12 February 2015 Published in Economy Written by 

Profit and losses - effects of migration on the budget of the Republic of Macedonia

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Freedom of movement is one of the fundamental rights of people. In a time of the financial crisis, the free movement of people is followed with an increased inflow of asylum seekers in the economically wealthier countries of the European Union. Often this trend results in revisions of the traveling rules and  the possible establishment of new measures related to the visa regime. Still, we must remember that the migrations and asylum seeking are not new and unknown phenomena for Macedonia and the other countries in the region. The migrations (and recently – asylum seeking) are known as one of the possibilities of finding a way out of  poverty, or  search for better life conditions (economic, social, and political life). Because of the quest for an exit from poverty, people migrate, similar to those in Middle East, Africa and Asia.

Migrations exist since the beginning of mankind because in the mankind history it is known that people traveled night and day for a long period looking for better and safer living conditions. Still, the migrations from Macedonia have been recorded since the beginning of the XX century, due to various reasons. For example: during the Ottoman Empire the migrations were driven by political unrest and search for wealth in the New World. Also, after the Second World War, the search for employment, the political views opposed to the Yugoslav Communism, and the devastating earthquake in 1963 repeatedly caused the migration of the population.[1]

From 19 December 2009, with the adoption of the decision on visa liberalization, visa-free travel across Europe became a reality for the citizens of Macedonia. [2]

As a result of the visa liberalization, a mass migration of people occurred from the Western Balkans to the EU who, in search for a better life and stable socio-economic living conditions, are demanding asylum as a solution following the examples of people who came from the Middle East, Africa, and Asia, countries which lacked basic democracy and secure life.

According to UNHCR, after the visa liberalization, the number of asylum seekers in 44 industrialized countries increased to 6351 people in 2009, of which 5773 claims were filed in the EU27 (European Commission, 2012, final country report FYR Macedonia, p.7). Various economic and security shocks caused migrations both in the past and today, and the continued migration to the European countries or to countries where there are better conditions for a safe life, social, and economic well-being and justice.

Therefore, this paper examines both sides: migrants and the state. First, by using a linear probability model in Stata, the analysis describes the profile of migrants and the reasons of migrating from the Balkan countries. Second, it analyzes the gains and the expenses (losses) of the budget of the Republic of Macedonia through the illustration of specific assumptions and calculations which offer a ground to create a COST-BENEFIT long-term analysis for this phenomenon. I will analyze different groups who left Macedonia in the last two decades.

 

Economic situation in the Republic of Macedonia

The Republic of Macedonia continuously faces the same economic problems, i.e. high rates of unemployment and poverty. In the period when Macedonia was a part of Yugoslavia, the unemployment rate reached 26.7% that positioned Macedonia as the poorest republic among Yugoslavian countries. The actual growth rate of the Gross Domestic Product, as one of the macroeconomic indicators, had a negative growth from 1991 to 1995 after its independence.

This fall was normal and expected for a young economy which was facing difficulties even before its independence. The independence resulted as an inevitable transition towards a new economic, political and social system which, according to many researches and studies from relevant institutions and researchers,  it was characterized with unpreparedness and criminal transition, which contributed to negative effects in the state’s system. During the transition, many enterprises were criminally privatized, went under bankruptcy that was previously planned, or were entirely excluded from the market. In that period, the unemployment rate abruptly increased and stayed high until the first quarter of 2013, between 32% and 40% in the period of 1995 – 2013.

According to the new report of the Statistical Office, in the fourth quarter of 2013, the unemployment rate of the Republic of Macedonia is 28.6%. If we compare this unemployment rate of 28.6% with the unemployment rate of Yugoslavian period 26.7%, we can notice that in the past period, up until today, Macedonia could not reach this unemployment rate.

This situation of the country is one of the indicators of an unstable economy, leading to increased and deep poverty among the citizens of the Republic of Macedonia. Timely speaking, the majority of the Roma population lives in chronic poverty; many surveys repeat the same statements without answering how the Roma population copes with the consequences of the poor economic performances in the country.

