Shortage of Workforce and Immigration

8/13/2019 Shortage of Workforce and Immigration

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Part II

LABOUR SHORTAGES AND THE NEED FOR IMMIGRANTS:A REVIEW OF RECENT STUDIES1

Introduction

Economic, demographic and political develop-ments, combined with the mounting concern about

the future of labour supply have renewed the atten-tion of policy-makers on labour migration issues. Agood economic climate and years of economicgrowth in some OECD countries have led to increas-ing employment, higher participation rates andlower unemployment rates. Employers started toexperience difficulties in filling vacant posts, con-cerns about the availability of labour on domestic

markets arose and the first calls for immigrant labourechoed.

The increasing diversity of migrants nationali-ties and of the migration channels used, as well asthe growing proportion of movements of temporaryand skilled workers in total migration flows reflectthe influence of increasing internationalisation oninternational migration. Migration has not, however,

accelerated at a pace comparable to trade flows andcapital movements (Tapinos and Delaunay, 2000).

Demographic developments in OECD coun-tries imply an ageing workforce and ultimately resultin a declining population of working age. The possi-bility that these developments also result in labour

ing participation rates, postponing retirement ages,stimulating the labour market participation of

women and immigrants are among those instru-ments, as is facilitating selective employment-

related immigration policies. Whilst each of theseinstruments may contribute, no single instrument initself can promise the complete solution. However,faced with the urgent need to meet a growingdemand for workers with specific skills in certainsectors, some countries have already started to facil-itate labour market access for skilled immigrant

workers. Some countries have considered recruit-

ment of immigrants on the basis of their humancapital, i.e., through selective immigration, to com-pensate for an ageing workforce. Hence, the policyrelevance of considering the complete set ofoptions as well as the advantages and limits ofselective labour immigration.

The aim of this chapter is first to show how anumber of OECD member countries estimate the

current and forecast labour shortages (A). The role ofmigration in alleviating future labour market needs

will be then presented (B). Section C will review sec-tor specific and micro-level studies making the linkbetween labour shortages and the need for selec-tive employment-related immigration policies.


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Trends in International Migration

with structural rates of unemployment; frictional andstructural labour market rigidities can be a cause of

persisting unemployment combined with wage infla-tion. Because structural rates of unemployment arenot readily available, unemployment rates aresometimes given in relation to the vacancy rates fora specific occupation (defined as ratio of the num-ber of vacancies and the number of employed inthat occupation). Zimmerman et al. (2002) havecalculated Beveridge curves for 1980-95 for 40 occu-

pational groups in Germany.

2

They have found indi-cations of shortages in the early 1990s for engineers,stone masons and technicians, persisting until 1995for health-related occupations. In France, the occu-pational job-seekers ratio, defined as the ratio ofthe number of job-seekers in a specific occupationto the total of job-seekers and employed workers inthat occupation, provides a disaggregated illustra-tion of the tightness in the labour market. It indi-

cates increasing tightness in the labour market inconstruction and mechanical industries (DARES,2001a and 2001b).3

1. Trends in national statistics on the number

of registered vacancies by sector

of employment and occupational category

Increases in the number of vacancies in andoutside the high-tech sectors4in non-EuropeanOECD countries give similar indications of stronglyincreasing numbers of unfilled job vacancies, con-centrated in a small number o f not necessarilyhighly-skilled occupations. For example, the Austra-lian vacancy bank Job Search listed as the top four

most wanted occupational groups among the total of40 500 job vacancies in mid December 2001: Labour-ers, Factory and Machine Workers (9 000); Food,Hospitality and Tourism (5 600); Sales Assistantsand Storepersons (4 200); and Gardening, Farmingand Fishing (3 700) (DEWR, 2002).

2. Causes of labour shortages

Labour shortages have a variety of causes. Theymay occur because of a lack of geographical mobilityon the part of the workers. They may be the result ofa mismatch between qualifications. For example,there is evidence of a mismatch between the lowqualifications of the numerous unemployed andinactive workers and the high qualif icationsneeded in Germanys technology intensive industry(Winkelman, 2001; Munz and Ochel, 2001; Sssmuth,2001). Zimmermann et al.(2001) find evidence ofmismatch-unemployment in shifting Beveridgecurves for welders, technicians, electricians, occupa-tions in the food industry and construction workers,carpenters and painters. In other cases, the occupa-tions image is not good enough, at the going wagerate, to attract a sufficient number of workers, even ifsupply is abundant. Klaver and Visser (1999) find

this effect for different sectors in the Dutch econ-omy. Among the other important factors explaininglabour shortages are demographic factors, rapidtechnological progress and the resulting change inemployment structure towards highly skilled labourcyclical variations in demand, production and thederived labour demand, rigid wage structures andcollective agreements (Munz and Ochel, 2001;

Australian Productivity Commission, 2000).

The Netherlands, for example, argue that labourshortages would develop less if the number of sepa-rations were reduced5(Tweede Kamer, 2001b). TheBelgian Federal Planning Bureau (FPB) finds in theabsence of a positive wage drift and inflation theindication that general labour shortages are neitheran issue now nor in the medium term. However,

demographic developments may change the situationfor the longer term (FBP, 2001). Austria considerslabour shortages as a consequence of mismatches inthe labour market, but takes the demographicdevelopments into account when predicting themedium term consequences (Biffl and Walterskirchen,


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Labour Shortages and the Need for Immigrants: A Review of Recent Studies

time nor the opportunity to invest in theseskills.

Slow adjustments in the labour market maycause shortages. It takes time for employersto recognise labour shortages and to react tothem, for example by offering higher wages. Italso takes time for workers to recognise bet-ter opportunities elsewhere and to react tothem. Employers may be reluctant to raise

wages or are tied to collective agreements or

inflexible remuneration structures. Mismatch: wrong education investment deci-

sions resulting in too few engineers, scientistsand doctors, for example.

