Fiscal Cost of Refugees in Europe

Yves here. We featured an earlier post which pointed out that the results of modeling the cost/benefits of allowing migration depend, not surprisingly, on the assumptions made. This study is useful in that it is empirical, using Swedish data, when Sweden has good information and also generous social support programs. This analysis concludes the “costs” are low, based on the conventional view that deficits must be financed. One could just as well argue that managing immigration well gives political cover for deficit spending that is useful in a world with underemployment and a deflationary undertow.

By Joakim Ruist, Research Fellow, University of Gothenburg. Originally published at VoxEU

The current inflow of refugees into Europe has left policymakers in disagreement over how to react. A major concern is the perceived financial burden that can result from large intakes. This column discusses the fiscal impact of refugees on the Swedish economy. The current net redistribution from the non-refugee population to refugees (excluding arrivals in 2015) is estimated to be 1.35% of GDP. The economic burden of a generous refugee policy is therefore not particularly heavy, especially if the host country incorporates them as quickly as possible into the labour market.

The inflow of refugees into Europe in 2015 was slightly above one million. The current inflow is unprecedented in history, and policymakers are in disagreement and disarray over how to react. The readiness of many countries to provide asylum is waning. In addition to concerns about security and preserving national identity, a major underlying reason is the perceived financial burden that would result from larger intakes.

But how well-founded are these concerns? What, in reality, is the fiscal impact of these new arrivals? While there have been many studies of the economic impact of immigrants taken as a whole (see summary by Rowthorn 2008), these are not very informative about the impact of refugee immigration in particular. For obvious reasons, the labour market performance of economic immigrants – who immigrated because of their economic opportunities – is generally a lot better than that of refugees. And hence, refugees’ net contributions to public finances are not as positive as those of economic immigrants. This is clearly indicated, for example, by Ekberg (2009). Ekberg notes that the average immigrant in Sweden was a net contributor to public finances until approximately the middle of the 1980s, i.e. during a period where immigration for economic reasons dominated. However, he also notes that over the last 30 years, when refugees have made up larger shares of Swedish immigrant inflows, the net contribution of the average immigrant has been negative.

Estimating the Fiscal Contribution of Refugees: New Research

In a recent paper (Ruist 2015), I have therefore provided the first estimate of the fiscal redistribution specifically to refugee immigrants in any Western country. That country is Sweden, the European country with the largest number of refugees per capita as well as some of the best micro-level socioeconomic data in the world. If all 15 pre-2004 EU members had the same rates of refugee immigration per capita as Sweden from 2005-2014, the number of refugees received in these countries would have been 5.9 million instead of the actual 740,000. So, in answering what the fiscal impact would be in other countries if they would begin to receive their fair shares of the current inflows – something few of them can be said to have done until now – the Swedish experience will be the best existing indicator.

My estimates of the redistribution to refugees through the Swedish public sector in 2007 are shown in Table 1. Column (1) shows a summary of Swedish public finances in that year, summing all revenues and costs over the entire population. Column (2) shows the corresponding revenues and costs that relate to the refugee population, and Column (3) is refugees’ share of the total values, i.e. the ratio between the two previous columns. Refugees’ make up 5.1% of the total population. Hence, a value larger than that in Column (3) means that refugees are over-represented on the revenue or cost item in question, and vice versa.

Table 1. Redistribution to refugees through the public sector in 2007

ruist table1 27 jan

It emerges, not surprising, that refugees were highly over-represented in certain types of public spending. Most strikingly, they accounted for 55% of social assistance spending, as opposed to their share in the total population of only 5.1%. Seventeen percent of refugees received social assistance as opposed to only 3.3% of the total population. On the other hand, refugees heavily concentrated in the 20-59 age bracket, were under-represented in public spending on larger budget items like pensions, health, and education. All told, it is estimated that refugees accounted for 5.6% of total public spending, a share not drastically out of line with their share of the population. However, they performed much worse than the rest of the population on the revenue side, where they contributed only an estimated 3.4% of total public revenue, essentially through direct and payroll taxes. The reason is clear: the employment rate among adult refugees was 20 percentage points lower than that among all adults. The reasons include poor language skills, lack of applicable training, lower female labour force participation rates, and so on.