The different negative economic, political, and other indicators and activities of the state are reasonable enough for seeking a way out by migrating, or more often by seeking asylum in other countries. The outflow of staff and middle-class citizens are the proof of unsuccessfully applied policies and strategies for improving the economic situation. Therefore, the last results of the unemployment rate published by the Statistical Office causes doubts. The question here is: how did we manage to reduce the unemployment rate in Macedonia sharply? Do migrations have effect on reducing the unemployment rate or is it just the result of increased employment; although it is clear that except the employment in public administration, there are no significant changes on labor demand in the private sector.

 

Analysis

In this section, I will try to analyze several indicators that effect migrations from which certain calculations and illustrations will follow. As I mentioned in the introductory part, this paper analyzes both the migrants and the budget:

  1. Analysis on the profile of Roma migrants; Linear Probability Model
  2. Expenses and gains of the budget of the Republic of Macedonia; Cost-Benefit Analysis

 

Analysis on the profile of Roma migrants; Linear Probability Model

In 2011, the United Nations Development Program, the World Bank, and the European Commission carried out a survey on vulnerability of Roma. In this survey, they interviewed 750 Roma and 350 non-Roma households living in or close to Roma communities in 12 countries of Central and Southeastern Europe.[3] The data on vulnerability of Roma is the only official collected and available one.

Therefore, the linear probability model is based on this data provided by UNDP, World Bank, and European Commission. The purpose of the linear probability model is to predict the probability that a given person migrates. In the linear model, first we estimate a series of variables that affect migration, and then we use regression for each variable. Our dependent variable is whether the person migrated and the explanatory variable of interest is whether he/she is Roma. In the first model, table 1, we can see that 38% (or 3.7 percentage points) of the Roma population is more likely to migrate than the non-Roma. This result shows that the probability for migrating of a given person from the Roma population is higher than that of the non-Roma. The question here is: what are the reasons that Roma are more likely to migrate than non-Roma?

To answer to this question we have to include more variables in the regression model. Therefore, in the second model we include income and education as control variables. By including income and education, the percent of the probability that a given person from the Roma population is likely to migrate is higher; 41% or 3.5 percentage points. The second model indicates that more educated Roma are more likely to migrate by holding income and ethnicity constant; or in other words, it implies that educated Roma are more likely to migrate not only because of unemployment, but also because of low paid jobs.  

In the third model, we include age and number of children. By including age and number of children, the percent of the probability that a given person from the Roma population is likely to migrate is higher; 53 (or 2.8 percentage points). This means that having more than five children makes people more likely to migrate than having no children, at 5% significance level (see, Appendix 1).

In the fourth model, we include health and marital status. The percent of the probability that Roma are more likely to migrate is 60% (or 2.4 percentage points). This increase means that married people are more likely to migrate than non-married. Also, the model shows that less healthy people are -1.6% more likely to migrate by holding other variables constant (see, Appendix 1).

In the last model by including types of employment, we can see that people with ad-hoc jobs or no jobs are more likely to migrate than those with full or part time jobs. The coefficient on Roma is not significant in this model, which shows that mostly Roma migrate not because it is something particular to ethnic group, but they do because they do not have access to safe jobs. Having no access to good jobs can be a sign of discrimination on the job market.

 

Table 1- Selected Social-Economic Variables (Unconditional and Conditional) for Roma in 12 countries[4]

Notes: Linear Probability Model with adding more variables. Standard Error in brackets:

*** Significance at 1 percent level

 ** Significance at 5 percent level

   *Significance at 10 percent level

 

Source: United Nations Development Program, World Bank and European Commission, Regional Roma survey (2011), available at: http://www.eurasia.undp.org/content/rbec/en/home/ourwork/povertyreduction/roma-in-central-and-southeast-europe/roma-data/

The linear probability model shows that the Roma population is migrating from different reasons, but the most important one is that they do not have access to good jobs; the type of employment matters a lot.

