European economies could experience a significant long-term boost from accepting more refugees from war-torn countries like Syria and Iraq. But high short-term costs and inflexible labor markets could limit the benefits that both migrants and their European hosts derive from migration.
Migration to Europe from war zones in the Middle East and elsewhere increased significantly in 2014 and 2015.
According to the UN’s refugee agency, more than 8,000 migrants a day are entering Europe, with the potential for millions more to follow as long as the Syrian civil war and other conflicts continue.
There are clearly high up-front costs to taking in more refugees from the Middle East and other war-torn regions. Expensive services like housing, schooling, food, and healthcare all have to be delivered quickly and humanely. Germany, which agreed to accept as many as 500,000 refugees a year, already faces logistical challenges as small towns try to accommodate the massive influx of migrants.
A recent series of articles for GRI examined the toxic political debate surrounding the migration of Middle Eastern refugees into affluent European economies. But despite the high costs and political backlash, the economic benefits that Europe can derive from accepting the Middle East’s migrants could be significant.
1. An influx of refugees will bolster Europe’s shrinking populations
Labor is a critical input into economic growth. As their populations remain flat or decline, many European economies will require an injection of foreign workers in order to avoid labor shortages and maintain current levels of growth, as well as to fund future government spending on entitlements like health care and pensions.
Much has been written about how the flat or shrinking labor markets in Western Europe could benefit from the influx of foreign refugees. Less acknowledged is the fact that less affluent Eastern European nations face an even faster population decline. According to United Nations estimates, the populations of Hungary, Croatia, and Serbia all declined at a rate of at least 0.3% between 2010 and 2015.
While most of those fleeing Syria’s civil war and other conflicts are low-skilled workers, it is also clear that many are highly educated. This “brain drain” of high-skilled workers escaping conflicts in Iraq and Syria is so severe that the Islamic State is actively campaigning to prevent doctors, engineers, and other professionals from fleeing to Europe.
Taking full advantage of the influx of refugees will require substantial reforms to Europe’s rigid labor markets. Many European nations built substantial legal barriers to employing foreign workers. High minimum wage laws will prevent businesses from rapidly absorbing relatively low-skilled foreign workers into the labor force. And powerful European labor unions could prevent even the highly-skilled from finding work.
Faced with legal exclusion from gainful employment, refugee communities could become centers of poverty, crime, and potential radicalization. There is some evidence that this exclusion explains the rise of radicalization in migrant communities in France and other European nations.
Luckily, the best available evidence also shows that most immigrants do not negatively impact the economic institutions of the host country, at least in the United States.
2. There are other, potentially huge, economic benefits from migration
Besides staunching Europe’s looming population decline, a large influx of migrants from the Middle East and elsewhere could bestow additional benefits on receiving countries.
Michael Clemens, an economist at the Center for Global Development, estimates that the global gains from free labor migration are 50 to 150% of world GDP.
Much of these gains occur simply by an emigrant moving to a country where his skills can be used more productively, with only limited negative effects on the wages of similarly-skilled domestic workers. Additional gains come from migrants expanding the size of the market and freeing up resources for higher-value activities.
Other economists acknowledge that a massive inflow of migrants would make generous state-provided entitlements, such as those in most European welfare states, unsustainable. But as economist Bryan Caplan argues in Time magazine, there are creative approaches to deal with this problem. For instance, migrants could be denied benefits for a period of time or until they paid a given amount in taxes.
Some European towns are indeed struggling to accommodate the large numbers of migrants. But Amy Wang, writing for the Atlantic, cites an official from the Berlin Refugee Council who described the problem as logistical in nature, rather than financial: it is an undeniable challenge to find accommodations and follow-up services for 200,000 new refugees in Germany each month.
But most of these migrants are not charity cases, and will integrate into Europe’s labor markets unless artificial barriers keep them out.
3. Migration to Europe will alleviate more suffering than foreign aid
Analyses of the European refugee crisis often stress that the only way to stem the flow of migrants is to deal with the sources of the problem: the civil war in Syria and the fights against Isis in Iraq and the Taliban in Afghanistan. This claim, while true, downplays the difficulty of ending these conflicts. Russia’s entry into Syrian civil war, for example, virtually guarantees a longer, bloodier fight.
An alternative approach is to increase foreign aid to Syrians, Afghanis, and others fleeing war zones. But simply allowing migration out of war-torn Syria and Afghanistan will accomplish more than foreign aid.
This is partly because foreign aid is often directed through inefficient or corrupt governments, rarely reaching those most in need of help. And the fact that the regime of President Bashar al-Assad in Syria, and that of the Islamic State, are actively attacking their citizens should make western governments wary that their foreign aid will reach those in need.
In contrast, allowing refugees into European countries where they can live in safety and put their skills to more productive uses immediately increases their quality of life. And migrant’s remittances—the money that they send home to their friends and families—dwarf state-provided aid and are often better targeted at individuals who are actually in need.
Large-scale migration thus benefits all sides: the migrants as well as the host country and the country of origin.
