## _sdn1602 ## Source details **Canonical URL:** [_sdn1602](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/sdn/2016/_sdn1602.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/sdn/2016/_sdn1602.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/sdn/2016/_sdn1602.pdf.json) --- ### The recent surge: scale, origins, and demographics - 2015: about 995,000 first-time asylum applications submitted in EU countries through October, more than twice the number over the same period in 2014. - Forcibly displaced worldwide: almost 60 million at end-2014; 14.4 million were refugees, an increase of about 25 percent since end-2013. - Within the EU (first ten months of 2015) origin shares: - Syrians: around a quarter of asylum seekers. - Balkans: around 15 percent. - Afghanistan: 13 percent. - Iraq: 9 percent. - Pakistan: 4 percent. - Acceptance rates: - Above 85 percent for asylum seekers from Syria and Iraq. - Most applications from Balkan asylum seekers were rejected. - Country patterns: - Fastest increase in applications: Germany, Hungary, and Sweden. - Main destination concentration: Austria, Germany, and Sweden. - Greece and Italy often first landing points. - Refugee stocks per 1,000 inhabitants (end-2014): range from 0.01 (Latvia, Luxembourg, Slovenia) to 14.8 (Sweden). - Worldwide highest registered refugees per 1,000: Lebanon 232; Jordan 87. - Demographics: male-female ratio of asylum-seekers rose from 1.9 in 2012 to about 2.7 in the first ten months of 2015. - Turkey (Box 1): about 2 million Syrian refugees (47 percent of total Syrian refugee inflows and 2.5 percent of its own population); authorities estimate Turkey spent US$ 8 billion (including foreign contributions of US$ 0.4 billion) or roughly 1 percent of GDP on housing Syrian refugees since 2011; by late 2014, 86 percent had left camps; 62 percent in provinces near the Turkish-Syrian border and 21 percent in Istanbul. ### Short-term macroeconomic impact and transmission channels - Net short-term effect: likely a modest increase in GDP growth driven by: - Fiscal expansion for first reception and support services (housing, food, health, education). - Expansion in labor supply as newcomers become eligible and enter the workforce. - Channels and timing: - Initial impact operates through aggregate demand; labor supply effects develop gradually. - Fiscal expansion, together with supportive monetary policy, offsets possible downward pressures on wages and inflation from gradual refugee entry into employment. - Concentration: short-term impact concentrated in main destination countries (Austria, Germany, Sweden). - IMF staff EU-wide baseline simulation results (EU aggregate GDP level relative to baseline, deviation): - 2015: 0.05 percent - 2016: 0.09 percent - 2017: 0.13 percent - Country heterogeneity by 2017 (based on inflows of 86, 107, and 413 thousand first-time asylum seekers annually for Austria, Sweden, and Germany, respectively, with 40 percent rejection rate): - Austria: GDP rising by 0.5 percent. - Sweden: GDP rising by 0.4 percent. - Germany: GDP rising by 0.3 percent. - Medium-term (by 2020) with successful labor integration: - EU GDP level could be about 0.25 percent higher. - Austria, Germany, Sweden: GDP could be between 0.5 and 1.1 percent higher. - GDP per capita including refugees will be lower by about 0.4 percent compared to baseline if refugees’ labor-market performance falls short of natives. - Slow integration scenario: - Assumes refugee unemployment rate 30 pps higher than natives in 2015, declining to 24 pps by 2020. - Positive output impact diminishes; government debt and unemployment rate rise further. ### Fiscal impact: immediate estimates and assumptions - IMF staff estimate average budgetary expenses for asylum seekers in EU countries could increase by: - 0.05 percent of GDP in 2015 (GDP-weighted average reported elsewhere as 0.08 in 2015). - 0.1 percent of GDP in 2016. - Country-specific expected increases (relative to 2014) highlighted: - Austria: 0.08 and 0.23 percent of GDP (2015 and 2016, respectively). - Finland: 0.04 and 0.28 percent of GDP. - Sweden: 0.2 and 0.7 percent of GDP. - Germany: 0.12 and 0.27 percent of GDP. - IMF staff table — Fiscal Cost of Asylum Seekers, 2014 / 2015 / 2016 (Percent of GDP) — values preserved exactly: - Austria: 0.08 0.16 0.31 - Belgium: 0.07 0.09 0.11 - Croatia: 0.00 0.02 0.11 - Cyprus: 0.003 0.012 0.012 - Czech Rep.: 0.0 0.0 0.02 - Denmark: 0.24 0.47 0.57 - Finland: 0.09 0.13 0.37 - France: 0.05 0.05 0.06 - Germany: 0.08 0.20 0.35 - Greece: n.a. 0.17 n.a. - Hungary: 0.0 0.1 0.0 - Ireland: 0.03 0.04 0.05 - Italy: 0.17 0.20 0.24 - Luxembourg: 0.05 0.09 0.09 - Netherlands: 0.10 0.18 0.23 - Serbia: 0.0 0.06 0.1 - Spain: 0.006 0.006 0.03 - Sweden: 0.30 0.5 1.0 - U.K.: 0.015 0.016 n.a. - Simple average: 0.07 0.14 0.22 - GDP-weighted average: 0.08 0.13 0.19 - EU