Definition of free movement of labour – It means that workers are entitled to look for work in another country, without requiring any visa.
Free movement of labour is a fundamental principle of the EU. It means EU citizens are entitled to look for a job in another EU country. Also, qualifications are universally accepted across Europe and in theory, there should be no discrimination for firms choosing between native and migrant workers.
Free movement of labour is generally considered to have worked quite well when the EU was composed of 12-15 Western European economies with similar income levels. Free movement of labour gives increased opportunities to workers and makes labour markets more flexible.
In the 1992 Maastricht Treaty, the free movement of economically active workers became the free movement of people. In other words, you didn’t have to go to Spain to work; you could also go to Spain to retire in the sun. This expanded the economic rule into a more politically integrated vision. (BBC)
However, with the rapid expansion of the EU to include 28 countries (later to be 27 post-Brexit) the concept of free movement of labour has become politically controversial because it has led to large migrant flows from low-income countries in the East to higher income countries in the West. Many have felt that the free movement of labour within an enlarged EU of wide income disparities has caused both economic and social problems. This raises the questions.
- What are the advantages and disadvantages of free movement labour?
- Who benefits and loses from free movement of labour?
- Is there an optimal area size (in terms of income inequality) for free movement of labour to work?
- Can you have free movement of capital and trade without free movement of labour?
Advantages of free movement of labour
- Can help deal with labour shortages. Countries may experience labour shortages, especially in certain skilled positions or undesirable jobs many domestic workers don’t want to do. Immigrants can fill these vacancies. The UK has relied on many immigrants to work in the NHS, filling skilled jobs, such as nurses and doctors. Across the UK, migrants account for approx. 10% of doctors. (full fact)
- Can diminish the rise in unemployment. If there is free movement of labour, then workers from overseas can take temporary jobs when an economy is booming and then return home, when the boom is over. This is particularly beneficial for cyclical job markets, such as construction. For example, during the Irish property boom (2000-2007), construction workers migrated to Ireland. However, the property collapse and subsequent recession saw many immigrants from eastern Europe return to their native country. “The number of Personal Public Service (PPS) Numbers issued to non-Irish nationals went down by nearly 50% between 2008 and 2009, and over the past two years the number of employment permits issued has dropped by 66%.” (Facts about Migration) Without this free movement of labour, the rise in unemployment would have been sharper in Ireland.
- Can prevent wage inflation. If an economy experiences labour shortages, it will put strong upward pressure on wages; higher wages can easily lead to inflationary pressures. Free movement of labour means rising wages will attract more labour into a country and this will prevent excess wage inflation.
- Labour migration creates additional demand. Many focus on the increase in labour supply, pushing down wages, but migration also leads to additional demand. UK economic growth has been boosted by the rise in population (partly caused by net migration).
- More flexible labour markets. In an economy, there may appear shortages in certain professions such as teaching and nursing. These vacancies can take a long time to fill because of the time taken to undertake training. If there is free movement of labour, qualified workers will be attracted to fill these vacancies making the economy more flexible and overcome shortages quicker.
- Fill undesirable jobs. In developed countries, there are often jobs which are difficult to fill because they are deemed unsavoury. This may involve cleaning, bar work or dangerous jobs. Immigrants may be willing to fill these jobs because of the wage premium from working in that country.
- Opportunities for workers to work elsewhere. In addition to migration into the country. Free movement of labour enables people to work (and retire) elsewhere. During EU membership, over two million British workers moved abroad – taken advantage of free movement of people..
- Help deal with demographic challenges. Many countries in Western Europe are experiencing a demographic time-bomb – with a rapidly ageing population. This places a strain on public finances because people over 65 are net recipients of state spending (pensions + healthcare, less income tax contributions). Free movement of labour can see young immigrants come to areas of declining working population and make a net contribution to public finances. (See: immigration and public finances)
- Helps to reduce regional inequalities. Free movement of labour should help to regional disparities between the economic union. Free movement of labour has enabled workers in Eastern Europe to save money and increase their living standards. Some of this income will be saved and sent home to increase living standards in Eastern Europe. After joining the EU, countries like Portugal, Spain and Ireland did get closer to average EU GDP per capita levels.
Non-economic advantages of free movement of labour
- One of the founding principles of the European Union was to avoid conflict and promote harmony between European nations. It was felt that the free movement of people across national borders would diminish national rivalries because countries would become more integrated and less opposed. To give a crude example – if you live and work with Germans in France, you will see the human side and not want to go to war with Germany.
Disadvantages and problems of free movement of labour
Why is free movement of labour so often unpopular? Overlaps with issues such as austerity, housing and declining public services.
Policies to help make free movement more successful