Wry & Dry

Hollowed-out Schengen

The Schengen Agreement is not the title of a le Carré novel.  It is the treaty that led to the creation of Europe's borderless Schengen Area [3], and covers 28 countries and over 400 million people [4].   All members of the EU must conform to the requirements of the treaty, with the exception of Ireland and the UK, which have opt-out clauses but take part in Schengen 'co-operation'.

The reason for W&D's interest in Schengen arises from all the fuss about refugees and terrorists strolling unchecked around Europe.  But W&D wonders if there is more to Schengen.  And so instead considers Schengen and the free movement of workers.

The EU's four freedoms (movement of goods, services, labour and capital) blend with Schengen to allow, for example, a bright young worker in a poor part of Europe to up sticks and find work in a wealthier part of Europe (but not quite so freely in Switzerland). 

So far, so good.  Now, remember that GDP is defined by the number of workers multiplied by productivity per worker.   So, to increase GDP, for a start, a country needs more workers...

EU change in workers

These forecasts are alarming.  So, assuming zero change in productivity per worker (which may not happen), what you see is the expected annual GDP change over the next decade for each country.  Those numbers are an annual average.  

Moreover, W&D's logic sequence, as it were, is:

1. Aside from Germany, the loss of workers is a function of migration;

2. Migrant workers tend to be the more skilled in a country (i.e. those who can get jobs in other countries);

3. Ergo, less affluent countries are losing their key resource in productivity (and hence GDP) growth: skilled workers; and

4. So, less affluent countries are condemned to remain that way.

But wait!  There's more.  Consider the sheer number of workers.  Or lack of them.  Compound, say, Latvia's minus 2.7% p.a. loss over 10 years and you get a loss of almost a quarter of that country's workers!  The core of Eastern Europe is being hollowed out.

So, as Global Demographics [5] crisply puts it, "the desirability of free movement of labour may not be quite the 'plus' that it is made out to be"

Consider the Australian context, where smart, young people leave Tasmania to seek their career on the mainland.  Tasmania's number of people employed is in decline, falling by 2.2% since its peak in November 2014.  This notwithstanding an increase in population (albeit the lowest of any state: 0.3% p.a. compared to Australia's average of 1.3% p.a. [6]).

Not that W&D is suggesting that bright, young Tasmanians should be locked up in Tasmania...  Tasmania will not suffer the fate of the Eastern European countries noted above, because of a variety of reasons, not least of which is the massive fiscal transfers that Tasmania receives from the mainland.  

W&D's point is that the idealism of Schengen, and the freedom to work within Schengen, is not matched with the demographic reality.  Groups outside Europe who play The Long Game know this.