Putting the two sides of the fiscal equation together, in 2007 the net fiscal redistribution from the non-refugee population to the refugee population was almost exactly 1% of GDP. Four-fifths of the redistribution was due to lower public per capita revenues from refugees compared with the total population, and one-fifth to higher per capita public costs.

  • If these figures are scaled up to 2015, current redistribution to refugees (excluding 2015 arrivals) is estimated to be 1.35% of GDP.

If we want to use these estimates as indications of what substantially higher refugee intakes might imply for other European countries, we should note that the net per-capita costs in most other countries are likely to be somewhat smaller than in Sweden. This is first because Sweden has a very advanced labour market, with fewer simple jobs and a more compressed wage structure than any other European country. Hence, it is particularly difficult for a refugee immigrant without the required schooling and linguistic and cultural skills to find work and become a contributor to public finances in Sweden. Second, it is because the Swedish welfare system is comparatively generous towards people without any history of earning wage income in the country. Hence, an unemployed refugee immigrant receives more from the public sector in Sweden than they would in most other countries.

Conclusions

Two major conclusions emerge from this analysis.

  • The economic burden of a generous refugee policy is not particularly heavy.

European countries should not shirk their moral responsibility to provide safe haven for fear that refugees will break the bank. If other western European countries would have matched the Swedish per-capita intake of the past decade (not counting 2015), and Europe would have hosted an additional five million refugees today, the current crisis would have been far less serious. The lesson from my study is that this would have been far from economically impossible.

    • The best way to reduce the modest fiscal burden of refugees is to incorporate them as fast as possible into the labour market so they can start contributing to the public exchequer.

See original post for references

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18 comments

  1. digi_owl

    The biggest economic sinkhole with refugees are the private camp operators that via accounting shenanigans squirrel away public money in private offshore accounts.

    The money that actually reach the refugees invariably makes its way back into the larger economy via daily expenses, thus earnings for stores and services, that in turn gets taxed at local and national level.

    All these debates seems to think that any public spending is basically money burned on the pyre.

  2. Thomas Williams

    Nice post Yves.

    However, we have global underemployment. I would like to see a serious treatment of wage depression and native worker displacement caused by migration.

    Lord knows workers are getting reamed here in the US by foreign born workers.

  3. IsabelPS

    Isn’t this a weird sentence?

    “If these figures are scaled up to 2015, current redistribution to refugees (excluding 2015 arrivals) is estimated to be 1.35% of GDP.”

  4. Andrew DeWit

    Accepting some refugees is a humanitarian obligation. But surely many economic immigrants could find work and security in their respective regions if we used this crisis to invest in sustainable and climate-resilient agriculture, energy, and utter urgent projects.

  5. Henrik

    So this analysis is a model based on how things looked in 2007? Right!!! There is a housing shortage in Sweden, a physical housing shortage, and a rental market that is price fixed. Under the direction of the department of immigration (DOI) migrants sleep under bridges provided blankets and pillows. There was real talk of confiscating private property to house refugees. Ships are used to house immigrants. Sweden has the highest income taxes in the the world, where there is a tax on simply changing residence, 25% value added tax and countless user fees and tax on ownership of assets including no yielding assets. The bureaucracy is unimaginable for a North American. In 2015 Sweden took in over 163,000 people, mostly men well over 80%. 14,000 were not granted asylum but stayed for the benefits anyway and can now not be found. The volume of rape (mostly white women and you all know why) murder and general crime has reached a level incomprehensible from just 5 years ago. Sweden has 55 no-go zones where Sharia law has been implemented. To say there is a large number of hand grenade attacks is NOT being sensational. There are 34,000 so called children many of whom have a frothy beard, that cost the welfare industrial complex depending on location no less that $800 USD per day! Also if the cost is so low, dare I ask why DOI is now attempting and will fail in deporting a minimum of 60,000 people that arrived in 2015! This audience knows very well that it is the leverage that matters. Good luck unwinding THIS state of affairs at 1.35% GDP. Watch Sweden, you will see changes that will be unimaginable.

