Europe's Gloomy Demography

When I blog about "labor mobility", I am likely confusing some readers and undermining whatever credibility I might enjoy. Labor can be highly mobile without relocating. Through education and retraining, people can expand job opportunity. Generically, labor mobility measures the ability of workers to move between different sectors of the economy in order to take advantage of the strong demand for certain skills. Sometimes, you must relocate in order to seize an emerging opportunity in the labor market. I'm interested in labor's ability to maximize location opportunity, which is part of the overall labor mobility story.

With that confession out of the way, I want to discuss a Foreign Policy blog post about Europe's migration problem, which includes some unwillingness to relocate within a region or country and fill a pressing demand for labor. Europe is in the midst of the perfect demographic storm:

The continent has a massive shortage of skilled workers across a range of sectors. The Financial Times reports that Merkel's Germany is considering opening up its labor market to foreigners, primarily due to an "exodus" of qualified workers that includes academics, medical professionals, engineers and corporate staff. Coupled with demographic pressures, including a seriously below-replacement population rate, Germany—which has traditionally favored protecting its labor market—has little choice but to consider welcoming immigrants into its workforce.

At the same time, eastern European countries are also beginning to face a chronic labor shortage. Wages in some sectors have risen by as much as 50 percent in the past year, and emigration from eastern Europe to western Europe has exacerbated the shortage. Even though Poland, for instance, has a high unemployment rate of 13 percent, companies are still unable to find sufficiently skilled workers to recruit, and many people who remain in eastern Europe are unwilling to move even within their country's borders to fill open positions.

The concern about brain drain, an aging population, and people too rooted to home should be familiar to readers of this blog. Labor's willingness and ability to relocate in search of better economic opportunity is straining Europe's overburdened infrastructure, which is increasingly consumed with supporting retirees. There is a problem of too much mobility, as well as too little.

The answer to all of these woes is increased immigration. But akin to the situation in the United States, there is substantial political opposition to this solution. Pittsburgh has a similar problem, though much less control over the immigration situation. Still, the issue is best understood in terms of inmigration (or lack thereof). Talent should take full advantage of locational choice. Given Europe's success in improving human capital, I'm not surprised they must open their borders.