Very good sentences about Bulgaria, the EU, and the DDR

by on February 24, 2013 at 11:37 am in Current Affairs, Uncategorized | Permalink

 For years people complained about the absence of labour mobility in the EU. Now we have it, the flaw in the institutional infrastructure is obvious.

Young people are moving from the weak economies on the periphery to the comparatively stronger ones in the core, or out of an ever older EU altogether. This has the simple consequence that the deficit issues in the core are reduced, while those on the periphery only get worse as health and pension systems become ever less affordable.

That is from the excellent Edward Hugh, here is more.  Among other points, Hugh stresses just how much the “East German answer” involved extreme levels of labor mobility.  There is also an illuminating analysis of the problems facing Bulgaria:

According to the 2011 census, Bulgaria has lost no less than 582,000 people over the last ten years. In a country of 7.3 million inhabitants this is a big deal. Further, it has lost a total of 1.5 million of its population since 1985, a record in depopulation not just for the EU, but also by global standards. The country, which had a population of almost nine million in 1985, now has almost the same number of inhabitants as in 1945 after World war II. And, of course, the decline continues.

prior_approval February 24, 2013 at 12:04 pm

Well, this passage seems a bit odd, to be honest –

‘Meanwhile, more and more young people follow the lead of Gerard Depardieu and look for somewhere where there isn’t such a high fiscal burden, preferably where the elderly dependency ratio isn’t shooting up so fast.’

But where are the Bulgarians (and Romanians) going in 2014 when they have free movement in the EU? Well, if the BBC reporting is to be trusted, this is the answer -’[Migration Watch] said Germany and the Netherlands were “likely destinations” for Romanian and Bulgarian migrants because their youth unemployment rates were lower than other EU countries.’ http://www.bbc.co.uk/news/uk-21039087

So it would seem that Bulgarians are likely to go where the jobs are, and not care about a ‘high fiscal burden’ or ‘elderly dependency ratios.’

Which is exactly what happened in the East German case, actually.

Millian February 24, 2013 at 2:28 pm

Jobs and incomes – Bulgaria is poor, even more so than the East/West Germany situation.

It’s not clear to me that the promise of slightly-lower taxation on Latvian wages would make young people forego German taxation on German wages.

JVA February 27, 2013 at 6:15 am

From top Latvian newspaper a month ago – “using Bulgarian guest workers allowed us to increase our production by 10 million cans of fish last year”, said CEO of a [Latvian] fish processing company.

It also helps that management in Latvia is almost universally multilingual (with Russian as first or second language) and Bulgarian and Russian is somewhat mutually intelligible.

mw February 24, 2013 at 12:08 pm

Oh dear, I thought we were supposed to attribute Latvia’s “falling unemployment rate” to their austerity policies, and pretend the labor emigration thing didn’t exist?

Millian February 24, 2013 at 2:30 pm

Who ascribes “Latvia’s “falling unemployment rate” to their austerity policies”? The usual charge from Krugman and friends is that austerity causes low growth, and that nothing else has any impact on that mechanism (like the economic situation that caused austerity). Latvia disproves that, but it doesn’t mean that reducing G increases C+I+G, obviously.

Brett Champion February 24, 2013 at 12:10 pm

A European-wide pension system anyone?

The retiree-to-worker ratio would then be stable regardless of where the workers work.

Rahul February 24, 2013 at 12:21 pm

What’s the incentive for the not-so-old nations to jump into such a plan?

Millian February 24, 2013 at 2:32 pm

But it’s an utter category error to think of the EU as a partial USA. The ratio doesn’t matter as long as benefits levels are different in different countries – and a union-wide pension level would be either repugnant if low or unaffordable if high.

Ray Lopez February 24, 2013 at 12:14 pm

Albania is even worse, go here: http://www.indexmundi.com/g/g.aspx?c=al&v=21 Neat charts, notice how small countries ‘jump’ up or down during downturns, depending on whether people move out or go back home, though it might also be sampling error.

Emil February 24, 2013 at 1:26 pm

Kosovo is also worse (see figure 1 here http://siteresources.worldbank.org/INTKOSOVO/Resources/Migration_and_Economic_Development_in_Kosovo_WB_report.pdf) – although it is contested whether it should be counted as a country or not. It is also a shit-hole so not very surprising that people are moving away. (The same applies to Bulgaria, Albania and Romania – all destroyed by decades of communism).

affenkopf February 24, 2013 at 6:04 pm

I would blame Ottoman rule much more than communism.

