Why

I Am Doing This?
From the time my grandfather immigrated to Belgium, to the recent generation of which I was born and breed, Belgium has experienced significant changes both culturally and economically. My counselor and I thought this would be a great opportunity to investigate, connecting immigration with the post-recession status of my home country.

The specific question being answered is: What relationship exists amongst illegal/ legal immigrants with respect to the Belgian economy?

~Special Thanks To Mr.Heylen, Vice-Mayor of Antwerp, for taking time out for an interview. ~Thanks to my counselor for encouraging me to take the initiative and pursue my love in economics.

Table of contents
Why I Am Doing This? ... 2 Special Thanks ...... 3 Immigration and Economics? ............. 5 Belgium Today ..................................................... 7 Profile: Mr. Philip Heylen .......... 8 Profile: Mr. Nishit Parikh ... 9 Profile: Mrs. Safia Fitzpatrick 10 Profile: Mr. Alfons Wouters .... 11 Profile: Mr. Jacky Strausberg . 12 Profile: Mrs. Llerma Tayal ... 13 Profile: Mr. Laurent Abergel .. 14 What I Would Do if I Was the Government ............. 15 Interesting Facts .............. 15 Evaluation ................... 16 Conclusion .................................................................................... 18 Bibliography .................. 18

 Immigration and Economics?

Within the 20th century, Belgiums peak immigration levels were during the 50s and 60s. The next highest influx of people came during the 70s and 80s, when a high demand of laborers were needed for jobs which were undesired by native Belgians. In fact, Belgium has the second highest rate for granting citizenships to immigrants, after Canada.1 Figure 1: Immigrants in Belgium2

With the mass entry of diverse nationalities, one would ponder the impact on the economy. Initially, it was easy for many to find employment and establish a new life for themselves. This trend continued even with the conversion from the Belgian Franc to the Euro in January 20023. Things soon changed as the 2008 recession halted production and backfired on many, leaving them stranded in this new country. Factoring in the key role of immigrants, many of them have taken on blue-collar positions helping Belgium recover its main source of income, export commerce.4
1 http://www.eupedia.com/belgium/trivia.shtml 2 http://immigration-online.org/373-belgian-immigrants.html 3 http://www.gocurrency.com/countries/euro.htm 4 http://www.euro.who.int/__data/assets/pdf_file/0003/75126/E71203.pdf

Figure 2: Inflation Rate5

- Notice the rising inflation from January 2009 to January 2011 Figure 3: Unemployment Rate6

The natural rate of unemployment is estimated to be 6%, however, Belgiums unemployment rate was at a high 8.4% in January 2011.
5 http://www.tradingeconomics.com/belgium/inflation-cpi 6 http://data.worldbank.org/country/belgium

Belgium Today
After recently experiencing a recession, two consecutive quarters of negative GDP growth7, the Belgian economy is approximately at point A on the business cycle. Particularly, on the recovery phase, which means real output is slowly increasing and unemployment is gradually decreasing.8 Figure 4: Belgiums Business Cycle9

- At this point in time, please feel free to start the video:

http://youtu.be/cPueknMxikE

7 Nancy 264 8 Jocelyn 192 9 Jocelyn 192

A
I think you have to be an open society, a modern society, a society that welcomes people ~Vice Mayor of Antwerp, Philip Heylen. A mass growth spurt of immigrants in the 70s and 80s was due to open positions in factories and industrial sectors, of which Belgian natives were unwilling to fulfill. Large populations from Africa & eastern Europe came to Belgium for better opportunity, A better life, a new life for themselves and for their children. The concern following these mass movements is having a flow of people, especially illegal immigrants where everyone jumps in. Once they enter the European Union (EU) the accessibility of transitioning from one country to another is quite simple. Difficulty in applying for citizenship and accessing a Belgian Passport has been the main deterrent for illegal immigrants. Despite Belgium enforcing strong immigration laws, Mr. Heylen believes Immigration needs to be solved on a European International Level. Enforcement policies include sending a document via the Belgian Police to leave the territory immediately. However, there is difficulty between stronger migration laws and the enforcement of those laws. It is not always possible to know whether or not illegal immigrants have left back to their country of origin. Mr. Vice Mayor maintains an open mind in helping those immigrants who are in real need, but cant open borders for everyone.
Where do I start? Keynesian economists believe fluctuations in the economy are due to changes in aggregate demand (AD), the total output that will be purchased at each price level. The components of AD are: Consumption (C), Investment (I), Government Spending (Gs) and Net Exports (Nx). Mr. Heylen reveals the Belgian economy is heavily dependent on exports. The net export effect states that a continuously appreciating euro against the US dollar enables Belgian consumers to purchase additional dollars, which are used to purchase American goods. Thus, boosting Belgiums imports. Simultaneously, the USD relatively depreciates, weakening US consumers in Belgian markets. Consequently, less Belgian goods are bought, leading to a decrease in Belgiums exports. Net exports (exports - imports) decreases, leading to a leftward shift of the AD curve from AD1 to AD2.


