As an American, I sometimes eye with envy people who hold a passport from a European Union country— with one, it’s so easy to travel to, from, and within the continent. But an EU passport also represents far more mobility than just the tourist kind. Citizens of EU countries can easily do their banking in other nations, make inter-EU business deals more expeditiously, and even work abroad with few barriers. In good times, the arrangement seems to have worked well for everyone.
But in tough times, as in recent years, some cracks begin to show. Low barriers used to be a way to gain opportunity. Today, they’re often used as a way to escape hardship. Last week the New York Times ran an article on Spaniards stashing either their cash or themselves in other, more prosperous, more stable EU countries.
Moving your bank account is a relatively trivial thing to do. And while it creates headaches for banks who are already low on capital, as easy as cash flows out of a country, it can flow back in. More troubling is when people pack their bags.
“Migration of a skilled part of the labor force can be costly as it depletes the country’s stock of human capital,” said Arvind Krishnaumrthi, a professor of finance.
“It will create problems for Spain, but I’m sure countries the countries they move to will be thrilled to have them,” said Camelia Kuhnen, an associate professor of finance.
On balance, though, Spain would probably prefer to keep its workers. Still, that won’t be easy given the debt crisis. “It will be difficult to hang on to the workers who can leave, given the high rates of unemployment that countries like Spain are experiencing,” said Sergio Rebelo, a professor of finance.
Even after unemployment rates fall, it may be a while before battered countries are able to lure home the workers who left. In many European countries, “Political and cultural realities might make it impossible to stop brain drain in the short run,” Kuhnen said.
Still, the EU’s relatively open labor market has its upsides. “In the short run it helps because it allows workers to find jobs elsewhere,” Rebelo said. “There are also some potential benefits in the medium and long run. Economies like India complained for decades about ‘brain drain,’ the migration of educated workers to other countries. But, once India opened up and created conditions for growth, the Indian diaspora became an important business network that linked India to the world economy.
“The same can happen in Spain or Portugal. These are countries with great weather and wonderful food. Many of the immigrants will end up returning, bringing contacts and business ideas. But there is a cost to migration, when the young seek work abroad they leave behind a country that becomes older and less dynamic.”
As migration between EU nations becomes more commonplace, there could be some additional, non-economic benefits. Historically, language barriers and strong cultural identities have kept labor mobility low in Europe, especially compared to somewhere like the United States, which shares not only a common currency but typically a common language. Yet as people pick up and move to find employment, some of those cultural barriers will surely dissolve. That doesn’t mean there won’t be some hurdles. “In the short run, you’ll see more anti-immigration sentiment,” Kuhnen said. Immigrants are often accused of “stealing” jobs, she pointed out, a charge that may be levied more frequently in bad times than good. But, she added, eventually those suspicions could wane with time.
Is labor mobility good for Europe, both culturally and economically, I asked her? “In the long run, for sure the answer is yes.”