Bounty or burden? The impact of refugees on European economies is far from clear
Avindar Mohamad was 18 years old when he was forced to flee with his family from his hometown of Aleppo after the Syrian civil war broke out in 2011. Until then, he had led a relatively comfortable life: His father worked as a baker, and his mother had a job at a large pharmaceutical company. When the conflict started, his father flew ahead to Denmark, while Avindar sought refuge in neighboring Lebanon along with his mother and two sisters. It was only several months later that the family finally found itself together again, this time on Danish soil, under Denmark’s family reunification program.
In recent years, the number of people like Avindar seeking asylum in the European Union has skyrocketed, from around 200,000 in 2006 to around 1.3 million in both 2015 and 2016 according to Eurostat figures. The continent has witnessed one of the largest forced migrations since World War II, as civil war in Syria and Iraq and instability in Afghanistan have led to a wave of refugees moving westwards in search of safety. Unlike Avindar and his family, many have been forced to make the journey on foot. The potential effect of this surge in refugees on the economies of European countries is still very much up in the air, with a multitude of factors at work.
Photo courtesy of Freedom House
The economic impact is likely to be slightly positive in the short-term. All the refugees arriving in the European Union need to be housed and fed. Their medical needs must be addressed, and both children and adults have to be educated in preparation for entry into local labor markets. Before they are ready to work, financial support is also necessary. The ensuing boost to government spending and fiscal transfers will give domestic demand a shot in the arm. According to estimates from the IMF, by the end of 2017 GDP in Austria, Germany and Sweden—three countries which have received large numbers of refugees per capita—will have been boosted by 0.5%, 0.3% and 0.4%, respectively. In Germany, by far the largest recipient in absolute terms, refugee-related expenditure amounted to more than EUR 20 billion last year.
In the longer term, the picture becomes far murkier. This isn’t just because little is known about the current cohort of refugees, such as their average level of education or how long they will remain in their host countries. It is also because the long-term economic impact of refugees rests largely on how successful countries are at weaving them into the economic fabric of their societies. The more refugees who find jobs, and the better paid these jobs are, the greater the positive impact on labor supply, the public coffers and economic growth.
Upon arrival, however, asylum seekers face myriad problems which hinder their integration into the labor market. Many find that the qualifications they held in their home countries are no longer recognized, and even those who hold valid qualifications are faced with a language barrier; the vast majority of the refugees who have reached the European Union in the last few years lack basic competence in their host country’s language. The process of applying for and being granted asylum is also a protracted one, often lasting around six months. In some European nations, it is even longer, as the sudden influx of refugees has led to a huge backlog of unprocessed claims. In many countries, asylum seekers are not normally allowed to work while their claims are being processed, increasing the risks of demotivation and deskilling. Even in Germany, which is known for the efficiency of its bureaucracy and labor market, only around 500,000 of the 1.2 million refugees had completed the first stages of the integration process and signed up as job seekers by March 2017. Of these refugees, a mere 12% had found employment.
Photo courtesy of Freedom House
If past experience is anything to go by, the full economic integration of refugees will prove an arduous task. Studies from many developed countries have repeatedly shown that refugees tend to earn less, have worse employment prospects and hold lower occupational status than native workers or economic migrants. Even in Sweden, a country with a relatively strong track record of integrating refugees, a study of those arriving between 1997 and 2010 found that fewer than 20% had found employment after one year. Ten years down the line, only between 50% and 60% were working, significantly below the corresponding figure for Swedish natives.
However, there is much that nations can do to help refugees integrate more seamlessly into society. For instance, Germany’s integration law, which was approved by its parliament in 2016, provides culture and languages classes for newcomers. This policy is similar to Sweden’s longer-standing introduction program, which includes an interview with the Public Employment Service (PES) in order to create a tailored action plan for each refugee, and provides personalized training, employment assistance, and financial and housing support. Special measures in the labor market could also be considered, in order to overcome any initial jitters employers may have about hiring refugees. Wage subsidies for firms who hire refugees have proven effective in several Nordic countries. The experience of refugees in the Netherlands has shown that work at temporary agencies can be another useful stepping stone, helping new arrivals adjust to labor market conditions. Enabling asylum seekers to hit the ground running and apply for jobs upon arrival, provided certain conditions are met, would also help; this is currently the case in Sweden, for example.
Policies which boost the labor market participation rate more generally will likely have an outsized effect on refugees. Improving the geographical mobility of migrants, making labor markets suppler and thus more adaptable to tumultuous technological change, and avoiding welfare traps due to an overlap between the benefit system and the tax system would all help refugees get their foot on the employment ladder.
