The Economic Impacts of a Migration Quota - A Borderline Case

The process of regional integration comprises several stages. Besides the integration of product markets the border opening also applies to production factors. Particularly the aspect of free labor movement often represents a problematic topic. This is also the case in the course of the EU Eastern enlargement. With this special regulation the countries aim to protect their national labor markets from increased immigration flows and the feared competition of domestic employees with a comparatively cheaper foreign labor force. Thus, in some parts of the EU the integration of labor markets lags behind the liberalization of trade in goods. Against this background the purpose of this study is to assess the economic impacts of such a delayed border opening for workers. Therefore, an EU Enlargement scenario which totally denies an integration of the labor markets is compared to other enlargement scenarios considering expansions of Germany’s immigration quota. Thereby it is assumed that the EU-15 not only relaxes immigration restrictions versus the accessing CEECs but also grants further labor market access to other countries such as e.g., Turkey. The starting point of the simulations is an extended version of the GTAP model, which comprises a migration mechanism. For the actual experiments this version has been further up-graded with the implementation of a migration quota. The results show that an expanded migration quota leads to increased migration flows into Germany and the rest of the EU-15 particularly from non-EU regions while immigration pressure from the new EU members is in some cases not even strong enough to make full use of the quota expansion. The increased level of border opening results into higher production output and stronger demand for labor in Germany particularly in labor-intensive sectors partly depending on foreign labor. Besides other effects on wages and remittances Germany’s export performance is weakened while domestic sales increase.