Insufficient regional labour mobility.

Institutional or demographic causes: a highnumber of people in retirement or invaliditypensions, low female participation rates.

There is no universally applied definition oflabour shortages. In part this reflects the fact thatthey are not easy to measure. Macroeconomic datado not reveal that tightness can be severe for someoccupations whilst absent in others. Employerreports and surveys confirm that shortages occur inspecific occupations and at different skill levels.However, employers report on recruitment difficul-

ties but not on labour shortages per se. The studiesdiscussed in this chapter define labour shortages indifferent ways to explain their possible differentcauses and forecast their potential development.

3. Labour reserves exist but it would be difficult

to mobilise them rapidly

The arguments in favour of attracting immigrantworkers to solve labour shortages rest partly on theassumption that the resident labour supply is insuf-ficient, or of inferior quality, to meet labour demand.But if the number of resident unemployed and inac-tive people can largely fill labour demand in quanti-tative terms, then why not proceed that way? The

The need for immigrant labour depends inlarge part on a countrys initial situation. Countries

wi th low unemployment rates an d high activityrates, like Norway, might exhaust earlier opportuni-ties to retrain unemployed workers and inactivepeople than countries with a more abundant stockof people not in work. Two factors play a determin-ing role: the size of the potential labour force andthe obstacles to labour-market integration that cer-tain groups face.

The resident potential labour supply consists ofunemployed people, people available but not par-ticipating in the labour market and people not avail-able and not participating. There also is potentiallabour supply among people who are employedinvoluntarily in a part-time job. The group of unem-ployed people can be further divided into recentlyunemployed people and people who have been

unemployed for a longer period of time. The formercould be referred to as frictional unemployment,which is caused by a number of people in the pro-cess of changing jobs.

The second g roup o f people , the non-participants, is a much more heterogeneous groupthan that of the unemployed. Other than the unem-ployed, not all non-participants are available for

work they may be facing serious obstacles. A con-siderable part of this group consists of people

whose health does not allow them to work. Anotherpart is formed by people who are otherwise notavailable for work either because care-giving tasksoccupy their time or simply because they do not

wish to work. The unavailabi lity for work may betemporary, as for students and others temporarily or

partly inactive because of education or professionaltraining.6But there are also a number of people whoare in principle available for work although they arenot actively looking for work.7

The size of the unused labour supply variesenormously, ranging in 2000 from 18 to 22% inS it l d d S d t 40% i It l (OECD


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indicate the potential for full-time employmentamong people in part-time employment, unemploy-

ment and inactivity. The remainder, 45%, is either(partly) unemployed or (partly) inactive and, in the-ory, represents the latent labour supply. Unem-ployed people accounted for 5% and the biggestchunk, more than 27% of the entire population of

working age, was not in the labour force for variousreasons.

Labour Force Survey questions on the reasons

for not looking for work are subject to a certainamount of interpretation. For example, respondentsreferring to family responsibilities may mean thatthey are unable to free themselves of these respon-sibilities because of non-availability of child-care orbecause they do not wish to work under current con-ditions. The availability of child-care could be theobject of a policy initiative whereas changes in the

individuals personal situation or in labour market orpolicy inducements to participate could change his/her preference to work. In this regard, the answers tothe questions on the desire to work would help dis-tinguish real impediments from what could betermed competing activities (OECD, 2002d). How-ever, respondents who indicate no desire to workmay well change opinion, for example students intheir final year.

A considerable portion of the working age pop-ulation is not actively engaged in any form ofemployment or study. This is referred to as the resi-dent latent labour force. To the extent that govern-ments succeed in mobilising this unused potential,current labour shortages can be alleviated, reducingthe need for immigrant labour. The analysis showsthat the most important potential is among middle-aged inactive women, most of whom have less thanintermediary qualifications. Another important tar-get group is youth, a state of things caused by a mis-match between education out-turn and labourdemand. Further work is needed to obtain timelyquality labour force data for the OECD countries.

rates on the one hand are very low well below thereplacement level of 2.1 children per woman and

falling. On the other hand, peoples life expectancyat birth continues increasing, which goes together

with improving prospects of a healthy old age. Thecombination of low fertility and increasing longevitymeans that population growth rates are slowingdown and that there is an increasing proportion ofelderly in the total population.

The prospect of rising shares of the elderly in

the population and falling shares of the populationof employment age to support pension and healthsystems has been an issue of previous OECD work(OECD, 1998a and 1998b). Population ageing willhave far-reaching effects, some of which are of par-ticular importance for the discussion of the role ofmigration policies:

Demographic developments will change

labour supply. The labour force changes incomposition as the share of older workersgrows, and it may dwindle if people continueretiring early. The number of new entrantsinto the labour market may be insufficient toreplace retiring workers.

The ageing of the workforce may adverselyaffect macroeconomic performance if future

labour supply is inadequate to meet thequalitative and quantitative need for workersto sustain economic expansion or preservepresent welfare levels.

The growing number of people relying onretirement benefits will shift the balancebetween working people (contributors) andinactive people (beneficiaries) to an extent

that may put the finance of social security sys-tems at risk.

The role of migration in addressing these chal-lenges, in particular the third issue of financingsocial security, was the subject of a recent UN report(UN, 2000). The report concluded that keeping old


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the absence of migration after 1995, for the EUalone a total number of 674 million migrants over

the 2000 to 2050 period, or 13 million per yearwould be needed. In comparison, the 1998 revisionPopulation Prospects (medium variant) on the basisof current flows estimated the total over the entireperiod at 13.5 million or a yearly average of 270 thou-sand (UN, 2001).