Photo courtesy of Freedom House
While the successful integration of refugees poses a challenge to policymakers, it could pay dividends in the long term. Europe is ageing fast, with the old-age dependency ratio in the EU-28 forecast to soar from 28.8% in 2015 to 50.3% by the middle of the century. Many pension and healthcare systems across the continent are already creaking under the strain of having to provide for so many retirees. The most recent wave of refugees arriving in Europe could help alleviate this burden to an extent. Most refugees are young: Around 50% of those who have sought asylum in the EU over the last few years are between 18 and 34, while nearly one-third are younger than 18. They are also likely to have higher fertility rates than native-born citizens. Both of these factors should help slow the rate of ageing and lessen the impact of the transition of our greying societies. The IMF estimates that the current influx of refugees could reduce pension spending by 0.25 percentage points of GDP by 2030 for the EU as a whole, and by more for large recipient countries.
Whatever the net impact of refugees on the macroeconomy, this question is far from being at the forefront of people’s minds. Instead, most people are much more preoccupied with how refugees could affect their daily lives, and whether they will have to compete with them directly for jobs. This fear helps partially explain the recent rise in popularity of far-right parties, such as the Swedish Democrats in Sweden, or the AfD party in Germany. On this issue, concerns are only partly justified. Research has shown that displacement effects can exist, and domestic workers with similar skillsets to newcomers are more likely to lose out, while other types of workers gain. However, the time horizon, state of the economy and the flexibility of labor markets are all key factors, and these effects are rarely felt in the long run in growing economies where workers can move smoothly between jobs.
Over four years after he arrived, Avindar has integrated well into Danish society. He is training to become an IT technician, and in the meantime works part-time at a local supermarket to help pay the bills. He has learned the local language, has a close group of Danish friends, and pays taxes. Avindar is, in short, one of the lucky ones. He is young, and his family was wealthy enough to travel directly to Denmark, rather than embark on a perilous journey across the continent. The Danish economy is also fortunate to have him. By learning a trade, working and paying taxes, Avindar is making a positive contribution to his host country. The economic impact of many others may be less clear-cut. But the experience of people like Avindar shows that, with a well-functioning labor market and the right public policies in place, it is possible for refugees to become integrated into both society and the economy.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of FocusEconomics S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. FocusEconomics S.L.U. takes no responsibility for the contents of third party internet websites.
Author: Oliver Reynolds, Economist
Date: August 21, 2017
Tagsoil pricesprecious metalsTurkeyEnergy CommoditiesLatin AmericaTradeEmerging MarketsOilIMFVietnamCryptocurrencyAustraliaItalyCompany NewsInvestmentForexBitcoinMajor EconomiesJapanMexicoUSAConsensus ForecastMENAOPECNordic EconomiesExchange RateIranCommoditiesInflationUnemployment rateInfographicFranceGermanyUnited StatesCanadaGreeceBanking SectorPortugalSouth AfricaEurozoneUKArgentinaG7Economic Growth (GDP)Eastern EuropeAfricaBrazilBase Metals CommoditiesEuro AreaTPPColombiaEconomic DebtHousing MarketSub-Saharan AfricaUkraineUnited KingdomAgricultural CommoditiesHealthcareAsiaPrecious Metals CommoditiesSpainBrexitVenezuelaChinaRussiaTunisiaEuropean UnionIndiaGold
Costa Rican GDP is forecast to grow 2.8% in 2019 and 2.8% again in 2020. Read more: https://t.co/q16b5EQF4o
11 hours ago
Central America: Despite ebbing U.S. momentum, the strong U.S. labor market should continue to support remittances… https://t.co/sU8LYPh1Cp
13 hours ago
Congratulations to the top forecasters for Asia-Pacific countries in 2018. We've just announced the winners of the… https://t.co/PgojWwtVGv
14 hours ago
15 hours ago
FocusEconomics analysts project Brazilian growth of 1.8% this year, which is down 0.3 percentage points from last m… https://t.co/lrrjMFnv8o
15 hours ago
- Which will be the most miserable economies in 2019?
- Only by freeing Nigeria from its dependence on oil can Buhari truly take Africa’s giant to the next level
- An Analysis of President Trump’s 2020 Budget
- The World's Fastest Growing Economies
- President Sebastian Piñera aims to bring his elder brother’s private pension system into the 21st century
- Brexit Scenarios: Consensus of 14 Economic Analysts
- Sweden just formed a new government and approved its 2019 budget: what does it mean for the economy?
- Which countries have the highest public debt levels?
- Predictions for the global economy in 2019 from 13 experts
- Gurdgiev: Predictions for the global economy in 2019
- Daniel Lacalle's ideas for 2019: Change of cycle.
