¿Is emigration making Portugal’s situation worse?

We used to think that high labor mobility was a good thing for currency unions, because it would allow the union’s overall economy to adjust to asymmetric shocks - booms in some places, busts in others - by moving workers around rather than having to cut wages in the laggi ng regions.

But what about the tax base? If bad times cause one country’s workers to leave in large numbers, who will service its debt and care for its retirees? Indeed, it’s easy conceptually to see how a country could enter a demographic death spiral. Start with a high level of debt. If the work force shrinks because of emigration,servicing that debt will require higher taxes on those who remain, which could lead to more emigration, and so on.

How realistic is this possibility? It obviously depends on having a sufficiently large burden of debt and other mandatory expenditures. But it also depends on the elasticity of the working-age population to the tax burden, which in turn is contingent on the underlying economics - is there a strongly downward-sloping demand for labor, or is it highly elastic? - and on factors like the willingness of workers to move, which has to do with culture and language. Portugal, with its long tradition of out-migration, may be more vulnerable than most other European countries, but I have no idea whether it’s really in that zone.

One thing you might wonder is whether a currency union makes any difference here. Can’t adverse shocks produce emigration and a death spiral regardless of the currency regime? Yes, but: With a flexible exchange rate, adverse shocks will cause depreciation and a fall in real wages; under a currency union, they will produce unemployment for an extended period of time, or until the grinding process of internal devaluation restores competitiveness. And everything I’ve seen indicates that migration is much more sensitive to unemployment than to wage differentials.

Now, it’s true that emigration in an economy that has mass unemployment doesn’t immediately reduce the tax base, since the marginal worker wouldn’t have been employed anyway. But it does set things up for longer-run deterioration. Despite all this, Lisbon remains very lovely - and seems, justifiably, to be attracting a lot of tourists, which must surely help the economy.