THE REFUGEE SURGE IN EUROPE: ECONOMIC CHALLENGES Bergljot Bjrnson - - PowerPoint PPT Presentation

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THE REFUGEE SURGE IN EUROPE: ECONOMIC CHALLENGES Bergljot Bjrnson Barkbu European Investment Bank Institute February 16, 2016 European Department CONTENTS Facts Numbers in Perspective Institutional Framework Economic Impact

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European Department

THE REFUGEE SURGE IN EUROPE: ECONOMIC CHALLENGES

Bergljot Bjørnson Barkbu European Investment Bank Institute February 16, 2016

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European Department

CONTENTS

Facts

  • Numbers in Perspective
  • Institutional Framework

Economic Impact

  • Labor Market
  • Fiscal Effects
  • GDP Growth
  • Age-Related Spending

Policies

  • Labor Markets
  • Product Markets
  • Housing and Mobility
  • Fiscal Policy

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European Department

CONTENTS

Facts

  • Numbers in Perspective
  • Institutional Framework

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European Department

REFUGEE SURGE IN PERSPECTIVE

  • Worldwide refugees: 14.4 million in 2014 (up 25 percent

from 2013)

  • Inflow of first-time asylum seekers to the EU has

increased dramatically:

  • Through November 2015 the inflow was 1,140,000, up 128%
  • ver the same period in 2014.
  • In Q3 2015 the inflow was 415,000, up 153% over Q3 2014.
  • More could come:
  • 8 million displaced people in Syria
  • 4.3 million having fled to neighboring countries
  • Ongoing conflicts in Iraq, Afghanistan, and Eritrea
  • Network effects

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European Department

ASYLUM APPLICATIONS IN THE EU OVER TIME

FACTS

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200 400 600 800 1,000 1,200 1,400 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2014* 2015*

EU-28: Asylum Applications

(Thousands)

Sources: Eurostat. *Data is through November.

End of the Cold War Civil war in Syria Bosnia and Kosovo Wars

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European Department

SURGE IN MID-2015

Source: Eurostat.

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10 30 50 70 90 110 130 150 170 190 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sept. Oct. Nov. Dec. 2013 2014 2015

First-Time Asylum Applicants

(Thousands)

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European Department

UNEVEN IMPACT ACROSS EU COUNTRIES

Source: Eurostat

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2 4 6 8 10 12 14 16 18 20 200 400 600 800 1000 1200 1400 EU-28 DEU HUN SWE ITA AUT FIN DNK GRC MLT

Total applicants, thousands Applicants per 1,000 inhabitants (RHS)

Selected Asylum Seekers' Destinations in the EU-28

(December2014 to November 2015)

100 200 300 400 Syria Afghanistan Kosovo Eritrea Serbia

First-Time Asylum Applicants in the EU by Major Countries of Origin

(Thousands of Applications)

2014 2014M1-M11 2015M1-M11

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European Department

INSTITUTIONAL FRAMEWORK - I

UN

  • 1951 Refugee Convention and its 1967 Protocol

Common European Asylum System

  • The 2013 Dublin Regulation
  • Standards on asylum procedures

Countries

  • Many other asylum rules are national, including when/on what

grounds residency is granted

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European Department

INSTITUTIONAL FRAMEWORK - II

Consensus that the current EU system is not working

  • Few countries are fully respecting the minimum standards
  • Scope for returns under the Dublin system is limited
  • Lack of resources. Gateway countries are overwhelmed
  • Asylum seekers want to apply for asylum in their favored destination

Temporary (partial) solution

  • In the fall of 2015, EU countries agreed to:
  • “Hot spots” in gateway countries where asylum seekers can be

registered, identify people in clear need of international protection

  • Relocation of 160,000 asylum seekers from Greece and Italy on an

ad hoc basis over the next two years

  • Stepped up border enforcement
  • Humanitarian help for Turkey

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European Department

CONTENTS

Economic Impact

  • Labor Market
  • Fiscal Effects
  • GDP Growth
  • Age-Related Spending

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LABOR MARKET AND INTEGRATION

  • How do migrants perform in the labor

market?

  • Which policies facilitate the entry of

immigrants in the labor market?

  • What is the economic impact of immigrants
  • n natives?

