Refugees are an economic benefit, not burden, to Europe

As Europe grapples with an unprecedented humanitarian crisis, Elizabeth Matsangou argues that extending a hand of asylum is not just morally correct, but economically beneficial

Refugees look on as German Chancellor Angela Merkel speaks to the media after she visited the AWO Refugium Askanierring shelter for refugees in Berlin, Germany
Refugees look on as German Chancellor Angela Merkel speaks to the media after she visited the AWO Refugium Askanierring shelter for refugees in Berlin, Germany 

Over the past year or so, Europe has witnessed the most pressing refugee crisis since the Second World War. Hundreds of thousands of people have fled from the brutality of the so-called Islamic State (IS) and persecution in Syria to seek asylum in Europe’s strongest economies, where they desperately hope to start life anew (see Fig 1). Not limited to Syria, among the crowds knocking at the EU’s gates are refugees from Somalia, Afghanistan and Eritrea. Also in the mix are economic refugees from countries such as Albania and Kosovo.

Throughout the widespread media coverage of the refugee crisis, the fears of both policymakers and the public have been voiced. It is commonly believed that refugees are harmful to host nations and drain precious state resources, as those seeking salvation require accommodation, healthcare, basic supplies, food and clothing. Another presumption is that the provision of employment to refugees takes jobs away from residents and drives wages down, while the inflow of thousands of children places pressure on a country’s education system. Yet there are various theories and examples that argue the contrary.

At present, Europe has an impending problem on its hands that could have disastrous repercussions: an ageing labour force and a declining birth rate

At present, Europe has an impending problem on its hands that could have disastrous repercussions: an ageing labour force and a declining birth rate. In order to maintain Europe’s economic growth and industrial output, an injection of young workers is desperately needed. According to the OECD, to avoid stagnation, it is imperative that the EU adds 50 million people to its workforce by 2060 (see Fig 2). Such a demographic shift is also necessary to fund the pensions of Europe’s expanding elderly population. An influx of people is what the region needs right now – and that is exactly what is currently being offered, albeit through unfortunate circumstances.

Ill-informed debate
The common misconception that refugees are a burden to host states is a dangerous facet in dealing with Europe’s present refugee crisis. It distorts the realities of the situation, while promoting both disdain and inaction. “These arguments are often advanced without recourse to evidence. Indeed, few economists have worked on refugees and forced migration, and governments do not have disaggregated immigration data that can show the economic impact of hosting refugees,” Professor Alexander Betts, Director of the Refugee Studies Centre at the University of Oxford, told World Finance.

In Betts’ 2014 study, titled Refugee Economies: Rethinking Popular Assumptions, it was found that the presence of refugees boosts a local economy significantly as a result of additional purchasing power, the creation of employment and the provision of human capital. Betts explained: “Refugees around the world engage with markets. Even in the most restricted circumstances of closed refugee camps and without the right to work, economic activity can be observed. Refugees engage in consumption, production, exchange, entrepreneurship and the development of capital markets. Much of our research suggests that whether refugees are a benefit or a burden depends not just on who the refugees are, but also on the policies of the host states. When they are given the right to work, access to capital and educational opportunities, they are likely to have the greatest impact.”

The research conducted by Betts and his team took place in Uganda, as the right to work and move around freely for refugees is markedly better there than in neighbouring countries. “One of our most striking findings was the entrepreneurship of refugees. Faced with new markets, new social networks and a new regulatory environment, people adapt even faced with significant constraints,” said Betts. “In Kampala, the capital city, for instance, we found that 21 percent of the refugees have businesses that employ other people and 40 percent of those employees are citizens of the host country. In other words, refugees were creating jobs. Many of the businesses were, even in refugee camps, highly innovative and networked into the structures of the global economy.”

Fig 1

The German example
A large number of Syrian refugees are headed towards Germany as the likelihood of employment there appears to be greater than elsewhere in Europe. In a nod towards the country’s well-known record of accepting asylum seekers, in September, Chancellor Angela Merkel announced that Germany would open its arms to at least 800,000 refugees this year alone. There is, of course, a humanitarian element involved in this welcome, because helping those in dire need is ‘the right thing to do’. There is also another angle, which has allowed Merkel to make such a bold move: the influx of refugees can be extremely advantageous for Germany’s matured economy.

A recent study conducted by Hamburg’s World Economy Institute found that Germany’s birth rate is now the lowest in the world and is declining faster than that of any other industrial country. According to immigration researcher Herbert Brücker in an interview with Deutsche Welle in 2014, around 1.5 million skilled immigrants are needed to sustain Germany’s state pension system; it is estimated that by 2060, two workers will be needed to support every retired person in Germany.

