Need for increased efforts to improve integration of immigrants on the Nordic labour markets

Nordic countries all face challenges of integrating immigrants into the labour market, especially low-educated immigrants from outside the EU. In 2017, the employment rate of migrants from outside the EU was 54 per cent in Finland and around 60 per cent in Denmark, Norway and Sweden. The four countries are all characterised by large employment gaps between natives and immigrants. Following the peak in immigration in 2015, a group of Nordic researchers have analyzed different policies to address this problem, including education policy, subsidised wages, social benefit policy and lower minimum wages for certain jobs.

Population growth mostly due to immigration

Population growth in the Nordic countries in recent years has been driven mainly by immigration; almost two thirds of the increase since 1990, from 23 million inhabitants to the current 27 million, is due to migration. Nordregio just released a new report commissioned by the Nordic Council of Ministers on the impact of different policy measures for labour market integration of immigrants: Integrating Immigrants into the Nordic Labour Markets.

“Labour market integration of immigrants could definitely be improved,” says Nora Sánchez Gassen, Senior Researcher at Nordregio. “Our analysis shows that there are large gaps in both employment and unemployment rates between immigrants and natives“

In Sweden, net migration has exceeded 20,000 people in most years since 1990 and peaked during the refugee crisis in 2015, when it was almost 120,000 people. Norway and Denmark have also had a large influx of immigrants in the period, while the trend is less clear in Iceland and Finland. The share of foreign-born residents in Sweden has grown from 9% to 19% in the period. In Iceland and Norway, the share increased from 8% in 2006 to almost 16% in 2018. In Denmark, the share was around 12% in 2018, while Finland has the lowest share of immigrants: only 7%.

“Immigrants in the Nordic countries are a highly diverse group,” says Sánchez Gassen. “We have labour migrants, family migrants and people who come for asylum. The largest challenges are for those with low levels of education and low qualifications that don’t match the Nordic labour markets.”

The four large Nordic countries offer internationally unique introduction programmes for newly arrived immigrants, which include language training, civic orientation and labour market measures. In addition to analysing these programmes, the report dives more generally into the impact of various policies for labour market integration of immigrants: education policies, active labour market programmes, social benefit policies and wage policies.

Education at all stages of life

“The general lesson is that many policies can contribute to integrating immigrants into the labour market, but no single policy is extremely effective,” says Lars Calmfors, Professor Emeritus from the Institute for International Economic Studies (IIES) at Stockholm University and Research Fellow at the Research Institute of Industrial Economics (IFN) in Stockholm. He led the project together with Sanchéz Gassen. “As you might expect, education is key, but it’s not possible to solve this problem through education alone. At least not at a reasonable cost.”

In the report, labour market experts Tuomas Pekkarinen and Anders Böhlmark provide recommendations for education policies based on the age at which the immigrants arrive and their education and skill level. Their recommendations include more pre-primary education for young children, initiatives to support adolescent immigrants in getting into high school, and adult education programmes.

“It’s vital that those who come to the Nordic countries at a young age immediately get the support they need, so that they later can enter the labour market,” says Sánchez Gassen. For children under six years old, the project recommends policies to increase participation in preschool. “This has shown to help immigrant children, also in the long run, but the participation rates could be higher.”

“For adolescent youth who arrive at middle- or high school age, it’s a matter of supporting them to qualify for high school,” Calmfors adds. “This can for instance be achieved through more bilingual study support and a stronger focus on the subjects needed to qualify for high school. Another recommendation is to lower the admission requirements to vocational high school and offer more study counselling to stimulate the participation of immigrant youth in such education.”

Lowering the labour market threshold

“One of the basic challenges of integrating immigrants into the labour market is the mismatch between qualifications and productivity,” Calmfors explains. “Due to the high minimum wages in the Nordics, productivity of employees must be high.”

In her article on labour market policy for newly arrived immigrants, economist Pernilla Andersson Joona highlights subsidised private sector employment as the most effective labour market programmes for regular employment of immigrants. Based on experience from Sweden, where subsidised employment plays a significant role, the main challenge is to get the volumes up.

“Even though these programmes are heavily subsidised, employers seem to hesitate to get involved,” says Calmfors. “Some of the Swedish programmes look superb from a theoretical perspective, but the number of people enrolled has been smaller than expected.” Still, subsidised employment is used to a much larger extent in Sweden than in the other Nordic countries. They are strongly advised in the report to expand their use of subsidised employment.

International studies also show that lower minimum wages are likely to raise employment among immigrants. In the Nordic countries, minimum wages are determined through negotiations between the parties of the labour market. In the report, Simon Ek and Per Schedinger argue that instead of negotiating across-the-board minimum wage cuts, it should be possible to set the minimum wages lower for certain types of jobs.

“The general idea is to create incentives for employers to create jobs with lower minimum wages to increase employment among those who are furthest from the labour market,” says Calmfors. “The workers should be offered additional compensation from the government to make up for at least part of the wage gap, for example through an extra earned income tax credit. Moreover, they should be offered generous educational possibilities to enable them to move on to more qualified jobs.”

“We know from many studies that the most marginal groups are hit the hardest by high minimum wages,” says Calmfors. “Even in studies where you find a zero effect on average on employment, there’s usually a negative effect of minimum wage rises for the least skilled and those that are most marginal. This indicates that lower minimum wages would likely create more jobs for low-skilled immigrants.”

Larger challenges for non-western immigrant women

The employment rates of non-western immigrant women are particularly low compared to the employment rates of other groups in the Nordics. This indicates that they have a particularly hard time of establishing themselves on the labour market. This issue is addressed in an article by Jacob Nielsen Arendt and Marie Louise Schultz-Nielsen.

“In general, we find that many of the measures discussed in the report have a weaker effect for women than for men,” says Sánchez Gassen. In addition to regular education and language training, subsidised employment has shown to work well to raise employment among non-western immigrant women. “However, women are underrepresented in these programmes. An efficient strategy would be to bring more women into subsidised employment.”

An interesting observation, says Sánchez Gassen, is that family policies that seem to work well for native women do not necessarily produce the same effect for non-western immigrant women. As an example, reducing the cost of childcare to encourage labour market participation has had limited effect on the employment rates of this group. On the other hand, benefits for taking care of children at home clearly reduce labour force participation of immigrant non-western women. This is a strong argument against such benefits.

“This shows us how important it is to look at the different target groups when it comes to designing policy. To provide the right support, we have to be able to meet the immigrants at the different stages of their lives, also considering the age at which they arrive.”

The report was commissioned by the Nordic Council of Ministers for Finance and produced by Nordregio – download full report. 

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