 

Expenses and gains of the budget of the Republic of Macedonia; Cost-Benefit Analysis

As we already analyzed the reasons for migrating, also we have to analyze the expenses and benefits of the budget. In this part, I will be focused on the budget of the Republic of Macedonia.

I mentioned on several occasions that the migrations are a recognizable habit of the Macedonian citizens who have massively left the country in the past 100 years. Therefore, today there is no accurate number of the citizens with Macedonian origin. Different sources have different figures, for example: according to the estimates of the World Bank (World Bank, 2011, 2011a) the rate of migration from the Republic of Macedonia amounts 21.8%, which means that a significant part of the population lives abroad. On the other hand, if we take into account Eurostat’s data then the emigration rate is 26% which is mostly considered as an accurately estimated indicator for the current size of the Macedonian diaspora.

 

Chart 1: Number of Macedonian citizens that have citizenship in different Europian countries 1996-2010

Switzerland Migration Office data for 2008, 2009 and 2010

Source: Eurostat (2011): Population by sex, age and citizenship (migr_pop1ctz). Available in: http://epp.eurostat.ec.europa.eu; Council of Europe, Recent Demographic Developments in Europe; Switzerland Migration Office

 

According to Eurostat’s data we can observe that the migrations have a cumulative upward trend with the time. Differently from the other years, since 2005 a high outflow of migrants has been marked for those who legally left the country. This number in 2005 cumulatively amounted to 251 247 while, in 2010, it dropped to 240 052 people.

If we include the illegal migration in this calculation then, the total figure will continue to rise. However, because there is no accurate information about illegal migrations the following calculations will be based on the number from 2010.

 

COST-BENEFIT ANALYSIS

Expenses (loss) of the state

Based on the fact that the total number of migrants who obtained citizenship or residence outside of Macedonia amounts just over 10 percent of the total population, it is necessary to calculate the losses in the state budget.

Under the assumption that 50% of the total emigrated citizens from the Republic of Macedonia, or 120 026 people, are active population, 10% seniors and 40% children, pupils and students, the state’s losses are the following:

1. The State budget suffers loss in its taxes - income tax, insurance tax, value added tax, property tax and other taxes. Total revenues and expenditures consist the budget of the Republic of Macedonia. The category of total revenues includes tax revenues and contributions, non-tax revenues, capital revenues, and donations. The total budget revenues in 2012 had amount of 2,883 billion USD.[6] If we divide this number with the total population of 2,030,000 inhabitants, it arises that the influx in the Macedonian budget per capita is 1.420 USD. If we multiply this amount with the total number of migrants ($ 1,420 * 240,052 migrants) then the state loses about 341,205,180 USD. This means that instead of 2,883 billion USD the total revenues would amount around 3.224 billion USD (2.883 billion USD + 341 205 180 USD).

2. The total population – the total population of the Republic of Macedonia is 2.087.171. The sum of the total population in the Republic of Macedonia and the total number of emigrated citizens amounts 2,327,223. This amount of 2,327,223 for the Republic of Macedonia would mean a natural growth in the total population without additional costs and projects for increasing the birth rate. Here is the opportunity cost of the state’s budget which is spent on social transfers and projects for increasing the birth rate.

If the state had a natural birth growth rate, rather than in social transfers, it could direct the funds in investments that would contribute to the creation of new jobs and increase the economic activity which would further demonstrate with more successful macroeconomic results.

3. Total Gross Domestic Product – in 2012 the GDP of the Republic of Macedonia was 9.6 billion USD. If we divide this number with the total population of 2,030,000 (9.6 billion USD / 2,030,000 population), we get the amount of 4 729 USD per capita. If we had the total population of 2,327,223 the total amount of GDP would be around 11 billion USD (4729 USD * 2,327,223 total population). This means that the total GDP loses around 1.5 billion USD from the 240,052 Macedonian migrants.

