June 7, 2016

The Economic Case for Admitting Refugees Is (Again) Strengthened



Three new studies confirm what economists already knew: refugees do not ultimately burden the nations that accept them. On the contrary, investing in refugee resettlement can actually improve economic performance in the long run. While the humanitarian case for refugee resettlement receives the majority of the attention, the economic case is also compelling.

Early this year, the International Monetary Fund published a report examining the economic impact of resettling refugees in Europe. The authors calculate that after refugees start working, they will produce more than the upfront cost of resettlement, confirming the results of a study on Germany last year, which posed a similar question.

They estimate that for every euro spent on refugees, the European economy will grow by more than 1.84 euros within five years. The supposed influx of refugees, which for most European countries is a minor addition to their total population, will not only fail to produce the disastrous effects predicted by their opponents, but could also result in the reversal of aging European populations.

It should be stressed that policies which provide access to the labor market for refugees and allow for integration into community networks are necessary to achieve these gains.

In April, economists Mette Foged and Giovanni Peri published a study in the prestigious American Economic Journal that rigorously examined the short and long term effects of refugees from Somalia, Afghanistan, and Iraq resettling in Denmark. They found that refugees employed in low-skilled manual jobs did cause displacement for native Danes—but it actually resulted in pushing lower skilled, less educated natives into higher paid positions. They concluded that immigration had positive effects on mobility and employment. 

Last month, a study—whose author, economist Philippe Legrain, promises it to be “the first comprehensive, international study of how refugees can contribute to advanced economies”builds on the IMF’s findings. He concludes that since refugees not only join the labor force but improve the labor force, the economic benefits of refugees are even higher.

These three studies are just the latest in a huge literature that finds labor markets can quickly and successfully absorb immigrants and refugees without substantial harm to natives. Moreover, infusions of new populations can modestly improve economic performance in the long-run and revitalize struggling cities.

This economic case for refugees might seem counterintuitive. Refugees who have just fled their country and have a poor command of the language might not seem able to contribute to a fast-paced, global economy. And while that may be true for some very early on, it’s a flawed assumption when applied to the long-term.

Refugees earn and spend money, which boosts economic activity. They start businesses, make investments, launch new cultural and religious institutions, and in the case of Syrian refugees many being educated and highly skilledthey will contribute heavily to numerous sectors of the economy.

Demographic concerns should also be taken into account. Refugees tend to err on the younger side, helping to reinvigorate an aging population. This issue is not as acute here in the United States as it is in Europe, but the infusion of a younger population can help address the fiscal cost of settling refugees and America’s aging population.

Of course, refugees still face many challenges when resettling into a new country. Integration is slow and often arduous and does require upfront costs for governments and the private sector. But once some time has elapsed, refugees find their niche in their new home and begin contributing to society and economy.

Consider the U.S. case of refugee populations such as the Cubans or the Vietnamese. Their initial arrival had costs, but in the long-run America is a richer, more prosperous nation because of their robust contributions. We look at these populations as part of the American mosaic— not as some distant group who struggled in their new home. 

The sheer number of Syrians and other refugee populations on the move seems daunting, but the U.S. used to resettle much higher numbers of refugees with positive outcomesand we can still do so today.

Even without any consideration of the humanitarian case for welcoming refugees into the United States, the benefits to the economy should pique the interest of those still on the fence. Indeed, because the evidence suggests that investing in refugees pays for itself and then some, it would not only be wrong to turn refugees awayit would be economically irresponsible.