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To understand the economic stakes in Europe's refugee crisis, start in an unlikely place: the South Pacific island of Tonga. In 2006, the World Bank brokered a deal between this impoverished microstate and nearby New Zealand. Tonga would satisfy New Zealand’s unmet need for fruit pickers by sending some of its citizens to its wealthy neighbor; New Zealand would provide those citizens with employment. The experiment increased the income of participating Tongan workers by a factor of ten, an effect that dwarfed the potential benefit of any imaginable aid program. With this extraordinary leap in income came improvements in everything from the quality of workers’ homes to the school performance of their children. The program cost New Zealand nothing.
As in Tonga, so in Europe and across the world: the cross-border movement of people can boost prosperity more powerfully than other forms of globalization. Trade liberalization can expand countries’ output by a few percentage points—worth having, to be sure, but generally not transformative. International capital flows can in principle improve the allocation of the world’s savings, but they can also misfire, triggering crises. Migration, in contrast, can generate vast increases in living standards. “The gains to eliminating [migration] barriers amount to large fractions of world GDP,” the development scholar Michael Clemens has argued, that are “one or two orders of magnitude larger than the gains from dropping all remaining restrictions on international flows of goods and capital.”
If the gains from migration are so vast, why do political leaders tend to resist new arrivals? The answer lies in the distribution of these gains, the lion’s share of which accrues to the migrants. If a cabdriver from Lima moves to New York, for instance, his skills will remain unchanged, but his income will shoot up dramatically. Yet the economic consequences for New York and for its native-born cabdrivers will not be immediately obvious, and the impact of the migrant’s new job on the Peruvian economy will be hard to assess.
Seen from the standpoint of global welfare, in other words, migration offers a clear win. But politicians speak for national and sometimes regional interests, not for the global commons. It is perhaps for this reason that European leaders have struggled to respond to a crisis that, properly managed, could greatly increase the global total of well-being.
A SIGNIFICANT CONTRIBUTION
A large economics literature has sought to untangle migration’s national and regional impacts. From the point of view of countries from which migrants emigrate, the findings are mixed, but probably more positive than most people imagine. For one thing, emigrants from developing countries remit around $440 billion annually to relatives at home, a transfer that is three times the size of total official development aid worldwide. For another, the loss of productive workers may be less crippling to countries of origin than is frequently assumed. It is often asserted, for example, that Africa’s health services have suffered grievously from the exodus of trained nurses and doctors from the continent. But African countries with the largest outflows of physicians as a share of total population, such as Algeria, Ghana, or South Africa, tend to have the lowest rates of child mortality; apparently, enough doctors and nurses stay behind to prevent a breakdown. Likewise, it is easy to lament that Greece’s bankrupt economy has been irreparably damaged by the brain drain of educated twenty-somethings. But Greece has an unemployment rate of 25 percent, and its economy was hardly benefiting from young people who weren’t working. Migrants, in other words, tend to leave places where productive opportunities are meager, and even as they leave, enough workers tend to stay behind to fill those opportunities that remain. Clearly, it would be grotesque to oppose the flood of Syrians to Europe on grounds of an alleged loss to Syria’s economy.
For receiving countries, meanwhile, the verdict on migration is even more favorable. A good example of the benefits is to be found in the United Kingdom—despite the fact that many Britons deeply resent immigrants. Contrary to popular mythology, the United Kingdom’s immigrants are, on average, better educated, more productive, and less of a burden on public services than native-born citizens. Almost half of the British-born work force left school at 16 or younger; fewer than one in five foreign-born workers abandoned the classroom so early. At the other end of the spectrum, 46 percent of recent immigrants to the United Kingdom in 2005 stayed in education until age 21 or beyond; only 16 percent of native Britons were as well educated. Meanwhile, just over a third of British residents are either too young or too old to work and pay taxes, whereas the vast majority of migrants are in the prime of their productive years. In London, where 37 percent of residents were born abroad, migrants account for fully 60 percent of the labor force in parts of the city.
Migrants tend to leave places where productive opportunities are meager. Even as they leave, enough workers tend to stay behind to fill the opportunities that remain.
Migrants, then, boost output and are net contributors to the United Kingdom’s public finances. But do they nonetheless harm low-skilled native workers by flooding the labor market and depressing wages? At first glance, this is a plausible story: migrants often compete for low-skilled jobs despite having good educational qualifications. But studies in the United Kingdom and in the United States have shown that migrants do surprisingly little to depress wages for low-skilled native workers. One reason may be that low-skilled natives can shift into occupations that place a premium on English-language skills, for which migrants represent limited competition. Another may be that workers compete not just with one another but also with machines, so that when migrants swell the labor force, businesses spend less on automation and hire more workers. The supply of jobs thus rises to match the increased pool of job seekers, and wages remain more or less unaltered.
