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Breaches Appear in 'Fortress Europe'
Subject Migration
Topic Labor Markets
Key Words Immigration, Skilled workers, Skill shortages, Birth rates, Aging population, Taxes, Public services, Brain drain
News Story

The Prime Ministers of the United Kingdom and Italy have launched a new European immigration policy. It is tough on the traffickers who try to smuggle people into the rich economies, but tender in allowing more skilled workers to enter.

It recognizes the reality of skill shortages in Europe, created by low birth rates and an aging population. Research by the UK Cabinet Office shows that immigrants are a net benefit in that they work hard, and tend to be dynamic and enterprising people. They introduce new ideas. They pay more in taxes than they consume in public services. By their very nature, they increase cultural diversity.

However, critics believe that shortages are likely to appear in unskilled positions too - low birth rates hit all occupational groups. America's experience shows the importance of unskilled immigration, albeit illegal, in filling jobs that are generally unattractive. Experts state that unless Europe opens its borders as the US has done, this century will belong to the US, as did the last.

Some - like Indian politicians - worry that immigration to the US and Europe causes a "brain drain" that damages the economies of origin. Against this, some experts point to the money that is sent home by immigrants, leading to gains comparable to exporting goods. For example, in the Philippines, an excess supply of nurses is trained in order to encourage them to work overseas.

(Updated May 1, 2001)

Questions
1. Draw a diagram of the market for skilled labor in Europe. Show the demand and supply curves, and mark the initial equilibrium wage.
a) Illustrate the effects of a declining birth rate and an aging population, assuming that wages are slow to respond. Explain what you have drawn.
b) Show what happens when immigration policy is relaxed and more skilled workers from outside Europe are allowed to enter.
c) Is this preferable to continuing the restrictive immigration policy that existed hitherto? Why or why not? Refer to your diagram and the news story.
2. Now draw a labor market diagram for India. Show the initial equilibrium.
a) Draw what occurs when skilled workers leave for the US and Europe. Which curve moves and why?
b) If the emigrants send money back to India, how might this affect the labor market for skilled labor in India? Illustrate on your diagram. Explain the sequence of events that takes place.
Source Diane Coyle, "Migration is not just an economic benefit - it's a basic human right," The Independent, February 8, 2001.

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