    1. andyb

      Assault, rape and murder are just the consequences of attempting multiculturalism with a religion that refuses to assimilate; Get Used to It!

  6. Swedish Lex

    “One could just as well argue that managing immigration well gives political cover for deficit spending that is useful in a world with underemployment and a deflationary undertow.”

    Exactly what I have been saying all the time: refugees are great Keynsianism. Boosts the economy short term and puts the economy on a higher path of growth for the future!

  7. Praedor

    My concern is more on cultural non-integration. Cost-smchmost, if the males are incapable of handling women dressed in skirts, shorts, tshirt, etc, and have no compunction about being grabby, at best, then they are not welcome. They must be made to KNOW their stay is temporary if they cannot handle western women, western dress, western social activities.

    1. fajensen

      Precisely.

      It represents a huge loss in creativity, living space and personal freedom that there are more and more things we cannot say, areas where we cannot safely walk, actions that we cannot do, food and beverages we must not consume in front others, issues that cannot be discussed and religious beliefs that one must not criticize – Or Else.

      The worst part is that the right-wing parties rising on the public outrage over all this are of exactly the same mentality as the average salafist nutboy – only with other values for “thou shall not … ” and “they, which we hate …”.

  8. Jesper

    Well this quote from the end:

    This is first because Sweden has a very advanced labour market, with fewer simple jobs and a more compressed wage structure than any other European country. Hence, it is particularly difficult for a refugee immigrant without the required schooling and linguistic and cultural skills to find work and become a contributor to public finances in Sweden.

    Is quite interesting. But not substantiated and actually refuted.
    The author has made the assumption that low wage equals simple job. Would be true in a meritocracy but not even Sweden is a meritocracy.
    What Sweden has, although it looks likely to change, is the notion that a job should pay a living wage. Reduce wages below living wages and maybe, just maybe, there’ll be more job openings….. Quite a popular ‘idea’ among the very serious people like economists. That combined with arguing for fiscal top-ups for people doing jobs that are not paying a living wage. (instead of letting wages increase and/or automate the ‘simple’ jobs.)

    & for a country with housing shortage and a credit/housing bubble the costs are quite a lot higher than estimated. Do economists not know the difference between using spare capacity and investing in new capacity?
    It looks likely that Sweden will do what Ireland did: Hire foreigners to build houses for foreigners and when the house-building ends then the jobs for the house-building foreigners disappear and the bubble bursts…. The Swedish authorities are ‘aware’ of the situation, but are doing nothing about the credit-bubble. Being ‘aware’ is about as pre-emptive as making a wish. The bubble will burst and the ‘soft-landing’ will be as soft as the Irish ‘soft-landing’.

    I might rephrase this:

    The best way to reduce the modest fiscal burden of refugees is to incorporate them as fast as possible into the labour market so they can start contributing to the public exchequer.

    To:

    The best way to make pigs fly is to give them wings

    Or maybe:

    Water is wet

  9. ballard

    The 21st century would probably be a good time to be somewhere else.

    … two years ago the United Nations Population Division released a shocking update to their population projections, revising the forecast for the continent of Africa upward to 4.2 billion in 2100 from 1.1 billion today. […] That is about a half dozen times greater than the population of Europe. […] Africa is almost certainly not going to add over three billion residents over the next 85 years. Something else will happen instead …

    https://www.washingtonpost.com/news/worldviews/wp/2013/07/16/the-amazing-surprising-africa-driven-demographic-future-of-the-earth-in-9-charts/

    However, in the eyes of polite opinion, getting anywhere close to realism on this topic is unthinkable, so (instead of closing the gates now) by far the most likely outcome is that Europe buries its head in the sand until it is already deep into existential crisis, then lurches into some new and even more hysterical fascist “solution”.

