James Trescothick

With more than 20 years of experience in financial service industry, James is our Senior Global Strategist and the co-producer and presenter of easyMarkets educational videos. When he is not working on educational programs or preparing webinars, you can find him with the easyMarkets team giving seminars around the world.

Europe’s refugee crisis has sparked widespread debate about the region’s humanitarian obligation to help people fleeing terror, war and famine. However, as millions of people flood Europe, there are also practical considerations about the economic impacts of migration, not to mention issues of cultural integration as well.

The economic impact of refugees begins with the cost of processing their application and subsidizing their settlement. Germany, for example, pays nearly $15,600 in subsidies to refugees each year. Analysts have estimated that the refugee crisis costs the German government an estimated 0.7% of gross domestic product (GDP). At the same time, it generates an additional 0.4%.[1]

While Germany has the ability to absorb a large influx of migrants, the same can’t be said about its neighbors. In 2016, Greece had 50,000 refugees stuck on its border. The country has seen its GDP contract by a quarter since the financial crisis. With an unemployment rate above 23% and a debt burden of more than 175% of GDP, Greece likely isn’t in position to integrate the people straddling its borders (as it turns out, many of those refugees are looking to pass through Greece on their way to central and northern Europe).[2]

It’s important to note that most European countries have an active immigration program designed to attract workers from around the world. For these countries, immigration is a nation-building strategy and a practical means of obtaining the skills and human resources needed to grow the economy. Research shows that Germany needs to fill one million vacant jobs, two thirds of which require skilled workers.[3]

The integration of these immigrants, combined with increased government spending, can in theory help accelerate economic growth for countries like Germany, which have accepted a larger share of migrants over the years.

Contrary to popular perception, accepting a greater share of immigrants has a small impact on employment or wages. Joint research from Oxford University and the Bank of England show that a ten-percentage point rise in the share of migrants working low-skilled jobs depressed wages by just 2%.[4]

For most countries, active immigration has been a source of stronger economic growth. However, the challenge is comparing past immigrant success with the impact of the new lot of refugees. There’s obviously a big difference between economic migrants and refugees; the latter might not have the skills, resources or ability to integrate in their new society. This makes assessing their future impact on Europe difficult to quantify.

Data also show that it takes a long time for refugees to pay more in tax than they receive in government subsidies. A recent study found that Australian refugees paid less in tax than they received in state benefits for their first 15-20 years of residency.[5] As populism sweeps across Europe, taxpayers seem less accepting of this reality than in years past.

There’s no easy answer to the humanitarian crisis inflicting Syrian refugees. The best solution appears to be supporting a resolution to the Syrian conflict and working with regional governments to provide shelter and safety until the war is over. Individual European countries also must face the question of immigration head-on. There’s likely a place for Syrian refugees in Europe. The question is how many the region is willing to absorb.

[1] Mark Melin (March 29, 2016). “Here’s how the refugee crisis is impacting Germany’s economy.” Business Insider.

[2] The Chicago Tribune (December 5, 2016). “Eurozone gives Greece short-term debt relief.”

[3] Euronews (November 1, 2016). “The economic impact of Europe’s refugee crisis.”

[4] The Economist (January 23, 2016). “The economic impact of refugees: For good or ill.”

[5] The Economist (January 23, 2016). “The economic impact of refugees: For good or ill.”

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