How will the refugee influx affect Europe?

How will the refugee influx affect Europe?

As wave upon wave of refugees from the Middle East and North Africa break on the shores of Europe, there are no signs of ebbing.

Many questions remain as to how to deal with both migration in general and the refugee crisis in particular; and what the varied political reactions could mean for the future of the European Union.

Even as central and eastern European nations race to build fences and member countries negotiate distribution quotas and transit zones, one thing is clear: millions of refugees from Syria to Eritrea will now call Europe home. How will these new arrivals affect Europe economically, fiscally, and politically?

A German Case Study

On paper, the economies and labor markets of Europe stand to benefit from an influx of working-age adults. Germany, in particular, has some of the worst demographic trends in the world as their population ages and faces declines at rates only eclipsed by those of Japan.

The European Commission agrees, highlighting in its Autumn 2015 report that increased government spending and strong labor markets will add up to 0.38% to German GDP by 2017. The German parliament has already allocated an extra €6 billion to process an anticipated 800,000 asylum seekers, and with the projected numbers of refugees continuing to rise, additional appropriations are plausible.

Considering these factors, the recent ‘open door’ policies of Germany seem to be on solid economic footing. However, all workers not being equal, further consideration of the skills and qualifications these potential workers have and how they compare to the needs of German employers is warranted.

German Workforce Demand

A situation familiar in developed labor markets around the world, reports by the Cologne Institute for Economic Research indicate that German employers are starving for workers with technical skills in mathematics, sciences, medicine and information technology, also known as STEM or MINT fields.

With an average age of 55, Germany’s workforce is quickly aging out into retirement and there are not enough new graduates with the skills and experience to replace them, leaving hundreds of thousands of jobs unfilled.

A venture run by Germany’s Federal Ministry for Economic Affairs and Energy (BMWi) called the ‘Qualified Professionals Initiative’ aims to help close that gap by attracting qualified foreigners in the fields of medicine, engineering, science and technology.

The virtual welcome mat has been very successful in attracting educated foreigners from the Balkans for years, putting even more workforce pressure on those nations as their talent emigrates to the urban west. Still, the German ‘knowledge’ economy is left wanting for qualified labor.

Immigrant / Refugee Workforce Supply

Knowing that the German economy does have significant and deteriorating workforce issues to address, how does the recent wave of largely Middle Eastern refugees measure up? Information on refugee circumstances has been limited, but as more and more register for asylum a better picture emerges.

Contrary to Europe, the MENA region sports a young and growing population. In fact, EuroStat estimates that in 2015, nearly 100% of Europe’s asylum applicants were younger than 65, and 81% were under 35 years old. This is, if anything, a youth movement. Youth is exactly what an aging Germany needs, but do they have the necessary skills?

Recently, documents leaked from Germany’s Federal Employment Agency indicate only eight percent of refugees have a college degree, and 81% of those seeking asylum have no formal qualifications whatsoever.

Unfortunately, abundant youth does not make up for a lack of skills. While Germany does have a proud heritage of world-renowned work-based learning and vocational training programs run by the likes of BMW and Siemens, schools and employers would be faced with much more than mere skills training.

For the most part, the refugees do not speak German and climbing such a steep assimilation curve (at the top of which is economic/workforce integration) will be difficult under any circumstances.

Likely Outcomes

There is no doubt that Germany and Europe in general faces demographic headwinds and workforce gaps that will serve as major economic drags for years to come.

Even though the millions of refugees to enter Europe in 2015 are young, their lack of qualifications and barriers to integration make them unlikely to contribute towards meaningful workforce solutions, especially in the near term.

It makes sense that those same Federal Employment Agency documents anticipate at least 400,000 new welfare recipients in Germany this year as a result of the crisis. In addition, Berlin has pledged at least €670 per month for every refugee taken in.

It is likely that destination countries like Germany will face mounting fiscal pressures from the rising costs of this crisis that far outweigh the potential benefits from a few more college degree holders counted among their workforce.

This will only serve to compound an already tense political and cultural atmosphere surrounding the crisis, as the added pressure exerted under already fragile economic times will tend to breed resentment and worse. Already, populist anti-immigrant parties are gaining ground across Europe, and pressure is mounting even in Germany to reduce incentives and restrict asylum definitions.

Until its conclusion, the refugee crisis will continue to strain Europe politically and financially as illusory workforce benefits give way to millions of young, unskilled welfare recipients from very different cultures.

Unfortunately, the demographics, war and economic circumstances driving the largest swells of migration in generations show no signs of fading.

Categories: Economics, Europe

About Author

Jeffrey Moore

Jeff Moore is a Project Manager and Research Specialist with the North Carolina Department of Commerce, with a focus on legislative, economic and workforce issues. Previously, he served in the Office of Governor Pat McCrory as an economic policy aide and researcher. After earning a BA in Political Science from the University of North Carolina at Chapel Hill in 2007, Jeff worked as a proprietary equity trader, successfully navigating capital markets during the 2008 financial crisis and the ensuing business and political ramifications that followed.