IMF’s Lagarde: migrants can boost EU growth, if states share burden

An influx of refugees into Europe need not harm its economy, provided there is an EU agreement on distributing migrants more evenly across the continent, an International Monetary Fund study has found Wednesday.

The IMF study, “The Refugee Surge in Europe: Economic Challenges” touts the potential economic benefits of migration at a time when EU leaders are facing a growing backlash from citizens concerned about their ability to cope with so many newcomers and the strain they place on public services.

Yet the IMF’s conclusion is likely to add to the rancorous fight among member states over plans to share the burden of refugees more evenly. A proposal from Brussels to do just that has proved politically toxic in many nations.

While EU leaders agreed — under heavy pressure from Brussels and Berlin — to relocate some 160,000 refugees already in Europe, they have only managed to move 322 so far.

Introducing the report at the World Economic Forum in Davos, Christine Lagarde, the IMF chief, challenged their resistance, saying there was an “upside potential” from migration and that if policies were adopted to integrate entrants into domestic labour markets quickly, they could benefit the economy without harming the prospects of host nation nationals.

“The current surge in refugees is a challenge with an upside potential. With appropriate policies, this rich source of human capital can be harnessed with benefits for everyone,” she said.

Lagarde’s remarks will lend support to Angela Merkel, the German chancellor, who is facing growing unrest for her decision to open the country to mass immigration.

Merkel will travel today to Bavaria, where opposition to migration is particularly strong, a day after 44 MPs from her political bloc signed a letter calling for the chancellor to change her policy.

Meanwhile, government officials in neighbouring Austria are expected to debate concrete measures on Wednesday to reduce migrant inflows.

In the short term, the IMF paper said that additional spending on migrants increased growth of gross domestic product “modestly” through increases in public spending to support migrants’ needs in housing, food, health and education.

The IMF estimated that the fiscal cost of migration across Europe would range in 2016 from almost 1 per cent of national income in Sweden to almost nothing in Spain, the UK and Cyprus.

When calculating the effects on growth, the fund thought that EU GDP would increase marginally by 0.09 per cent in 2016 and 0.13 per cent in 2017, but with significantly larger effects in Sweden, Germany and Austria.

Austrian GDP is estimated to be 0.5 per cent higher than otherwise in 2017.

The staff paper concluded: “The sooner the refugees gain employment, the more they will help the public finances by paying income tax and social security contributions. Their successful labour market integration will also counter some of the adverse fiscal effects of population ageing”.

In the medium term, the effects of migration were potentially more beneficial, the IMF paper noted, but depended on the speed of migrants’ integration into the host country’s labour market.

Examining previous episodes of migration, the IMF paper said immigrants often integrated slowly into hosts’ labour markets, with higher unemployment rates and lower participation in the labour force.

In Germany, migrants tend to earn 20 per cent less than domestic employees with similar characteristics, but there is a gradual but not full catch-up in wage levels.

The IMF recommended countries allow migrants to swiftly access labour markets — particularly in low-paid jobs without high minimum wages — wage subsidies to employers taking on migrants, low barriers to self-employment and moving to those places with the highest demand for labour.

If this was achieved, “quick labour market integration can unlock the potential economic benefits of the refugee inflow”.

Recognising that refugees might be different from previous waves of economic migrants, Lagarde nevertheless attempted to reassure host country populations. “Native workers are often concerned that refugees will lower wages … [but] past experience suggests these effects tend to be limited and temporary”.

The IMF said studies showed that the long-term budgetary consequences of migration depended almost entirely on the labour market integration of refugees, but it concluded that “the impact of the refugee inflow on pension spending is likely to be favourable but small”.

Source: The Financial Times