The economy is then operating at Y1, below the full-employment level of output of Ye, causing the high unemployment rate of 8.4% illustrated by the recessionary gap. In addition, the economy experienced deflation, a sustained decrease in the general price level, from Pe to P1.

So what can the Belgian government do to help pull out from this recession?
Belgiums budget deficit, with government spending exceeding government revenue, implies the government is using demand-side policies. In particular, expansionary fiscal policy, government actions to raise aggregate demand through maintaining a steady amount of government spending (Gs) but lowering taxes in order to catalyze consumer spending (C). Thus, shifting AD from AD1 to AD2, with an additional boost due to the multiplier effect, an increase in national income greater than the initial amount of spending. Mr. Heylen states that having cheaper loans is another option for the Belgian government to assist consumers during the recession. This is feasible by using monetary policy, the deliberate actions of the central bank to expand or contract the money supply in order to alter the trend of the economy. The government can do this by: purchasing government securities (aka open market operations), lowering the reserve ratio, and finally by reducing the discount rate. Any of these easy money policies would have the impact of increasing the money supply from MS1 to MS2 in the money market, lowering interest rates from r1 to r2 as shown below. This decrease in the cost of production to firms increases the total amount of investment (I) in the economy from Q1 to Q2. Because Investment spending is a component of AD, AD1 shifts to AD2, back to the full-employment level of output. However, the tradeoff for increasing Real GDP is inflation, from P1 t0 Pe.

D e
Mr. Philip Heylen anticipates implementing these government policies will assist in eliminating the recessionary gap as well as bringing stability to the Belgian economy 9 at the full-employment level of output (Ye).

 Despite being an immigrant from India, Mr. Parikh has overcome obstacles to work his way up through the diamond business his father started. At the tender age of 4, his family immigrated to Belgium and eventually he would take over and master the art of the diamond business. Having come so far, this influential immigrant has disproved the stereotypes that circle the term immigration, now holding one of the most prestigious titles as president of the Antwerp World Diamond Center. He is an inspiration to other immigrants, for them to hold strong to their aspirations and go forth with their dreams. As stated by Mr. Parikh, you (Belgium) need new blood and hard working people to help the economy grow and strengthen. You need competition to improve the livelihood here. Overall, the Belgian economy would be affected by the drop of sales in the Diamond industry. Mr. Parikh is correct seeing that diamonds are a luxury not a necessity, and it makes up the largest portion of the Belgian GDP, which in turn affects the citizens income. How you ask??? Its a simple equation NATIONAL INCOME = REAL GDP In simple terms, there is a direct correlationwhen one goes up, so does the other. While diamonds are a girls best friend, during a major recession perhaps Belgian chocolates are your best bet gentlemen!

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Before the recession, Mrs. Fitzpatrick was setting attainable revenue goals for stylists, nail techs and the other employees in a spa. However, the 2008 recession completely revamped peoples spending habits. Haircuts and pedicures were no longer essentials thus impacting the Spas revenue budget. Agreeing with her husband that a change was necessary, the Fitzpatricks moved to Belgium in search of new opportunities. Being a naturalized U.S. citizen, originally born in Kenya, Belgiums visa issuance required the original birth certificate. After 3 months of continued patience, the paperwork was completed and getting employment was next. Who would expect, however, after graduating from the University of Michigan with a B.S. in Movement Science with a focus in Occupational Therapy, that Mrs. Fitzpatrick would go months and months on end without finding a good job.

