The Real Economic Cost of Accepting Refugees

This blog post is based off an op-ed by Michael Clemens originally published by Refugees Deeply.

The arrival of more than a million refugees and migrants in Europe has brought widespread concern they will become an economic drain on the countries that welcome them. When economists have studied past influxes of refugees and migrants they have found the labor market effects, while varied, are very limited, and can in fact be positive.

In the United States, the average refugee becomes a net contributor to public coffers eight years after arrival. The assistance they received when they arrived was, in purely monetary terms, an investment with a positive return. Countries that actively deter asylum applicants from working are making the decision to increase their net fiscal burden.

That study found refugees actually pay back more in taxes than what they receive in benefits—about $21,000 more in the first 20 years in the United States.

There can be multiplier effects as well: not only do refugees work as employees, but many open their own businesses and become employers, expanding their positive impact on the economy by creating jobs. In Turkey, one recent study found Syrian refugees have invested almost $334 million into the Turkish economy, with more than 10,000 Syrian-owned businesses employing an average of 9.4 workers.

And, there is evidence showing that when a small number of native workers are displaced by new migrants entering the workforce, those native workers end up in higher-paying, higher-skill jobs. Native workers gain a comparative advantage through their language skills and ability to specialize, adapting to the displacement to ultimately earn more—a recent study estimated a 3 percent bump in earnings—in a better job.

More than anything else, the economic effect of migrants and refugees is a decision made by host countries. In the context of large migrant flows, labor market policy is a form of refugee policy.

For example, Sweden saw just 25 percent of Somali refugees (age 25–64) employed in the formal economy in 2010, versus 57 percent of Somali refugees in the United States who were employed—allowed to do so by conducive right to work policies.

In our recent research, we looked at large flows of people from Algeria to France in 1962; from Cuba to Miami in 1980; from the former Soviet Union to Israel in the 1990s; and from the Balkans to the rest of Europe in the 1990s. Each of these episodes brought a sudden flood of new workers on a scale comparable to recent flows to Europe, offering a chance to compare what happened in jobs and occupations where the migrants clustered.

Our research found that in two instances the arrival of migrants had either no effect or a positive effect on the local labor market:

• The arrival of 125,000 Cubans into Miami had no effect on unemployment and was followed by a small rise in average low-skill wages.
• And the movement of Soviet refugees into Israel, enough to raise the country’s population 12 percent in just four years, saw a substantial rise in the wages of the occupations they crowded into.

There was evidence, albeit minimal, of a short-term increase in native worker unemployment—seen in the sudden movement of over a million people from Algeria to France, and the movement of Balkan refugees across Europe.

Looking at the current crisis, the labor market effects on Germany appear to be minimal so far.

Almost all refugees receive substantial public assistance when they arrive and years afterward. Countries vary in how much of this assistance refugees are asked to pay back later. But by far the most important determinant of the net fiscal effect is how quickly refugees integrate into the labor market and start generating tax revenue.

No one can understand the economic consequences of large migrations without careful economic research on the ripple effects—which are subtle, invisible, delayed. When politicians brush this aside they are being duplicitous, or at least disingenuous.