EU Migrant Crises: The economics behind Europe’s migrant crisis - by Mohamed A. El-Erian

Fleeing economic and social miseries of home countries

As our Eurostar train zipped from London through the Chunnel to Paris, I couldn't help thinking about the thousands of migrants languishing on both sides of the English Channel. Once again, national and regional political systems are struggling to cope with a mounting human tragedy whose spillover effects involve disruptions to commerce, and all this is stoking a political crisis.

The economics of the Channel migrant crisis are quite clear, being basically about supply, demand and regulatory failures. They also shed light on the potential solutions, though they will take time to materialize.

The supply of migrants to Europe is fueled by waves of people fleeing the economic and social misery of their home countries — and, in some case, political oppression, persecution and violence.

They do so in hopes of a better future for themselves and their children. The temptation for some to try and make it all the way to the U.K., often after a perilous sea crossing and a fraught trip through western Europe, is amplified by the attractiveness of an economy with low unemployment, comprehensive social services and a country where many already know the language. 

Although the supply of migrants has increased, the demand for migrant labour has gone the other way. Tougher laws have made it harder and more dangerous for employers to hire undocumented workers. And with a European unemployment rate of more than 10 per cent, the demand is further damped. 

This imbalance in supply and demand isn't one that can be sorted out by the markets' normal equilibrating mechanism. The market-clearing wage — that is, the price that would lower the migration incentive while facilitating the absorption of those still inclined to risk life and limb — is well below the minimum wage prevailing in Europe; and any meaningful reduction in the wage would involve significant and unacceptable social disruptions to local populations in Europe.

Read more: The economics behind Europe’s migrant crisis: MIGRANTS