Despite its extraordinarily high estimates theUN report has attracted a lot of media attention and

certainly has helped to put the discussion of labourmigration issues back high on the political agenda.Increased immigration has the advantage of havingan immediate effect on the age and composition ofthe population because of the younger age structureof net migration. In addition, fertility rates of immi-grant women are often relatively high, which canboost fertility and hence long-term population

growth. However, the role of migration policies inaddressing these challenges can only be comple-mentary to other policies and is subject to a numberof practical and political constraints (OECD, 1991).

Tapinos, for example, noted with reference tothe UN report that further analysis of the practicaland political issues involved in the implementationof an effective demographic and labour market ori-

ented policy is needed. This would enable OECDmember countries to have a clearer picture of theextent to which international migration can contrib-ute to positive outcomes (Tapinos, 2000). He quoteddifferent reasons why immigration cannot be a solesolution to population ageing:

Most OECD countries share the same demo-graphic pattern and the bulk of immigration

would have to come from outside the OECDarea.

Migration cannot be treated as a control vari-able because there are too many factors thatlimit the ability to control and select migra-tion flows. In addition, migration policies

Two important observations moderate theextreme hypothesis of the UN report. First, the

choice of time horizon is essential to the evaluationof the demographic effects of migration and, morerelevant to the present context, of the effects ofdemographic developments on the labour market.The second observation is that the UN uses its pro-jections of the old age dependency ratios on theassumption that labour force p articipation andretirement ages do not change. The development ofthe size of the labour force is under those assump-tions proportional to the size of the working agepopulation as shown in Chart II.1. Chart II.1A showsthat Australia, New Zealand, Ireland, Canada, andthe United States are exempted from the trend ofdeclining working age populations. In many othercountries, the working age population will declinerapidly and will fall well below its present levelsby 2030. Chart II.1B shows a number of OECD coun-

tries with decreasing working age populations. Thecountries are grouped by the size of their popula-tions. The working-age population will decrease,according to UN projections, slowest in France (8%by 2050) and fastest in Italy (42% by 2050). In theNetherlands, the working-age population willdecrease by 14% by 2050, in Austria by 36%. Thedecline of the working age population appears to be

relatively moderate in Belgium, Denmark and theNetherlands, the United Kingdom, Norway andFrance, but rapid in most other countries.

In this context, Tapinos notes that the old agedependency ratio is a demographic ratio that com-pares age groups and should more realistically bereplaced by the ratio of retired persons to employedpersons (Tapinos, 2000). Depending mainly on

female participation, average retirement ages andon employment rates, there may be a significant dif-ference between the two ratios. The following dis-cussion shows how some countries take account ofexpected changes in labour force participation ratesand retirement ages in the forecasting of labourforce de elopments


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Chart II.1. Projections of the working age population (15-64) in selected OECD countries

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Japan Germany Italy United Kingdom France Spain Poland

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over time and across countries. It does not, however,take account of the effects of p ossibly changing

actual retirement ages. Up to 2010, the size of thelabour force is projected to increase in all countries.Projections are given up to 2020 for France, Poland,the Netherlands and Austria; a declining labourforce can be seen in Austria, France and Poland.

Chagny et al.(2001) forecast the development ofthe European labour force, taking into account theeffects of migration and changing participation rates.

Allowing for an annual immigration that rises from7 0 0 0 0 0 p e rs o n s i n t h e 1 9 95 - 2 00 0 p e ri o d t o900 000 persons by 2020, the authors expect theEuropean labour force to decline rapidly after 2015.Taking the analysis of the interactions betweendemographic trends and the labour force one stepfurther, Feld (2001) looks at 15 EU countries for theperiod of one generation (25 years) ahead. The

author specifically addresses the question whetherpopulation ageing will lead to labour shortages and,if so, whether large-scale immigration will be neces-sary. Bringing together information from differentcountries using a common methodology, Feld calcu-lates when the labour force in the EU countries willfall back to its 2000-level. He distinguishes betweendemographic effects (fertility, life expectancy and

migration) and behavioural effects (participationrates, retirement age, size of the school-going popu-lation). According to Felds estimate, behaviouraleffects can compensate for demographic effects inDenmark, France, the Netherlands and the United

Kingdom, but not in the other countries. This couldimply a need for more migration, except in the cases

of Ireland and Portugal, where the demographiceffects are positive.

Feld concludes, however, that the evaluation ofthe role of migration in attenuating the expecteddeclines of the labour force has a number of meth-odological and political problems. Forecasts oflabour force developments assume that migratoryflows in respect of age composition and participa-

tion rates are identical to the host country popula-tion and neglect the fact that net migratory flowsinvolve inflows and outflows that may vary hugely incomposition and magnitude (see also Box II.1).Another issue is that situations of neighbouringcountries may vary considerably; labour shortages insome countries may occur 10 or even 20 yearsbefore they emerge in other countries.

For Scandinavian countries, the Nordic Councilof Labour Ministers recommends a number ofactions to deal with the expected decline of thelabour force. First and foremost, they intend tomobilise the latent labour supply among four targetgroups: the ageing population; inactive and unem-ployed youth; inactive adults and inactive andunemployed foreign-born residents. They do not,

however, give quantitative estimates of the poten-tial impact of any of these measures but comparebest practices among Nordic countries. One of itsconclusions confirms the findings for the EU quotedabove (increased migration might contribute to

Box II.1. Gains and losses in high skilled labour through migration

Migration involves inflows and outflows that may vary hugely in composition and magnitude. Some countrieshave recently drawn up the balance of skill gains involved in immigration and skill losses involved in emigration.