Rahul February 24, 2013 at 12:29 pm

His outline of the problem is good; but his solutions funny. Which are the EU-nations he expects to step up and generously foot the bill for Latvia-Bulgaia’s pension shortfall?

Sounds like he is bitter about youth moving to better pastures. What’d he recommend: exit visas?

prior_approval February 24, 2013 at 12:36 pm

‘exit visas’

Hey, it worked in the old East Bloc – and it was a money maker for them to boot, at least when it was West Germany paying for ethnic Germans to leave the Bloc. (Personally, I know Germans who were bought out of Czechoslovakia, Romania, and the Soviet Union, though the only pre-Wall East German ‘refugee’ I worked with escaped over the border.)

maros February 24, 2013 at 12:47 pm

I am often surprised just how many educated people have no idea of how huge the wage disparities in EU really are. One can earn up to 10 times as much in Netherlands or Denmark than in Bulgaria or Romania, while doing the same job.

All post-communist european countries (with a notable exception of ex-Yugoslavians) have very low employee compensation / GDP ratio, e.g. Czechs have comparable wages to Turkey, despite being twice as rich. Feeling of being underpaid is as strong a driver for emigration as the absolute differences in wage levels.

Rahul February 24, 2013 at 1:12 pm

The ironic thing about EU is that both sets of nations seem to be complaining: The ones people are mass migrating from and the ones they flood to.

How’d these pesky labor mobility clauses pass in the first place? Did elite policy-makers on both sides really think patriotism would win over huge wage-differentials?

prior_approval February 24, 2013 at 1:43 pm

‘The normal thing about the EU is that its member nations seem to be complaining’ is a much more applicable statement, one that has been true since the founding of the EEC.

And that will likely apply until the EU no longer exists, and when the wars start again (in Europe, betting on war is a long term safe bet), people will remember the squabbling with a sad nostalgia.

Rahul February 24, 2013 at 1:51 pm

We’d rather have em’ bark than bite?

Millian February 24, 2013 at 2:42 pm

Yeah. Imagine if the Middle East were notable for Israeli and Jordanian pensioners complaining about the cost of bailing out Syria. A better world.

Mark Thorson February 24, 2013 at 6:39 pm

A fantasy world. Jordan is the overripe fruit ready to fall into Palestinian or Muslim Brotherhood hands.

http://www.ynetnews.com/articles/0,7340,L-4348453,00.html

Millian February 24, 2013 at 2:40 pm

“How’d these pesky labor mobility clauses pass in the first place?”

Free movement of labour was in the Treaty of Rome; I don’t think income differentials were so big among the Six. More recently, free movement was, of course, a political issue in countries like France, terrified of Polish plumbers. But awkwardly for Eurosceptics, as ever, people didn’t actually care so much to vote accordingly in national elections. As for the poorer EU member states, don’t put too much weight on “countries’ welfare” as opposed to that of their citizens, or overestimate the expected duration of foreign residency; most of the migrant workers I know from Poland or Lithuania hope to return home when their children are at school age.

Rahul February 24, 2013 at 2:54 pm

How does taxation work in the EU? Does the Polish plumber pay French taxes or Polish (neither is a valid choice only for Italians!)? What about social-security witholdings?

If he falls sick while in France does the Polish health net catch him or the French?

maros February 24, 2013 at 3:10 pm

As long as the plumber is an employee, he pays French taxes and French payroll taxes. In return, he can use French healthcare and French sick-leave benefits. When he retires, he will be entitled to French pension (as long as current norms remain) for the years worked in France. Incomes from France must be mentioned to Polish tax authorities when asked, but those incomes are never taxed again. However, they will have impact on the calculation of eligibility for Polish social benefits.

Things are more complex if the plumber is self-employed or owns a company, though.

Willitts February 24, 2013 at 1:06 pm

Building a wall around a country is easier than admitting your intergenerational transfer scheme is a monumental failure.

Andrew M February 24, 2013 at 1:21 pm

The same migrations occur within countries too, even within states. Look at what’s happening in Detroit: the young and able-bodied have left in search of jobs, and only the elderly and poor remain. Federal government transfers can help a bit, but ultimately the decline feeds on itself.

We see the same pattern across states: the population of West Virginia is lower today than it was in 1940, as people left to find jobs elsewhere. The American solution is to have a national Social Security system, so there will be no localized shortfalls. No doubt the European nations will come to a similar conclusion eventually.

Meanwhile, remittances are an increasingly important factor. Emigrant Bulgarians are sending back nearly €1bn a year to their families – not a huge amount, but at around 2.5% of Bulgarian GDP it certainly helps.

