Is emigration still profitable? [CINKCIARZ.PL ANALYSIS]

Apr 18, 2016 10:04 AM|

After Poland's access to the European Union, we had a mass emigration of Poles, mainly to Ireland and the United Kingdom. In the past few years this trend, as well as the number of Poles in other countries in the European Union, decreased. Is this a sign that moving abroad is becoming less profitable? A comment from Marcin Lipka, analyst.

Marcin Lipka, główny analityk

According to the data from the Polish Central Statistical Office (GUS), the amount of emigrants in 2002 was 786 thousand people, and 461 thousand out of this amount left for European countries. Germany was the main destination before the European Union expanded in 2004. At that time, approximately 300 thousand Poles lived there. When Poland became a member of the EU, the amount of Poles living abroad increased rapidly, and by the end of 2007 it had expanded to 2.27 million people.

The migration situation had stabilized over the past few years. Since 2007, the amount of Poles staying abroad remained within the range of 2-2.3 million. The majority of these people live in the United Kingdom, Germany and Ireland (according to the GUS data it is 685k, 614k and 113k, respectively). Apart from the knowledge regarding the general amount of emigrants, we can see how their preferences regarding of the country of their destination had changed. Since 2007 the amount of Poles living in Ireland decreased by almost half. Can we come to a conclusion that emigration is no longer profitable?

Median equivalised disposable household income

Comparing salaries in particular countries and their actual purchasing power is a quite difficult task. The countries differ when it comes to tax rates, the scale of social transfers, and the level of prices of goods and services. Thus, gathering all of these elements together and coming to a credible conclusions is quite difficult and contains a significant risk of error. For example, there is data from the Eurostat and OECD to help. Both of these organizations use the “median equivalised disposable household income” (MEDD) in order to compare the global living standards.

The tool presents the median income (one half of the society is below this level, and the other half is above it – author's footnote) which is achieved by each household member. The measure includes taxes, mandatory contributions (e.g. health, pension), and social transfers. MEDD also attributes different weights to adults and children, in order to reflect the purchasing power of a statistical household more accurately.

MEDD can be expressed nominally, which means it can simply be interpreted in a given currency or in a real way. This gives the ability to equalize the data regarding costs of goods and services in particular country. In the European Union, the Eurostat uses the PPS measure (purchasing power standard). This includes the differences between prices and currency exchange rates in particular countries. To simplify, if a German earns a net of one thousand euro, and a Pole receives a net of two thousand zloty, the financial living standard in both of these countries should be the same, considering that the euro exchange rate is at the level of 4 PLN, and prices in Germany are twice as high. This example can be also presented in a different way – Germans and Poles both earn one thousand euro of PPS each.

Clearly smaller differences

When emigration accelerated strongly in 2005, the nominal MEDD in Poland was 2533 euro per year, per person. In Germany it was less than 16.4 thousand euro, in the United Kingdom 17.5 thousand euro, and in Ireland approximately 18.8 thousand euro. Thus, the difference between Poland and Poles main destinations of emigration was enormous.

Income differences were still an issue over ten years ago, when it was expressed in the average euro PPS unit, calculated for the entire European Union. The real net income per member of a family was 4750 euro in Poland, 15.6 thousand euro in Germany, 14.4 thousand euro in the United Kingdom, and in Ireland it was 15 thousand euro. Thus, the purchasing power of citizens from the “old” EU was still approximately three times higher than the purchasing power of Poles. It can be clearly said that at that time, the economic motivation to emigrate was indisputable. Moreover, we need to consider that the unemployment in Poland at that time was at approximately 20%.

However, it is worth noticing that over the last decade, a very big leap (at least in comparison to Europe's wealthier countries) in salaries occurred in Poland. In 2014, the nominal net income per one member of a household was 5.3 thousand euro. This is more than twice as much as it was ten years before. At the same time, Germany experienced a 20% increase, the United Kingdom a 10% increase, and Ireland experienced a 4% increase.

The difference in purchasing power between Poles and citizens of the “old” European Union has also decreased significantly. In 2014, the net income per person expressed in euro PPS, was 9.560 for Poles, 16 thousand for the Irish, 17 thousand for the British, and 19.2 thousand for Germans. Of course, a difference remained, but it is less dramatic, as it was 10 years ago. It is especially seen in the case of Ireland or the United Kingdom. In these countries in 2004, the real disposable income was three-times higher, and now it is higher by approximately 70-80%.

Economic emigration became doubtful

Previously we presented comparisons concerning incomes of the total for the given country's citizens. However, it should not be surprising that in most of the cases, the average salary of an emigrant is lower than salary of the native.

According to the study, “Transfers in respect of Poles working abroad in the light of studies of the Polish National Bank,” prepared in 2012 by Iza Chmielewska from the NBP Economic Institute, Poles who worked in Germany for more than 3 years earned an average salary worth 1810 euro. Meanwhile, the average wage in Germany at that time was approximately 3.4 thousand euro. According to the NBP studies, the situation is similar when it comes to other countries.

Statistically, this fact makes an economic emigration much less attractive. The NBP emphasized that, “wages of people who were active in the labor market before Poland's access to the European Union, are similar to the average level of wages in the German economy.”

As a result, if we combine the NBP estimations with the Eurostat data expressed in PPS, we will see that currently emigrating for financial reasons is not profitable. Of course, just as any other salaries related analysis, this one uses generalizations in comparisons to the average or median. Thus, it may be significantly inconsistent with an individual situation of a particular emigrant. However, the group data shows that the actual difference is small enough to say that mass departures in order to improve one’s material situation, will probably not repeat.

Apr 18, 2016 10:04 AM|

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