Increasing refugee numbers “could provide Europe with economic boost”

20 Jan 16

The increase in refugee numbers in Europe will place extra pressure on the public purse in the short term, the International Monetary Fund has found, but could have positive economic effects in the future if they are successfully integrated into the workforce.

 

In a review of the impact of the refugee crisis on the continent, the fund found that increased demand could also modestly boost gross domestic product in the short term, while rapid integration into the labour market had “important economic, fiscal and social benefits” in the longer term.

Managing director Christine Lagarde said that with appropriate policies, “the potential of refugees can be harnessed for the benefit of all”.

“The circumstances facing each country are different and so should be the response, but, ultimately, the refugee surge is a global challenge that must be met through global cooperation,” she said.

In its study, The Refugee Surge in Europe: Economic Challenges, the IMF found that while the costs associated with hosting refugees and asylum seekers in their first few years can be high, but this additional public spending will increase domestic demand and, in turn, gross domestic product.

The fund estimated that growth in GDP for the European Union as a whole in the short term will be modest ‒ around 0.13% in 2017. However in the main destination countries, Austria, Sweden and Germany, the impact on the public purse and in turn GDP could be sizeable.

The medium- and long-term impacts could be larger, the IMF said, however will depend on quick and successful integration into the labour market.

The fund estimated by 2020 the level of GDP could be around 0.25% higher for the EU as a whole and between 0.5% and 1.1% higher in countries with high concentrations of refugees.

To unlock these benefits however, refugees’ economic performance can’t fall short of that of the native population.

The IMF recommended a number of policy actions to overcome the typically slow integration of refugees, for whom language difficulties, ill-suited skills, legal barriers and geographic immobility can all affect their chances of finding work.

A flexible labour market, tailored introductory programmes, wage subsidies to employers and efforts to facilitate entrepreneurship, such lowering the administrative burden, were all suggested in the report.

It added that high entry wages and “welfare traps” could hinder integration, and raised the prospect of temporary and limited exceptions from minimum wage levels for asylum seekers, as well as providing incentives to switch from benefits to work.

The IMF noted the effect of integrating refugees into the labour market on the native workforce is usually small and that most refugees are flowing towards countries where unemployment is low.

If immigrants share similar skills to that of the labour force, it found there could be displacement effects and downwards pressure on wages as migrants integrate. But these were found to be limited in many studies and dependent on flexibility in the labour market and the state of the economy when refugees arrive. Immigrants can also increase native social mobility by pushing the domestic workforce upwards into better paid work.

The younger demographic of the refugees arriving in Europe could also to counteract the effects of Europe’s ageing population, the IMF noted. However, the arrival of refugees is likely to put pressure on the market for affordable housing and policies may be needed to encourage a response to this growing demand.

  • Emma Rumney

    Emma is a reporter at Cooking Recipes International. She also writes for in the UK.

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