central resources: EC proposed boosting central EU resources for 2015–16 by €1.7 billion (0.01 percent of EU GDP) to €9.2 billion (0.07 percent of EU GDP) by reallocating resources; 2015 increases adopted. - Simulation fiscal assumptions (Annex II): - Population shock: assumed annual increase 0.15 percent of EU total population (or 0.8 million) in 2015–17 and 0.1 percent later. - Inflow assumption: 1.3 million first-time asylum seekers annually 2015–17, tapering thereafter, with 40 percent rejection rate. - Eligibility to work: up to two years to become eligible. - Participation gap: initial 5 pps lower than natives, declining to 3 pps by 2020. - Unemployment gap: initial 15 pps higher than natives, declining to 12 pps by 2020. - Direct fiscal costs: support while in asylum process (up to two years) and support for rejected applicants for one year; for EU about 0.1 percent each year in 2015–17. - Fiscal costs assumed not offset by cuts elsewhere. ### Labor market integration: barriers, evidence, and program effectiveness - Common barriers slowing integration: - Lack of language skills. - Non-transferable job qualifications and barriers to recognition of skills. - Legal constraints on work during asylum application period. - Barriers to job search and labor market rigidities (high entry wages). - Welfare traps due to interaction of social benefits and tax system. - Empirical patterns: - Migrants typically have lower participation rates, employment rates, and wages than natives; differences diminish over time. - Immigrants born in Afghanistan, Iran, Iraq, Syria, Somalia, Eritrea, and the former Yugoslavia tend to be less educated: twice as likely to have only lower secondary education or less and significantly less likely to have gone to college. - Immigrants from other EU and advanced-economy origins tend to have better educational outcomes than natives. - Germany (Box 3) findings (German Socio-Economic Panel): - Immigrants earn 20 percent less than natives with similar characteristics on arrival. - Wages catch up by 1 percentage point per year initially but never fully converge. - Immigrants without German writing skills or a German degree have a wage gap as high as 30 percent initially. - Good German writing skills close the gap by 12 pps and a German degree by another 6 pps. - 66 percent of highly skilled natives have a job requiring higher education and over 60 percent have jobs with very high “autonomy”; for immigrants not born in advanced economies the respective fractions are 42 percent and 33 percent. - In 2013 immigrants’ unemployment rate was twice that of natives; initial probability of unemployment 7 pps higher for recent immigrants, narrowing but remaining 3 pps higher long run. - Participation rate of immigrants converges fully after 20 years. - Program evidence and patterns (Annex III): - Wage subsidies and subsidized private-sector employment frequently show significant positive effects on transitions to regular employment. - Temporary agency employment often aids transition to regular employment. - Language training and some ALMPs can have lock-in effects reducing short-term employment probability. - Start-up subsidies and targeted coaching/caseworker models can be effective (example: SIN cost per job year of 30,000 euros). - Specific empirical results: - Danish integration program: participants in wage-subsidized private employment took, on average, 14–24 fewer weeks to find employment (Clausen and others, 2009). - Germany: start-up subsidy programs had durable positive effects (Caliendo and Künn, 2010). ### Housing, education, financial inclusion, and product markets - Housing: - Refugee inflows put pressure on affordable housing, increasing rents and prices and potentially harming lower-income households. - Policy responses: address restrictive land use regulations, streamline construction permitting, review rent control impacts, and use targeted fiscal measures (example package in Germany). - Housing policies critical where housing is already expensive (example: Sweden). - Education: - Children of immigrants generally have lower education outcomes; reducing concentration in low-quality schools, delaying tracking, early inclusion, and targeted support improve outcomes. - Financial inclusion: - Access to basic payment accounts and microfinance supports employment and entrepreneurship. - In Europe in 2013, 18 percent of all new microloans were disbursed to immigrants and ethnic minorities. - Product markets and entrepreneurship: - Simpler regulatory procedures, lower administrative burden, weaker protection of incumbents, start-up funds, equal access to jobs, and accelerated skill recognition raise immigrant self-employment and entrepreneurship. ### Demographics, long-term fiscal implications, and ageing - Demographic projections: - Old age dependency ratio: about 30 