As a result of the international movement of skilled workers to and from Australia over the five-yearperiod 1995-1996 to 1999-2000, Australia registered a net brain gain. There was a net loss of skilled residents


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shifting the trend of an ageing workforce). Restrictingthe immigration of people with low qualifications to

prevent integration difficulties is among the policyoptions; the Nordic Council of Labour Ministers cau-tions that in this case integration policies need fur-ther attention (Nordic Council, 2000).

At the level of individual European countries,studies of demographic impacts on the labour mar-ket often confirm the expected trends summarisedin the preceding paragraphs. Some of them illus-trate the role migration could play in combination

with other policies.

For France, Blanchet (2001) finds contradictoryevidence in a literature review of demographicimpacts on trends in wages, employment andunemployment. Domingues Dos Santos (2000)looks into the budgetary effects. She argues

that to maintain the financial sustainability ofthe social security system (i.e. pension system)

with the given unemployment rate, either theretirement age should be raised by 11 years,benefit levels reduced by 14% or contributionrates increased by 4.5%. Whilst both papersdiscuss the demographic impacts on thelabour market, they do not refer to migration

as a policy alternative. The German Institute for Employment

Research (IAB) estimates the potentialdomestic labour supply from 1996 to 2048under different assumptions about femaleparticipation rates and higher immigration(Fuchs and Thon, 1999; IAB, 1999). IAB arguesthat German labour supply will decline, what-

ever policy is chosen. However, high immigra-tion does postpone the year when laboursupply will start to decline, especially in com-bination with an increase in labour participa-tion rates. For example, in the scenario

whereby female participation rates catch upwith male participation rates and net immi

the demographic change is limited comparedto other EU countries and because it has a

large second pillar of privately funded occu-pational pension schemes (Van Ewijk et al.,2000). However, the study makes some assump-tions about participation rate, life expectancy,productivity growth and world interest rates(which might not hold), and fiscal policiesalone may not be enough to achieve budgetneutrality. The CPB assumes that the bulk ofimmigrants will come from Third World coun-tries and argues that because their currentparticipation rates are much lower than fornatives, they are much more likely to be ben-efit dependent and add to the stock of inac-tive persons living off public money.

The Australian Treasury directly links thegrowth of working-age population to economic

growth, thus implying positive effects of net immi-gration (Australian Treasury, 2000). Withers (1999)demonstrates that a proper estimation of migrationrates should include dependency ratios and relatedbudget costs. This can result in an argument infavour of much higher immigration; it would havethe effect of halving the public cost of an ageingpopulation. However, McDonald and Kippen (2001)

argue that the budgetary effects of higher migrationare not clear because the immigrant population alsoages. In their estimates, net immigration of about80 000 persons a year makes a reasonable contri-bution to the reduction of the ageing of the popu-lation. Higher numbers are less effective, mainlybecause the immigrant population also ages. Bycomparison, Australias net immigration has rangedbetween 80 000 and 107 000 between 1995 and 1999(OECD, 2001d).

For the United States, the Centre for Retire-ment Research finds that men and women between25 and 54 years old account for 71.7% of the labourforce in 1998 but expects that their share will fall to


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2. Special studies on the economic need

for migration

The developments raised in this chapter, com-bined with the mounting concern about the future oflabour supply have triggered a number of specialstudies of the economic effects of internationalmigration and the need for foreign labour. The moti-vation for each of the studies is to provide a basisupon which policy-makers can decide on the needto review migration practices and policies and on

the manner in which eventually such revisions couldbe made. It appears that employer reports of ashortfall of qualified labour supply and studies onthe demographic impacts on the labour force andlabour market have not been sufficient.

Germany

The German commission on immigration(Sssmuth Commission) has undertaken a study ofthe role of migration in the economy, now and infuture (Sssmuth, 2001). Among its main findingsare:

Large pools of unused labour reserves con-sisting of unemployed and inactive peopleco-exist with increasing labour demand. Lack

of qualifications is the main reason for theunemployment of around 4 million people.However, the report does not give a clearanswer as to the extent to which the presentlabour demand can be met through activatingand upgrading the skills of the unemployed.

Immigration can contribute to maintainingpresent economic welfare levels conditional

on the good integration of migrants. Betterqualified and younger migrants have moreimmediate and more sizeable positiveeffects.

If Germany maintains a net immigration at200 000 yearly the average level for the past

h d l h l

adjust to immigrant labour. If migrationstarted with 100 000 yearly, implying a cut in

migration compared to the actual situation,11

increasing to 150 000 a year by 2020 and thenfurther to 300 000 a year the active labourforce would decline least and economicgrowth would be maximised.

The activities of the Sssmuth Commissionhave led to an entirely new and coherent immigra-tion law that should come into force on the 1st of

January 2003. This law establishes clearly the rightsof foreigners to remain and work in Germany andsimplifies the existing law. As to labour migration,the law distinguishes high-skilled from low-skilled

workers. Only the highly-skilled are eligible for apermanent permit. However, where shortages exist,the decision to resort to temporary immigrants canbe made at a regional level. The law refers to a

points-system, yet to be developed, as an addi-tional instrument to attract immigrants. Such a sys-tem would be subject to separate approval by theGerman Lnder.

The United Kingdom

The Home Office, in charge of immigration andintegration, has published a study aiming to contrib-

ute to: a sound understanding of the impact ofexisting policies affecting migration and migrants,and a framework for assessing the costs and benefitsof potential alternatives (Glover et al., 2001). Thestudy looks at migration in the round; proceeding

with a discussion of the Governments higher levelobjectives and examining the social and economicoutcomes that current policy delivers. The study

embraces the idea that migration enables industriesto expand. Using the information technology (IT)industry as an example: so if migration of workers inparticular sectors is restricted [] then it will not beprimarily the case that supply of, and wages ofnative British IT workers will increase. The IT indus-t ill i l h i k l ti t h t ld h


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very detailed and extensive, and definitive in that ithas led to a proposal for a new immigration law, the

UK study serves as a basis for further work. It doesnot address any of the issues related to the demo-graphic impact on labour supply nor a humanitarianimmigration and family reunion, which the Germanreport covers, and hardly touches on the need forgood integration policies. However, the study alsofits into a broader government-commissionedframework making use of existing infrastructure toimprove the documentation on current and futurelabour market bottlenecks, analysing why compa-nies ask for workers with new skills and ultimately assessing labour demand and skill needs (DFES,2001c; Haskel and Holt, 1999).

