Vamonos - Voting with their feet in Spain?

As the proverbial line seems to be running out for Greece, I thought that I would look at a slightly longer, although no less important, issue in the context of Spain; more specifically the trend in net migration. While much of the focus on Spain’s membership of the Eurozone has been (rightly) centered on the effect of interest rates that were too low, for too long another important aspect is the boom in immigration that followed at the turn of the 21st century.

Indeed, when we today speak of Japan (and Germany) as the oldest economies of the world Spain was, by 2000), destined to become just this but an impressive net migration rate from 2001 to 2007 managed to buck the trend; 

(click on pictures for better viewing)

The decline in net migration is naturally a by-product of the crisis especially as immigrants (and especially those who are more or less sans papiers) are in the front line when recession strikes.

(quote Time)

The wave of immigrants into Spain has been fast and furious. The nation’s foreign-born population shot up from little more than 2% in 2000 to more than 12% in 2010. “The process was so quick and so intense that Spaniards and politicians had a hard time understanding what was happening,” says Josep Oliver, an applied-economics professor in the Universidad Autónoma de Barcelona and one of the lead authors of the Yearbook of Immigration in Spain 2009.

Then came the credit crunch, with its mass layoffs, stagnant growth and fiscal austerity. More than a million migrants have lost their jobs, homes and small businesses in a boom-to-bust cycle not seen since the Great Depression in the U.S. To be sure, migrants around the world are feeling the pain of the recession. But Spain’s massive and recent immigrant influx, compounded by economic restructuring beyond the construction industry, has taken a particularly high toll on foreigners, magnifying the crisis for the country as a whole.

With the unemployment rate almost surely on the wrong side of 20% you could be excused for arguing what exactly the problem is here. Surely with this kind of excess capacity in the labour market the last thing Spain needs is for the migrants to stay competing for already incredibly scarce jobs. Indeed, the Spanish government has tried to create incentives for unemployed migrants to leave in order to free up the mismatch between supply and demand for labour.

This approach however does not hold up to basic economic intuition even if it is an understandable move from a political point of view. First of all, there is likely to be a low value added skill bias in the kind of jobs migrants are taking. This is then an often misunderstood point in the context of western societies’ attempt to cherry pick the brightest graduates and lure highly skilled foreign labour to the country with lucrative tax breaks. As such, low value added labour (relative to the average level of value added in the receiving country) can provide a crucial labour input to the labour market in the form of filling up vacancies that domestic labor seekers would otherwise shy away from.

Now, you might again protest that in a severe crisis and as desperation among job seekers kick in, the matching for vacancies become subject to a general process of trading down as people accept jobs they are not qualified for simply in order to make ends meet. This is undoubtedly true but this is also the difference between a win-win and lose-lose situation then.

Migrants are ultimately attracted by work opportunities and the sharp decline in migration rates in Spain can be seen as migrants voting with their feet. In this sense, net outward migration of relatively low value added labour only to let domestic workers compete for these same jobs is not a sign of virtue let alone a recovery. I would hold this to be one of the most important structural issues to look out even if the long run effect of an economic crisis on migration is difficult to predict. In addition, and this is evident in Eastern Europe, there may be a strong (and worrying) me too effect from foreign immigrants leaving as it migh even incite Spanish young people to contemplate leaving as well especially as the labour market continues to look dire.

Finally, the obvious question is whether Spain needs immigration? Indeed it does;

As such and strong immigration notwithstanding Spain is still ageing and, rapidly so! Note especially, the twin peaks of first the 20-39 age group in 2002/03 and then the 35-54 age group in 2011/2013. This is then the great tragedy of the peripheral economies in the Eurozone in the sense that whatever last ounce of demographically induced momentum they had will likely be completely erased by the demands for fiscal austerity and internal devaluation. And once this process has run its course (whatever that means) their population pyramids will be beyond repair.

Looking at age specific migration in Spain and considering that by definition migration occurs among the most mobile part of the population (i.e. the working age population), the trend has reversed. This is also why migration flows are an important input to the analysis of global population ageing even if immigration, in no country, would be able to completely nullify the wave of ageing (indeed in some economies such as China and Russia immigration will be almost impossible to achieve in sufficient scale to dent the force of ageing).

The influx of migrants to Spain in the age group 20-39 has consequently steadily declined in the past 4 years.

The article above by Time personifies the Spanish migrant in the form of 35-year-old Colombian construction worker Doney Ramírez who used to police one of the many, now idle, construction cranes in in and around the building sites of Madrid. You could then note that Spain certainly does not need Mr Ramírez anymore as the future of Spain is not built on construction of empty houses. Indeed I would agree, Spain now needs to export. But neglecting the importance of  Ramírez would be poor economics since quite possibly he could do a different job (if the economy could create one for him) and more importantly the fact that he is now more likely to leave than stay says a whole lot on the effect of ongoing deflation and deleveraging faced by Spain.

Read more at Alpha Sources