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European Department

REFUGEES INTEGRATE SLOWLY *

  • 0.25
  • 0.2
  • 0.15
  • 0.1
  • 0.05

<6 6-10 11-20 >20

Employment relative to native workers

(Share)

Other immigrants: Role of language skills Other immigrants: Conditional gap Refugee: Role of language skills Refugee: Conditional gap

Years since arrival in country Additional share with respect to natives

  • We proxy the refugee experience using that of immigrants from refugee-sending countries

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European Department

LARGE WAGE GAPS

2 4 6 8 10 12 14 16 18 20

  • 90%
  • 80%
  • 70%
  • 60%
  • 50%
  • 40%
  • 30%
  • 20%
  • 10%

0% Number of estimates Wage gap

Source: IMF Staff Estimates Note: Histogram of migrant wage gap, conditional on observables, based on 75 estimates across 9 studies on earnings assimilation of immigrants in the US, Canada and Europe.

Immigrant Wage Gap: Distribution of Estimates in Select Studies

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European Department

HIGHER RELIANCE ON SOCIAL BENEFITS

0.05 0.1 0.15 0.2 0.25 <6 6-10 11-20 >20

Social Benefits: Main Source of Income

(Share)

Other immigrants: Role of language skills Other immigrants: Conditional gap Refugee: Role of language skills Refugee: Conditional gap

Years since arrival in country Additional share with respect to natives

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European Department

INTEGRATION POLICIES: STRONG EVIDENCE OF EFFECTIVENESS

Policy Measure Evidence Active Labor Market Policies Wage subsidies Denmark, Germany Training / skill provision Germany, Denmark, Israel Access to temporary employment agencies Denmark, Netherlands, Sweden

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European Department

INTEGRATION POLICIES: SOME EVIDENCE OF EFFECTIVENESS

Policy Measure Evidence Overall labor regulation Lower entry wages / limited exception from minimum wages Cross-country Lower employment protection Reduce taxes and social security contributions for low-wage workers to address “inactivity traps” Product market regulation Lower barriers to self-employment Cross-country

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European Department

EFFECTS ON NATIVES

  • Migrants do not steal natives’ jobs
  • Numerous studies have documented only small and short-lived

effects

  • Why?
  • Migrants’ skills often complementary to those of natives
  • Demand effects of large population outweigh any substitution

effects

  • Natives upgrade their skills

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European Department

CONTENTS

Economic Impact

  • Labor Market
  • Fiscal Effects
  • GDP Growth
  • Age-Related Spending

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European Department

SMALL POSITIVE IMPACT ON PUBLIC FINANCES

  • 1.5
  • 1.0
  • 0.5

0.0 0.5 1.0 1.5 2.0 2.5

  • 1.5
  • 1.0
  • 0.5

0.0 0.5 1.0 1.5 2.0 2.5 LUX CHE GRC ITA ISL SVN BEL ESP PRT EST GBR NOR NLD SWE FIN AUT DNK HUN USA AUS CZE SVK CAN IRL POL FRA DEU

Estimated Net Fiscal Impact of Stock of Immigrants, 2007-09 Average (% GDP)

Source: OECD, International Migration Outlook 2013.

Average

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European Department

DEMOGRAPHICS MATTER

  • 300
  • 200
  • 100

100 200 300 400 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 Age

Natives Migrants

Germany: Present Value of Expected Future Net Fiscal Contributions, By Age Group

(Thousands of euro, generational account approach, base year=2012)

Source: Bonin (2014).

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European Department

ESTIMATED SHORT-TERM FISCAL EFFECT OF CURRENT REFUGEE WAVE

Fiscal Cost of Asylum Seekers, 2014-16

(Percent of GDP) 2014 2015 2016 Austria 0.08 0.16 0.31 France 0.05 0.05 0.06 Germany 0.08 0.20 0.35 Hungary 0.0 0.1 0.0 Italy 0.17 0.20 0.24 Spain 0.01 0.01 0.03 Sweden 0.3 0.5 1.0 GDP-weighted average 0.08 0.13 0.19

Source: IMF staff estimates based on authorities' information and/or other sources.

