Introduction

The European Union Directive on Free Movement (2004, herein referred to as the Directive) has extended the right of free movement to non-gainfully employed (inactive) EU citizens. At the same time, this group of persons has been given access to the welfare benefits of host countries. Moreover, the right of residence of gainfully employed EU citizens (employees and self-employed persons) has been broadened. People falling into this category already had the right to take up residence in other EU member countries. Nonetheless, permanent right of residence after a stay of five years was only granted if the applicants had sufficient resources to ensure that social assistance would not be applied for in the future. The Directive has done away with this restriction. Gainfully employed EU citizens will be granted a right to permanent residence on the sole basis of five years of uninterrupted legal residence. They will have a right to the same welfare benefits which the host country provides its own nationals.

In this chapter, I examine the extent to which these measures provoke migration to those countries with the highest levels of welfare benefits. Since the Directive was not implemented in national laws and regulations until 2006, there is no basis for formulating an answer to this question based on an ex-post analysis of migration flows. Rather, the approach pursued here is to quantify the financial incentives to migrate by comparing estimated future flows of income and costs that are relevant for the migration decision.

The analysis focuses only on financial incentives. Non-financial incentives resulting from the social sphere, language and cultural differences and from individual factors such as life expectancy, life plan and the evaluation of risk are not taken into account here, although they are important determinants of migration. So one has to be cautious drawing general conclusions from the model calculations used here.

The financial incentives are quantified for those persons who – as will be explained later – are most affected by the Directive: inactive persons (pensioners, persons unable to work, illegal migrants being officially ‘inactive’) and self-employed persons. In this chapter, Poland is taken as the country of origin and Germany as the host country.