Some financial aspects regarding migration. Romanian-Italian case

 

                                                                   
                                                                   Ilie Simon, PhD
                                                                  iliesmn@gmail.com
 
Abstract: The purpose of this paper is to analyse some financial aspects concerning migration, using the emigration of Romanians to Italy. According to my calculation, there are important Italian “savings” and net production gain following the immigration of about 1 million “ready made adult Romanians” to Italy.
However this phenomenon is linked with net production loss back in Romania. The main challenges confronting now the Romanian labour market refer to the shortage of labour force, the low level of the salaries, and the lack of a consistent and coherent strategy in this sector.
As conclusions, I make some suggestions conducive to more equitable relationships between Romania and Italy in this field.
 
Key words: “ready made adult people”, formation cost, value of man, labour market, “savings” and net production gain.
 
  1. The resources and shortages on the Romanian labour market
 
During the last 10 years, Romania has registered an average of 6% real economic growth of the GDP, being the European country with the most important growth. For the first semester of this year the GDP growth was 8.8%, and for the entire year the estimation is around 8-9%. However, Romania is confronted with a shortage of supply on the labour market, especially with trained and qualified workers, a serious challenge for the sustainability of this trend.
 
The first cause was linked with, what I call “Lambada effect”, starting in 1990. This effect has to do with the growth of population. Starting with 1990, the abortion was freed, and the most played song in Romania, at the beginning of that year, was Lambada. With a very small fertility rate in that year, and the trend has, somehow, continued till nowadays, the Romanian population has started to diminish. The diminished number of new born in 1991, and after, has reach the labour market, say at 16 years old, that means in 2007, when the shortage of labour supply was visible.
 
According to the data provided by Ernst&Young, in the following 10 years, at national level, the deficit of specialists will reach 15%. The expansionary sectors such as IT, constructions and financial services, will be confronted with even bigger labour deficits.
 
               
        Starting with 1991-1992, the Romanian population has decreased by almost 2 million people and continues to do so, due to a diminishing fertility rate, which is under the level of replacement rate, but also due to emigration. Consequently, the active population has a tendency to shrink. A study done by UNFPA reveals that the population of Romania in 2050 will diminished to 16 million people, out of which, more than half will be over 60 years old. At present, out of a total population of 21.6 million, 10.5 million are adults, 5 million are children and 6.1 million are senior citizens.
 
The second cause of labour force shortage is emigration, and I will focus, mainly on this aspect, mainly from the point of view of the receiving country, in our case Italy.
 
 
The process of integration of Romania in the European Union has allowed an easier transfer of the human capital. Moreover, the diversified offer, the higher wages and benefits have determined Romanians to apply for jobs abroad.
 
 
According to the data supplied by Neogen-BestJobs an important on-line recruiting company, a big part of the job offer abroad is for unskilled workers, and this type of work is better paid in other European countries than in Romania. Aside unskilled job offer, the biggest number of vacancies is in the “Software/Technology”, representing 20.3% from the total working places abroad, followed by engineering (15. 24%), construction (11.7%), tourism (10.6%), pluming and repairs (8.7%), restaurants (6.9%).
 
  1. “Ready made adult  people” for Italy
 
After 1990 the number of Romanians abroad increased by more than 3 million people, mostly on a temporary base. The majority of this outflow is a work migration, mainly composed of young people. Italy is the destination of a little bit more than 1million Romanians, “ready made adult people”.
Usually such phenomenon is analysed in media mostly on what is visible and disagreeable, and can be exploited in a wrong way fro the economic point of view, but favourable for politicians, which are struggling, on the political market in order to gain votes.
 
However, from an economic point of view, a legitimate question should be related to the problem of the cost and advantages of this “ready made labour force”, or human resources. In other words, how the human value can be computed, and how the gain and loss can be share in an equitable way between the origin (supply) country and receiver country.
 
During history, economists have tried to compute the money value of man, usually based on “cost-advantage “model. For instance, Pareto wrote a book in 1893 with the title:”Il costo d’ell uomo adulto”, and 3 years before the First World War, Alfred Barriol calculated for different countries, so called “social value of man “. For instance, in Italy this value was FF 11,000 (in France was FF 14,500, and in Great Britain was FF 20,700).
 
A very interesting approach to this problem was developed by Alfred Sauvy, who in 1975 compute a formation cost of FF 189,000 in France, for a child from his birth up to 18 years old, and 237,000FF up to 21 years old. However, in this figures are not included the education and health expenditures, and the no remunerated family care services.
 
