With a common market there will be free movement of labour between countries. Who benefits and who loses will depend on the country and their economic and employment situation. Using economic theory suppose country 1 ('Germany') has high levels of capital per worker, and country 2 ('Poland') has low capital per worker. Therefore as a result of the higher level of capital per worker the output per worker (i.e. productivity) is higher in Germany. At moment Polish workers cannot obtain work permits in Germany and so therefore consequently German workers are paid higher wages than Polish workers. Now, if a common market is formed, Polish workers have the right to work permits in Germany and vice versa. So therefore some Polish workers will move to Germany to get higher wages and increase the number of workers, but with no additional capital, will depress productivity defined as output per worker and wages in Germany by lowering the capital-worker ratio. In Poland on the other hand there will be fewer workers, with no loss of capital, and so will raise productivity and wages in Poland. In textbook economic theory this would continue until wages were equal in the two countries. So basically forming a common market would result in migration of workers from Poland to Germany with the convergence of productivity of workers and convergence of wage rates creating higher output in the common market. Income redistribution within the countries would also take place, where in Germany from workers to capital and vice versa in Poland. So in this situation Germany loses from creating a common market and Poland gains. However these effects depend on economic assumptions made such as full employment and wage flexibility. Also wage differentials arise from differences in the capital-labour ratio and not differences in skills. There is no need for migration to get equal wages, 'free trade' (as in the CU) could bring this about under certain conditions. If Poland specialises in exporting goods which require much labour in their production this increases the demand or labour in Poland and wages increase. There would be the opposite trend in Germany which specialises in goods which need little labour. The free movement of capital without free movement of labour could also equalise wage rates. This would all result in firms relocating from areas with high wage rates to areas with low wage rates.
Labour mobility among EU countries in theory will improve the cohesion of the European Union with redistribution aswell as increasing output so therefore total welfare. It also facilitates adjustment, i.e. increased labour mobility might reduce unemployment which is important in context of the monetary union. However in practise labour mobility among EU countries is very low as a result of linguistic and cultural barriers and the failure to establish an EC labour market. Migration played as important role in the 1960s by relieving labour shortages in the North and reducing labour surpluses in the South. This was largely unidirectional, of permanent character and workers with little education. Then ironically, steadily diminished even though 'free movement' of labour was introduced. Migration now is increasingly temporary in nature and many migrants are young professionsals.
Therefore one should be careful not to exaggerate the economic implications of a common market for labour as the potential for labour mobility between EU nations may be limited. The economic 'push' and 'pull' factors, such as the macroeconomic climate at home and abroad, are far more important determinents of migration than formal barriers to the free movement of labour. However this model is useful when wage disparities are large and there is full employment in the high-wage country but does very little to explain much of the actual migration in the EU.
With the EU enlargement the countries who have joined are mainly poorer, eastern european countries which many were former Soviet satellite nations bringing an end to the post war division of Europe. In terms of migration of labour it is not thought there will be a big problem with one estimate being that if 5% of the CEEC population were to move this would represent 5-6mn people, so about 1.5% of the EU's population, spread over a number of years. This would not cause a large problem but however we do not know for sure and movement could be affected by the attractiveness of higher living standards. We should not forget that there will be skilled people within this movement.
In general the benefits of the EU enlargement include trade creation occuring when a customs union increases economic effieciency by allowing lower cost producers to supply the market, where previously they were barred by trade barriers. There will also be trade diversion occuring when the formation of a customs union encourages members to buy from a higher cost supplier within the union at the expense of more efficient producers outside. The extension of the customs union will be welfare enhancing if trade creation exceeds trade diversion. There will be the benefit of investment with the inclusion of the eastern european countries into the EU by increasing Foreign Direct Investment (FDI) into the EU.
There may also be negative consequences of the recent EU enlargement. It is argued by some that enlargement of membership (a widening of the EU) may be at the expense of stronger integration between members (deepening of the EU). Deepening might be the issue which attracts new members (prospect of more help) while widening may be an incentive for some major reforms (e.g. CAP) because of future unacceptable cost burdens. In terms of cost and CAP, one scenario estimate is an extra 2bn ECU needed to subsidise farmers facing lower prices from the CEEC economies. Another scenario is if financial support was not given to maintain prices then farmers would lose 3.7bn ECU. Both taxpayers and consumers could benefit. There will also be a large increase in spending on structural and cohesion funds which include various funds such as Regional and Social Funds. This could raise by an extra 42bn ECU. However many believe this figure is too high because these countries would not be able to absorb such high levels of spending. All-in-all, Baldwin places the net cost of enlargement at 19bn ECU (per year) or about 20% of the EU budget. However, the Agenda 2000 proposals are less generous stating 11bn (per year). Gradualism is the key theme and it is very difficult to quantify long term impacts. Overall the EU enlaregment has occured and only time will tell if it was a wise and successull move for all involved.
Bibliography
D. Swann (2000), Economics of the Common Market, Chapter 4
F McDonald & S. Dearden (1999), European Economic Integration, pp50-53
Stephen Romer (2001), Understanding the European Union, pp18-20