As the European labour markets face labour and skill shortages, two policy strategies are most often discussed as solutions: automation and in-migration of skilled workers. The idea is to reduce the need for workers by delegating tasks to “robots” on one side, and on the other side to expand the labour pool by recruiting workers from abroad. Research has confirmed that both these strategies can indeed alleviate skill shortage to some degree – however, their effects are limited and can be short-lived, as we outline below. Moreover, strategies which rely too much on simple assumptions of cause and effect can be counter-productive.
The EU-funded FutuRes project is currently developing economic models which evaluate more diverse policy pathways. Such a pathway we present below. But first, let’s outline the problems with simple assumptions of cause and effect when it comes to skilled migration and automation.
Research has comprehensively found that migration enables a short-term reprieve for skill specific labour shortages but isn’t a long-term solution to the pressure of demographic ageing (“Migrants also age”). Additionally, labour market improvements through in-migration are often caused by very short-lived migration patterns. This was seen with Ukrainian migrants in Poland: after first moving to Poland in 2022, a considerable number have returned to Ukraine or moved on to other EU countries, especially Germany. To build policy upon such short-lived and unpredictable trends would certainly be ineffective.
Automation, meanwhile, could be a problem-solver in the far future, but can be ruled out as a short-term fix for labour and skill shortages. Automation technology is insufficient in terms of the availability and cost: for many sectors such as care, the human factor will make workers preferable. In other cases, such as for high-skill jobs, automation may not ever be feasible or economical (”Robots will not ’take our jobs‘ anytime soon”).
Most importantly, we find that the effects of automation and in-migration tend to cancel each other out. Why is that? Job automation poses a small threat to wages. It will likely decrease the workers’ wage bargaining power, and put downward wage pressure of the workers in the relevant sectors of the economy. If such wage reductions occur in a traditional migration destination country, it reduces the wage premium - the financial gain a skilled worker would get from migrating. The wage premium is a significant driver of immigration. If foreign workers can no longer expect a better wage, they have fewer incentives to migrate.
Ways towards labour market resilience
Governments that wish to support labour market resilience in the long term will need to invest in more diverse policy pathways. For this, updated economic models are needed, which can project the effects of automation and migration on labour markets. To give useful analysis, such models need to account for the diversity of European economies and social systems. Additionally, if models are to be able to properly evaluate policy, they must simulate government actions, such as financial investment (e.g. grants and subsidies) or policies (e.g. free/subsidised childcare).
In FutuRes, we are developing just such a model. It simulates two national economies, which we have populated with households, perfectly competitive firms, and importantly, a fiscal authority. The model-economies are created based on the calibrated national economies of Germany and Poland. Basing our model on these two contrasting European economies allows us to simulate certain policies and their effect on economic resilience. Our model delivers useful foresight on the effects and trade-offs of different policies and interventions in time horizons between 5 to 10 years. A more detailed explanation of the model and its foresight capacities is provided in this research report.
The implications for EU policy are as follows: High levels of automation can be a method for advancing the economy. But for some Central or Eastern European countries, or any European country with relatively low levels of job automation, investment in these technologies can be seen as expensive and risks leaving some people behind. Ultimately, investment in these technologies will be necessary, but in the short term, it can be politically challenging for governments, despite the need to recognise and appreciate the need to achieve long-run sustainability and viability of the economy.
Policy recommendation: attract workers in a targeted way
The best policy option for European governments, rather than to rely on separated policies for stimulating migration and technological change, is to create a multidimensional policy strategy focused on attracting workers to those labour market sectors which are experiencing the most acute shortages. In these strategies, workers can be recruited both domestically and from abroad. Such strategies have to be designed to be resilient to change. Economic models offer the necessary data, provided that the models are updated to account for unexpected shocks and the diverse realities of our time. Such a policy strategy would also include migration and technological change to a certain degree, but not overly rely on them – many other areas would need to be involved, such as education.
Another reasonable policy option is to focus on increasing the labour market participation rate, especially for working-age people. For this, one option is to increase the minimum wage. This would raise the employment of the lowest skilled workers, who currently have the highest non-participation rate across all skill groups. There is a risk, though, of creating an imbalance with jobs that require some post-secondary education or training, such as craftspeople, tradespeople or social care workers.
Flexible hours or a decrease in hours is a promising way of making labour markets more attractive. Of course the often-proposed shift to a four-day working week will not work for every sector. But other models can be found, also to profit from the effect of increased productivity because of workers being more rested. Another important dimension would be to address the still-prevalent gender gaps in labour force participation, by allowing greater flexibility of working across different stages of the life course.
For a deeper foresight into the effects of skill-migration and automation on European labour markets, we recommend to explore the FutuRes research report below.
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