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Since the tumultuous series of events known collectively as the Arab Spring in Tunisia, Egypt, and Libya transpired in 2011, protests in Syria have have resulted in military intervention on behalf of President Assad’s government. As the nation fragmented into a plethora of factions including Assad supporters, rebel groups, ethnic groups, and Islamic extremists, a chaotic situation was set into motion. Displaced citizens began to flood into neighboring Turkey and Lebanon by the thousands and soon enough, Israel and Jordan pledged to absorb several thousand refugees from certain ethnic groups. In August of 2012, the first wave of refugees arrived in the European Union as a boat carrying 124 landed in Italy. Refugees migrated to countries as far from Syria as Uruguay and the United States; by 2015, they began coming in droves to the European Union. Recently, terrorist attacks committed by the Islamic State, a beneficiary of the mayhem produced by the Syrian conflict, have resulted in anti-refugee sentiments driven by fear. Consequently, much of the popular discussion surrounding refugee accommodation has eschewed an economic analysis for national security questions. As nations, including the United States, debate the ramifications of accepting more refugees, it is imperative that inquiries into the economic impacts be made lest the crisis be looked upon as a one dimensional issue.

Overall, the majority of European Union officials appear to believe that the refugee influx will yield primarily beneficial fiscal impacts on host nations while also providing slightly less positive effects for nations which have served as mere transit points for migrants. As recently as late 2015, officials at the European Commission have stated that the great influx of people to the bloc from Syria and other conflict zones is likely having a positive effect on growth, employment rates, and long-term public finances in the most affected countries. The Commission’s autumn economic forecasts from 2015 project that the expected three million refugee arrivals by the end of 2016 will generate increases in annual GDP growth ranging from 0.2 to 0.5 % in EU countries affected by the crisis. Despite this, assessing the economic impact of the refugee crisis is particularly challenging due to the mobile nature of migrants, their registrations in multiple countries, the uncertainty of how long they will stay, and problems in detecting how quickly they will enter the labor market. Because of these difficulties, determining a long-term impact is near impossible. Therefore, all claims are merely predictions for potential consequences. In this analysis, emphases on the crisis’ impact on public finances, labor markets, and internal migratory patterns of host nations will be made. Furthermore, consideration will be given towards the utilization of particular labor market adjustment programs that host countries have and/or can use in order to ensure a relatively quick adaptation of migrants to their new communities.

Regarding the question of the crisis’ short term impact on the public finances of host countries, it is widely believed that government spending will yield a demand stimulus; however, although most of the refugees are fairly young and have long working lives ahead, it is likely that it will be a while before refugees pay more in taxes than they receive in state support. Short-term expenditure required to provide support to newly-arrived asylum seekers can be substantial. Such includes humanitarian assistance to provide food and shelter and basic income support; up-front expenditures associated with necessary language training and schooling; steps to identify the skills of migrants; and, the expenditures associated with processing asylum claims and enforcing returns. It may be tempting to believe that the refugees’ skill sets will ultimately compensate for initial public spending. However, studies conducted by the International Monetary Fund emphasize the differences in ability between refugees and other legal migrants. These studies use existing immigrants to Europe from Afghanistan, Eritrea, Iran, Iraq, Somalia, Syria and the former Yugoslavia as proxies for the latest wave of refugees, since many recent refugees have come from those countries. Compared to immigrants from other nations, citizens of these countries are 17 percentage points more likely to rely on benefits as their primary sources of income and 15 percentage points less likely to be employed, even after accounting for factors such as age, education, and gender. Although the gap reportedly shrinks as time passes, it is still present for refugees who live in their host countries after 20 years. These barriers suggest that it will be a while before refugees contribute more through taxes than they receive in state support. A separate study of refugees in Australia found that they paid less in taxes than they received in benefits for their first 15-20 years of residency. Although there is a degree of evidence which asserts a fair amount of skills existing among the refugees, the redistribution models of many European countries will likely ensure that, as long as the average refugee remains poorer than the typical native, refugees will receive net transfers.

Despite these gloomy figures, it is perhaps a tad bit narrow to consider fiscal expenditures too heavily given the youthful statuses of most asylum seekers. As refugees age and presumably enter the workforce, they are projected to boost annual output by 0.1% for the European Union as a whole and 0.3% for Germany (a major migrant absorber) alone. Furthermore, the addition of these younger  workers will probably aid in a reverse of the trend of augmenting state pension costs as a share of GDP. Without immigrants, economists warn, western European nations could soon struggle to pay pensions and care for its elderly. About one-third of Germany’s population will be older than 65 by 2060. The number of working-age people could shrink by one-third to 34 million. Economists such as Thomas Piketty affirm that the influx of younger migrants will allow Europe to alleviate its underfunded pension dilemma by about 12% over 20 years as these workers join the labor market. Naturally, such figures are merely speculation as the true effects on public finance can be affected by how many more refugees arrive, how quickly their asylum applications are processed, and how soon they find jobs upon arrival. Nonetheless, we ought not to let the temporary effects of greater public expenditures deter us from considering the long term benefit of a potential source of workers to replace Europe’s aging native population.