Peter O February 24, 2013 at 1:30 pm

Mobility as such I think is something good its causing a bid a problem though is arising when an other country of the same size is receiving the 500 000. What was a bid forgotten in the past is the waste of engergy which is caused by the new mobility. Meaning, now we have people who live in place and travel every day 1 hour or more by car or train in order to move and live closer to the area the work

genauer February 24, 2013 at 1:59 pm

First, I dont think there are any significant flaws in the EU and national laws and regulations with respect to this labor migration.

One significant thing, I learned first last year from Doug Sanders “Arrival City”, is that the remittances from those exiles are often very more important to stabilizes the social structure in their home lands, are larger than official transfers, and are not subject to local corrupt politicians.

For peoples movement, there is a nice site:
http://peoplemov.in/

European Union official transfers to and from countries
http://money-go-round.eu/Country.aspx?id=BG&year=2011&method=abs

private transfers:
http://data.worldbank.org/data-catalog/migration-and-remittances

Nick Rowe February 24, 2013 at 2:36 pm

Given high enough labour mobility, only land will pay taxes. Hmm. Maybe only landowners should have the vote? Everyone else votes with their feet.

Rahul February 24, 2013 at 2:56 pm

Are they allowed to then vote to not let the rest have the high mobility anymore?

IVV February 25, 2013 at 9:44 am

Manorialism FTW!

Although admittedly, I’ve entertained fantasies of becoming the lord of a manor.

Ray Lopez February 25, 2013 at 9:40 am

Henry George for president. He advocated a land tax. Ironically, in lots of US cities and counties only residents can vote, not absentee landlords, even though the latter might pay more than the former in huge property taxes. Taxation without representation–the best kind of government if you like big, fat, wasteful government.

genauer February 24, 2013 at 3:15 pm

@ prior_approval

Your “in Europe, betting on war is a long term safe bet” is the wishful thinking of people, who think, they can drive a wedge into this continent.

We had to buy out our German brothers and sisters, like chattel, up to 100 000 a piece, from countries like Romania, from areas like Siebenbürgen, where they had settled since 1250 AD. What we also bought, was long term, strategic peace. Nowadays all those Balkans can squabble with each other, it does not involve my fatherland.

When they came, their dialect was about half way between the older dialect of the Amish (US) and the modern suebian dialect, but they adapted quickly.

Anja and Sita Eckstein, other names I forgot,

intelligent, very hard working, diligent, and foremost a very good character, studying medicine or STEM, running clinics today.

The one thing I regret is not having been fast enough to marry one of them : – )

When I look today at my eastern neighbors, Nordics, Baltics, Poland, Czech, I am real happy, they flourish, on their own merits, and not because they got pampered, like Greece.
Their financial score cards are excellent.

LOL, and since Nick Rowe just showed up,

Agricultural Land in (Eastern) Germany actually goes nowadays at a premium of about 30 % to Iowa prime land, and I believe Poland will get close in about 10 years.

A link to a recent discussion at WCI
http://worthwhile.typepad.com/worthwhile_canadian_initi/2013/02/why-is-inflation-finally-falling.html?cid=6a00d83451688169e2017ee88804f6970d#comment-6a00d83451688169e2017ee88804f6970d

What stroke me there, that even conservative Germans (like me) care a lot more about those at the bottom, and not just the “middle class”. And we know that it does cost us in a larger Europe.

AT February 24, 2013 at 4:12 pm

“We had to buy out our German brothers and sisters, like chattel, up to 100 000 a piece, from countries like Romania, from areas like Siebenbürgen, where they had settled since 1250 AD”
On average about 10 000 DM. Some still come back on vacation, a small few have businesses here in Siebenbürgen (Transylvania). I hear from a German friend that some of the older folk, who now reside in Germany, do not even want to speak about it, the offense is forever.
Many, if not most, Romanians, regret it. It was done by a monstrous authoritarian regime, feudal like in its backwardness.

genauer February 24, 2013 at 5:15 pm

No problem at all here.

My “up to 100″ and your “average 10″ are not contradictions.

I can’t make undone what happened 1933-45, and you are not responsible for what Ceauscescu did.

We have to break those vicious Tit-for-tat cycles.

I see those home comers also as an opportunity, people bringing money into Romania.

I remember, that a russian prisoner of war, working on the farm of some of my relatives, visiting around 1990 (before or after, actually a question I have to check on)

Human behaviour to each other is the most important thing.

In this week a Czech representative was in the Bavarian parliament, holding a speech, the Sudeten, the nowadays 7th tribe of Bavaria, applauded to.