Obviously, simply opening national borders is not enough to successfully assimilate refugees into a society: helping them to earn a living is key, but it is not a simple undertaking. To facilitate, institutions such as the Confederation of German Employers’ Associations (BDA) offer businesses assistance in order to integrate refugees into the market legally and effectively. Dr Carmen Bârsan, an advisor for the Labour Market Department at the BDA, explained the complex and lengthy process: “First of all, we think it is very important to create effective labour market access for these people. Unrestricted labour market access means without a ‘priority test’ and without a work ban. On the grounds of toleration, asylum seekers should be allowed to stay a further six months after the permit of residence for German territory.”

The ‘priority test’ that Bârsan argues should be abolished only allows German companies to hire asylum seekers in the event that a suitable German resident is not available for employment.

Directed by Hungarian police officers, refugees make their way through the countryside after crossing the Hungarian-Croatian border
Directed by Hungarian police officers, refugees make their way through the countryside after crossing the Hungarian-Croatian border

“Another important point is that successful integration in the labour market requires acquisition of the requisite language skills,” Bârsan told World Finance. “For this reason, elementary language learning should be open to all asylum seekers and tolerated residents; work-related language learning should be further developed also.” The third prong of BDA’s proposal involves improved access to education and vocational training, but is not limited to the fulfilment of such exercises. “Following successful completion of company training or further vocational training, the residency of these young people should generally be secured for two years of practice in the profession. Those [who] cannot be retained directly by the business providing the training should be able to stay for at least one additional year, in order to search for a job during this period.”

While such measures are a costly enterprise, particularly when factoring in millions of people, doing so is economically advantageous for the host nation. Contrary to common presumptions, refugees actually contribute more in taxes than they obtain in governmental support. A study by the Centre for European Economic Research (ZEW) found that on average in 2012, foreigners in Germany paid around €3,300 ($4,050) more in taxes than they received in state contributions – the total surplus amounted to €22bn ($27bn).

There are further examples which illustrate that refugee workers actually increase wages for the local population. When Yugoslav refugees in Denmark began working in low-skilled jobs during the 1990s and the 2000s, rather than driving wages down as many expected, their presence made the economy more complex. Instead of filling such jobs, natives moved up the skills ladder to more specialised professions that were better paid and more productive. Then there is the case where Cuban refugees settled in Miami in 1980, during which time they gave a major boost to the city’s economy by providing unskilled labour in numerous industries, including hospitality, textile production and agriculture.

Fig 2

Ethical self-interest
In order to successfully assimilate refugees into local populations, facilitating employment is absolutely crucial. As Bârsan explained, this requires easing labour market restrictions, together with training and language learning opportunities for asylum seekers. Access to capital will enable new nationals to seek their own enterprises – which, as evidenced by Betts’ study, enables entrepreneurship among refugees. To secure the political will needed to conduct such exercises, locals must be certain that they also stand to benefit. “Here, it is important that infrastructure and social services, from schools to hospitals to vocational training, are allocated to refugees and local populations simultaneously. Ensuring locals share in the benefits of service provision to refugees is as important in host countries in Africa and the Middle East as [it is] in Europe,” Betts said.

Public outrage across Europe has pressured governments to do more to help alleviate the crisis. Consequently, individual member states have promised to take in more refugees, while the EU itself has pledged to increase the humanitarian assistance it offers. Yet there is a vital piece of the puzzle missing: EU leaders are still struggling to organise a joint response, and only through collective action can such a large problem be solved. Doing so is also necessary to uphold the very principles upon which the EU is founded; a crucial aspect in keeping the fabric of the union intact, and one that must not be underestimated. And aside from the ideological reasoning for collective action, there is the pragmatic, as refugees are entering the union through multiple points. Turkey’s inaction must also be addressed: as the gateway to Europe, it has the responsibility to coordinate with EU forces in order to control the flow of people, and must also tackle the growing trend of trafficking along its coastline.

Undeniably, humanitarianism in the form of accepting refugees sparks fears in a populace – fears of the economic burden, as well as of cultural disconnection and the supposed threat of increased criminality. Yet, as research and history shows, refugees are in fact highly adaptable, willing to work and offer a different set of skills and experience. When afforded the necessary opportunities to integrate into host labour markets, the impact can not only be mutually beneficial – it can be extraordinary. It is therefore imperative to educate the local populace and businesses on the benefits they stand to gain in helping those seeking asylum. Moreover, doing so seems to be the most feasible answer to an undeniable problem that is currently looming over Europe’s future, or as Betts put it: “Europe should primarily be welcoming refugees because it is a humanitarian and ethical imperative, but it is also in our own economic self-interest.”