How to tackle Europe's baby blip - Samuel Brittan: The Financial Times 05/12/03

From the point of view of the recipient countries there are three arguments for immigration. First it would avoid an increase in pay for those who do dirty jobs. Such increases may complicate the conduct of fiscal policy and irritate middle-class voters who would have to pay more for public and domestic services. But this is not an argument for a civilised person.

The second argument is that more immigrants will improve the dependency ratio for some decades to come. It has some force but cannot be the main reason for a more liberal immigration policy. The third and basic argument is that the movement of people is part of a global economy, just as is the free movement of goods and capital. Dare I add the claims of common humanity that apply to people in poor countries trying to better their lot, as well as refugees fleeing from torture and oppression?

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How to tackle Europe's baby blip Samuel Brittan: The Financial Times 05/12/03 My pet remedy for the adverse consequences of an ageing European population on the pensions burden has been to index the pension age to life expectancy. It goes without saying that this upward indexation needs to be accompanied by changes to make it easier for older workers to work at a different pace. A study by David Willetts, the clearest thinker in the Conservative shadow cabinet, has, however, drawn dramatic attention to another aspect of the rising dependency ratio - that is the ratio of older people to those of working age. Not only is the numerator of this ratio, that is the number of older people, rising. The denominator, that is the number of people of working age, is falling. A rapid decline is foreseen in the proportion of the European Union population of prime working age over the next 40 years. The most dramatic example is Italy where the number of Italians aged 15-59 is expected to drop from 35m to 21.5m. The age dependency ratio is accordingly expected to rise from 0.40 in 2000 to 1.03 in 2040. Even in the UK the age dependency ratio is expected to rise from 0.34 to 0.65. But demography is not all. The economic burden of providing for older workers has been much increased by the move to early retirement. The worst example is France, where the employment rate for male workers aged 55 to 64 fell from 65 per cent in 1980 to 38.5 per cent in 2000. In the UK it has remained about 60 per cent. If this trend reflected just a preference for stopping work earlier by European employees, together with an acceptance of lower take-home pay during their working years, there would be nothing more to say. But in the Kohl-Mitterrand period perverse incentives for early retirement were introduced. While the economic part of the Brussels Commission is trying to liberalise labour markets, the so-called "social" part pushes directives such as the one to give part-time agency workers the same rights as full-timers. The argument becomes controversial when Mr Willetts asserts that increased immigration will not help much. This is because the 10 new members of the enlarged EU mostly have low fertility rates. Migrants, however, tend to be predominantly young. It will take some decades for their own low fertility rates to have an adverse effect on dependency ratios. In any case the greatest pressure for immigration is likely to come from north Africa and Asia, where fertility rates are much higher. It is neither right nor prudent to assume that this tide can be held back. The statement by David Blunkett, the home secretary, that there is no practical limit to absorptive capacity was correct. The number of people that can be supported on a given land mass is enormously variable, as it was not when the bulk of economic activity was traditional agriculture and trade was marginal. The one serious drawback to immigration is that it could increase population densities in some countries that are already crowded. But we need to tread carefully here. The Netherlands has a population density of 383 persons per square kilometre compared with 243 in the UK but there are few who would say the Dutch have a lower quality of life. In any case you cannot in the same breath complain of a prospective drop in population owing to falling fertility and bemoan the effects of an inflow of migrants who would counteract this. Where Mr Blunkett, in line with most western political leaders, goes wrong is in trying to pinpoint sectors that are short of labour and to allow selective immigration to fill the gap. This is an example of the all-too-common "economics without price". There are rates of pay at which European countries can get sufficient native nurses and kitchen hands. But this would involve higher wages that reflected their scarcity. From the point of view of the recipient countries there are three arguments for immigration. First it would avoid an increase in pay for those who do dirty jobs. Such increases may complicate the conduct of fiscal policy and irritate middle-class voters who would have to pay more for public and domestic services. But this is not an argument for a civilised person. The second argument is that more immigrants will improve the dependency ratio for some decades to come. It has some force but cannot be the main reason for a more liberal immigration policy. The third and basic argument is that the movement of people is part of a global economy, just as is the free movement of goods and capital. Dare I add the claims of common humanity that apply to people in poor countries trying to better their lot, as well as refugees fleeing from torture and oppression? * Old Europe? Demographic Change and Pension Reform, Centre for European Reform, £10
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