I was actually encouraged today by a statement of the represenative of the Sinti and Roma in Germany (sorry, in German, try google translate)

http://www.faz.net/aktuell/politik/inland/armutseinwanderung-von-roma-deutschland-muss-viel-mehr-druck-ausueben-12092026.html

We know, there are problems, we will have many thousands more on our social payrole, they are not going awy by some magic fiat Merkel, but I see a common will

john haskell February 24, 2013 at 10:07 pm

Subsidies under the CAP are higher than subsidies to American farmers so it’s perfectly logical that land in former E Germany should be more expensive than (more fertile) land in Iowa. Land in Switzerland and Norway is even more expensive than land anywhere in the EU, and it’s not because of soil fertility.

genauer February 25, 2013 at 4:43 am

I think wheat fertility was actually higher, but maybe they averaged Iowa with Florida. I think it is best you google your favourite crop by yourself.

Norway, with their butter price at 6 times German prices, Common Market, LOL.

My understanding is, that the present talks about a new trade agreement between the US and the EU are in fact akind of “lets us both cut our farmers, and then say: sorry, we have to do this, international treaty”. I am for it.

Rahul February 25, 2013 at 1:04 pm

Is there a lively butter smuggling mafia?

genauer February 24, 2013 at 3:30 pm

@ Nick,

I could actually offer you some land in Germany, I just called the family office. Good price. But you will not get any voting rights : – ) Those is not for sale in Germany, you would have to take residence and pledge allegiance to the fatherland. One time a life is sufficient here around, we hold people accountable to that one time : – )

genauer February 24, 2013 at 5:32 pm

I want to applaud Tyler Cowen here,

to bring this very important discussion at fistful into circulation.

And, Nick, I know, that I have a talent, to get on your nerves. I am working on it.
But sometimes, like here, it just comes so easy : – )

Rahul February 24, 2013 at 10:33 pm

As a German what do you feel about the economic trajectory of East Germany post-integration. If something did go wrong what was it?

genauer February 25, 2013 at 5:06 am

I think the productivity did not come up as much as expected. It is still around 80% of the West.
Could we have known this better? I doubt it somewhat.
And the Unions should have accepted wage moderation / differentiation some 3 years earlier.

Otherwise, I have no good ideas. We discussed that many times, it was very expensive, and it is of course also relevant for discussion, how to get new EU members up, as quick as possible.

There was one BIG difference. They were Germans, entitled to passport, to move West and get the exact same social minimum. Within the first 6 months 1 million, or 6% of their population did move. The whole organizational structure was crumbling. Hospitals stopped functioning, because the doctors disappeared.

And closing the border from the west was of course completely impossible.

We also knew, that we do not have much time, how many days before the Sovietunion disposes Gorbatchov. We know now also, that some of our lovely Western Allies actually tried to throw a wrench into the process.

We needed to get in the private and public sectors west folks moving to the east, to get this functioning, demanding of course western wages. And you can not for long pay people substantially different wages, dependent on where they were born.

Given all the restrictions, I do not see much beyond what I said on top, what could have been done different. Productivity is at 80%, the gap is closing very slowly, ca 0.5 – 1% per year.

Rahul February 25, 2013 at 5:57 am

That’s a good summary, thanks!

I think absolute equality of East and West metrics is too high a standard to judge reunification by. The better question is: How’s the East doing relative to a projected time-series of pre-unification metrics (health, crime, employment, education etc.) had reunification never happened.

I personally don’t know the answer (other than they are doing mighty well on a “freedom” metric.) But I’d love to know what the data says.

genauer February 25, 2013 at 7:16 am

I have a statistics book from 1989 here:
life expectancy in the DDR was about 3 years lower (69 m, 75 f) vs west 75 avg.
No wonder, they consumed a lot of lignite (brown coal with a lot of sulfur), and they couldnt buy the filters. Crime was allegedly 3x lower, people are still squabbling about how much they fudged the numbers. They had full employment, even had some folks from Cuba and Vietnam here. If you are inefficient you need every hand.

education was pretty similar, just the names a little different Western Gymnasium vs POS.

The 20% difference are pretty similar to variation in the West:
GDP Data from 1998 !
leftie Saarland 37.29
conservative Bavaria 46.1
eastern Saxony 19.44

One final remark:
I was born and raised in Western Germany, lived for a number of years in New York, and now 10 years here in Eastern Germany, Dresden, because I prefer that. Better quality of life.

I looked again at some of the horror description of Hugh and those New York Times guys. It is this typical from the distance and without local knowledge writing.