It seems what Mrs. Fitzpatrick was experiencing is what we call Frictional Unemployment. Also known as natural unemployment, which us economists define as the short-term unemployment that occurs when people leave their job in hope of finding a better one. This sort of unemployment could be beneficial for the economy. The assumption is that people will move to a position in which they are more productive and can contribute more to the economy. Why Cant All unemployment be Frictional Unemployment?!
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Born and raised in Belgium, Alfons Wouters, has established himself as a world-renowned karate sensei. His services include training mostly younger generations in self-defense for real world situations. In fact, Mr. Wouters believes that a contributing factor to the increased crime rate in Belgium has to do with some of the younger Moroccan immigrants who initially come over with idle hands. Immigrants year to year change more and more from Morocco and Turkey. Due to the increased fear in the streets, people have found the need to be prepared. An incentive for having built his reputation on quality service is that Mr. Wouters was one of the very few who was not severely affected by the 2008 economic meltdown.
Us economists assume that people make decisions on the margin, where they weigh the marginal benefits, against the marginal costs. Meaning: The amount people are willing to give up in order to obtain one more unit of a good V.S. the value of what is given up in order to produce that additional unit. In this case, Mr. Wouters customers felt the optimal decision was spending their money on self-defense rather than spending it elsewhere. However, such a decision leads to opportunity costs, the next-best alternatives forgone. In simple terms, by spending their money on Karate, the customers were unable to spend that money on other goods and services.

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Mr. Jackie Strausberg carries dual citizenship in both Belgium and Israel. His passion for golf has led him to be a major shareholder at the Royal Antwerp Golf Club. This prestigious position has placed him in the 45% income tax bracket for the majority of his life. After recently becoming a grandfather, Mr. Strausberg believes paying 35 ministers in 3 parliaments is a terrible waste of money. Instead, he would like to see the money being invested toward the greater cause of education.

According to supply-side economists, implementing their interventionist policies such as education and training will improve the quality of labor, a determinant of long-run aggregate supply (LRAS). Resulting in a shift of the LRAS curve rightward from LRAS1 to LRAS2, which promotes economic growth, an increase in real GDP from Y1 to Y2, over a period of time.

However, a weakness to such a policy is that it is time consuming; therefore not strengthening the Belgian economy in the short-run.

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"Life is like a box of chocolates - you never know what you're going to get. Forrest Gump in "Forrest Gump" (1994). For Llerma Tayal, this quote described her life to a tee! Born in a third world country, the Philippines, she never pictured herself marrying a Belgian, moving to Antwerp, and living a life with a completely different epicenter. What is Standard of Living? The level of wealth, comfort, material goods and necessities available to a certain socioeconomic class in a certain geographic area. Few would question Mrs. Tayals decision to immigrate due to the vast differences in the standard of living between Belgium and the Philippines. Table 1: Standard of Living Comparison

Factor
GDP Per Capita (2010) Real GDP Growth Rate Chance of getting infected by a major disease Life expectancy at birth Literacy (Age 15 and over that can read and write) Infant mortality rate Unemployment rate Population below poverty line

Philippines
$3,500 7.3% High 71.66 years 92.6% 19.34 deaths/1,000 live births 7.3% 32.9%

Belgium
$37,800 2% Very low 79.5 years 99% 4.33 deaths/1,000 live births 8.5% 15.2%

Research shows that chocolate releases endorphins, aka the happy hormone in the brain. This definitely gives Belgiums standard of living an increased advantage. Nobody can or should resist a Belgian Chocolate.

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As a young Moroccan immigrant, Laurent came over with his father who founded the family Petrochemical business, Arpadis. Petrochemicals is not the most significant portion of the countrys GDP, however, it remains a valuable part. Mr. Abergel states that his business experienced some shrinkage due to his customers being directly affected. In turn, he still isnt able to regain the volumes of customers he once had prior to 2008. Before that time, Arpadis had contributed to the Belgian economy by creating jobs for over 100 people including immigrants. Now looking back, Mr. Abergel finds having diversity in a country more beneficial to his business, and tries to help qualified immigrants receive work as they rebuild from the economic downfall. While he was able to follow in his fathers footsteps, many other Moroccans unfortunately found it difficult to find professions in Belgium. Belgium virtually has no natural resources, therefore it is essential that the country maximizes the use of its other industrial sectors to provide labor opportunities in: textiles, automobiles, food processing and pharmaceuticals. The Production Possibilities Frontier represents a nations potential output, when all resources are being used to maximum efficiency. Because Belgium is lacking its full potential in outsourcing products by not employing all of its labor, a factor of production, the nation is said to be inefficient and operating inside the PPC frontier (for example, point A).

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What I would do if I was the government?

