wiiw Opinion Corner: How to cope with the current refugee crisis?

11 November 2015

Michael Landesmann on the reasons for and responses to the big shift of migration flows in Europe from “East-West” to “South-North”

What is new in the current refugee crisis and how can we analyse the situation beyond the partiality of economic analysis?

The current refugee crisis has become the dominant theme in European politics, in regional elections (such as most recently in Austria) and in looming national elections (such as in the forthcoming French presidential elections). It has also dominated politics at the European level in recent months where summits on the Greek debt crisis have been superseded by complex and conflictual relationships between EU member countries on the refugee issue.

Why has the refugee issue become so dominant in European politics?

The current refugee/migration flows reflect the big geographic shift of migration potential which could have been foreseen for some time based on demographic trends. This migration potential has already and will strongly shift further from ‘East–West’ – which in many European countries has been the focus of policy discussion for some time – to ‘South–North’. With ‘East–West’ we refer to the migration flows from Eastern European economies (such as Poland, the Baltic States, Bulgaria and Romania, the Western Balkans) to the higher-income countries of Western Europe. By ‘South–North’ migration we mean the flows from non-European low-income countries (particularly from the MENA 1) region, Africa, and some parts of Asia) to the European economies.

What is the reason for this ‘big shift’?

Firstly, and most importantly, there are demographic reasons for this ‘big shift’: Population levels are projected to increase in the MENA region from a level of 301 million in 2005 to 537 million in 2050 (an increase of 79%). Over the same period the population in the EU‑25 (we start from 2005 when the EU comprised 25 members) is projected to fall from a level of 472 million to 415 million, a fall by 12%. Accordingly, the labour forces (i.e. those in the age groups 15‑64) are expected to increase in the MENA region by 115 million and in the EU-25 to decline by 66 million. Population and labour force growth is very strong in Sub-Saharan Africa as well, where e.g. the age group of 15-39 years (the age bracket most contributing to migration potential) is expected to increase by 328 million over the period 2005 to 2050, all based on UN Population statistics 2). Most of the Eastern European region, on the other hand, faces population decline and ageing processes which exceed those in the higher-income Western European countries. It is thus clear that the underlying demographic complementarity between Europe and the ‘South’ will drive migration flows over the coming decades.

Secondly, there are other reasons for the ‘big shift’: development blockages in large parts of Europe’s ‘Southern neighbourhood’, particularly in the MENA region, have led to serious social and political instability and in a number of countries to civil war and crumbling state structures. External military interventions (such as in Iraq and Libya) have further contributed to this instability. The recent refugee crisis is an outcome of all these processes.

The region is currently convulsing in terms of political developments, the prospects of economic developments are pretty abysmal and the combination of a large young population bulge with very dim prospects of domestic economic development combines towards a very strong ‘push’ factor. The ageing process in the European societies with its shrinking labour force, high old-age dependency ratios, relatively high income levels, questions regarding sustainability of social security systems and the need to recruit essential man/woman power to maintain social services adds the ‘pull’ factor on the side of Europe.

Economic impacts of immigration

Economists have been analysing the impact of migration in detail over many years and their research has resulted in rather robust results which can be summarised as follows:

  • GDP receives a boost through the influx of migrants most of whom are in the age groups which increase a country’s labour force. Participation rates (which include those in employment and those actively looking for jobs while unemployed) are high amongst those who have migrated recently.
  • There are distributive effects of migration when migrants enter the labour market: they boost the incomes of ‘complementary factors’, i.e. if migrants take predominantly jobs which require lower qualifications, they increase the ‘productivity’ of those employees with higher qualifications; and they put pressure on the incomes of those who compete for the same jobs, i.e. those with lower qualifications. However, these negative income effects (often exerted on earlier migrant groups who work in low-qualification jobs) are relatively small, in part because productivity effects which migrants can contribute to increase the overall resources which can be distributed. The same can be said about unemployment effects: there can be rising unemployment among those competing for the same jobs, but again research indicates that this effect is not strong – as adjustment processes and overall growth effects lead labour markets to accommodate to the influx of the additional labour force.
  • ‘Diversity’ at the work place can increase productivity: through mutual learning, job structures adjusting to the availability of differentiated skills, the possible offering of a more diversified product portfolio (e.g. in the food industry) and also the high engagement of specific segments of the migrant population at work, in education and in innovative activities. In this respect, it is important that firms show flexibility to exploit such potential and that migrants find a good match between their ‘skills’ and the jobs they are assigned to; otherwise there is ‘skill’ or ‘brain waste’ and the potential productivity gains get lost. Furthermore, there should be good entry points of migrants into education, training institutions and into the ‘innovation systems’ of the host economies.
  • Migrants of the first generation (i.e. those who have migrated more recently and thus – given their predominantly young age profile – become quickly part of the labour force) are typically over their life cycle ‘net payers’ into the social welfare system, i.e. they pay more into the social security system than they receive.
  • There can be ‘congestion effects’, i.e. if the housing stock, investments into transport infrastructure, health and educational institutions do not keep pace with the influx of new people, then there can be a strain on these resources and this will be felt by the resident population. The way to deal with this problem is to make sure investments into all these facilities keep pace with the influx of the population.

The above is a short sketch of what economists usually have to say about the impact of migration. Overall, from an economic point of view one would argue that the long-run impact will be a positive one, although there are adjustment costs and distributive effects which have to be looked after.

Economists’ partial analysis: cultural, social and political processes shape public perception of immigration

We as economists should be aware that the economist’s approach to migration is a very partial one, i.e. it insufficiently captures cultural, social and political processes which shape a population’s perception of immigration.

First of all, there is a relative neglect in economic analysis of adjustment processes (we are used to comparative static analysis comparing different equilibria, i.e. states of the economy after all the adjustments have taken place). However, adjustment costs are real and society is very sensitive to the ways in which it has to adapt to changing social and economic structures. It is also the case that the costs and benefits of such adjustments are very unevenly distributed across members of a society.

Second, the economists’ perception of issues such as the impact of ‘diversity’ might be very different – and more positive – compared to other social sciences (sociologists, anthropologists, political scientists) and we should not ignore the analysis conducted by these disciplines.

Third, on the refugee issue: a strong inflow of migrants (as this is what refugees become when their status as refugees is recognised) – in addition to the traditional migration flows to which a society has already built-up channels of integration and has planned the provision of additional capacities (such as in housing, education and health services) – obviously initiates an additional (and unexpected) need of adjustment. Given the lack of forward planning (which is only incompletely possible with an ‘unexpected’ crisis), the population experiences the situation, furthermore, as ‘loss of control’ by policy-makers, adding to the sense of insecurity.

Policy recommendations: how to deal with migration and refugee inflows

The above analysis leads to the following recommendations with regard to the measures which would have to be employed (at times on a massive scale) to deal with a scenario of sizeable long-term migration and refugee inflow from the ‘South’ to Europe over the coming decades:

  • Consider seriously the differentiated distributive implications of migration flows and take appropriate measures; one response would be to invest heavily in human capital upgrading of the existing population (with a strong emphasis on the most vulnerable segments) which would enhance their chances to come out as beneficiaries from the adjustment processes initiated by such inflows.
  • Plan massive infrastructural expansion (in housing, education, health and social infrastructure) in order to increase the absorption capacities of the host economies and avoid experiences of ‘congestion’.
  • Improve provisions for social integration of migrants from more diverse cultural backgrounds which means educational processes of both the host population as well as the migrant community.
  • Overcome labour market discrimination to facilitate quick integration of migrants and avoid longer-term mismatches of skills and occupations that lead to losses on both sides (‘brain and skill waste’).
  • Use a range of policy tools to overcome segregation (particularly in housing and education).
  • Combine migration policy with a careful design of development assistance (such as support of educational and training facilities in the sending countries), as well as of trade and investment policies which might encourage circular forms of migration and the longer-term development of region-to-region integration which would benefit both sending and host regions.


1) The MENA region comprises all countries of the Middle East and Northern Africa

2) For more details see http://siteresources.worldbank.org/INTMENA/Resources/SF_background-2.pdf


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