the refugee surge in europe: economic...
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European Department
THE REFUGEE SURGE IN EUROPE: ECONOMIC CHALLENGES
Bergljot Bjørnson Barkbu European Investment Bank Institute
February 16, 2016
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
2
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%
over 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
4
European Department
ASYLUM APPLICATIONS IN THE EU OVER TIME
FACTS
5
0
200
400
600
800
1,000
1,200
1,400
1985
19
86
1987
19
88
1989
19
90
1991
19
92
1993
19
94
1995
19
96
1997
19
98
1999
20
00
2001
20
02
2003
20
04
2005
20
06
2007
20
08
2009
20
10
2011
20
12
2013
20
14
2014
* 20
15*
EU-28: Asylum Applications (Thousands)
Sources: Eurostat. *Data is through November.
End of the Cold
War Civil war in
Syria
Bosnia and Kosovo Wars
European Department
SURGE IN MID-2015
Source: Eurostat.
6
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)
European Department
UNEVEN IMPACT ACROSS EU COUNTRIES
Source: Eurostat
7
0
2
4
6
8
10
12
14
16
18
20
0
200
400
600
800
1000
1200
1400
EU-2
8
DEU
HU
N
SWE
ITA
AUT
FIN
DN
K
GRC
MLT
Total applicants, thousands
Applicants per 1,000 inhabitants (RHS)
Selected Asylum Seekers' Destinations in the EU-28 (December2014 to November 2015)
0
100
200
300
400
Syria Afghanistan Kosovo Eritrea Serbia
First-Time Asylum Applicants in the EU by Major Countries of Origin (Thousands of Applications)
20142014M1-M112015M1-M11
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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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 on natives?
11
European Department
REFUGEES INTEGRATE SLOWLY *
-0.25
-0.2
-0.15
-0.1
-0.05
0 <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
Add
itio
nal s
hare
wit
h re
spec
t to
nati
ves
•We proxy the refugee experience using that of immigrants from refugee-sending countries
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European Department
LARGE WAGE GAPS
0
2
4
6
8
10
12
14
16
18
20
-90% -80% -70% -60% -50% -40% -30% -20% -10% 0%
Num
ber o
f est
imat
es
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
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
Add
itio
nal s
hare
wit
h re
spec
t to
nati
ves
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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
IT
A ISL
SVN
BE
L ES
P PR
T ES
T G
BR
NO
R N
LD
SWE
FIN
AU
T D
NK
HU
N
USA
AU
S CZ
E SV
K CA
N
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
0
100
200
300
400
0 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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CONTENTS
Economic Impact Labor Market Fiscal Effects GDP Growth Age-Related Spending
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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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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
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
0
5
10
15
20
25
30
25 35 45 55
Une
mpl
oym
ent r
ate
(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
0
5
10
15
20
25
30
40 50 60 70 80
Une
mpl
oym
ent r
ate
(Q3
2015
)
2050 old-age dependency ratio
Size of Bubble = Asylum Seekers per 1,000 Inhabitants (2013-15 average)
Source: Eurostat (‘no migration’ scenario).
28
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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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
32
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
34