Austria

A particularly sizeable study by the Austrian

Institute of Economic Research (WIFO), co-fundedby the European Social Fund (ESF), the Ministry ofEconomics and Labour (BMWA) and the Ministry ofthe Interior (BMI) covers demographic challenges,the educational attainment of foreign-born residents,foreigners labour market integration, crowding-outeffects on the labour market, family reunion, socialcosts and macroeconomic aspects of immigration.

Among the main conclusions are (WIFO, 2001): Net immigration can contribute to sustained

economic growth and to solving problemsrelated to the sustainability of the social secu-rity system, next to a better use of the residentlabour potential. However, current migrationpolicies are not adequate to deliver these con-tributions because family reunion and humani-

tarian immigration play a dominant role, whilelabour immigration is marginal.

Increasing participation rates of the sizeableforeign-born resident population will onlyhave limited success because their qualifica-tion structure is too much concentrated on

Austria has become a net-immigration countrywithout developing the instruments for an

immigration policy. The basics for a targetedimmigration policy do not exist yet. Inconsis-tent data about the foreign population do notgive sufficient insight into the resident laboursupply. Acknowledging the potential contri-bution that a qualifications-oriented migra-tion policy can make to solve many economicand social problems may ease the introduc-tion of such policies.

Norway

Against the background of tight labour marketsin 1997 and 1998, the Norwegian Ministry of LocalGovernment and Regional Development, which hasthe responsibility for immigration and integration,

commissioned a pan-departmental task force with astudy of labour market needs and recruitment pos-sibilities from abroad (Kommunal-og Regionalde-partementet, 1999). The task force proceeded in twosteps. First, it identified 11 strands to immigrationpolicy; second, it made recommendations as to thefeasibility of each of these strands. Their final reportgives very little attention to the evaluation of cur-

rent labour shortages, other than stating that short-ages can be observed but cannot be forecast.Depending on the world-economy, however, andgiven the near-full utilisation of Norwegian domesticlabour supply, present shortages are likely to per-sist, although they may well shift from one sector toanother. Demographic developments will inevitablylead to growing labour market tightness. The maintext appears to take the need for foreign labour forgranted, although the magnitude may vary accordingto the scenario.

The report stresses the fact that labour immi-gration inevitably involves the immigration of peo-ple with differing needs for housing, public services,


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The Netherlands

The major government institutions in theNetherlands have produced a vast body of researchcovering microeconomic effects of immigration, thedemographic challenges as discussed above, issuesof social and labour market integration and casestudies of immigration experiences in neighbouringcountries and in the United States.

The Netherlands Bureau for Economic PolicyAnalysis (CPB) for the first time since 1972 hasestimated the labour market effects of migra-tion for the Netherlands (Roodenburg andVan den Boom, 2000). They find that the inter-national evidence need not necessarily holdin Holland among other things because old-age pensions are largely capital funded andmore or fewer migrants will hardly effect its

affordability. However, they also argue thatthe social security system is relatively gener-ous compared with that of the United States(where most evidence is based) and costs/benefit ratio may well be negative. Theyobserve that the high population density inthe Netherlands may cause much more seri-ous congestion effects than elsewhere.

The Dutch Scientific Council for GovernmentPolicy (WRR), considering that the Netherlandshas developed into an immigration country,has initiated a new study on the Multi-Cultural Society (WRR, 2001a). In the contextof the study, the WRR has asked severalresearchers to compile the information neces-sary to form a solid empirical foundation forpolicy advice. The issues covered mostly deal

with the integration of foreigners into society,ranging from the institutions of Islam in theNetherlands and the demographic profile offoreign born ci t izens to the ef fects of advanced economic integration and migration

mends selective and temporary labour migra-tion (WRR, 2001a).

The Social and Economic Council (SER), com-missioned by the Minister of Social Affairsand Employment, has looked into possibili-ties for improvement of the low intra-EUlabour migration and to analyse the potentialbenefits for the Dutch labour market, in par-ticular in alleviating current labour shortages(SER, 2001). The study identifies obstacles in

legislation that should enable EU-citizens toreside and work in an EU-country of theirchoice. But more importantly, the SER hasfound that the access to certain professions islimited for citizens from other EU-countries.Examples are jobs where certain certificatesare required that may not be obtainable inother EU countries, the incapacity of employ-

ers to judge the value of foreign degrees andcertain government-jobs that are closed toforeigners. The SER also makes recommenda-tions to better enable job-seekers to orien-tate themselves in other EU job-markets.

C. STUDIES ON LABOUR SHORTAGES

AT MICRO-LEVEL AND THE NEED

FOR IMMIGRANT WORKERS

Macroeconomic studies may establish the posi-tive overall effects of migration, the consequencesof ageing and the effect of raising participation ratesand lowering retirement ages on labour supply; theycannot explain on what migrant-characteristicsselective immigration policies could be formulated.Nor can they explain how many immigrants could

and should be recruited to meet labour marketneeds and for how long these needs can beexpected to last. These questions are importantagainst the background of the general tendency,particularly in European and Scandinavian coun-tries, to call for restrictions on migration.