- Vietnam Poised to Profit from Free Trade Agreement Opportunities
- Canada in 2019: Interview with a Top Economic Forecaster
- Pound Sterling 2019 Exchange Rate: Projections from Leading Analysts
- Expectations for Latin America’s Economy in 2019
- Ethiopia and Rwanda: From Destruction to Development
- Key commodities trends to look out for in 2019
- What drove Gulf neighbors to bail out Bahrain?
- The Four Financial Bubbles and Their Impact on the U.S. Economy
- The Poorest Countries in the World
- Italy: The sick man of Europe
- What does Bolsonaro's presidential win mean for Brazil's economic outlook?
- The World's Top 10 Largest Economies
- In Latin America, taxpayers are tapped to shoulder the burden of a bank bailout
- How and when will the next financial crisis happen? - 26 experts weigh in
- China and Africa: A partnership under the spotlight
- The conditions are ripe for a Global Financial Crisis 2.0
- Uncertainty, instability and fear haunt a generation of Argentinians
- 5 things: Brazil's economic downturn and what to expect going forward
- 5 things: What to expect for Mexico's economy in 2019
- Emerging Market Currency Crisis: Everything you need to know
- Which ASEAN countries are most exposed in the event of a U.S.-China trade war?
- 75 Top Economics Influencers to Follow
- Emerging Markets Economic Outlook 2018 and 2019
- The Faces Behind Latin America’s Key Institutions
- 2019 Economic Outlook for the Top Oil Producing Countries
- Is your cup of coffee about to get more expensive going in to 2019?
- The Economic Implications of an Aging Global Population
- Can the Wisdom of the Crowds predict the results of the 2018 World Cup?
- Railway Mania: The Largest Speculative Bubble You’ve Never Heard Of
- From Riches to Rags: Have Cryptocurrencies Crashed for Good?
- Investment looks to Latin America, but forecasts are not encouraging
- Turkey: Erdogan has cemented his grip on power - now what about the economy?
- How can Latin America’s business environment benefit from technological change?
- Mexico: A look at the past, present and future as elections yield AMLO victory
- Italy’s New Populist Government and the Eurozone: Prelude to a Crisis?
- Latin America moves toward increased integration as U.S. protectionism grows
- How can Latin America increase productivity without affecting the quality of employment?
- How will Saudi Arabia's economy benefit from lifting the women's driving ban?
- Which countries are the most prepared for the upcoming digital revolution?
- India Under Pressure from the U.S. on Trade Policy
- The Story of Steel
- Latin America is the World Leader in eCommerce Growth Despite Serious Challenges
- What the TPP means for trade in Latin America
- Elections in Russia: Analysis and Implications
- Nearly a Third of Latin Americans Have No Right to a Pension
- A Look at Healthcare Models Around the World
- Newly-elected Chilean President Sebastian Piñera faces a myriad of challenges - economic and otherwise
- The Economic Effects of Trade Protectionism
- Regional Disparity: The Dark Side of Inequality in Latin America
- Coal: The story of the world's most abundant fossil fuel
- Gold: The Most Precious of Metals (Part 3)
- Venezuela's Electoral Conundrum
- Trump's 1st Year: 95 Analysts Surveyed on U.S. Economy
- The Latest on China and What's in Store for 2018
- An in-depth look at the Eurozone’s booming economy and the challenges that lurk in the shadows
- Increasing poverty in Latin America takes a breather thanks to improving economic dynamics
- Is Spain doing enough to address its high youth unemployment rate?
- Has Latin America gone far enough in reducing barriers to international trade?
- Commodities Outlook: Oil, Natural Gas, Coal, Lead & Tin
- 21 experts tell us what the future looks like for cryptocurrencies and blockchain
- Turkish lira plummets to all-time low on Erdogan’s monetary feud and tense U.S.-Turkey relations
- Copper: The first metal mastered by man
- The Mercosur-EU Free Trade Agreement: Obstacles & Opportunities
- Nigerian Economy Still Treading Water Thanks to Oil Sector
- Elections in Chile: What the results could mean for the economy
- QE’s Untold Story: A Chart That Fed Correspondents Need To Investigate
- Holland’s fragile one-seat majority government targets economic growth at the expense of fiscal sustainability
- South Africa: Economy at a tipping point?
- Latin American Commodities: What’s behind the increase in demand and prices?
- Is the UK really "shackled to a corpse"?
- Spain-Catalonia: 7 economic experts weigh in on how the situation will affect the outlook
- How well is Spain's labor market doing since the crisis?
- Which countries will have the highest and lowest inflation in 2017?
- How vulnerable is Latin America to economic crises today?
