Could restrictions on workers from new EU states be slowing Austrian economy?

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When the former communist countries of Central Europe joined the EU in May of 2004 one of Europe's main benefits was denied to them - the right to live and work in any other European Union country. Only a few countries allowed workers from the new member states free access to their labour market. Others, like Austria, feared a flood of cheap labour would take local jobs and so placed strict restrictions on the entry of workers. In Austria's case that meant workers from four countries, with which it shares a border, were shut out - the Czech Republic, Slovakia, Hungary and Slovenia - along with Poland. The pressure is now on for Austria to drop its labour market restrictions.

Austria's economy is growing at its best rate in nearly a decade. The unemployment rate has fallen and increasingly industry is complaining about the difficulty of finding skilled workers. The head of the industrial association recently described restrictions on labour movement from Austria's near neighbours as a home-made "brake on growth" that should be removed "as quickly as possible." But the Chamber of Labour is dead against it. It says there are still too many locals out of work and wants more and better training for Austrians. In any case Austria is required, under European Commission rules to lift the restrictions by 2009. Economist Peter Havlik from the Vienna based Institute for International Economics.

"It will now be very difficult for Austria to extend these restrictions after 2009 although there has been some discussion in Austria that they would like to extend this. But we will see. In fact the impact on Central and East European countries is not very positive in view of their own very tight labour market and shortage of workers in sectors like health care, education and even some skilled workers in the information technology sector."

Photo: European Commission
At the same time as Austria is blocking workers from its EU neighbours - it is making it difficult for immigration from non EU countries. According to Gustav Lebhart, from the government statistician, migrants from Germany last year outnumbered those from Turkey and the former Yugoslavia.

"The point is that immigration from German is on a very high level. One of the key explanations could be is that the economic situation in Germany is still not that good so that people feel themselves forced to come to Austria to work here."

But with the German economy now on an upswing that trend is unlikely to last. Peter Havlik believes that Austrian economic growth is being hurt by its insistence on restricting labour movement from the new EU members. And he points out that Austria is competing with other countries to attract the workers industry is asking for...

Photo: European Commission
"I would expect that these labour flows will continue however at the same time one has to say that Austria has not been the most attractive country for migration from central and eastern European countries - not only because of Austrian restrictions - but much more attractive places were countries like the United Kingdom, Ireland or perhaps even Spain and Italy."

It's still unclear when Austria will drop its restrictions on labour immigration from the new EU members. The Social Democrat lead government will be unwilling to go against its union supporters and the other party in the coalition, the Conservative People's Party, was responsible for the original restrictions. That makes any change unlikely until it is forced on Vienna by pressure from Brussels.