8 May 2018

Open borders - empty streets?

Kristina writes:*

Bulgaria joined the European Union in 2007 and the last of the transitional labor restrictions ended in 2014, allowing a clear path to immigration abroad for many Bulgarians in search of competitive wages and better institutions, a choice disproportionately made by highly educated or skilled individuals. While EU accession is a positive gain for the individual, the vacuum left for skilled labor may be a hindrance to the country’s long-term growth and development as a post-Soviet economy.

Emigration is one side of the larger issue of labor shortage in the country. The 2007 IMF Article IV Consultation for Bulgaria highlights demographic changes as a key problem for Bulgaria, such as the expected decline in the working age population by 26% in the next thirty years, as well as the increasingly aging population, and the necessity to address this through education, retraining programs, and labor reforms.

Taking these structural problems aside, immigration, especially to EU countries, creates a shortage of professionals in particular sectors. For example, 80-90% of Bulgarian medical students say that they plan on emigrating after graduation, a significant problem for an aging population in need of their services. Others may leave to pursue higher degrees in medicine or engineering. Labor shortages have pressured employers to raise wages to compete with perspectives abroad, and when wages grow faster than productivity, this is an inefficiency that makes production in Bulgaria less profitable in general. Automation and shifting sectors are other ways businesses address this; however, ultimately, if the education system is unsuccessful in retraining people for the positions needed, structural unemployment prevails for low-skilled workers while there is a shortage for highly-skilled ones.

Despite these concerns, if you ask Bulgarians about the future of the economy, you’re likely to get opposite answers from different regions of the country. While there is great pessimism especially in rural areas, the sentiment in the capital, Sofia, is much more optimistic, where a growing IT sector provides competitive job opportunities and even attracts foreign professionals. Regional gains do not solve the problem if the rest of the country is falling behind, but they may bring some of the talent back or encourage Bulgarians to stay.

It is also important to realize that EU emigration is not as central to the population decline as one may assume. Data from the World Bank on Net Migration (see figure below) shows that most negative yearly net migration was actually in the 1990’s after the fall of communism, not after 2007, and that the rate has been steadily increasing towards less emigration. It may be that there are less people left willing to emigrate, but also that gradual improvements in the economy have raised some of the reasons to stay. There are still an estimated 30,000 Bulgarians leaving each year, but some 10,000 are returning.

Some characterize it as a negative cycle,  where lack of labor leads to lack of production, low unemployment prospects, and reasons to emigrate. But it may also be positive, where positive changes in growth and the economy, which have been on trend especially since the last recession, encourage marginal changes to migration rates, which in turn fuel the economy further. While there are many reasons to be pessimistic with a declining population, and we don’t know to what extent the emigrants post-EU accession are more skilled than the previous ones, the silver lining is that emigration is slowing down.

The bottom line: It’s not the EU’s fault. Emigration is not new, and it’s just one side of Bulgaria’s magnifying labor problem.

* Please help my growth and development economics students by commenting on unclear analysis, other perspectives, data sources, etc. (Or you can just say something nice :)

1 comment:

Tom said...

Hi Kristina, really interesting post about Bulgaria's labour problem and, in particular, the problem of migration. I had a few remarks which could maybe incorporate in the final essay. First, I think it would be interesting to not only talk about migration, but also about the structural problems Bulgaria has regarding labour. A few times you mention that there's these larger labour problems, and I think it would be interesting to at least lay-out what the main problems are. Then you can pick a few (migration included), and discuss these in detail, The word limit will allow you to go into depth with multiple issues. Second, I thought it would also be interesting to see how the migration problem affects inequality. This will allow you to partly see how the labour problems affect development in Bulgaria.

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