- Iron ore facts and common questions answered
- The bulging economic costs of obesity
- How much investment is needed to salvage Latin America’s crumbling infrastructure?
- A Look at the Potential Impact of Brexit on the Dutch Economy
- Emerging Markets Are Kicking Into Higher Gear In 2017
- Why is foreign direct investment in Latin America falling again?
- Are Central Banks Nationalising the Economy?
- Bounty or burden? The impact of refugees on European economies is far from clear
- What’s the future of U.S.-Latin America trade relations?
- Taxes or cutbacks? Latin America's challenge of sustaining spending without causing debt to skyrocket
- Are uranium prices making a comeback?
- Taxing the Economy: Achieving a Delicate Balance
- How will Latin America’s upcoming lengthy election cycle affect the reform agenda and credit ratings?
- How will emerging market economies perform in 2017?
- Chilean Economy in Focus: Interview with Senior Economist of the Chamber of Commerce of Santiago
- CEOs Rank Top Economies for Growth Opportunities
- The Mobile Ecosystem & Latin America's Economy
- Prospects and Challenges for the Global Economy: Interview with Tim Cooper from BMI Research
- How will the Fed reduce its balance sheet & and how will the ECB end QE? - 19 economic experts weigh in
- Thoughts on "unwinding" QE from Frances Coppola
- The Fed and ECB at a crossroads: Unwinding QE
- Spain: The economy that continues to silence the critics
- Latin America: The Most Unequal Region in the World
- The History of OPEC: Has it been a Success?
- FocusEconomics Announces 2017 Analyst Forecast Awards Winners
- Latin America’s rising unemployment bucks nearly decade long trend
- Escape from the Central Bank Trap by Daniel Lacalle
- China's economic rebalancing act: What to look out for in 2017
- Driving Growth in Latin America: Challenges & Priorities
- Is the Global Economy Rebalancing?
- Commodity exporters face challenging times
- Recent Global Events Facilitate Mercosur-Pacific Alliance
- 23 economic experts weigh in: Why is productivity growth so low?
- Mexico's outlook as Trump nears 100-day mark
- Interview with Oxford Economics Senior Economist on implications of the possible outcomes of the French Presidential Election
- The anxiety of the small saver in a world of negative interest rates
- Brexit negotiations. Between Uncertainty and Urgency
- An Economic History of the EU from El Blog Salmón
- Baby Boomin': Implications of high population growth in Latin America
- Survey of International Economists Predicts a Le Pen Defeat in French Elections, Says Macron has Best Economic Plan
- Spain in a global context: developed economy with some challenges
- How much is crime costing Latin America?
- Predictions & Estimates from Economist Daniel Lacalle
- What economy will the new Dutch government inherit?
- “The data is not a true reflection of reality in India” Interview with Société Générale India Economist
- What are the prospects for Emerging Economies in 2017?
- What to expect in Asia for 2017
- Top Economics & Finance Blogs of 2017
- 4 Key European Elections That Will Impact the Economy in 2017
- Latam to Resume Moderate Growth in 2017 but Important Risks Plague Outlook
- How are security concerns and political chaos affecting Turkey’s economy?
- Global growth to edge up in 2017
- Set to breach targets again? Debt and deficit outlooks for Southern European Eurozone countries in 2016 & 2017
- What does Donald Trump mean for the U.S. economy?
- How will emerging markets perform in 2017?
- The economic impact of a break in U.S.-Philippines ties
- Trump election: Base metals surge due to infrastructure plan
- 5 updates on the Venezuelan economic crisis
- Canada: When your neighbor’s house is on fire…
- Short-term pain before long-term gain? A look at French labor reform and economic growth
- Asia: Unremarkable growth & unfulfilled promises?
- How India's latest monsoon is affecting the economy
- Innovation in Latin America: Potential Goes Untapped Due to Weak Economic Conditions
- Russian economy update in wake of OPEC deal announcement
- The Wisdom of the Crowds and the Consensus Forecast
- Can the peso predict the U.S. election results?
- There's no end in sight to the Venezuela crisis
- A Look at the European Union Political Calendar
- Survey of international economists shows uncertainty surrounding elections damaging U.S. growth prospects
- FocusEconomics partners with leading online statistics provider Statista
- China: Recent postive economic data may be papering over the cracks
- Sub-Saharan Africa's 2016 & 2017 growth rates
- The Italian Dilemma: Weak banks pose risk to already faltering domestic demand
- How much money do migrants from Latin America send home?
- The U.S.' (Not So) Mysterious Case of the Missing Men
- What to expect from the G20 economies by 2020
- The Pain in Spain: Robust GDP growth cannot mask the persistent structural deficit