A problem you should be happy to have

The great question tearing at Europe’s soul remains whether it can stay true to an international refugee system that was set up when Europeans were the main victims fleeing war and the chief beneficiaries of a humane approach to resettling them. In truth, that so many people dream of Europe as a land of peace and prosperity is a challenge Europeans should be happy to have to face.

International Monetary Fund researchers have just published a contribution to addressing what they admit is just one very limited aspect of Europe’s refugee crisis: the economic facts and the policies that may best help handle them. It is a rich source of information. Here we highlight three points.

First, while it’s literally correct to speak of “unprecedented” numbers of refugee arrivals (at least since the second world war), in any practical sense, Europe has been here several times before in recent times. Asylum applications to EU countries were in the same order of magnitude in the early and late 1990s as the record about 1m applications lodged last year (760,000 in 1992). And even while the sudden large flows of people overwhelm the systems set up to receive them in the short run, refugees on the whole remain a very small part of most European countries’ population.

Second, immigrants are less integrated in the labour market and earn lower wages than natives, but the gap diminishes markedly the longer they stay. The struggle to join the formal economy shows up in other ways too. The IMF shows that in some countries, fewer migrants have bank accounts than natives. Another study finds that immigrants in France, from north Africa in particular, have lower home ownership rates than other groups.

It is often said, and bears repeating, that Europe could look to the US for guidance on how to integrate immigrants. (It would be good to learn from best practice among European countries, too.) The IMF report finds that the salary gaps between natives and new arrivals are comparable in the US and Europe. But as Therese Raphael points out on BloombergView, along other dimensions America does much better. That includes work participation but also deeper, more long-term signs of inclusion. Children of immigrants do worse than children of natives in most rich countries, but not the US and Canada. And the US has one of the lowest rates of self-reported discrimination among second-generation immigrants. A greater familiarity with the American immigration experience would not go amiss in Europe; a good place to start is a new overview paper on the economic history of mass migration to the US.

Third, the IMF estimates the overall economic effects of the refugee surge to be small but positive. In the short term, spending on receiving refugees will increase economic output, which could be up to 1.1 per cent higher by 2020 in the countries receiving the largest number of migrants. In the medium term, the increased supply of workers will help overall growth and delay the shrinkage of the labour force due to ageing. (And if it keeps down wage growth on average — because immigrants earn less — that allows central banks to add more demand stimulus without fear of inflation, as a recent Bank of England paper points out.)

But the size of the benefits depends on the receiving countries’ policies. The eurozone’s bad macroeconomic management — which has left economic activity too weak to create enough jobs — makes it harder to put new arrivals to work. Prohibitions on work for asylum seekers are even worse. As the Economist observes, “immigrants who work assimilate far more quickly than those who are forced to sit around in ghettos”. And where housing is hard to come by, population growth adds to the squeeze. All the more reason to improve macroeconomic, labour market and infrastructure and housing policies, for the benefit of natives’ and immigrants’ prospects alike.

In praise of inefficiency

As the weekend draws near, a hint for those with a hard work week behind them that maybe they needn’t have bothered. In the New York Times, Adam Grant extols the virtues of procrastination, which may be bad for productivity but can boost your creativity. And for those who prefer to have everything planned and organised, our own Tim Harford’s TED talk describes how messiness, awkwardness and being forced to improvise can have the same effect.