Chapter 5. Refugees Can Be an Investment, Rather than a Burden

Discussion Questions

Will the large inflow of refugees into Europe lead to lower wages for workers already there? Not necessarily, argue Professors Giovanni Peri and Mette Foged, who find that immigrants often complement rather than substitute for local workers, thereby raising wages rather than lowering them.

Europe is now struggling with the most severe refugee crisis in decades, as millions of people flee violence in Syria and Iraq. Even as German Vice Chancellor Sigmar Gabriel outlined a proposal this week to place 160,000 refugees in nearly two dozen countries, he acknowledged that the plan was merely “a drop in the ocean.” Germany alone expects to receive 800,000 applications from asylum seekers this year. The U.S. government announced Thursday it would take in 10,000.

Refugees are often described as a “burden” for the countries they settle in. The usual thinking is that they are drain on limited government coffers and a weight on sluggish economies, but that countries ought to take them in for moral and legal reasons. Even those in favor of expanding help for refugees, like the former British foreign secretary David Miliband and the executive director of Human Rights Watch for the Middle East and North Africa, have referred to sharing the “burden” of refugees. However, research that has looked at the effect of refugees around the world suggests that, in the longer run, this view is often wrong. From Denmark to Uganda to Cleveland, studies have found that welcoming refugees has a positive or at least a neutral effect on a host community’s economy and wages. …

Research by Giovanni Peri of the University of California, Davis, and Mette Foged of the University of Copenhagen shows how an influx of lower-wage immigrants into a community tends to raise wages for everyone else. Low-skilled foreign workers and low-skilled domestic workers often complement each other instead of displacing each other, their work shows. … The researchers found that the Danish people who lived in communities where refugees arrived saw their wages grow more quickly than those without refugees. The study confirmed an effect that Peri had already observed among communities that received immigrants in the U.S. and in Germany. Not every single Dane was helped by the change, Peri says, but on average more people upgraded their jobs and earned higher wages.

Peri says the reason is that an influx of workers with different skills encourages people to specialize in jobs that they are uniquely suited for, which helps businesses and the economy to grow. As refugees come in, they typically fill jobs that require few language skills. Natives, in contrast, move to jobs that require more native skills, like managing these new workers, or talking to customers and suppliers. This specialization of workers makes companies more productive, which allows businesses to expand.