Blog Post

How will refugees affect European economies?

What’s at stake: The continuing wave of refugees arriving at the borders of the European Union has sparked discussions all around Europe on how to deal with it, and what the impact will be on the European economies. We review the blog discussions on the economic impact of the refugees, and the challenges that they raise.

By: and Date: October 19, 2015 Topic: European Macroeconomics & Governance

The impact on public finances

The Economist points to a study in the OECD’s International Migration Outlook, which estimates the net fiscal contributions of migrants in 27 advanced countries. The net direct contribution of migrants tends to be smaller than that of native-borns, but this is because they pay less taxes, not because they claim more benefits. The main reason behind them paying less taxes is lower levels of employment, especially among women. The net fiscal contributions of migrants could therefore be increased by increasing their labour force participation. Their overall conclusion is that migration is “neither a significant gain nor drain for the public purse”

Mark Schieritz looks into the debate of how much refugees will cost Germany and cites estimates from RWI Essen, which amount to 10 bn EUR for 2015, and should be even higher for 2016. This is similar to the estimates from the German government, which estimates costs to amount to 12000 Eur per refugee per year. Nevertheless, despite the extra-spending related to the refugee crisis, the German budget surplus will rise from 0.3% of GDP to 0.6% of GDP in 2015. Schieritz explains this by stating that the extra-spending does not vanish in a black hole, but is actually stimulating internal demand in Germany. To what extent refugees will then be able to contribute to the sustainability of the welfare state in Germany will depend on many factors, including their ease of access to the labour market.

Holger Schmieding expects a small stimulus to aggregate demand. Extra spending on migration-related issues may amount to 0.3-0.4% of annual GDP in Germany and perhaps a few other places. Some further countries will likely quote it as a reason to exceed fiscal targets. On balance, the result could be a near-term stimulus to demand of some 0.2% of Eurozone GDP for 2H 2015 and probably 2016.

The impact on labour markets

After the wave of refugees arriving in Europe this summer, Lidia Farré, writing in the blog Nada es Gratis, reviews the existing literature on the labour market effects of migration. Most studies conclude that immigration’s effects on the wages and employment of native workers are either small or nonexistent. There is some evidence (Foged and Peri, 2015) that immigrants, who usually have a lower level of education and experience, displace native workers towards occupations with less manual work, and a higher amount of specialisation and possibly remuneration. Lidia Farré also quotes a couple of studies that indicate a complementarity between immigrant workers and qualified native women: many immigrants find jobs in the services sector, and in particular in the caring of children and the elderly. This increase in the labour supply in the domestic service sector allows qualified native women to substitute unpaid domestic work hours for paid work hours, and thus progress in their professional career.

Hans Werner Sinn, in an interview in Die Zeit discusses the winners and losers of the refugee wave and states that the intake of low-skilled workers will put the wages of domestic low-skilled workers under pressure (as an example, he cites the case of the United States). This is especially relevant for people who already have a migration background. Winners will be high-skilled workers, who will benefit from falling costs on simple tasks. The minimum wage hinders the integration of the refugees into the labour market. Hans Werner Sinn proposes to decrease the minimum wage generally, and to compensate for this with individual subsidies to wages (in the form of ‘activating social assistance’). This measure would allow people to work, and would cost the public less than subsidies for unemployment.

The impact on health care systems

On the perceived costs of migration on health care, and the specific claim that migrants increase waiting hours, Osea Giuntella, Catia Nicodemo and Carlos Vargas-Silva use micro-data from the United Kingdom and find no evidence that immigration increases waiting times in A&E (accident and emergency) and elective care. In fact, higher immigration in an area actually reduces waiting times for outpatients there.

