Can trade in services offer an alternative to migration?

Can trade in services offer an alternative to migration? vox - Research-based policy analysis and commentary from leading economists
High unemployment among the young and low skilled is fuelling anti-immigration sentiments across the OECD. This column argues that, in Western Europe, demographic trends are such that demand for many workers will exceed supply. It proposes a framework that enables the temporary movement of services providers, a policy that could address Europe’s labour needs while placating public resistance.



Recently released data show that the US population has increased 9.7% since 2000, reaching almost 309 million (US 2010 Census). While low by US standards, this growth rate far exceeds European rates. Europe is facing a demographic dilemma. Low fertility rates and increased life expectancy mean that labour forces are shrinking as dependency ratios are rising.

Declining youth populations imply this is not a temporary pattern but a reflection of long-term trends. The implications for labour markets, welfare policies, and fiscal balances are significant. In contrast to Europe, southern Mediterranean countries have a temporary bulge in their young working-age populations. They will complete their demographic transition within one generation, but current excess labour supply is creating social and economic challenges.

Current demographic trends suggest that the EU will face a severe labour shortage over the next decade while Mediterranean countries will continue to experience significant growth in their labour forces (Figure 1). The recession is reducing migration incentives somewhat and economic growth and demographic transitions in developing nations will reduce long-run pressures to migrate (Hatton and Williamson 2009). But in the short to medium term, the diverging labour market trends in the EU and its neighbours imply substantial incentives for migration