Highly qualified young people in the EU member states, especially in the south and east of the Union, are arguably the biggest beneficiaries of the freedom of movement principle. Still, as former ECB president Mario Draghi said recently, Europe faces a “slow agony” of decline in the medium and longer term unless it addresses its structural weaknesses.
Managing the status quo is not good enough. It is the strategy adopted by most European political leaders who seem impotent in a quickly changing geopolitical environment.
Young, qualified doctors, engineers, scientists and researchers are taking advantage of freedom of movement rules within the EU to move to the wealthier member states, thereby creating a brain drain that the media and politicians rarely highlight.
The media and politicians’ attention seems to focus on a much smaller migratory inflow of irregular migration from North Africa. Some economists focus intensely on the positive aspects of internal migration, including growth thanks to returning migrants, the exchange of ideas and international trade, remittances, and the incentive to invest in human capital in the country of origin.
However, as argued by Massimo Anelli, a Bocconi University researcher, if those who emigrate are among the brightest in the workforce, or are particularly entrepreneurs, emigration could reduce a country’s growth potential and depress employment.
Italy, Portugal, Greece, the Baltic states and Hungary, among others, are the countries most at risk of the negative consequences of a brain drain of talent. In Hungary, workers earn an average of €13 per hour compared to €41 earned on average by Austrian workers. So, the number of Hungarians living in Austria has increased to over 100,000 by the beginning of 2024, from just 14,000 when Hungary joined the EU in 2004.
Given that people often emigrate in response to unfavourable economic conditions, in some countries there are fewer new innovative businesses and less high-quality job creation. This is frequently the cause of an emigration mindset adopted by ambitious young people in the less wealthy member states who seek to emigrate once they graduate.
The media and politicians’ attention seems to focus on a much smaller migratory inflow of irregular migration from North Africa
Highly skilled workers may emigrate for various reasons, including push factors in their home countries such as structural youth unemployment, a poor education system, inadequate public health services, bad working conditions and quality of life standards.
At times, political considerations such as corruption and poor governance, as was the case in Greece during the financial crisis of 2008, also influence young people to seek a better future.Some countries affected by the brain drain phenomenon are beginning to react to this threat to future prosperity.
Pedro Ginjeira do Nascimento is the executive director of Business Roundtable Portugal. He recently argued: “This is not a country for young people. Portugal is experiencing a true demographic hell because the country cannot create the conditions to retain and attract young talent.”
Portugal is now offering under-35s, earning up to €28,000 a year, a 100 per cent tax exemption during the first year of work, gradually reducing the benefit to a 25 per cent deduction between the eighth and tenth year.
The Italian government has introduced a similar scheme. However, tax breaks used as incentives are costly and open to fraud. So, early in 2024, Italy curtailed its scheme, which cost €1.3 billion in lost tax revenue.
Latvia is addressing the brain drain phenomenon with more determination than most other countries by implementing targeted reforms and investments to counteract the brain drain effectively. It has introduced a comprehensive higher education reform to enhance the quality and competitiveness of its institutions through structural changes in governance, funding and human resources.
Political leaders who jawbone about the importance of reforming the economy to create better jobs but in practice decide to only manage the status quo, will eventually be discarded by the electorate.
Draghi has again described how geopolitical developments in the last few years are changing trade dynamics. Speaking at the annual Symposium of the Centre for Economic Policy Research in Paris, he outlined Europe’s daunting challenges after Donald Trump’s election. He estimates that up to €800 billion per year needs to be spent on energy, defence, digitalisation and investment in R&D to ensure that Europe remains “inclusive, safe, independent and sustainable”. This estimate does not even include essential goals such as climate adaptation and environmental protection.
Europe’s structural reforms priorities are interconnected with the brain drain challenges affecting more adversely the less advanced member states. Political leaders’ pussyfooting around these challenges by managing the status quo is a risk Europe cannot take.