Muenz, Straubhaar, F. Vadean and N. Vadean published one of the most comprehensive studies on the effects of European immigration and find that: (i) on demography and ageing, immigration has a positive effect, but will not be a silver bullet against population ageing; (ii) on wages and employment, the impact of immigration is on average negative, but very small. This suggests that the potential downward effect is offset by additional creation of employment due to economies of scale and spillovers (which increase productivity) as well as higher demand for goods and services (due to population growth through immigration: (iii) on public finances, the impact depends strongly upon the original ‘gate of entry’ or way of admission, the labour market access and – as a result of the former – the socio-economic characteristics of the immigrants; (iv) on balance of payments and trade, immigration has a small but positive impact on trade relations  between migrant receiving and migrant sending countries, as shown in the UK and Spain. The remittances represent a drain on the balance of payments, although they might support EU exports of goods too. (v) on growth, the impact of immigration strongly depends on the labour market performance of the migrants.

Experiences from other economies coping with immigration

Massimiliano Cali in a post on lavoce.info asks whether the wave of refugees is economically sustainable for European countries, compared to what has happened in countries like Lebanon, Turkey and Jordan, which are close to Syria and have seen massive immigration in recent years. As an example, the number of asylum seekers in Europe amount to 1.8 million, from 2012 to today. In the same period, more than 1.1 million syrian refugees registered with UNHCR (United Nations High Commissioner for Refugees) only in Lebanon. Massimiliano Cali points out that the economies of Lebanon, Turkey and Jordan continued to grow since the arrival of refugees. The Lebanese real GDP is estimated to increase by 2.5% this year, notwithstanding the negative effects that the war in Syria has caused in terms of investment and tourism in the neighbouring countries. A World Bank study shows that the wave of refugees has contributed significantly to Lebanese growth, increasing the demand for local services, financed through work salaries, savings, remittances and international humanitarian aid. Regarding the labour market, another World Bank study on the Turkish experience shows that Syrian refugees have somewhat substituted the local work force in the informal and part time sectors. However, employment rates of the Turkish workers increased in the formal sector, contributing to higher average wages. Fiscal sustainability can be increased through a better access to the labour market. He concludes that overall the experience in those countries shows that the European Union, with more coordination and solidarity, might be well equipped to absorb a number well above the one currently accepted.

The migration expert Hein de Haas told the Huffington Post in an interview that when it comes to the impact on European economies, a lot of research has shown that migration increases GDP because migrants add to the workforce. There’s very little real evidence to support the claim that migration is crowding out labour or bringing down wages. In public debates, the negative or positive effects of migration are generally exaggerated by adversaries or proponents of migration. He states that

“It would be outrageous to suggest that migration is either the cause of structural unemployment, which is one example, or the precariousness of labor. Or, on the other hand, to propose that migration is a panacea for structural problems like aging.”

More generally, Hein de Haas points out that what is really missing is an understanding that if you create societies that are wealthy, open and de-regularized, then you also create much more demand for migrant labor. These societies inevitably attract migration, and if you close the door, we know what you get — you get more smuggling and more irregular migration because there are no legal channels to match the labor demand.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

View comments
Read article More on this topic More by this author

Blog Post

The campaign against ‘nonsense’ output gaps

A campaign against “nonsense” consensus output gaps has been launched on social media. It has triggered responses focusing on the implications of output gaps for fiscal policy under EU rules, especially for Italy. But the debate about the reliability of output-gap estimates is more wide-ranging.

By: Konstantinos Efstathiou Topic: European Macroeconomics & Governance Date: June 17, 2019
Read article More on this topic More by this author

Blog Post

The inverted yield curve

Longer-term yields falling below shorter-term yields have historically preceded recessions. Last week, the US 10-year yield was 21 basis points below the 3-month yield, a feat last seen during the summer of 2007. Is the current yield curve a trustworthy barometer for future growth?

