment Incease in w/P
Funds and FDI in- FDI and Funds induce Higher demand for
creases demand structural changes local and foreign
within the country goods & services
Local companies become Increasing trade
more efficient and profitable openess ratios
Labour Market
Positive Effects Negative Effects Discussion
Funding & FDI Inflation Poland
Trading Labour-Movement Survey
Job creation Conclusion
Keynes
Before accession After accession
CEEC monetary and fiscal and
fiscal sovereignty monetary rigidity
Inflation cannot be adjusted anymore and has to remain stable
What impact does this have on the labour market?
Short Term Long Term
unemployment unemployment
Stagflation path
Inflation Inflation
In the long term employment
Example: Spain
will rise
– structural funds
– FDI
30%
– higher competitiveness of
companies
20%
– Critical Reforms
– Economic policy 10%
0%
The change of the position of 1986 1994 2001
the Philips Curve is much more
important than the movement
on the Curve
Labour Market
Positive Effects Negative Effects Discussion
Funding & FDI Inflation Poland
Trading Labour-Movement Survey
Job creation Conclusion
Keynes
There is a high Fear in the current EU 15 states
BUT
that the accession of the new member states will
create high pressure on local labour markets.
335000 people of the CEEC will be
Especially western neighbouring countries will moving to EU-15 countries and only
feel the highest impact of immigration inflow! 1/3 of these people would be seeking
employment every year
Germany
64% relative political stability, steady
France
economic growth and FDI are
UK discouraging any large-scale
20% Netherlands movement of unskilled workers
S. Europe
8% 4% 3% Others
1%
Labour Market
Positive Effects Negative Effects Discussion
Funding & FDI Inflation Poland
Trading Labour-Movement Survey
Job creation Conclusion
Keynes
Poland
Size and shape
most important candidate
Population 39 million
biggest CEE country
Nominal GDP € 171 billion
most interesting market of GDP per capita at PPS € 8.700
the CEEC Foreign investment, stock $35.7 billion
Industry, share of employment 31%
troubled historic and strategic Agriculture, share of employment 19%
location, squeezed between Services, share of employment 50%
Russia and Germany, making it
a key part of the enlarged EU
Poland’s dilemma
backward agriculture, unrestructured, heavy industry and
regional poverty
difficult and expensive country to integrate in the EU
EC Survey: 33 years to reach 75% (39% at present) of
the EU’s average per capita GDP
EU’s fears that, without a transition periods, Polish
workers flood into Germany, Austria and further afield
Poland’s Economic Outlook
2000: consumer demand , growth , investment , current
account deficit
2001: - economic standstill, with 1,1% growth largely due to exports
- demand + oil prices + zloty inflation
Statistical Summary
2002: 2000 2001 2002e 2003e Until 2004:
- growth will remain GDP growth, real, % 4,0 1,1 1,6 3,5 economic recovery
Low at 1,6% Industrial output, % 4,2 -0,6 3,0 6,0
program aims to
- zloty remained Inflation, average, % 10,1 5,3 3,7 3,9
raise growth to 5%
Unemployment, % 14,4 16,9 19,4 20,2
stable, supported
Budget balance, % of GDP -2,6 -5,4 -6,0 -5,3
by good export
Current account, % of GDP -6,3 -4,0 -3,0 -3,1
performance FDI flows, $ billion 9,3 6,4 6,1 7,0
zloty/€, average 4,0 3,7 3,7 3,9
Impact of accession on Poland’s economy
EU accession will boost Poland’s efforts to climb out of its economic
hole and realise its full economic potential
Transfers to poorer region and rural area will accelerate the
improvement of infrastructure and educational standards
FDI level is expected to grow solidly, with companies attracted by the
size of the Polish market
Any reforms from taxation to industrial restructuring and especially
labour market reform will receive additional help from Brussels
Poland’s terrible transport infrastructure will become the focus of
major EU spending plans
Poland’s Infrastructure
Developing the infrastructure required for an information society
is regarded as a key to long-term competitiveness
Information society indicator, per 100 people
PCs Internet hosts Internet users Mobile phone
1999 2001 2000 2000
Poland 6,2 1,4 7,2 17,5
EU-15 24,8 3,3 24,2 62,6
Poland has a lot to catch up
Impact of accession on Poland’s labour market
Restructuring of the economy will raise unemployment before improvements
kick in
Restructuring of heavy, steel, rail and coal industries, agriculture,
liberalization of the energy sector and small businesses (employ
70% of the workforce) will involve massive lay-offs
Poland’s basic food industry will face enormous new competition from EU
producers (more efficient and highly subsidised)
Small businesses that focus on the domestic market are totally unprepared to
implement the EU regulations
Short term: higher competition (EU) increase in unemployment
Long term: higher efficiency higher growth higher employment
Labour Market
Positive Effects Negative Effects Discussion
Funding & FDI Inflation Poland
Trading Labour-Movement Survey
Job creation Conclusion
Keynes
How do you expect growth to develop in the new member
countries over the five years following accession?
• More than two third expect % of respondents
significant growth after accession
Significant
• Responses for most positive 70%
implications on enlargement:
- 16% growth of
domestic markets
Slow dow n No major
- 19% trade and change
2%
investment growth 28%
Feelings about impact Will enlargement change the way
of EU enlargement your company organises its corporate
on labour market structure over the next 5 years?
• Companies expect one of
the negative effects of EU to be % of respondents
rising labour costs Don't know
18%
• Almost half of the respondents Yes
envisage liberalisation of labour 28%
markets
• However, 61% feel that
No
labour market liberalisation 54%
will not benefit their companies
Labour Market
Positive Effects Negative Effects Discussion
Funding & FDI Inflation Poland
Trading Labour-Movement Survey
Job creation Conclusion
Keynes
Impact of EU enlargement on
the European labour market
+ + FDI & Funding + + Job creation
+ + Trading -/+ Labour movement
-/+ Inflation
Positive outlook of the EU enlargement