For the recent years, very useful data, mainly for education and employment, in different countries, were gathered and analysed by OECD, and I will use mainly this data base.
 
The cost of formation is different from one country to another, and depends mainly of the degree of development and of the organisation of social system (relationships between family, society, State, customs, traditions, etc.).
 
In my attempt to estimate the financial advantages for Italy, following the Romanian immigration, I have used mainly the methodology developed by Alfred Sauvy, a notorious demographer but also as a very profound economist, applied to data from OECD, Romania, Italy, etc.
 
Italy, at the end of 2007, with a GDP of $ 1.786 trillion, (calculated at purchasing power parity) occupied the seventh place in the word from economic point of view, and the fourth place in EU, as GDP and population size.
 
The labour force is 24.71 million with an occupation rate of 94%.  Consequently, the unemployment rate is at its lowest level since 1981. According to OECD Employment Outlook 2008, the Italian standardised unemployment rate reached 6.1% at the end of the 2007.
 
The relative position of Italy in the OECD has improved considerably since 1998 (when the unemployment rate was 11.4%). The unemployment rate in Italy is about 1 percentage point below the EU-15 average and only half a percentage point above the OECD average. This shows, somehow, that the immigrants play a multiplier effect in the Italian economy, but this effect is not very well understood, especially by media and by politicians.
 
At the same time, Italy is confronted with a “depopulation” phenomenon, if I can call it so. Around 20 % of the total population of 58 million are 65 years and over, and the average age is 43 years (in France only 16% of the population is 65 years and over, and the average age is 39 years). With a fertility rate of only 1.3 child born/women, Italy is confronted with an important shortage on the labour market. Only 14% of the population are under the age of 14 years.
 
The estimates for 2008 show a birth rate of only 8.36/1,000 population and a death rate of 10.61/1,000 population, resulting a negative population growth rate. The fertility rate is only 1.3 children born/women, not enough to maintain the same level of the population.
 
According to my rough estimation, if this trend is to continue unabated, by 2050 the Italian population will diminish to about 46 million, out of which about 34% will be 65 years and over, and by 2100, it will drop to about 29 million. For comparison, In France, for instance, the fertility rate is almost 2 (1.98 children born/women).
 
In such a situation the immigrants could be a solution, conducive to a demographic equilibration. As a mater of fact, the net migration rate in Italy is 2.06 migrants/1,000 population. In absolute figure, at the end of 2006 the immigrants represented about 3 million people, or about 5% of the total population. During the last 10 years about 270,000 immigrants came to Italy, on average, every year, out of which Romanians contributed with around 50,000 persons per year, as an average.
 
This is an official figure, showing the total Romanians immigrants to Italy at 550,000 persons. However the unofficial data are closed to one million Romanians working and living in Italy. Taking advantage from EU membership, OECD data show that during 2007 the legally resident Romanian population was estimated to have risen by about 50%, to more than a half million.
According to the data for 2006, the immigration from surrounding European nations, particularly Eastern Europe is replacing North Africans as a major source of immigrants. The Romanians immigrants officially registered as working and living in Italy, represent about 1% of the total population, being in the firs place as ethnic group.
 Ethnic group in total Italian population (2006)

 % of total*  
Ethnic Italian
56,000,000
94.96%
550,000
0.93%
485,000
0.82%
348,000
0.60%
Asian (non-Chinese)
326,000
0.55%
287,503
0.49%
239,000
0.41%
210,000
0.36%
128,000
0.22%
107,000
0.18%
Other
257,000
0.43%
* Percentage of total population

 
Source: OECD data, 2006
 
3. The money cost of a man and the advantages for the receiving country
 
 
First of all I will consider the main costs that Italy has to bear in order to bring up a child from 0 to 20 years (education, health, cost of living, no remunerated family care services).
 
I will start with education, based on OECD data. In Italy, the education expenditures represent about 5% of GDP, which totalled $ 2.105 trillion (calculation based on the exchange rate) at the end of 2007. According to OECD data for Italy in 2005, for a 3 years old child, passing through pre-primary school, primary school, secondary school and upper secondary school, the cumulative expenditures on educational institutions per student, over the theoretical duration of this kind of education were about $120,000 per student. For tertiary education the expenditures are around $40,000 per student. In my analysis this cost will be neglected, although one can estimate that about 1,000 out of 100,000 immigrants have a higher education degree.
 
Concerning the health expenditure in Italy, they represented 8.5% of GDP in 2007, resulting about $ 3,400 public health spending per capita. Adding the private health spending we obtain an average figure of about $ 4,400 per capita, per year.
 
