Headlines 2016

Report on the economics of immigration


In the picture from left Olof Åslund, Director General at IFAU, Professor Lars Calmfors, IFN, Irene Wennemo, State Secretary in the Ministry of Employment, and Anna Rehnvall, moderator, Fores.

Andreas Bergh, IFN, and Lund University, has on behalf of the think tank Fores written the report Hela staden – varför vinner vi inte (mer) på invandringen? (The entire town - why don’t we gain (more) from the immigration?). The report was presented at a seminar on Wednesday. Bergh explained that the major stumbling blocks for immigrants to enter the labor market is inflexible job market institutions (collective agreement between trade unions and employers, as well as high minimum wages) and that Sweden, so far, has advocated  integration above ethnic enclaves such as Chinatown in New York.

Andreas Bergh writes in the introduction to the report that his goal is to answer "what factors that determine the extent to which immigration is an economic success”. At the seminar Bergh set the stage by stating that if low-skilled workers are paid lower wages companies get lower costs. This in turn, in a competitive market, is reflected in lower prices for consumers. He questioned if we should only invest in education to combat racism and segregation. The answer, according to Bergh, is that we should invest in education as well as in reforming the labor market. Thereby more foreign born will enter the Swedish labor market and thus be able to support themselves.

"Education initiatives are however in no way opposed to a more efficient labor market, and it is unfortunate that these strategies are often pitched against each other in the public debate. Education can be seen as an investment in human capital, and works best for younger newcomers and immigrants in the second generation. It is much more difficult to economically justify the investment in education required to lift the newcomers arriving at 40-50 years of age, or more, and who have only primary school or less education background."

2016-08-24 Bergh2.jpg 
Andreas Bergh, presented his report on the economics of immigration at the think tank Fores.

In the report Andreas Bergh asks the question whether it is possible to create “a more diverse and more normal Sweden”. With more diverse he refers to ethnic enclaves where immigrants can live and work locally without learning the official language of the country.

"The predominant message from comparative research of what happens to immigrants in rich countries is that politicians are facing a difficult tradeoff: To reduce the social gap between native-born and foreign-born, Sweden must allow more low-skilled jobs with relatively lower wages, which probably also will mean that the income distribution increases. Is this a feasible and desirable way? The strategy is at times described as radical and politically difficult to implement. It could also be described as a normalization of Sweden."

In the report Bergh presents a series of proposals for discussion. He mentions higher VAT and property taxes and at the same time lowering taxes on labor. He suggests that it should be easier to pay tax and, at the same time, that the limit when a person, for example, need to pay employer contributions (currently SEK 10 000) should be raised. Bergh believes that today's generous unemployment benefits should be transformed into a transition insurance: "If, in the theory, the compensation give individuals better economic opportunities to move where there are jobs, at the same time it reduces the incentives to do so."

"Evidence suggest that it would encourage groups with weak links to the labor market if we could counteract the two-tier labor market, where almost all need for flexibility and customization is done with the help of temporary contracts and temporary jobs. One way to do this is to replace the priority rules of the employment Protection Act (LAS) with general rules of notice or severance pay."

F-tax (registered for corporate taxation) instead of introduction benefit (etableringsersättning), is a proposal that Andreas Bergh puts forward in the report. He explains that much of the process, for immigrants to establish themselves in the Swedish society, still consists of public assistance that is poorly coordinated. "If the focus is work, why don’t we make sure that the newcomer quickly can acquire a Social Security number, bank account and an F-tax certificate?"

Irene Wennemo, State Secretary in the Ministry of Employment, was critical to Andreas Bergh's description of the collective agreement between trade unions and employers as a stumbling block in the labor market. She stated that either you have a collective agreement or the more rigid solution in the form of a minimum wage law.

Professor Lars Calmfors, IFN, said that the report is interesting, but that "it is lacking the connection to for example entry-level jobs." Calmfors raised the question why these kinds of subsidies are utilized to only a limited degree. He suggested himself a few explanations: a complicated administration and that employers are not aware of the existence of such support.

Irene Wennemo argued that it is wrong to reason that newcomers can’t work until they have learned Swedish: “You must be able to start working earlier. Even though it might not be the ideal job, it is a first step into the labor market.

“Refugees should start learning Swedish already before they are granted asylum, said Lars Calmfors who also likes to see an economic incentive for newcomers to undergo entire language training. He also pleaded for lower starting salaries and jobs with simpler tasks, such as help at construction sites.

Text: Elisabeth Precht

Read the report (in Swedish)

Research Institute of Industrial Economics, Grevgatan 34 - 2 fl, Box 55665, SE-102 15 Stockholm, Sweden | Phone: +46-(0)8-665 45 00 | info@ifn.se