Migration, Co-ordination Failures and EU Enlargement: Paper Presented at the 41st Economic Policy Panel in Luxembourg, 15/16 April 2005

European migration policies are characterised by a fundamental paradox: While the barriers for the free mobility of labour have been largely removed within the EU, the regulation of immigration from third countries remains in the domain of national policies of the individual Member States. During the last ten years, these policies have become more and more restrictive, although the public opinion has not become more hostile on migrants. In this paper we analyse whether increasing migration restrictions can be traced back to co-ordination failures. Simulations on basis of a general equilibrium model suggest that the economic benefits from international migration are, at a GDP gain of 0.2-0.3% at a migration of 1% of the labour force, high. However, assuming (partially) rigid wages and persisting unemployment in both the sending the receiving countries, natives in the receiving countries can lose from migration. Moreover, our results show that even under pessimistic assumptions on the unemployment rates of migrants the joint GDP of the sending and receiving countries tends to increase with unemployment benefits. However, the losses of the receiving country increase with the replacement rate. While the principles of the free movement and equal treatment enable the Community to realise the economic gains from intra-EU migration, co-ordination failures both between the receiving and the sending countries and among the receiving countries hinder international migration between the EU and its neighbouring regions. The latter is proved at the example of the Eastern Enlargement episode, where national decision-making has led to a 'race-to-the-top' with regard to transitional restrictions. While a co-ordination of migration policies between receiving and sending countries is hampered by conflicting interests, a co-ordination among receiving countries at the EU-level can reduce migration restrictions and improve welfare in Europe.