 

Gains (benefits) of the state

Besides the losses and opportunity costs, the state has been benefiting from the migrations. The benefits are mostly from the perspective of acceleration of the state’s costs, because most migrants are from economically vulnerable groups or welfare recipients. It is mostly the Roma who fall into this group because, according to the estimations, 95% of the Roma population lives in the suburban areas and in very poor living conditions[7] (European Commission, final country report FYR Macedonia, p.25). Also, the unemployment rate for the Roma is the highest in the country.

According to the UNDP report, in 2005 the unemployment rate of the Roma population reached 79%, compared to the National average of 37.2% (UNDP, 2006, p. 11). The high unemployment rate also means a high poverty rate. According to the reports, the poverty rate among the Roma population in 2008 was almost three times the national average: 88% compared to 30% in Macedonia (LBI, 2008, p. 168).

As a result of the high unemployment and poverty rates, it is normal for the larger part of the Roma population to depend on social welfare. According to the ISPR’s researchers (2004), 44% of the Roma are dependent on social transfers.

All above mentioned facts are reasons and justifications that Roma usually migrate out of the country and seek a way out in other countries.

From the migrations, the state benefits in:

1. Reduction of the expenditures in the state’s budget – the total expenditures of the budget  of the Republic of Macedonia include: costs for salaries and benefits, expenditures for goods and services, transfers to ELS, transfers and subsidies, social transfers, interest payments and capital expenditures.

According to the Statistical Office, in 2012, more than 50,000 people were social welfare recipients. The upward trend of migrants relieves the burden of the state’s budget with the same act of leaving the state.

 

Table 2: Asylum seekers divided by age groups in the second quarter of 2011, showed in percentages:


If we take the numbers, from chart 2, for Macedonia in 2011 and multiply them with 1,800 MKD (social monthly assistance per person), then the resulting sum shows how much the expenditures of the state budget for social welfare are reduced (around 650,000 EUR per year). 

In twenty years, this is a sum of around 13 million EUR less for social, financial transfers for the poor population which left the state. This is a relatively small saving in the budget expenditures in terms of the amount of revenues that can be generated by the persons, if they worked and spent in Macedonia.

Assuming that all who left were low educated staff in which the state spent at least eight years for their education, the saved expenses of 13 million EUR are almost meaningless. Unfortunately, the number of highly educated staff is enormous and without accurate records, and on the other side their departure remains overshadowed by the criticism that we have received for the displacement of poverty. Therefore, we come to a paradox situation in which all social and institutional attention is focused on keeping the poor layers in the country, and carelessly release the educational profiles in which we have all invested from the state budget through the funding of public educational institutions. The hypocrisy is even greater because the EU members have a positive regulation for the flow of the higher educated workforce, while more restrictive measures are set for the poor who want to travel across the continent. By default, each new restrictive measure causes new anomalies in the society, especially in the area of restriction of the movement of people and goods, so we often have an occurrence of organized groups that corrupt the border guards and customs, and again financially drain precisely the poor people, who have no other choice in their home states. On the other hand the media and the politicians publicly criticize the vulnerable groups for their alleged abuse of the visa regime; although we all know who and how manipulates the information and convictions that the West has better living conditions.

In the end, the attention of the whole public is mistakenly aimed at the ordinary citizen, rather than to the selectivity of the measures and the behavior of the EU institutions expressed through the pressure towards our domestic institutions. The radical groups appear as “protectors” of the state interest regarding the retention of the visa regime which additionally brings negative points for our democracy and weakness to the institutions. This is a typical example of how the EU and its incomplete measures negatively reflect the rights of the poor citizens.

Finally, the whole situation produces systematic and financial anomalies because, besides time and labor, much of the resources end up in the hands of suspicious structures or corruption while the poor citizens are becoming poorer.

The EU members and the current candidate countries haven’t learned the lessons from the last two expansions, or showed a desire to change something in their behavior and the assessment of the situation, but simply looked for the easiest solution in a political flirtation with their electorate that with the new mechanisms of the visa regime they will protect the interests of their citizens.

