EU accession and free movement of labor

Anna Szymańska is a tax senior manager at the Warsaw office of Ernst & Young.

We did it - we are on our way to Europe. The referendum result brought much jubilation and excitement as we are all (mostly) agreed that this is a good thing. But do we actually know what the future holds for us?

One of the first - and most noticeable - changes in the human capital arena when the 10 accession countries join the European Union will be the free movement of workers between member states.

The free movement across borders of goods, services, labor and capital is the keystone of the EU's single market economic legislation. However, labor is more mobile than the other three factors of production, and this raises more concern than the others, particularly when it is described as "immigration" rather than as "expatriate assignments."

Open borders and unemployment

The first question to deal with is whether the opening of borders will see a mass migration of people from the new EU countries to the old. In an era of anxiety over the arrival of "asylum seekers" from various countries to member states, there are concerns in some places that a mass invasion of "new Europeans" may be expected.

The issues for employers are simpler than this, though. Many countries or regions within the existing EU still have skill shortages in certain industries, and the possibility of recruiting people with transportable skills from a wider labor pool may help employers.

The potential consequences may, however, be overstated. Even in the current EU there remain black spots of unemployment that co-exist with areas of skill shortages. This does not necessarily lead to coordination between the two, even where people speak the same language.

Likewise, in many accession countries the same issues as in the EU - such as the increased cost of housing if people move from a depressed area to a boom area, and the consequences on the spouse's career for dual-career couples - mean that unemployment and skill shortages remain side by side within a comparatively short distance geographically.

Estimates as to the numbers of potential economic migrants vary. The key issue for major employers remains the need for the right balance of skills, rather than the absolute lowest cost. Some countries may feel that a certain amount of inbound migration to fill specific jobs in a factory may be politically dangerous; but if instead it is viewed as preventing the whole factory from being moved to an accession country, it may be perceived a little differently.

Transitional provisions

To ensure that member states have time to adjust their local labor markets to the economic and political issues raised by the free movement of labor, transitional provisions allow movement to be restricted in the first seven years following accession, if states so choose. Each accession country has the right to specify its own rules in this respect - the details were not part of the accession agreement.

The basic terms permit states to operate up to three phases of transition for a period of up to seven years in total. For the first two years, states may continue to apply their existing restrictions. This applies to both accession countries and to the current member states. However, states may still obtain an additional three-year delay, if such a delay is "deemed necessary." How that condition could or will be interpreted is very much an open issue at the moment. Beyond this combined period of up to five years, a further two years of transition may be permitted in cases where there is a "serious disturbance to the labor market."

Certain existing member states have already given an indication of their position in this area. So far, Denmark, Greece, Ireland, the Netherlands, Sweden and the United Kingdom have all said that they intend to open their borders to workers from the new states from the first day on. However, it remains to be seen whether domestic political pressures between now and then prevent this from actually happening.

Likewise, accession countries could retain their restrictions on incoming workers from existing member states - however, those that actively seek foreign investment the most keenly have already indicated that they are likely to scrap restrictions sooner rather than later.

Free movement for other purposes

The other thing to remember is not to confuse the right of a member state citizen to work in another member state without a work permit with the right to passport-free travel under the Schengen agreement.

Signing up for the Schengen agreement, which allows people to pass freely across borders between Schengen member countries without passport or customs controls, is a separate arrangement. Even now, the Schengen agreement is only applicable in certain EU member states. Other member states retain the right to inspect documents at the appropriate border crossing. So anyone turning up at the Warsaw airport without a passport before 2006 or 2007 could still have problems gaining admission.

Challenges and opportunities

The opening of borders to individuals to pursue their careers across Europe, rather than solely within their state of residency, creates major uncertainty at a political and economic level. On one level, these changes may create political challenges in dealing with an influx of certain types of labor. On another level, the ability to source talent from a far wider range of countries, including those that have historically had a strong tradition of education, creates the possibility of a completely different scenario. The challenges for business arising from the free movement of labor vary.

- How do you tap into the availability of a wider range of skills? Do you bring the workers to the work, or move the jobs to their countries?

- How do you retain key workers in accession countries if they want to go to the "old Europe" to earn more?

- How do you handle the political aspects of importing these skills without creating tension in the existing workforce?

Those that address these issues most creatively will be the best placed to benefit from the expansion of their talent pool. Whether the influx happens at all - and how it happens - is a matter that remains to be seen.