The Refugee Surge in Europe:The Refugee Surge in Europe:Economic Challenges

Bergljot Bjørnson Barkbu, IMF

LSE Institute of Global Affairs and OrtygiaBusiness School Conference on

‘Managing Migration – Solutions beyond g g g ythe Nation State’

Siracusa, April 18-19

European Department

Asylum applications at historic highsFACTSAsylum applications at historic highs

Asylum applications in the EU (i th d )

1 200

1,400

(in thousands)

End of the

Civil warin Syria

Yugoslav W

800

1,000

1,200 the Cold War

in SyriaWars

400

600

0

200

1985 1990 1995 2000 2005 2010 2015

The numbers in perspective 2

1985 1990 1995 2000 2005 2010 2015

Source: Eurostat.

Surge in mid-2015Surge in mid 2015

First-time asylum applications in the EU (in thousands)

140160180

(in thousands)

100120140

20162015

406080 2016

2014

020

Jan. Feb. Mar. Apr. May Jun. Jul. Aug.Sep. Oct. Nov.Dec.

2010

Source: Eurostat.

3The numbers in perspective

Uneven impact across countriesUneven impact across countries

First-time asylum applications, 2015

14161820

1 000

1,200

1,400 Total applicants, thousands

Applicants per 1,000 inhabitants (RHS)

8101214

600

800

1,000

2468

200

400

00EU-28 DEU HUN SWE ITA AUT FIN DNK GRC LUX

Source: Eurostat

4The numbers in perspective

Increasing numbers reflect conflictsIncreasing numbers reflect conflictsFirst-time applications in the EU, by country of origin

(in tho sands)

300

350

400 (in thousands)

150

200

25020102015

50

100

150 2015

0Syria Afghanistan Iraq Pakistan Eritrea

Source: Eurostat

5The numbers in perspective

Refugees integrate more slowlyg g yEmployment relative to native workers

(in percent)

0<6 6-10 11-20 >20

Years since arrival in country

-10

-5

-15

-10

Other immigrants: Role of language skills

-25

-20 Other immigrants: Conditional gapRefugee: Role of language skillsRefugee: Conditional gap

We proxy the refugee experience using that of immigrants from refugee-sending countries, based on the European Social Survey

6Empirical evidence on labor market integration

Reliance on social benefits is highergSocial benefits as main source of income, relative to natives

(in percent)

20

25 Other immigrants: Role of language skillsOther immigrants: Conditional gapRefugee: Role of language skillsRefugee: Conditional gap

15

g g p

5

10

0<6 6-10 11-20 >20

Years since arrival in country

7

Years since arrival in country

Empirical evidence on labor market integration

We proxy the refugee experience using that of immigrants from refugee-sending countries, based on the European Social Survey

Wage gaps are largeg g p g

20

Immigrant wage gap: Distribution of estimate across studies

14161820

8101214

2468

0-90% -80% -70% -60% -50% -40% -30% -20% -10% 0%

Note: Histogram of migrant wage gap conditional on observables based on 75

8

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.

Empirical evidence on labor market integration

Net fiscal contribution depends on agep gGermany:

Present value of expected future net fiscal contributions, b

300

400

by age group (thousands of euro, generational account approach, base year = 2012)

100

200

300 NativesMigrants

-100

0

100

-300

-200

0 10 20 30 40 50 60 70 80 90 100

9

0 10 20 30 40 50 60 70 80 90 100

Empirical evidence on fiscal contribution

Source: Bonin (2014).

Growth effect positive, but unevenGrowth effect positive, but unevenImpact on Output Level

(deviation from baseline, in percent)

0.5

0.6 Germany Germany slow integrationEUEU l i t ti

0.3

0.4EU slow integration

0 1

0.2

0.3

0

0.1

2015 2016 2017 2018 2019 2020

10

Source: IMF estimate.

Simulation results

Speed of integration affects unemploymentSpeed of integration affects unemploymentImpact on Unemployment Rate

(deviation from baseline, in percentage)

0.3

0.35 Germany Germany slow integrationEUEU l i t ti

0.2

0.25EU slow integration

0.1

0.15

0

0.05

2015 2016 2017 2018 2019 2020

11

Source: IMF estimate.

Simulation results

Integration crucial for public financesIntegration crucial for public financesImpact on Government Debt/GDP

(deviation from baseline, in percentage points)

1.41.61.8 Germany

Germany slow integrationEUEU l i t ti

0.81

1.2. EU slow integration

0.20.40.60.8

-0.20

0.2

2015 2016 2017 2018 2019 2020

12

Source: IMF estimate.

Simulation results

Labor market integrationLabor market integration

Prompt integration of refugees into labor

• Lower barriers to work eligibility during application period

p g gmarkets is key to favorable economic impact

• Lower barriers to work eligibility during application period

• Provide language and job search training early

• If high entry wages a concern:If high entry wages a concern:

• Temporary wage subsidies for employers

• Temporary, targeted exceptions to minimum wages?

• Tackle inactivity traps by reducing marginal taxes on low-wage workers or tapering social benefits gradually upon entering employmentg p y

13Policy recommendations

P d t k tProduct markets

Ease avenues to self employment Ease avenues to self-employment and facilitate skill recognition

• Simplify regulatory and administrative procedures for new firms

• Provide start up support and reduce effective • Provide start-up support and reduce effective protection for incumbent firms

• Accelerate skill recognition, provide targeted t i itraining

14Policy recommendations

Housing and mobilityHousing and mobility

Mobility to high labor demand areas requires Mobility to high-labor-demand areas requires affordable housing

• Tackle bottlenecks to low-cost housing (e.g., land use regulation, construction permits)

• Financial incentives to build social housing• Financial incentives to build social housing• Facilitate access to basic financial services• Full geographical mobility of accepted asylum Full geographical mobility of accepted asylum

seekers, within and between countries?

15Policy recommendations

Fi l liFiscal policy

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

• Many EU countries have limited fiscal space but…

• Most countries should be able to absorb the i di t fi l t ithi th i SGP t timmediate fiscal cost within their SGP targets.

• Allow temporary deviations from SGP targets on a case-by-case basis. Caveat: There are major operational issues.

16Policy recommendations