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1. Sector-level studies on the need for immigrant

workers

The overview in Annex II.1 of employer associa-tions reports and surveys among employers sug-gested that employers have a pretty good picture ofthe recruitment difficulties that they can expect inthe near future. Economic studies on labour short-ages, on the other hand, indicate that precise quan-titative estimates may not be that straightforward to

give. The Centre for International Economics (CIE),

commissioned by Australias association infor-mation and communication technology (ICT)employers, estimates that Australia will expe-rience shortage of ICT-professionals. The short-fall of ICT professionals with a university degreeis in this study estimated quite precisely at

27 500 persons for the period 2000-2005, overand above the number of graduates andmigrants that are already expected to join theindustry during that period. Among the rea-sons for the shortage the CIE mentions a toorestrictive immigration policy and emigrationto the United States (CIE, 2001).

The Technology Administration of the UnitedStates Department of Commerce has for anumber of years drawn attention to the loom-ing shortage of information technology (IT)

workers (USDOC, 1997a and 1997b, 1999b).The Technology Administration has weighedthe views of employers, who believe thatthere is not enough trained labour supply,and employees, who believe that labour sup-ply is sufficient both in quality and in quan-tity, but that industry does not do enough tomobilise existing labour pools. A recentreport describes trends in sector-level laboursupply and demand and discusses signals oflabour market tightness. It anticipates a need

more youth in IT-oriented studies, but doesnot give estimates of the extent to which

these shortages could be covered by thedomestic labour force. The report apparentlybelieves that this is sufficient to cover labourneeds because recruiting professionals fromabroad is not among the policy recommenda-tions to meet the future IT labour-marketchallenges (USDOC, 1999a and 2000).

In 1999, the German Ministry for Labour andSocial Affairs gave an estimate of 75 000 unfilledjob vacancies in the ICT sector and a growthpotential for 250 000 jobs in the 1999-2008period. It drew consequences for migrationpolicies from this observation and gave thestarting sign for a programme to strengthen thesupply of ICT specialists. The best-known ele-ment of this programme is the Green-Card

initiative to ease the entry of ICT-specialistsfrom outside the European Economic Area(EEA). After 11 months, only 8 000 Greencardvisas had been granted, inst ead of theplanned 20 000 (BMA, 2001). The main draw-back of the initiative is seen to be the tempo-rary nature of the visas, which are limited tofive years. However, the initiative did yield

some benefits. First and foremost, it intensi-fied the discussion on the topic of immigrationand has contributed to the coming-into-beingof the Independent Commission on Immi-gration (Werner, 2001). Also, being part of abigger programme, it proved successful inraising training places and educational slotsat schools, universities and within compa-nies. It is also worth noting that those com-panies who did employ foreign IT workers

with a Green Card showed some importantpositive spin-offs of immigration. In particular(BMA, 2001):

For each Green Card holder, 2.5 comple-


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2. Studies on labour shortages by occupation

A great number of studies project employmentgrowth either two, five or ten years ahead but giveno indication of labour shortages. They do not anal-yse the development of labour supply and are notlinked to immigration policy questions. In general,occupational demand projections estimate futurereplacement and expansion demand:

Labour demand as a result from the need toreplace workers who leave a specific job,switch occupations or leave the labour marketaltogether is a function of the number of peo-ple taking retirement, the average age of(early) retirement, mortality and invalidity. Buttemporary separations, for example peopletaking sabbatical leave, functional mobilityand emigration, also play a role. If employ-ment growth is low or nil, labour demand will

mostly consist of replacement demand.12

The demand for labour to support businessexpansion is a function of economic develop-ments, the phase in the economic cycle, eco-nomic policy, technological progress andglobalisation, among other factors but thesefactors need not influence the demand in dif-ferent occupations across the labour market

to the same extent. Economic growth in thelast decade has stimulated labour demand insome sectors more than in other, i.e., ICT andconstruction. The changing structure of eco-nomic growth, in favour of the tertiary sector,or the above-average growth of specific occu-pations, add an extra dimension and difficultyto the forecasting of labour demand.13

Studies of labour demand by occupation canpredict where employment growth will be the fast-est. Annex II.2 gives an overview of projections ofoccupation-level labour demand for 12 OECD coun-tries. The United States, for example, annually pub-lish the Occupational Outlook Handbook.The Office of

ers at all levels of education and training. Growthrates are projected to be faster, on average, for occu-

pations requiring at least an associate degree thanfor occupations requiring less training. However, thelargest volume of job creation will be in occupationsrequiring less formal education or training, eventhough many of these occupations are projected tohave below-average growth rates. There will also benumerous job openings resulting from the need toreplace workers who leave the labour force or moveto other occupations (Braddock, 1999; see alsoThomson, 2000). Note that BLS has just started witha Job Openings and Labour Turnover Survey (JOLTS) tomeasure labour market tightness and labour market(matching) efficiency but has not yet analysed theissue of labour shortages using JOLTS.

To quantify the need for workers in short supplyestimates of both the quantity and quality (i.e., theskill-level), of labour supply, also need to be made.The supply of labour for a specific occupation con-sists of first-time labour market entrants, unem-ployed people and people who move jobs, andsuitable people temporarily outside the labour mar-ket. The number of first-time entrants in any forecastperiod can be worked out by grossing up the num-ber of students leaving education in that periodand the number of people who have left education

just before the forecast period and did not gainemployment.