As the Belgian government, my main focus for change would include the tax rates as a whole. Currently, Belgium is using a progressive tax rate system on all incomes10. My resolution involves a short and long term project. In the short run, I would increase the overall percentages on income taxes to help eliminate the countries budget deficit. However, once the status is balanced, I would then revert to decreasing the income taxes to a lesser status then that of its origin in order to promote long-term economic growth. This current tax system disincentivizes firms from increasing production, due to the inflated costs. Moreover, discouraging consumer spending, which on average consists of 60% of the economy11. My next concern would address Belgiums reliance on exports. It is crucial to maintain a proportional euro vs. dollar and euro vs. yuan rate, with China and the US being the two major importers of Belgian goods. In fact, with Belgium being an export-led growth country, a trade balance surplus is essential, where exports exceed imports. Thus, I the government will persistently intervene in the foreign exchange market to prevent the euro from appreciating at all costs. With a low valued currency, Belgian goods will be cheaper to foreign consumers, encouraging them to purchase more of our goods. Thus, our export revenue increases, enabling us to import more as our terms of trade ameliorate. Regarding my apprehension with existing arrangement of the government, or lack there ofhaving 35 ministers for three parliaments (Flanders, Wallonia, and German)12, I would look to create a more efficient structure. This new structure will consist of 3 representatives for each sect. The income from the other 26 ministers can be outsourced toward improving the local schools in Belgium.
10 http://data.worldbank.org/country/belgium 11 http://www.istockanalyst.com/article/viewarticle/articleid/4255653 12 http://www.state.gov/r/pa/ei/bgn/2874.htm

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Figure 5: Belgiums Annual GDP Growth Rate13

These policies, hopefully, will help with Belgiums prosperity and continue the trend of increasing GDP growth rate from 2011 onwards.

13 http://www.indexmundi.com/g/g.aspx?c=be&v=66

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Interesting Facts About Belgium

Belgium produces 220,000 tons of chocolate every year. When calculated, per person consumption comes to 22 kg of chocolate annually!14 The worlds biggest chocolate selling point is Brussels National Airport.15 Brussels Royal Palace is bigger than Buckingham Palace.16 French-speaking Belgium is the worlds biggest producer of comics per capita.17 Belgium has the highest tax rate in any OECD country18 Belgiums parliament has the highest number of female ministers.19 Belgiums motorway is the only man-made structure visible from the moon20 Belgium was elected 9 times at the UN Security Council (1947, 1948, 1955, 1956, 1971, 1972, 1991, 1992, 2007).21 Karl Marx wrote his Manifesto while in exile in Brussels, between 1845-1848.22 Belgium provided the uranium for the A-Bomb dropped on Hiroshima.23 Belgium is the worlds main diamond center (in Antwerp).24 Belgium has gone the longest without a Federal government, 511 days as of November 6th, 2011.25

14 http://www.facts.co/Belgium-Facts/BelgiumFacts.php 15 http://www.stumblerz.com/interesting-facts-about-belgium/ 16 http://www.eupedia.com/belgium/brussels_upper_town_attractions.shtml 17 http://www.brussels-belgium-travel-guide.com/cool-facts-on-belgium.html 18 http://www.economist.com/node/18584584/comments?page=2 19 http://lifestyle.iloveindia.com/lounge/facts-about-belgium-1625.html 20 http://www.buzzle.com/articles/interesting-facts-on-belgium.html 21 http://www.eupedia.com/belgium/trivia.shtml 22 http://www.eupedia.com/belgium/trivia.shtml 23 http://www.eupedia.com/belgium/trivia.shtml 24 http://www.facts.co/Belgium-Facts/BelgiumFacts.php 25 http://lerecorddumonde.be/

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Evaluation
One of the methods for calculating GDP is the Expenditure Approach. Jean-Baptiste Says law states, with supply naturally comes demand26 thus economists assume everything produced will be sold. The final value of all the goods and services sold are then summed into the countrys total expenditure, which represents the countries Real GDP.27 Impact of Legal Immigration on the economy Negative aspects of increased immigrants include a feeling amongst certain natives, as demonstrated by the interviews conducted, that some ethnic groups in particular are contributing to the high crime rate. Crime can harm consumer confidence by discouraging citizens from purchasing highly expensive items. Therefore, immigrants bringing fear may actually decrease the nations Real GDP rather than increase it. Nevertheless, statistics have proven a direct link between the number of immigrants in Belgium and the nations GDP for the past decade. As more people enter, it is expected that they will spend money, ultimately contributing to the economy by increasing Real GDP due to the additional spending. The total expenditure in Belgium has risen despite any possible decreases due to falls in consumer confidence, as illustrated by Figure 5. Hence, legal immigration has had a positive impact on the Belgian economy, with a recent World Bank study in 2011 even ranking Belgium as the 25th best country for business.28 However, it must be noted that immigration is not the sole reason for the rise in Belgiums GDP, as many other factors influence the economy. But for the purpose of this investigation, it is assumed, Ceterus paribus, all external factors remain constant.29
26 http://www.econlib.org/library/Enc/bios/Say.html 27 Jocelyn 151 28 http://www.doingbusiness.org/data/exploreeconomies/belgium/ 29 Matt 17