As far as labor markets in host countries go, evidence suggests that refugee migration has only a marginal effect on wages and nearly no impact on employment itself. Naturally, unskilled laborers and existing migrants are the most vulnerable as they act as the closest substitutes for more recent arrivals. A collaborative effort produced by several Oxford professors and the Bank of England determined that a 10% rise in the share of migrants working in menial jobs, such as cleaning, depressed wages for such positions by just 2%. However, this initial wage dampening may ultimately prove to render long-lasting positive ramifications as less educated natives who are displaced typically switch to occupations that involve less physical labor and command higher salaries. Generally speaking, the presence of refugees is thought to augment employment competition with other preexisting groups of migrant workers and a crowding out effect with native workers is near nonexistent.  This is due, in a large part, to the notion that the vast majority of Syrian refugees who find work do so in the large informal economies characteristic of the region’s host countries. Because industries like agriculture, construction, food services and retail dominate the informal labor market, positions within them would likely not be missed by most native workers. Reliance on migrant workers is therefore necessary to fill menial positions as a growing educated labor force refuses to engage in certain sectors seen to be inferior for its educational level. Basically, wages will probably not be driven down for native workers as their employment will continue, albeit in less physically taxing professions, while employment opportunities among new and existing migrant communities could become far more competitive, especially within the informal economy.

Regarding the labor market for native workers, the lack of refugees’ impact may be attributed to a slowdown in internal migration within host countries. However, the decrease in internal migration is only about 0.4 % of the population while the number of refugees arriving amounts to about 5 %. There thus seems to be considerable net population growth without a corresponding effect on employment rates as employment remains unchanged by these migratory patterns.  Alternatively, firms located in regions hosting Syrian refugees are able to adjust the skill requirements of their labor demands to accommodate the increase in the supply of low-skilled employees. That being said, a great number of refugees may slow their rates of migration to primary host nations as competition among migrants of varying origins becomes a deterrent to further moves. The fact that entry rates for new migrants traveling to Europe have been on a consistent downward trend may give weight to such a conjecture. In any case, the majority of research point to the idea that natives of migrant host nations need not worry about the impact of refugees on job security as their livelihoods will likely remain intact for the foreseeable future.

As with employment, the influx of refugees has been deemed to not have impacted native internal migration to any meaningful extent; this fact bolsters the above assertion that native employment and wage levels will not be heavily affected. Internal migration is primarily driven by continental entry rate and often has little to do with exit rates which suggests that incumbent inhabitants are not inclined to relocate as a consequence of the refugee influx. This concept reinforces the principle that native citizens’ wages and employment will likely not be affected so long as they refrain from abandoning their industries. Hence, with the knowledge that educated workers and preexisting migrants are not likely to move, we can be more certain that the previously stated projections for employment will hold to be true. With that stated, it is terribly arduous to make conclusions on internal migratory patterns’ effects on employment until solid data on refugee adaptation to local labor markets becomes more evident.

Finally, it is imperative to discuss a number of initiatives introduced by host nations, as a result of the crisis, to ensure that migrants integrate into labor market structures. As a result of the crisis, Germany, a major refugee absorber, has devised temporary work opportunities in the public sector (for example community services and public infrastructure) for welfare recipients, including refugees. Participants receive welfare benefits and are paid a 1–2 euro hourly wage. Perhaps more effective than conditional welfare are the series of migrant training initiatives that have come about due to the sudden influx. During training, participants receive numerous payments including child care, examination fees, and work related travel grants. Germany has also offered aptitude tests, job search training, and skill provision to refugee workers. The training programs offered, which last for 4 weeks and provide specific occupational/technical training, are deemed to be extremely effective. Finland offers a special program designed to incorporate refugees into public economic life; it consists of an individualized sequence of training and subsidized employment with non-compliance sanctioned by reduction in welfare benefits. One of the most innovative, albeit risky, mediums of adjustment, is a start-up subsidy offered by the German government pending approval of a business plan by the appropriate external agency. As host nations adapt to the changing landscapes of their working populations, they will slowly gain experience in applying the most effective programs for the betterment of new arrivals.

Unequivocally, the Syrian Civil War has brought with it a series of shocking, yet not insurmountable challenges, to the portion of the world which chooses to absorb the surplus of human capital. Based upon available research, the influx of refugees will not likely endanger the employment statuses of most native Europeans. While competition among migrants within the informal economy is certain to intensify, the average European may rest assured of his relative job security. Additionally, while the initial extraction of state resources for the welfare of migrants is burdensome, the burden will likely subside as the workforce ages over time and is able to make valuable contributions to the economies of their host nations due to numerous government programs designed to maximize their productivity. Of course, in these seemingly radical political times, it becomes increasingly vital to remember the potential boon of new foreign workers to any nation, lest we allow nativism and prejudice to compromise economic opportunity.

Please reach out to Trevor Nesse at tnesse@princeton.edu for any questions, comments, or concerns.

Written by thefinancier

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