Free Movement versus European Welfare States? Variations of the Fiscal Effects of EU Migrants across Welfare State Regimes

• Published date: 01 September 2024
• DOI: http://doi.org/10.1177/00323292231182516
• Author: Marcus Österman,Joakim Palme,Martin Ruhs
• Date: 01 September 2024
• Subject Matter: Articles

Free Movement versus

European Welfare States?

Variations of the Fiscal Effects

of EU Migrants across

Welfare State Regimes

Marcus Österman

Uppsala University

Joakim Palme

Uppsala University

Martin Ruhs

European University Institute

Abstract

Strong claims have been made about the incompatibility between large-scale migration and

advanced welfare states. The free movement of workers within the European Union (EU)

offers an interesting case for the study of the f‌iscal effects of unrestricted labor migration

in different types of welfare states This article therefore investigates the alleged tension

between advanced welfare states and liberal migration policies by analyzing how the f‌iscal

effects of EU migrants vary across European welfare state regimes. In contrast to argu-

ments commonly made in public debates, we argue and explain why theoretical reasoning

should lead us to expect limited differences in f‌iscal effects of EU migrants in different wel-

fare states. The empirical analysis, covering twenty-nine countries during 2004–15, shows

that the net f‌iscal impact of EU migrants in the different welfare state regimes of West

European countries is positive, and we f‌ind no major differences in the f‌iscal impacts of

EU migrants across Western regimes. These results from the EU case cast doubts on

the claim that advanced welfare states are incompatible with large-scale immigration

because of adverse f‌iscal effects, and on the idea that broad institutional characteristics

of welfare states have substantial consequences for the f‌iscal impact of migration.

Keywords

migration, f‌iscal impact, welfare states, labor markets, European Union

Corresponding Author:

Marcus Österman, Department of Government, Uppsala University, Box 514, SE-751 20 Uppsala, Sweden.

Email: marcus.osterman@statsvet.uu.se

Article

Politics & Society

2024, Vol. 52(3) 376–408

© The Author(s) 2023

Article reuse guidelines:

sagepub.com/journals-permissions

DOI: 10.1177/00323292231182516

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Whether an advanced welfare state may be combined with liberal migration poli-

cies has been a pivotal topic for decades, both in public debates and among schol-

ars of politics, migration, and economics. Milton Friedman famously argued that

“it is one thing to have free immigration to jobs, it is another thing to have free

immigration to welfare, and you cannot have both.”

1

Gary Freeman reasoned in

a similar way when he in a prominent article concluded that “the relatively free

movement of labor across national frontiers exposes the tension between closed

welfare states and open economies and that, ultimately, national welfare states

cannot coexist with the free movement of labor.”

2

Another example stressing a

specif‌ic aspect of the same logic is the so-called welfare-magnet hypothesis, put

forth by George Borjas,

3

which suggests that migrants disproportionally will

move to more generous welfare states to take advantage of benef‌its and services.

The fundamental argument in these seminal works is that advanced welfare states

are incompatible with unrestricted migration because if migrants get full access to

welfare benef‌its and services, it will imply an unsustainable f‌iscal burden on the

host country.

The system of free movement of labor in the European Union (EU) is an intrigu-

ing case in light of this incompatibility argument as it largely represents what is

alleged to be impossible. EU citizens enjoy the unrestricted right to move and

take up employment in any other EU country and—as long as they are

“workers”—have full and equal access to the host country’s national welfare

system (for more details, see the section on institutional background below).