    We Europeans might even get to lose another World War before the complete extinction of our civilization.

  10. p fitzsimon

    If Mr Ruist is saying that that the cost of taking in refugees is a one-time hit of 1.35% to GDP I would agree that there should be no issue, take in the refugees. But if the flow continues with a long term continuous reduction of 1.35%, that’s another issue entirely. Also, as long as the borders in Europe remain open then refugees will flow towards existing communities, the places with the best job opportunities, the most welcoming citizenry and the best public/private assistance. They wont distribute themselves uniformly.

  11. tony

    The cost of refugees in GDP is pretty minor, but I find that GDP is overvalued in economic arguments. GDP calculations largely ignore real resources and the consequences of the economic activity. Sweden suffers from a large housing shortage, which means refugees are placed in tents and other undesirable housing while the natives have very hard time finding rental apartments.

    Any building that can be converted into refugee housing becomes very valuable showing an increase in GDP as property owners enjoy windfall profits paid by the taxpayer. None of these details are shown in GDP calculations. Of course this applies to more topics than immigration. Selling people a toxic diet and then the medical care they need as a consequence also shows up as GDP contribution.

  12. James Koss, MD FAAEM (ret.)

    I am told by a Swedish friend that many of the the refugees are Somalis. they chose to live apart, not participate in a Swedish life style, accept all that is offered but tend to refuse to assimilate nor get work and learn Swedish. My friend told me this is now 9-10% of the population. The other ~ 90% are growing tired of seeing their worked for Kroner going to those who refuse to join the society and pay their way.
    My read is the Somalis, like many peoples of nations with feast or famine histories learned to take when feast and suffer when famine. The Western Welfare assistance State is always feast so why suffer by working when the supply is seemingly endless…until the rightist reaction sets in.

    The Swedes in their naive idealism assumed the arrivees would happily grasp the opportunity to become culturally Swedes but the result was they chose to remain Somalis. Even the most humane of my Swedish friends voice discomfort over the “no budge” attitudes of the aid recipients. Their politics are shifting right.

    I saw the same in Germany with the Gastarbeiter immigrants. Traditional German meeting places like the Hauptbahnhof (train stations) once were where a family went for beer, films, and social meetings now avoid the hassle of the woman-less immigrants who have turned the stations into their tea houses and harass the ladies.

    Too often Westerners think, much as did the US Military and US policy makers that by changing settings or rulers the entire culture will shift in the direction we wish! To quote Sportin’ LIfe in Porgy and Bess: It ain’t necessarily so. The prices paid are socially damaging and culturally alienating.

    1. Sven Jansson

      James if by ‘population’ you mean the Swedish population and 9-10% being Somalis it is a gross exaggeration and incorrect. Somalis average around 40K in Sweden and most of them came during the 90s, which corresponds to around 0.4% of the Swedish population.

      And speaking about their willingness to integrate into society, although you will find individuals that are unwilling to partake in our culture and labour market as with certain ethnic Swedes for all that matters, one could also argue whether society i.e. everyone of us including employers, law enforcement, healthcare, are truly trying their best to treat these refugees as equals, not judging them as a homogenous group, based on pre-packaged prejudices?

      How easy will it be to integrate when people have already made up their minds about you as an individual or a group?

  13. afisher

    On a positive note ( snark) – a Commonwealth report is saying that White Middle Age Americans are dying faster that anticipated and it is only that sector of the population that is on the upswing. Morbidity is from Drugs / Suicide / Liver failure. Unsuprisingly, there is a geographic section of the country in which this is more apparent -that area that has no healthcare insurance.

    EU used the Frank Luntz technique: be first to post information – accuracy will follow later ( as necessary). Rape stories are beginning to unwind as unfounded or flat out false.

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