The European refugee migrant crisis, arisen through the movement of refugees from conflict-ridden countries mostly in Middle Eastern countries such as Syria, has prompted one of the largest social, political and economic discussions of 2015. With good reason too; as the largest refugee movement since World War II. Almost every economic and political figure has had their say on it, and recently HSBC published this five sentence analysis of the crisis, advising the acceptance of more refugees:
“From an economic perspective, Europe needs more workers. It is well known that most parts of Europe have rapidly ageing populations. This results in slower growth and thus tax receipts, whilst simultaneously increasing government spending through pensions and healthcare. The Eurozone, in particular, is about to embark on this demographic challenge with a mountain of debt. The easiest way to support more pensioners is to have more taxpayers.”
- Europe needs more workers – agreed (overall), due in part to the second sentence; rapidly ageing populations have increased the aged dependency ratio across Europe, particularly in Germany where it is set to rise to 59% by 2060, meaning there will be only 2 working-age people’s taxes supporting each pensioner.
- Slower growth, lower tax receipts, higher government spending as a result – agreed.
- A demographic challenge with a mountain of debt – agreed.
- The easiest way to tackle this is through accepting more refugees, resulting in more taxpayers – not so clear.
HSBC’s final conclusion crucially depends on the assumption of refugee participation in the labour market and their resulting fiscal contributions. Ask a politician and they will tell you immigration is ‘bad’ (See Theresa May’s anti-immigration speech at the Conservative party conference – “at best the net economic and fiscal effect of high immigration is close to zero”). However, ask an economist and they will tell you immigration so far has been economically beneficial to the UK; through increasing employment, wage rates, economic growth and positive net fiscal contributions. A compelling economic case for accepting more immigrants and refugees, surely?
However, if we drill down further into the demographics of this particular wave of refugees rather than looking at immigration as a whole, the economic case for accepting refugees from the Middle East and Asia is less compelling. Below shows the education profile of Syrian refugees that have found asylum in Lebanon:
From this we can see that approximately 30% lack at least a Primary level education, almost three quarters have a Primary level education or below and only 4% have a degree. It would be a fair extrapolation to suggest that refugees coming to the UK would also have similar educational profiles. This is in stark contrast to the overall figures – 32% of EEA immigrants and 43% of non-EEA immigrants hold a degree, and so it must therefore not be believed the UK and other countries would be accepting immigrants as they have before, but much lower-skilled workers. Therefore, are they less likely to find jobs, more likely to be in lower-paid jobs and make lower net fiscal contributions? The evidence would suggest so.
A 2010 report by the Home Office, shows that after 21 months in the United Kingdom less than half of the refugees were employed, well below the UK average of 80%. Added to this, the report found that the health of refugees was poorer than the health of the general population in England and Scotland. These two aspects combined are bound to create a negative fiscal contribution, especially when it is borne in mind that the healthier, more employed British natives contributed 11% less in taxes than they received in payments from the state between 2001 and 2011, as found in research by UCL CReAM. These statistics do not bode well for the supposed “easiest way to support more pensioners.”
Further, empirical evidence from Jordan shows that the aggregate costs incurred by taking on Syrian refugees was nearly $8.2 billion in 2012 and 2013, while economic benefits came in at only $5.8 billion. So the influx of refugees cost Jordan approximately $2.4 billion, as well as putting strain on the country’s limited water supply.
Capacity and this strain on resources should also be highlighted for discussion. An understandable response to the refugee crisis may be “Where are they going to live?” The UK is already having its own housing crisis, with rapidly rising house prices, almost 30 000 homeless and over 65 000 in temporary accommodation. Refugees and migrants will increase this demand for low-cost housing, demand public finances are already struggling to keep up with. Likewise, Germany has an estimated homeless population of 860 000, but has taken in 800 000 refugees this year. A strong economic argument could be made for allocating resources towards educating, training and housing its native homeless to support its ageing population rather than taking on 800 000 refugees, that according to the aforementioned research are unlikely to integrate themselves into the labour market without this same education, training and housing.
It is to be noted however, that even supporters of the economic case for refugee acceptance appreciate there will be great short term costs, but they argue that it is in the long term the advantages will be realized. The problem is that these short term costs will have to come, as HSBC admits, at a time when Europe has “a mountain of debt.” Therefore, is it even wise macroeconomic policy to take on even more debt?
Unfortunately, as an avid supporter myself for the positive economic contribution of immigrants overall, the same arguments for immigration do not apply to the current refugee crisis, due to this observed lack of participation of refugees in the labour market – the crux upon which HSBC’s conclusion is based. To be able to support pensioners, refugees must make a positive fiscal contribution, which is seemingly unlikely without heavy investment in their education and training.
In light of this evidence, relying on refugees to support an ageing population does not seem to be the most “easiest” method. Quite the contrary, the research could even suggest the problem worsens. It is true that more refugees would mean “more taxpayers,” through direct and indirect taxes, however the research shows they are more likely to be net fiscal recipients than contributors. Rather than supporting an ageing population, an increase in the numbers of those dependent on the state could be likely.
Whether the UK and other countries have a moral obligation to take in more refugees, the social impact of a refugee influx and whether the economic costs are worthwhile for the purpose of humanitarianism are other areas for discussion. However, it would be a poor economic allocation of resources and unwise to accept more refugees in the hope of economic gain, contrary to the advice of HSBC.