Furthermore, national welfare states within the European Union differ considerably

in terms of generosity, qualif‌ication requirements, and funding principles. We

reason that these differences in national welfare states within the common system

of free labor migration make the European Union a well-suited case for testing

the fundamental reasoning behind the incompatibility argument above: it enables

us to study not only if there is a negative or positive effect of immigration but

also to analyze if the f‌iscal effects of EU migration vary across different

European welfare states and, particularly, whether there are larger f‌iscal burdens

connected to more inclusive and generous welfare states. Because institutions gov-

erning intra-EU migration are the same within the union, we avoid the problem that

the f‌iscal effects of migrants may be affected by cross-country differences in migrant

admission policies, migrants’rights to access employment, and legal restrictions on

migrants’access to welfare in the host country. Instead, by focusing on free move-

ment of labor within the European Union (where all EU countries use the same rules

on these issues), we are able to focus on the specif‌icroleofnationalwelfareinsti-

tutions in shaping the f‌iscal effects of migrants.

Our study is also motivated by recent public discussion within the European

Union. While the system of free movement has benef‌ited millions of EU

workers, its consequences for host economies and societies have been the

subject of intense public and political debates in many European countries, espe-

cially since the Great Recession in 2008–12. The f‌iscal effects of intra-EU mobility

have been a central concern in these discussions, particularly regarding the effects of

granting EU workers unrestricted access to the host country’s welfare state. Questions

Österman et al. 377

have been raised in line with the alleged tension between open borders and advanced

welfare states. Does free movement encourage so-called benef‌ittourism

4

anddogenerous

welfare states function as “welfare magnets”and thereby create negative f‌iscal effects for

host countries that also varybetween welfare stateregimes? Is the allegedtension between

unrestricted migration and advanced welfare states f‌inally coming to the fore also in the

apparently “exceptional”case of free movement of labor in the European Union? The dis-

cussions surrounding the United Kingdom’s Brexit referendum in 2016 (i.e., the national

referendum on whether to leave or stay in the European Union) provide the most conspic-

uous example of heated public debates about this tension in recent ye ars. The Leave cam-

paign frequently criticized the European Union’s system of free movement

5

for resulting

in high levels of EU migration to the United Kingdom, and for allowing EU migrants the

right to claim a wide range of benef‌its, which in turn was presumed to be highly costly to

the United Kingdom. Such views among the public were also important for explaining the

outcome of the referendum.

6

However, in recent years leading politicians in Austria,

Denmark, and the Netherlands have also proposed restrictions on EU workers’access

to welfare benef‌its, based on the argument that specif‌ic aspects of their national welfare

systems create particular (and unwarranted) costs and effects due to differences in the

organization of social protection systems across member states.

7

Even though the system of free movement is such an interesting case for testing

long-standing theories of migration and welfare states, and despite the high salience

of the issue in public policy debates in European countries, research on the f‌iscal

effects of intra-EU migration, especially across different countries and welfare

systems, has been limited. Most existing studies of the f‌iscal impacts of intra-EU

migration have focused on single countries or a small group of countries.

8

Most

comparative research on the f‌iscal effects of immigration in Europe has not differ-

entiated between intra-EU and other migrants,

9

although recent research has

begun to address this issue.

10

However, with one exception,

11

these recent studies

do not systematically examine variations in the f‌iscal impact of EU migrants

across different types of welfare states.

The aim of this article is to investigate whether unrestricted migration may be

combined with advanced welfare states by analyzing the direction of the f‌iscal

impact of free movement in the European Union, and whether and how these

effects vary between different welfare regimes in Europe. We develop an institu-

tional perspective on the f‌iscal effects of intra-EU mobility and test our expectations

by exploiting data

12

on the f‌iscal effects of EU migrants in almost all countries of the

European Economic Area (EEA). We focus on the institutional aspect to address the

general question of whether the f‌iscal effects of unrestricted labor migration vary

with the institutional design of welfare states, but also because scholarship on

intra-EU migration commonly argues that different welfare state institutions

impact the f‌iscal effects.

13

However, this latter claim has not been subject to system-

atic empirical assessment. Our data cover the time period 2004–15 and thus make it

possible to also study variations over time, particularly in relation to the Great

Recession of 2008–12.

Our empirical analysis seeks to cover the full f‌iscal impact of EU migrants in the

host countries (inward mobility), including all public expenditure—such as welfare

378 Politics & Society 52(3)