A Greek Exit and the German Workforce

The outcome of Sunday’s Greek election, described here in the Wall Street Journal, was the worst that could have possibly occurred for the stability of the Eurozone. Greece elected Syriza, a leftist party that is strongly against the continuation of austerity measures that are currently being implemented against Greece, to a majority in Greece’s Parliament. Syriza acted quickly aligned themselves with a right wing party who are also against austerity for form a controlling coalition in the Greek Parliament. This coalition between seemingly opposed parties would tend to suggest that their one common position, eliminating austerity, will be a central issue for the Greek government going forward. So what are Syriza’s ideas for the future? They campaigned on the platform of increasing government spending, in essence eliminating the austerity measures, and on petitioning for the forgiveness of Greek national debt. The interesting thing about both of these promises is that Syriza would need significant international help, which is very likely not there, to follow through on them and remain in the EU. Thus we are faced with yet another round of standoffs between the EU and one of its member states. One interesting facet of this potential conflict to consider is its effect on Germany’s work force.

Part of the EU’s open boarder policy, described on the EU website, allows nationals of the EU to immigrate and work in other EU member states without obtaining work permits. This policy was extremely good for a country like Germany. Germany has been the strongest economy in the EU for more than the last decade, and many of its most successful industries tend to be high skill industries. This means that Germany tends to employ a lot of workers, such as engineers, that have a high marginal product of labor. As is taught in any basic or intermediate microeconomic, in perfect competition marginal product of labor equals wage. With open boarders throughout the EU this would result in the workers with the highest marginal products of labor from all European nationalities flocking to Germany in an attempt to gain jobs that fit their productivity and offer them the highest wages. This has two effects. Germany’s workforce becomes more skilled and more productive, thus increasing the productive capacity of the economy, and other less appealing nations like Greece becomes less skilled, and the economy becomes less productive. There is evidence that this does take place, for instance the story of Jordi Colombi a Spanish architect who chose to immigrate to Germany after being unemployed for  quite some time in Spain. Germany obviously benefitted from this immigration because it gained a highly trained, productive worker that it could employ in a capacity that was fitting to that training.

One consequence of a potential exit of Greece from the EU would be that all of the highly productive Greek workers in Germany would be forced to return to Greece, which has less of a need to employ people like engineers, because they would no longer under the protection of the EU’s open boarder policy. In order for Germany to keep the productive Greek workers it already employs in the event of a Greek exit from the EU it should be prepared to immediately offer working visas to all Greeks currently living in Germany. This would allow Germany to maintain a highly skilled workforce and stay ahead of less skilled countries like Greece.

Leave a Reply