A complicating factor in making accurate prog-noses about labour supply is the link between edu-cation and employment. I t is impossible todetermine the supply of labour-market entrants onan occupation-specific level on the basis of theannual number of graduates. To begin with, it is not

accurate to determine specific levels of qualifica-tions from the various types of schools. Someschools deliver a standard qualification level but forother qualifications, notably those required for ICT-occupations, there are no fixed standards of refer-ence. Another difficulty in the forecasting of first-


14/25


education is greater than the supply, labour markettightness may result. However, a number of things

can obscure the resulting picture: Employers may react to abundant supply by

adjusting their recruitment criteria andemploy people who are overqualified (in aslack labour market) or underqualified (in atight labour market) for the job.14

Difficulties exist in translating the expectedemployment growth by sector in the develop-

ment of total employment at the occupationallevel and the future employment structure byqualification. A key of correspondence has tobe used, which inevitably results in someaggregation and hence, a loss of precision.

One example of a study of the labour marketprospects of graduates is the regular employmentprojections carried out by the Research Centre for

Education and the Labour Market (ROA), commis-sioned by the government of the Netherlands (ROA,2001a). The forecasts apply to a total of 207 occupa-tional groups and 104 different education typesacross the labour market. For these groups, thenumbers of people moving into the labour marketand separating from the labour market are forecastfor specific future time periods. The demand for

labour consists of the demand to replace departingworkers and the demand to realise business expan-sion. Labour demand for business expansion is esti-mated on the basis of short and medium termforecasts of the economy by the Netherlands Bureaufor Economic Policy Analysis (CPB). Labour demandis further distinguished by occupational group andby type of education. A systematic comparison withlabour demand by type of education results in asummary of the labour market perspectives for newentrants by type of education, and the future possi-ble recruitment difficulties by type of education.The value of the Indicator Future Labour market perspec-tives(ITA) indicates for which types of education afuture mismatch between supply and demand can

are expected to have in recruiting workers for thatspecific occupation.

Applying a similar methodology, the ROA hasassessed whether the higher education systems inthe EU Member States will provide sufficient num-bers of Science and Technology (S&T) graduates tomeet the demand for scientists and engineers (RSEs)up to 2002 (Marley et al.,2001). The report identifiesopportunities for international labour mobility tosolve the labour market bottlenecks. The forecasts

use four alternative scenarios and indicate consider-able shortages of RSEs in one or more fields ofstudy in all EU Member States except Belgium,Greece, Spain, Finland and the United Kingdom. Atthe same time, for the EU as a whole there is excesssupply in each of the four fields of study distin-guished, illustrating the importance of internationallabour mobility.

Comparable institutions can be found, forexample, in Australia, Canada and in the UnitedKingdom. The Australian Department of Employ-ment and Workplace Relations publishes the JobOutlook Report, a guide to the skills projected to bein demand in the future and highlights occupations

with good prospects. Job Outlook Online is an on-lineversion accessible to all interested job-seekers and

aspirant immigrants (DEWR, 2002). The AustralianJob Outlook publishes job prospects with a rating.Nearly 400 occupations are listed with an indicationof the career prospects (Good, Average, Limited)they offer to first-time labour market entrants. Theprognoses applied to the 2001-2006 period is veryaccessible and includes the National Skill ShortageList (see Annex II.2). There are two important differ-ences with the Dutch ROA study. First, the DEWRpays considerable attention to regional differencesin labour market tightness and draws up State skillshortage lists. Second, there is an explicit link withimmigration policy through:

The facilitating of immigration for people withkill th t f t th N ti l Sh t


15/25


migration intake and help regional employersto meet skill shortages where they cannot fill

skilled positions from the local labour market.On the other hand, it aims to assist indepen-dent skilled migrants by creating potentiallinks with employers and employment oppor-tunities in Australia (DIMA, 2002).

Human Resource Development Canada hasdeveloped the Overview of Outlooks by Occupation. TheOverview presents overall trends and average rat-ings related to current and future labour market con-ditions by skill level, the amount of education andtraining required to work in an occupation; andfinally, skill type and the broad industry category in

which occupations are concentrated. Like Australiaand the Netherlands, HRDC does not give numericestimates of labour surpluses or shortfalls but cate-gorises job prospects as Good, Fair or Limited.

The Outlooks, presented under the general headingJob Futures 2000, are primarily directed at job-seekersand those who have to make a choice about educa-tion. It provides an assessment of several economicindicators that people may want to take into account

when making education or career choices. Like theAustralian study, it emphasises the regional context.It presents a sample of occupations with favourable

outlooks over the next few years for Canada as well asfor each province (HRDC, 2002). However, there is noapparent link with the Canadian Governmentsyearly immigration plan (CIC, 2002).

The United Kingdom has made use of existinginfrastructure to improve its documentation on cur-rent and future labour market bottlenecks. The Insti-tute for Employment Studies (IER) carries outProjections of Occupations and Qualifications as a continua-tion of the Review of the Economy and Employment,

which has been in place for 20 years. The employ-ment projections (covering the years 1999-2010) aredone on multi-sectoral and regional levels andinclude 17 broad sectors and 79 occupational

The Austrian Institute for Economic Research,WIFO, has a very impressive record in this type of pro-

jection. It has carried out detailed projections aboutlabour demand and demographic changes in thelabour force since the 1960s (Biffl and Walterskirchen,2001). Austria carries out regular occupational job pros-pects and publishes quantitative estimates ofexpected shortfalls in labour supply on an occupation-specific level. Its occupational labour shortage lists forthe year 2002 are based on a combination of prog-noses with a microeconomic forecasting model andemployer surveys. The indication is a labour shortageof 17 600 persons in various professions, mainly ICT-professions, by 2002 (BMWA, 2001).

