Exodus of Immigrants

Yesterday’s article in the FT on the departure of Chinese migrants from Italy as the Italian economy grinds to a halt is an important wake-up call about the limits to solutions to one of the most vexing demographic problems faced by the developed world. As countries get richer, they tend to have fewer children, which in the absence of mitigating forces, means that populations age. With fewer people in the labor force relative to the elderly, the dependency ratio grows and puts social welfare systems under enormous pressure. Southern Europe and East Asia are among the places with the lowest birth rates and most rapidly aging populations on the planet.

One of the typical policy prescriptions for such countries is that they need to embrace immigration to bolster their shrinking population numbers. Japan, Europe, just about everybody with their demographics falling off a cliff, are urged to get over their historical aversion to outsiders and advised that their last, best hope is a wave of newcomers.

In spite of the unease with foreigners that many attribute to the citizens of Southern Europe, countries like Spain, Italy and Greece have relatively high proportions of immigrants as part of their total populations. 12% of the Spanish population is comprised of immigrants, 8 % of Italy’s and while Greek data collection is flawed, reliable estimates put it at perhaps 10%, though it is likely that more immigrants to Greece are there in the hope of eventual transit to more prosperous economies farther north. Even assuming away a xenophobia that characterizes many of these countries, it turns out that they may not be able to continue to attract immigrants even if they wanted them.  With weak economies, immigrants are pulling up stakes and going home or moving on.

While an outflow of immigrants may in some very small measure ease the short term crush of unemployment, the situation highlights another of the ways in which the crisis has such long-term consequences. Southern Europe, without the resource of a dynamic economy of say, a Hong Kong or Singapore, to attract new workers, is likely to find that its economic problems exacerbated by its demographic ones.

How Bad is Youth Unemployment in Southern Europe?

Youth unemployment in Europe has captured worldwide headlines during the crisis, with new highs being reported almost weekly.  The current figures paint a daunting picture in the south of Europe: in May, 52.1% of young people in Greece and Spain were out of work, with Portugal (36.4%) and Italy (36.2%) not too far behind.

This week, Steven Hill published a piece in the FT where he argues that these figures are simply not true and that such numbers are inflated because they include everyone not in the workforce, even those who are in training programs or in school (this is traditionally why youth unemployment figures are higher than the overall total.) He prefers to use the ‘youth unemployment ratio’, which is

# of unemployed youth____

total population aged 15-24

Using this measure, the numbers look quite different: Spain’s youth unemployment is 19% compared with 13% for Greece.  These figures are a little older than May so there may have some deterioration recently but the point is, that using the ratio, the situation doesn’t seem as dire.

Does it matter?  To a certain point, yes.  It gives us a better picture of life on the ground in the countries hardest hit by the crisis.  This helps explain in part why there is not the sort of social unrest that one might expect with over half the population out of work.  Southern European unemployment rates for decades have been hard to interpret.  In the 1980s, well before the boom years, Spanish unemployment was in the double digits but no-one really thought 16-18% represented reality because of the thriving underground economy.  In the last few months, a number of Spanish politicians have remarked to me that if total unemployment were really around 25%, there would be social chaos.

But from another perspective, it seems more of an academic debate.  Hill notes that the German youth unemployment ratio is 4.5%.  So, Spain’s level is still more than four times higher than Germany’s.  Plus, surely some young people in the South are in training programs and universities because there simply are no jobs – the classroom rather than the café as the refuge for the discouraged worker.

While much of the current debate centers on getting through the short term manifestations of the crisis – the bond yield roller coaster, for example, an important question is what the long-term implications of the crisis are for Europe’s struggling countries.  Young qualified workers are leaving. In the first half of 2012, Catalonia saw net out migration for the first time ever and was the Spanish region that lost the largest population – over 37,000 inhabitants.  The International Federation of Catalan Organizations estimates that the majority of those leaving are young, college educated people who in many cases are going abroad. Reducing unemployment by having young workers flee the country is not something many politicians would see as a win.

There are likely to be long-term demographic implications as well. Italy, Greece and Spain already have some of the lowest birthrates in the world.  Recessions typically have the effect of lowering the birthrate as couples delay childbearing until their economic situation improves.  Historically, this has not usually altered total fertility, just postponed it. But there is some reason to think that the protracted economic crisis may have far more serious consequences for the crisis of fertility in Southern Europe.

That is because these are also countries where the age at first birth is exceedingly high.  Spain, for example, has the highest age in the world at 29, with Italy close behind at 28.  Postponing childbearing under such circumstances is likely to reduce it further as women begin to push up against their biological clocks, in spite of advances in fertility treatment.

Lower birthrates  will mean rapidly aging populations and a higher dependency ratio.  Without large numbers of new immigrants, there will be fewer people of working age to pay for the elderly, which will in turn put greater pressures on the state and lower benefits.

So, while the common measure of unemployment may overstate the actual numbers of young people who are out of work, the job situation in Southern Europe is likely to have long-term consequences that lock the region into a vicious cycle.