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29 November 2015

Want to get richer? Then take in more refugees

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As political debates about Syrian refugees rage on both sides of the Atlantic, initial assessments of their economic impact on receiving countries are comingin:Theinnuxis goodfor growth.

A new Bloomberg survey of economists predicts that Germany, the biggest recipient of Syrian asylum seekers in the Western world, will get a 0.2 per cent boost to its economic output next year if it takes in 800,000 refugees in 2015; that would be 12.5pc of Germany`s expected 2016 growth. The estimate is in line with the European Union`s most recent economic forecasts, which predict increases of 0.21pc for the gross domestic product of the EU as a whole in 2016, and 0.26pc in 2016.

These numbers may seem small, especially given some of the hyperbolic coverage of the `refugee crisis` in Europe. But then in equivalent terms, the influx of asylum seekers is small, too.

The 1.9 million refugees who arrived in the EU between January 2012 and July 2015 have increased the bloc`s population by 0.37pc. The European Commission predicts about 3 million will have arrived between the beginning of 2015 and the end of 2017, a tiny number next to the bloc`s total population of 508 million, although people in some neighbourhoods where refugees are being accommodated will feel otherwise.

The expected growth will mainly come from government spending. The German government estimates it needs to spend about 12,000 euros ($12,700) per refugee per year. That money, how-ever, is not going into a black hole: It stimulates domestic demand for goods and services. Economists have long been telling the German government it shouldn`t to be so tight-fisted, because the economy needed stimulus. Well, the refugees have melted Chancellor Angela Merkel`s heart and the stimulus is coming.

One could argue that this is unfair to locals: Why shouldn`t they, not some strangers, be at the receiving end of government largesse? As it is, local workers are at risk of being displaced by the refugees,andthe governments are only facilitating this with taxpayer money.

The unpopular answer is that locals are not procreating fast enough. European economies need more workers to keep expanding as the population ages, so the smarter governments are, in effect, buying immigrants to boost the workforce. A more politically acceptable argument in favour of the refugees is that their arrival increases the demand for local skilled workers in the bureaucracy, social services and education.

Integrating the newcomersisajobthatnooneexcept locals can take on. And more managers are needed as the workforce increases, as it inevitably will. That`s why the positive effect on growth is expected to be higher in 2017.

A recent World Bank study of the Syrian refugees` effect on the labour market in Turkey, which has accepted more than 2 million Syrians since 2011, registered this effect.

`The refugees, who overwhelmingly do not have work permits, result in the large-scale displacement ofinformal, low educated, female Turkish workers, especially in agriculture, Ximena Del Carpio and Mathis Wagner wrote.

`While there is net displacement, the inflow of refugees also creates higher wage formal jobs allowing for occupational upgrading of Turl(ish workers, while for women there is also an increase in school attendance.

Another reason the refugees are generally good for growth is that some of them come with financial assets.

Right-wing critics of permissive immigration policies like to point out that some of the newcomers are welldressed, equipped with modern smartphones and capable of paying human traffickers to bring them too Europe.

That`s not all bad. In 2013, the Jordanian Investment Board said Syrians had invested $1bn in the kingdom`s economy. In Turkey, the estimate is $10bn since 2011. Last year, Syrians founded more than 1,100 companies there, 26pc of all new foreign-owned firms.

Turkey, Lebanon and Jordan all have positive economic growth rates. They complain about the difficulties of dealing with millions of refugees and their shaky welfare states are certainly under strain. Even so, the newcomers are a force for growth.

In Jordan, the economicactivity rate of Syrians is higher than that of native Jordanians 48.5pc vs.

36.5pc. In Lebanon, just the humanitarian aid received by the Syrian refugees boosted GDP by 1.3pc last year, almost compensating for the drop in tourism and exports caused by the war in the neighbouring country, according to a study by the UNHCR, the United Nations` refugee agency.

There will be a temporary adjustment in Europe.

According to the EU`s forecast, per capita GDP in the bloc will drop by about 0.15pc next year because of the influx, because for now the refugees will naturally contribute less as a group than the settled population.

Europeans will notice the slight drop in living standards: Schools, clinics and police forces will of necessity be more strained than before.

The labour market, too, will become more competitive at its lower end. But soon, as public services expand tocope and the new labour force generates more output, this will smooth out.

Unfortunately, after the recent terrorist attacks in Paris, any argument in favour of accepting more refugees from the Middle East will struggle to be heard.
By Leonid Bershidsky
By arrangement with The Washington Post, dawn.com

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