3 Dec 2015

The economics of the refugee crisis

Marieke writes*

It seems to me that the current refugee crisis has divided European society into two rival camps: those who are in favour of hosting refugees and those who are against doing so. The essential problem of this societal polarization is that these two camps, united by principles rather than argument, are shouting monologues at each other rather than than having an open debate. The refugee crisis demands a debate on a higher level, a debate that can fuel the policy (re)formation that is necessary. Being a crucial aspect of this debate, let us have a brief look at the economics of the refugee crisis.

The refugee crisis and growth

When looking at economic growth in the sense of GDP growth, the overall prospects seem promising. The European Commission’s economic forecasts recently concluded that the arrival of the estimated three million refugees by the end of 2016 will generate increases of annual GDP growth of 0.2-0.5 per cent in European countries affected by the inflow of migrants (Stone 2015). Although annual government spending on the hosting of refugees increases, Schieritz argues that the extra spending will not simply disappear: it will foster a growth of domestic demand. More competition on the unskilled labour market, on the one hand, can increase market efficiency. One potential pitfall is that the inflow of generally unskilled labourers will push the wages for unskilled work downwards (Schieritz 2015). This effect, however, seems limited (Haas 2014). Regardless, in order to protect employment in lower wage sectors and to allow refugees to integrate into the labour market, Sinn argues that the minimum wage could be decreased and that the government can compensate for this loss with individual subsidies to wages (Die Zeit 2015).

The refugee crisis and quality of life

The literature that has been dedicated to migrants’ effect on the hosting country’s economy is far more extensive than the literature on the effects on quality of life. Bodewig writes that given the horrific conditions in their countries of origin, Syrian refugees are likely to stay for a while. This means that once short-term humanitarian emergency needs are met, the refugees require sustainable housing, schooling and employment solutions (Bodewig 2015). Enabling migrants to enjoy the same quality of life as citizens of hosting countries requires substantial government investments.

These investments might be hard to sell to a population that fears losing its jobs, but development economists seem to provide the baseline argument for doing so. As Sen, among many other economists, has repeatedly argued, development is essential to growth, for an unhealthy, unskilled labour force will not be productive on the long term (Sen 1999). Extending this claim to the refugee crisis means that if governments want to reap the fruits of the inflow of labourers, they will have to invest in them. In this sense, the refugee crisis brings an interesting investment opportunity to European countries.

All in all, it is essential that further research be done into the issue so that the polarized discourse can become an informed debate.

Bottom line: The inflow of refugees into Europe could have positive effects on economic growth, provided that governments invest in the quality of life of the refugees.

* Please comment on these posts from my growth & development economics students, to help them with unclear analysis, other perspectives, data sources, etc.

References
  • Bodewig, Christian. Is the refugee crisis an opportunity for an aging Europe? 21 September 2015. http://www.brookings.edu/blogs/future-development/posts/2015/09/21-refugee-demographics-europe-bodewig (accessed November 16, 2015).
  • Die Zeit. "Wir werden leichter an eine Putzkraft kommen". 08 October 2015. https://www.cesifo-group.de/de/ifoHome/policy/Staff-Comments-in-the-Media/Interviews-in-print-media/Archive/Interviews_2015/medienecho_ifointerview-zeit-10-2015.html (accessed November 16, 2015).
  • Haas, Hein de. Human Migration: Myths, Hysteria and Facts. 24 July 2014. http://heindehaas.blogspot.be/2014/07/human-migration-myths-hysteria-and-facts.html (accessed November 16, 2015).
  • Schieritz, Mark. Wie viele Flüchtlinge können wir uns leisten? 10 Septemnber 2015. http://blog.zeit.de/herdentrieb/2015/09/10/wie-viele-fluechtlinge-koennen-wir-uns-leisten_8840 (accessed November 16, 2015).
  • Sen, Amartya. Development as Freedom. New York: Anchor Books, 1999.
  • Stone, Jon. The Refugee crisis is actually having 'sizeable' economic benefits in European countries, EU says. 5 November 2015. http://www.independent.co.uk/news/world/europe/the-refugee-crisis-will-actually-have-a-sizable-positive-economic-impact-on-european-countries-eu-a6722396.html (accessed November 16, 2015).