Before reunification eastern Germans married very early, ca 22, and got kids. Because marriage entitled them to their own housing, and credit, and that was struck down with each kid. After Reunification, they stopped that, and looked, how things develop. Now they get the kids at nearly the same age as in the West, 32, and I think even at a little higher rate. There is Zero drama, we are building kindergardens.
Unemployment is down to 10%

IVV February 25, 2013 at 9:58 am

Dresden is an incredible city, and one of the places I would welcome a chance at living in.

IVV February 25, 2013 at 9:57 am

My wife is from Saxony. We’ve watched the ebb and flow of economic success throughout eastern Germany in our time together. In the Saxon countryside, people have been leaving in droves. It’s kind of strange, because my wife and I realize that we could totally afford an old villa in a bath town in Saxony, no problem, because there is little housing demand anymore. But then you realize that there is little to recommend the area, and what remains continues to dwindle.

But then there are the Saxon cities, especially Leipzig and Dresden. We’ve watched the prosperity grow in Dresden and renovation to the run-down (and, earlier, bombed-out) periphery and center of the city propagate. We watched the Frauenkirche be rebuilt. There is still hope here, growth, development. And property is expensive in Dresden.

prior_approval February 25, 2013 at 11:41 am

I’ll just reply here, speaking as an American who has lived in Germany for 20 years.

‘Your “in Europe, betting on war is a long term safe bet” is the wishful thinking of people, who think, they can drive a wedge into this continent.’

The history of Europe is blood drenched, and the EU is an attempt to create another model. How pointing out that Europe almost destroyed itself, and turned to the solution which the EU represents is a ‘wedge’ is beyond me.

And I mean that seriously – the founders of the EU were utterly explicit in their belief that only the EU could prevent final destruction. The EU will break down at some point, as do all human institutions, and the reason it breaks down will likely be intricately related to war.

Max February 25, 2013 at 2:02 pm

What about Hungary? Bulgaria is one country that has negative population growth, but Hungary had to live with it a far longer time. Real Wages are lower than in neighbouring Austria and taxes are significantly higher (up to 50% of the low income). And what about Rumania? There is a lot of outsourcing going on to Rumania, and yet population levels are stagnant or falling:

Max February 25, 2013 at 2:04 pm
genauer February 25, 2013 at 2:46 pm

prior_approval,

I know my European history very well.

But:
- we all get rapidly older, and it is usual the young males itching for a fight
- There are no open accounts to settle in central Europe, unlike 1914 and 1939, no border disputes
. People can learn from history, Germany is extremely careful to be not drawn into any conflicts without explicit UN coverage, making France, UK, US somewhat furious, who would like to see more activity : – )
- We enjoy our encirclement by safe NATO allies and civilized EU states

bob February 26, 2013 at 1:22 pm

This problem is so well known, you can even find it implemented in boardgames: With freedom of movement comes increased geographical inequality, but great opportunities for people. This creates huge challenges for governments, since we are politically organized by geography. You can even find the same mechanisms applying at smaller scales, like in Detroit.

The only ways to avoid this from happening is to either change our governance structures dramatically, or to minimize the advantages of moving. For instance, migration is a much smaller problem when a large amount of desirable jobs can be done from anywhere in the world. Not something that will ever happen to plumbers or electricians.

ohwilleke February 26, 2013 at 5:22 pm

There is lots of precedent for this kind of migration. The United States, Canada, Argentina and Australia have all had episodes when they experienced it. The countries of emigration in Europe, that were economically depressed at the time, saw significant declines in population as a result.

ohwilleke February 26, 2013 at 5:26 pm

A quote from the link in my previous post:

“On average, 5 percent of the populations of Britain, Ireland, and Norway emigrated every decade between 1850 and 1910, which increased to 14 percent of the Irish population emigrating between 1890 and 1910. By the turn of the century, Italy, Portugal, and Spain recorded similar emigration levels… The Swedish population fell by 44 percent in the twenty-year period from 1871-1890.

Massive immigration dramatically impacted the economies of countries in the New World, which had relatively small populations. Between 1880 and 1910, Argentina received the equivalent of 20 percent of its population per decade; the United States between 5 and 10 percent per decade; and Canada between 5 and 15 percent per decade. Immigration in this age of mass migration accounted for around 50 percent of Argentina’s population increase, and about a 30 percent increase for the United States and Australia.”

Quoting: Goldin, C, “The Political Economy of Immigration Restriction in the United States, 1890 to 1921.” In The Regulated Economy: A Historical Approach to Political Economy, ed. C. Goldin and G.D. Libecap, 223-258. Chicago: University of Chicago Press.

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