By: Inês Goncalves Raposo Topic: Global Economics & Governance Date: June 11, 2019
Read article More on this topic More by this author

Blog Post

The 'seven' ceiling: China's yuan in trade talks

Investors and the public have been looking at the renminbi with caution after the Trump administration threatened to increase duties on countries that intervene in the markets to devalue/undervalue their currency relative to the dollar. The fear is that China could weaponise its currency following the further increase in tariffs imposed by the United States in early May. What is the likelihood of this happening and what would be the consequences for the existing tensions with the United States, as well as for the global economy?

By: Inês Goncalves Raposo Topic: Global Economics & Governance Date: June 3, 2019
Read article More on this topic More by this author

Blog Post

The next ECB president

On May 28th, EU heads of state and government will start the nomination process for the next ECB president. Leaving names of possible candidates aside, this review tries to isolate the arguments about what qualifications the new president should have and what challenges he or she is likely to face.

By: Konstantinos Efstathiou Topic: European Macroeconomics & Governance Date: May 27, 2019
Read article More on this topic More by this author

Blog Post

The latest European growth-rate estimates

The quarterly growth rate of the euro area in Q1 2019 was 0.4% (1.5% annualized), considerably higher than the low growth rates of the previous two quarters. This blog reviews the reaction to the release of these numbers and the discussion they have triggered about the euro area’s economic challenges.

By: Konstantinos Efstathiou Topic: European Macroeconomics & Governance Date: May 20, 2019
Read article More by this author

Blog Post

Is an electric car a cleaner car?

An article published by the Ifo Institute in Germany compares the carbon footprint of a battery-electric car to that of a diesel car, and argues a higher share of electric cars will not contribute to reducing German carbon dioxide emissions. Respondents rejected the authors’ calculations as unrealistic and biased, and pointed to a series of studies that conclude the opposite. We summarise the article and responses to it.

By: Michael Baltensperger Topic: Energy & Climate, Innovation & Competition Policy Date: May 13, 2019
Read article More on this topic More by this author

Blog Post

All eyes on the Fed

Last week the US Federal Reserve left the federal funds rate unchanged and lowered the interest rate on excess reserves. We review economists’ recent views on the monetary policy conduct and priorities of the United States’ central bank system.

By: Inês Goncalves Raposo Topic: Global Economics & Governance Date: May 6, 2019
Read article More on this topic More by this author

Blog Post

Is this blog post legal (under new EU copyright law)?

How new EU rules on using snippets from news publishers and on copyright infringement liability might affect circulation of information, revenue distribution, market power and EU business competitiveness.

By: Catarina Midoes Topic: European Macroeconomics & Governance Date: April 8, 2019
Read article More on this topic More by this author

Blog Post

Secular stagnation and the future of economic stabilisation

Larry Summers’ and Łukasz Rachel’s most recent study documents a secular fall in neutral real rates in advanced economies. According to the authors, this fall would be even more marked in the absence of offsetting fiscal policies. Policymaking in a world of permanently low interest rates may be hard to navigate, especially in troubled waters. We review economists’ views on the matter

By: Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: April 1, 2019
Read article More on this topic

Blog Post

Considering intra-EU migration and countries’ net inflows

The authors here review the latest EU migration figures. Southern, eastern, and central Europe have broadly experienced net losses in cumulative intra-EU migration, while western and northern Europe have experienced gains. Spain and Italy, however, have still experienced gains in net migration inflows.

By: Jan Mazza and Akira Soto Topic: European Macroeconomics & Governance Date: March 28, 2019
Read article More on this topic More by this author

Podcast

Podcast

Backstage: Reforming the European asylum system

This episode of 'The Sound of Economics' features Bruegel visiting fellow Elina Ribakova in conversation with Marc-Olivier Padis and Jean-Paul Tran Thiet about the reform of the Common European Asylum System (CEAS).

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: March 7, 2019
Read about event More on this topic

Past Event

Past Event

Saving the right to asylum

How to improve the European asylum policy?

Speakers: Karen Mets, Nicolas Bauquet, Marc-Olivier Padis, Elina Ribakova, Jean-Paul Tran Thiet and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 5, 2019
Load more posts