An example of a study that forecasts labourshortages on the basis of an analysis of the agestructures of different occupations and the expectednumber of retirements can be found in France. The

number of job-openings that will be available tofirst-time labour market entrants is estimated forthree educational levels. The study forecastsemployment growth based on replacement andexpansion demand for 23 sectors and 74 differentoccupations. Over the 2000-2005 period, the stan-dard scenario (global variation) forecasts the stron-gest employment growth for the very highlyqualified (16%). Mainly as a result of replacementdemand, the demand for the least qualified workers

will grow strongly as well (12.5%), labour demand forworkers with the intermediary-level skills will growby 9%. As the supply of highly qualified labour isestimated to grow by 10%, demand will exceed sup-ply by more than 2% in 2005 (T iopol , 2001aand 2001b; Duchamp and Amar, 2001). However,these estimates of the shortfall in labour supply do

not take account of the expected number of first-time labour entrants like the quoted Australian,Canadian and Dutch studies do. In theory, if theirnumbers are sufficiently high, there is no shortfall.

Conclusion


16/25


labour-marked rigidities) all vary markedly acrosscountries.

A number of specific studies were reviewed.Some of them underline current and future labourmarket needs and refer to the necessity to increaselabour migration in order to alleviate labour short-ages. Other studies do not mention at all this possi-bility. While substantial research has shown thatmigration alone could not alleviate the impact ofpopulation ageing, the question remains open as to

whether selective labour recruitment policies can

resolve current and future imbalances on OECDlabour markets.

Migration policies in several OECD countries tendto facilitate the recruitment of foreign workers, particu-larly the more skilled but there are limits to selectiveemployment-related immigration policies. Currentefforts to introduce a raft of measures to tap existinglabour reserves should therefore be encouraged andpursued. It is also important to improve the waypresent and future generations are prepared and

trained to meet the needs of the labour market.

NOTES

1. This Chapter is a shortened version of a document

prepared by Marco Doudeijns, Consultant to the OECDand presented to the Working Party on Migrationduring its meeting in June 2002 (OECD, 2002e).

2. The Beveridge curve is used to describe thetheoretical relation between unemployment andunfilled job vacancies for a specific occupation in asituation of labour market equilibrium.

3. However, the quoted surveys cover only constructionand industry.

4. See the OECD Science, Technology and Industry Scoreboard(OECD, 2001g) for an overview of the extent to whichinnovation, science, technology and economies arebecoming global; this study also reviews the newgrowth industries and occupations, and includesindicators of the international mobility of humancapital.

5. In 1998, 110 000 persons separated from the labourmarket because of invalidity and a further 35 000 took

early retirement (CPB, 2001b).6. However, because the obtained qualifications are as

yet unknown, students availability for the labourmarket can only be determined after they havefinished their studies.

7. These are often referred to as discouraged workers.

8 h t ti l L b S l O C W ki

2001f and 2002d). The analysis is based on analysis of

Labour Force Survey data.9. A vast body of research on the social and labour

market consequences of ageing has been producedwithin the OEC D. The implicat ions of populatio nageing for fiscal, economic and social policies havebeen analysed in depth (OECD, 1998). Recently, moreemphasis was given to the potential effects ofchanges in retirement ages (OECD, 2000).

10. Note that Germanys own calculations show even

more drastic declines than the latest UN projections(UN, 2001).

11. In 2000, net immigration amounted to 202 000, of which118 000 was net external migration (OECD, 2001d).

12. It has to be noted, however, that not every temporaryor permanent separation from the labour marketneeds to result in replacement demand for labour fora specific occupation. The employer may wish torespond to a decreasing employment trend throughnot replacing people who retire or leave their jobs forother reasons. Thus the increase in the incidence of(early) retirement need not have a one-on-onerelation with an increasing replacement demand.

13. See Takenouchi (2001) for an in-depth analysis of thisissue.

14. Using data for the Netherlands, Wieling and Borghansd ib h diff dj h


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125

OECD

2003

Annex II.1. Employer surveys of labour shortages (cont.)

Kind of body involvedin the study (employers,public body)

Scope(sectors, regions)

Period of time(forecast period;date of the survey)

Results(labour shortages, calls for or recommendationson immigration)

Comments(regularity, lacks, reliability)

Source

Statistical office All Sectors 3rd quarter 2001 Growing tighness in non-commercialservices and small businesses (general)

Quarterly vacancy survey CBS 2002

Norway Employers Association IT-sector 2001-2003 45 000 specialists lacking in total Norway School ofManagement , incidental

WITSA 2001

Labour MarketAdministration

Economy-wide 2001-2002 Labour shortage of 39 000 persons,asks for intentions to hire abroad

Regular survey, officialsmall-scale survey, possiblyoverestimates shortages

AETAT 2001

Sweden Statistics Office All sectors 2001 Difficulties dominate in education,health and IT sectors

Statistics Sweden 2001

United Kingdom Employer Associations IT sector Immediatefuture

51% of members believed thatthe Government was not effectively

reducing the skills shortages.

Survey methodology unclear liable to various biases

WITSA 2001; CSSA 2001

Ministry of Educationand Skills

All sectors 2001 20% of hard-to-fill vacancies in crafts Part of large-scale evaluation DFES 2001

United States Employer Organisations IT-sector 2000-2001 843 328 persons on annual basis Small sample telephonesurvey

ITAA 2000


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OECD

2003

Annex II.2. Projections of occupational labour demand in OECD countries (cont.)

Model Detail Projection period Outcomes Sources

United Kingdom 1. Projections of Occupationsand Qualifications economicmodel and surveys

17sectors, 79 occupations 2000-2010 The strongest job growth caused by expansiondemand will occur in professional services andto a lesser extent in distribution hotels andcatering.

DFES 2001b

2. Skill Shortage Lists Nation wide 1 year Exhaustive list of skill deficiencies and skillsdemand by employers

DFES 2001c

United States Bureau of Labor Statisticseconomic model

82 occupations, 24 sectors,53 education types on 5 levels

2 years Growing skills deficit especial ly in the IT sector Fullerton 1999a;Hecker 2001

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Shortage of Workforce and Immigration

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