The average cost of living per person in Italy (housing, food, utilities, leisure, transport, insurance, clothing), is estimated at about $ 1,300 per month.  
 
Now I will  put together the above figures in order to find the cumulative cost of formation, starting from the birth of a child up to 20 years (some models take into consideration the age of 18 years and others take into consideration the age of 21 years), without tertiary education expenditures, and without no remunerated family care services. So, in order to bring up a child to the age of 20 years, the total cost to obtain a “ready made adult “in Italy is around $ 520,000.
 
Than, using a rule established by Alfred Sauvy, I will try to verify this figure.
According to this method the cost of formation, without any remuneration for care services supplied by the family, can be approximated at 5.5 years of national production per active person. I applied this rule to our case (Italy) as following:
 
-GDP in 2007 was $ 2.100 trillion
-active population was 23million
-GDP/active person was $ 91,000
-5.5 years x 96,000=$ 500,500
 
As the figures obtained, using the above two methods, are somehow similar,  the reasonable conclusion can be that, Italy should spend around $ 500,000, in order to “produce a ready made adult ”for the labour market.
Trying, also, to estimate the cost of no remunerated care services, Alfred Sauvy indicated a value of 1.5 years of national production per active person. Following this indication I obtained (7 years x 96,000) a total cost of $ 672,000 per person.
 
Now, if we consider only 500,000 “ready made” Romanians immigrants to Italy, for which Italy would have to spend only $ 500,000 (the cost to “produce” a human resource in Italy), the savings for the receiving country would be $ 250 billion, spread for a period of, lets say, 10 years, meaning $ 25 billion/year.
 
Moreover, only in 2007, these 500,000 Romanians immigrants produced (500,000 x 91,000) $ 45.5 billion, that means 2.17% of the Italian GDP. In a period of 10 years they produced in total almost a quarter of the Italian GDP. At the same time, due to the labour shortage in Romania, a production loss for Romania of about $ 9 billion (500,000 x 18,000) can be estimated for 2007, (having in mind a GDP of $ 166 billion and an active population of 9 million persons). This represents 5.4% of the Romanian GDP.
 
All in all, Italy has to import most of raw materials and more than 75% of energy requirement, and has some limits too concerning the budgetary expenditure. Before the adoption of euro, at about every 5 years lira was depreciated in order to support the economy. Once the euro was introduced in 1999, although Italy enjoyed low interest rates and low inflation rate, the economic growth averaged only 0.66% for the five years ending 2005. However, in 2006 the growth reached 1.9% and 1.7% in 2007. For 2008 the growth rate is estimated to be about 1.3% in 2008. However, the economic growth is less than in euro-zone.
 
Having to face a strong euro, a handicap for a debtor country, Italy was also forced to pursue a tight fiscal and budgetary policy over the last decade. In spite of these efforts the official debt has remained above 100% of the GDP (104% in 2007) compared with 60% as a rule for EU. Under present recessionary conditions, it will be difficult to bring the budget deficit down to a level that would allow a rapid decrease of the debt.
 
 
 As a conclusion, I consider that, trough the bilateral relation, or within the EU, some rules should be designed to share in an equitable way the profit resulted from the migration phenomenon. It is not fair that all the profit should be retained by the receiving country. Part of it should return to the origin country to support the sustainable development of that country.
 
 
                                          
Selective bibliography
 

ARMSTRONG, Michael,
Managementul Resurselor Umane, Editura Codecs, 2003
 
 
CHASTER, Graeme,
Living and working in Italy, Edited by Graeme Chasters, Third Edition, London, 2007
 
DESSLER, Gary,
Human Resources Management, Pearson Prentice Hall, 2005
 
 
HAIDMENT, Fred,
Human Resources 2006-2007 - Annual Editions, Then McGraw - Hill Companies, 2007
 
 
 
 
 
 
MITRICA, Mihai         
Un milion de romani s-au mutat in Italia, Evenimentul Zilei, 31 octombrie, 2005
 
 
 
 
SAUVY, Alfred
Cout et valeur de la vie humaine, Herman, Paris, 1977
 
OECD,
International Migration Outlook: 2008 Edition, OECD, 2008
 
 
 
 
 
World Travel and Tourism Council,
Impactul turismului şi călătoriilor asupra locurilor de muncă şi economie, 2006
 
World Travel and Tourism Council,
Progress and Priorities 07/08, 2007
 
World Travel and Tourism Council,
Breaking Barriers – Managing Growth, 2007