2. Reducing the unemployment rate – the Employment Agency of the Republic of Macedonia, recently has divided the unemployed people into active and passive job seekers. The employees and persons, who are not employed but regularly are looking for work, are considered as active population, while passive population means the people who are unemployed for a longer period and have not applied for work.

If we take into consideration the migrated Macedonian citizens, then we can freely say that they belong to the group of passive job seekers, because they are out of state for a longer period of time and they are unable to apply for work, which means that indirectly they will reduce the unemployment rate.

3. Remittances- one of the most important benefits of having migrants abroad is the inflow of foreign currency in the country. The inflow of foreign currency has a significant role for the state, because it provides foreign deposits for the country without having to oblige to foreign investors. As I mentioned in the linear probability analysis, the Roma population is more likely to migrate, because of not having access to good jobs. This means that the state is benefiting for free without additional costs from the budget.

 

Conclusion

The overall analysis shows that Roma are more likely to migrate because of various reasons. For example: in the regression model we saw that married people are more likely to migrate than non-married; educated Roma are more likely to migrate than non-educated; having more than five children makes people more likely to migrate than not having children; less healthy people are more likely to migrate than healthy people. The employment and the job type have the leading role in the migration processes; the job type matters a lot.

Macedonia, as a multiethnic country, still continues to face the same anomalies and problems. In order to reduce or improve the situation in Macedonia, mostly in the domain of employment, I will give few recommendations.

 

Recommendations

  • Reduction of political pressure on jobs – not having regular work makes people unhappy and poorer. For increasing the welfare and quality of life, the dominant political party should not decide on the working positions but rather create a harmony and equal treatment towards the citizens of the Republic of Macedonia; because through respect of the rules and procedures, will be created a quality staff that would contribute to significant changes in the state.
  • Increased investments for education of the youth – the investments in education are the most reliable and cost-efficient ones. However, the creation of educational programs, projects and scholarships are not enough for a perfect educational system. It is necessary to provide job positions for the young generations in order to involve them in the practical knowledge and skills, similar to that of the German educational system.
  • Opening of private educational institutions – in order to create qualitative educational personnel, the state institutions should collaborate with private institutions. The cooperation will not only produce quality but will also contribute to increased revenues in the state budget.
  • Infrastructure projects, and investments aimed at rural areas – the development concentration aimed at the central cities neglects the poor parts of the country. In order to reduce the inequality between the citizens, the investments are required in the rural areas, which would enable equal and better conditions for the poor.

[1] Joann van Selm. 2007. “Macedonia: at a Quite Crossroads.” Migration Policy Institute. Available at: http://www.migrationinformation.org/article/macedonia-quiet-crossroads/

[2] Ministry of Foreign Affairs, available at: http://www.mfa.gov.mk/?q=node/1473

[3] United Nations Development Program, World Bank and European Commission, Regional Roma survey (2011), available at: http://www.eurasia.undp.org/content/rbec/en/home/ourwork/povertyreduction/roma-in-central-and-southeast-europe/roma-data/

[6] Central Intelligence Agency, available at: https://www.cia.gov/library/publications/the-world-factbook/geos/mk.html

[7] Empirical research targeting 3,122 Roma households in the largest Roma settlement in Macedonia Shuto Orizari showed that: 5.29% live in improvised houses made of non-building material (nylon, cartons, tin and plastics), 22.20% live in houses with limited durability (dilapidated and montage houses), 53.11% of the families live under the same roof with two or more other families, 41.35% of the families live in a housing space of only 2-5m2 per member, 19.09% of the families live in only one premise, 55.12% of the families live without possibility to wash and have no bath in the house, 14.58% use a toilet in the yard, 10,19% neither use septic tanks nor are connected to the public sewerage system and 42.38% use street or yard taps (Lakinska, 2000)

Last modified on Thursday, 12 February 2015 13:36

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