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European Department

CONTENTS

Economic Impact

  • Labor Market
  • Fiscal Effects
  • GDP Growth
  • Age-Related Spending

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European Department

GROWTH SIMULATIONS: ASSUMPTIONS

  • Asylum Applicants:

1.3 million annually during 2015-17; falling off sharply subsequently

  • Approval and transition to labor market :

40 percent rejection rate Become eligible to work within up to two years of application

  • Labor market integration:

Scenario 1: lower participation and higher unemployment rates than natives—but gap declining over time Scenario 2: “Slow integration scenario”: unemployment gap doubles

  • Fiscal costs:

12,000 euro per year before becoming eligible to work; same amount for rejected applicants for one year

  • Model: EUROMOD semi-structural global models; country-specific

calibrations

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European Department

GROWTH EFFECT POSITIVE, BUT UNEVEN

0.0 0.1 0.2 0.3 0.4 0.5 0.6 2015 2016 2017 2018 2019 2020

Output Level

(Percent) EU scenario 1 EU scenario 2 DEU scenario 1 DEU scenario 2

Impact of Refugee Inflows

(Deviation from baseline scenario)

Sources: IMF staff estimates.

  • 0.2

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2015 2016 2017 2018 2019 2020

Government Debt/GDP

(Percentage point) EU scenario 1 EU scenario 2 DEU scenario 1 DEU scenario 2 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 2015 2016 2017 2018 2019 2020

Unemployment Rate

(Percentage point) EU scenario 1 EU scenario 2 DEU scenario 1 DEU scenario 2

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European Department

CONTENTS

Economic Impact

  • Labor Market
  • Fiscal Effects
  • GDP Growth
  • Age-Related Spending

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European Department

MIGRATION KEY FOR POPULATION GROWTH

  • 1
  • 0.5

0.5 1 1.5 2 2.5 3 3.5 4 1960 1970 1980 1990 2000 2010

Natural change Net migration

EU28: Population Changes

(Millions)

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European Department

PENSION EFFECT LIKELY POSITIVE

  • Refugees younger than the average EU citizen
  • Quantification: assume same inflow as in scenario 1
  • Pension expenditure would be lower than in the baseline EC Aging

Report scenario by some ¼ percent of EU GDP by 2030

  • Effects on health spending also favorable
  • Heterogeneity across countries reflecting refugee distribution

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European Department

LABOR MARKET PULL, NOT AGING

BEL BUL CZE DNK DEU EST IRL GRC ESP FRA HRV ITA CYP LTA LTU LUX HUN MLT NLD AUT POL PRT ROM SVN SVK FIN SWE GBR NOR

5 10 15 20 25 30 25 35 45 55 Unemployment rate (Q3 2015) 2030 old-age dependency ratio

Size of Bubble = Asylum Seekers per 1,000 Inhabitants

(2013-15 average)

BEL BUL CZE DNK DEU EST IRL GRC ESP FRA HRV ITA CYP LTA LTU LUX HUN MLT NLD AUT POL PRT ROM SVN SVK FIN SWE GBR NOR

5 10 15 20 25 30 40 50 60 70 80 Unemployment rate (Q3 2015) 2050 old-age dependency ratio

Size of Bubble = Asylum Seekers per 1,000 Inhabitants

(2013-15 average)

Source: Eurostat (‘no migration’ scenario).

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European Department

CONTENTS

Policies

  • Labor Markets
  • Product Markets
  • Housing and Mobility
  • Fiscal Policy

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European Department

LABOR MARKETS

  • Reduce restrictions to work for asylum seekers
  • Ensure early language/tailored skill training
  • Provide targeted and temporary
  • Wage subsidies
  • Exemptions from some labor market regulations?
  • Strengthen active labor market policies

Prompt integration of refugees into labor markets is key to favorable economic impact

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European Department

PRODUCT MARKETS

  • Simplify regulatory and administrative procedures for

new firms

  • Provide start-up support
  • Accelerate skill recognition; targeted training

Ease avenues to self-employment and facilitate skill recognition

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European Department

HOUSING AND MOBILITY

  • Tackle construction bottlenecks (e.g., land use

regulation, permissions, rent control)

  • Financial incentives to build social housing
  • Full geographical mobility of accepted asylum seekers,

within and between countries?

Mobility to high-labor-demand areas requires affordable housing

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European Department

FISCAL POLICY

  • Many EU countries have limited fiscal space but…
  • Most countries should be able to absorb the immediate

fiscal cost within their SGP targets

  • SGP flexibility for non-recurrent expenditures.

Caveat: There are major operational issues

How should the short-term fiscal costs related to refugees be handled?

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European Department

SUMMARY

  • Flows of displaced people are large by historical standards and

may persist

  • The economic implications are notable, but not major:
  • The international experience is that the impact on native

workers is likely limited

  • Faster labor market integration lowers costs and raises gains
  • Policies help, especially ALMP and labor and product market

reforms

  • Fiscal costs are limited. Immigration can help reduce population

ageing pressures but will not solve the problem

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