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161 Working Paper

Mobility of Labor and Services across the Baltic Sea after EU Enlargement: Trends and Consequences

2008 Jon Erik Dølvik


The enlargement of the EU/EEA area on 1 May 2004 to comprise 28 countries – including eight Central and Eastern European countries, in 2007 followed by Bulgaria and Romania – was a milestone. The subsequent opening of the markets for labor and services between countries with gaps in wages and living conditions comparable to those along the U.S./Mexican border has no modern precedent, prompting new patterns of competition, migration and adjustment in national labor market regimes. This paper reviews developments in labor migration after enlargement and the implications for the labor markets in the Baltic states and Poland, which have accounted for a predominant share of the intra-EU/EEA migration flows since 2004. Besides the UK and Ireland, where almost one million EU8 citizens had registered in 2007, the booming Nordic economies have become important destinations, having granted more than 250,000 permits and seen sizeable additional flows of service providers and self-employed from the Baltic states and Poland. In the sending countries, rising demand for labor has, alongside strong outmigration – especially among young and well-educated groups – engendered falling unemployment, soaring wage growth, and made shortages of skills and labor an obstacle to further economic recovery. Yet, while better paid temporary work abroad may weaken the incentives for employment, mobility and training in the home country, aging will lead to shrinking working-age populations in the coming years. Unless the Baltic states and Poland can entice a larger share of the population to work in their home countries – and/or can attract substantial labor migration from third countries – the declining work force may easily entail economic stagnation and reinforce the outflow of human resources. These countries are thereby facing a critical juncture in their economic and social development. In the recipient Nordic countries, the growing labor and service mobility, low cost production, and competition for labor in Europe, as well as emerging lines of division in the labor markets, have, on the other hand, raised new questions as to how the principles of free movement and the egalitarian Nordic models can be made reconcilable in the open European markets.