Seen from the standpoint of global welfare, migration offers a clear win.
The positive impacts of migration on host economies, meanwhile, tend to be underappreciated because they are tricky to measure. As the economist Jonathan Portes has argued, migrants bring new ideas and methods, offering native-born workers opportunities to learn and adapt. They increase competition for jobs, spurring natives to acquire new skills and to stay in the educational system longer. Evidence from the United Kingdom and the United States suggests that migrants are more likely to register patents than natives; even more striking, migrants’ success in this respect spurs natives to register more patents, too. By enriching and diversifying the supply of labor and by sharpening competitive incentives, immigration can boost productivity across host economies.
THE REFUGEE BOON
It is fair to be skeptical of the relevance of such findings for Europe’s current crisis, because economic migrants and refugees differ in important aspects. Economic migrants uproot themselves specifically to work and are taken in by host states because their skills are needed, so they can be expected to contribute significantly to host economies. In contrast, states take in refugees to advance humanitarian rather than economic goals. Yet despite these reasons to suspect that refugees may burden economies, the best evidence suggests that, like economic migrants, they are a boon to host states—even if domestic opinion does not always see them that way.
Consider a natural experiment in Denmark. Starting in the early 1990s, Denmark took in refugees from countries such as Bosnia, Iraq, and Somalia, boosting the share of non-EU migrants in the population from around 1.5 percent in 1994 to 4.7 percent in 2008. The officials in charge of this asylum program paid no heed to the skills, education, or job preferences of migrants, nor did they consider the skill gaps in the regions of Denmark to which the refugees were allocated. Rather, they settled people according to where public housing was available and later according to the location of their relatives. At least two-fifths of the newcomers lacked postsecondary education, few spoke Danish, and many came from cultures very distant from northern Europe’s. If an influx of outsiders was ever going to damage a host country’s economy, here surely was a ripe example.
Remarkably, this damage did not materialize. A 2013 working paper by Mette Foged of the University of Copenhagen and Giovanni Peri of the University of California, Davis, considered the impact of this influx, particularly on one of Denmark’s most vulnerable groups: its low-skilled native workers. Foged and Peri’s study found that the influx of migrants to Denmark had no negative impact on wages. Instead, as refugees came in, low-skilled native-born workers shifted into different jobs, sometimes using their command of Danish to differentiate themselves from the newcomers. What is more, the number of low-skilled jobs in the economy increased: proof that humans can sometimes substitute for machines, in a reversal of the familiar teleology. Because of these adaptations, the wages and job prospects of low-skilled native workers either improved or stayed the same.
The Danish study is especially striking because it disposes of the standard objection to the optimistic view of the economic effects of migration, which is that migrants harm native workers in ways that are invisible to researchers. Earlier studies from the United States had tracked the response of native wages to migration in particular towns, finding that wages of low-skilled workers in places with high migration rose roughly as fast as in those with low migration. Critics of those studies, however, objected that natives who suffered job losses might move, thereby disappearing from the sample. But Denmark’s workers are tracked nationally, no matter where they go, as are their fluctuating work fortunes. The positive verdict from the Danish study is all the more powerful because it held up even under this comprehensive tracking.
Europe’s hesitancy in the face of the migrant challenge reflects its larger economic weaknesses.
Given this result, could today’s European Union accept large numbers of refugees without paying an economic price for doing so? In one sense, the answer is yes: Denmark’s influx of refugees, amounting to three percent of its population, is proportionally equivalent to the 500 million–strong European Union taking in 15 million asylum seekers, a large multiple of any figure currently under consideration. Admittedly, the Danish influx occurred over 14 years, but the equivalent for the European Union would still be over one million arrivals per year, which is probably more than today’s supposedly unmanageable influx. The numbers on current refugee inflows are sketchy, but the UN High Commissioner for Refugees reports that there were 437,000 asylum applications in the EU during the first seven months of this year, not all of which will be accepted. The Organization for Economic Cooperation and Development, for its part, estimates that as many as one million people could apply for asylum in Europe during 2015, with up to 450,000 likely to be accepted. Not only could one million or so migrants be absorbed annually: given the EU’s graying population, an influx of relatively young foreigners could be a huge asset.
And yet Europe faces three bedeviling problems. Its ability to productively absorb migrants is limited by high unemployment, low growth, and inflexible labor markets. Denmark, the United Kingdom, and the United States share relatively low barriers to hiring and firing, which facilitate the shuffling of the work force: if migrants enjoy a comparative advantage in construction or cabdriving, natives quickly gravitate to clerical work and shopkeeping. Yet many European countries, such as Italy and France, lack this adaptability because of a thicket of restrictive employment rules. As a result, these states are bound to struggle with sudden shifts in the composition of their work forces. Europe’s hesitancy in the face of the migrant challenge reflects its larger economic weaknesses.