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Since 1974, Belgian borders have been officially closed due to labor migration.30 Although, this closure has not been enforced,31 as labor migration has remained possible for highly qualified workers. The positive aspect of doing so is that these skilled laborers are a partial solution to the labor market shortages.32 As people from different cultures merge into Belgium, new industries have developed and provided the Belgian economy with more versatility. A common day example is the Antwerp diamond industry; today, dominated by immigrants emerging from India, Israel, and Lebanon. Impact of Illegal Immigration on the economy Illegal immigration is a different case, as these people will reap the healthcare benefits in Belgium, which is approximately 95%. In addition, illegal immigrants will create black markets selling goods and services at un- comparably low prices. Whereas, other firms will have no choice but to sell at the minimum prices standardized by the government. Furthermore, this unbearable competition will ultimately cause many of the nations legal firms to bankruptcy. To combat such a situation, several police and inspection services work with the Foreigners office to conduct large-scale workplace raids.33 Yet, illegal immigration is a constant worry and essentially a burden for the Belgian economy. Belgian economy for Legal Immigrants Since the 2008 recession, firms have decided to reduce their costs by firing vast numbers of employees. This created a difficult environment for immigrants entering Belgium, as the post-recession unemployment rate in Belgium was still a staggering 8.4% by the end of 2010.34 In addition, Belgian citizens have to pay the highest income tax rate in any Organization for

30 http://www.socialwatch.eu/2009/Belgium.html 31 http://www.socialwatch.eu/2009/Belgium.html 32 http://www.jstor.org/stable/30037824

33 http://www.socialwatch.eu/2009/Belgium.html 34 http://www.indexmundi.com/belgium/unemployment_rate.html

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Economic Cooperation and Development (OECD) country.35 Yet, the social benefits received are minimal as the majority of the tax money is being used inefficiently with the standard of local schooling remaining poor. With trouble finding work, no improvement in education, and paying almost half of their income in taxes, legal immigrants should seek alternative locations. Belgian economy for Illegal immigrants Many immigrants moving into Belgium have discovered numerous business opportunities. Ever since Belgium signed the Schengen Agreement in 198536, it has become part of a Common Market, a free trade area including a selected 25 neighboring European nations with no internal tariffs, and the free mobility of capital.37 This liberated transportation allows firms to expand their businesses to additional markets with great ease. The negative aspect of such an agreement is that without any passport control, it to has become relatively easy for illegal immigrants to transport around in search of various jobs. Illegal immigrants will avoid paying high income taxes, and so Belgium would be an ideal location for third world country invaders. Even if illegal immigrants receive less than the minimum wage of Belgium, 1,498.87 per month38, it is fair to assume that their earnings will still be far higher than that of in their home nation. In addition, finding jobs for these citizens would be easier than employing a native, as employers would not have to pay social security, making these hires more risky, yet more attractive. With plenty of frontline job opportunities available, Belgium would be a utopian site for an illegal immigrant.
35 www.businesspundit.com/12-countries-with-the-highest-lowest-tax-rates/ 36 http://news.bbc.co.uk/2/hi/europe/4738063.stm 37 Nancy 43 38 http://www.fedee.com/minwage.html

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Conclusion:
Pushing myself to meet people from differing backgrounds, nationalities, and opinions was a fruitful experience. In fact, this memory is one that I will treasure, knowing it will remain notorious and helpful as a future entrepreneur and throughout my lifes decision making. For further information, please feel free to browse and comment on my blog:

www.immigrationinbelgium.wordpress.com

Bibliography
All websites used have been mentioned in the footnotes above. Textbooks: Blink, Jocelyn, and Ian Dorton. Economics: Course Companion. N.p.: Oxford University Press, 2007. Print. McGee, Matt. Economics: in Terms of the Good, the Bad and the Economist. 2nd ed. Victoria: IBID Press, 2007. Print. Wall, Nancy. The Complete A-Z Economics & Business Studies Handbook. London: Hodder & Stoughton, 2000. Print. 22