in 2015 → above 55 in 2050 (no migration), per Eurostat projections. - Ageing and public finances: - Population aging will lower potential growth and burden public finances, pensions, and healthcare. - 2015 Ageing Report variant: a reduction in immigration of some 210,000 individuals per year over 2015–30 → higher pension spending of 0.1 percent of GDP by 2030. - Applying reverse to refugee baseline and assuming linearity and similar characteristics → pension expenditures by 2030 would decline by about ¼ of a percentage point of GDP for the EU as a whole. - Effect on health care smaller than on pensions because refugees use healthcare immediately while pension claims occur at retirement. - Stylized fiscal facts: - OECD (2013): during 2007–09 average fiscal contribution of migrant population in advanced economies amounted to 0.35 percent of GDP, with most results between ±1 percent of GDP. - No clear correlation between immigrant share and net fiscal impact (excluding outliers). - Immigrants’ net fiscal balances weaker at young and old ages, stronger during working age; refugees tend to have less favorable fiscal profiles than economic migrants. ### Institutional and asylum-system issues - Common European Asylum System (CEAS) features: - Dublin regulation: first country where asylum seeker is registered is responsible for processing application (few exceptions). - Most asylum rules are national and heterogeneous: grounds for residency, safe countries, support extent, speed of labor market access, interpretations of cessation of refugee status. - EC launched 41 infringement procedures during September–December 2015, plus 34 pending cases. - Backlog: 809,000 pending asylum applications in the EU at end-September 2015. - Strict Dublin application would concentrate cases in gateway countries (Greece, Italy, Hungary), overwhelming capacity. - Practical measures and agreements: - Some countries accepted applications from migrants entering from other EU countries. - Creation of “hot spots” for registration in gateway countries. - Agreement to relocate 160,000 asylum seekers from Greece and Italy on an ad hoc basis over the next two years; implementation slow and covers a small fraction of inflow. - November 2015 EU-Turkey cooperation and €3 billion additional humanitarian assistance to Turkey. ### Key policy recommendations and implementation priorities - Asylum regulation and processing: - Create more harmonized and cooperative processing and accommodation among member states. - Take collective action to secure external borders. - Assist countries bordering conflict areas that host the majority of displaced people. - Labor market integration (priority actions): - Minimize legal barriers to employment during asylum procedures; allow asylum seekers to work and receive targeted support early. - Survey asylum seekers’ characteristics at registration (age, language skills, education, occupation) to tailor policies. - Scale up and target ALMPs: language training, validation of skills, job matching, tailored introduction programs. - Use temporary wage subsidies and consider temporary, targeted exceptions to minimum or entry-level wages where appropriate (weigh benefits against risk of labor market dualities). - Reduce “inactivity traps”: lower marginal taxes/social security contributions for low-wage workers and taper benefits more gradually. - Ease restrictions on geographical mobility and housing-linked constraints to match refugees to areas with higher labor demand. - Product markets and entrepreneurship: - Simplify regulations, reduce protection of incumbents, accelerate skill recognition, and expand access to finance and start-up support. - Housing, education, and financial inclusion: - Tackle bottlenecks to affordable housing (land use, permitting). - Ensure early inclusion of immigrant children in schooling, avoid segregation, delay tracking, and provide language support. - Facilitate access to basic financial services and microfinance for entrepreneurship. - Fiscal framework and SGP: - Allow temporary deviations from SGP on a case-by-case basis to accommodate refugee expenditures; exemptions should be temporary and expenditures clearly identified and spent on surge response. ### Scenarios, uncertainties, and key quantitative points to monitor - Simulation baseline population and flow assumptions (Annex II): - 1.3 million first-time asylum seekers annually 2015–17, declining by half in 2018, growing 5 percent annually thereafter. - 40 percent rejection rate; rejected applicants supported for one year then leave. - Accepted applicants: 25 percent eligible to work in first year, 50 percent in second year. - Share of working-age (15–64) among accepted asylum seekers: 81 percent. - Labor integration gaps (baseline): participation gap 5 pps in 2015 → 3 pps by 2020; unemployment gap 15 pps in 2015 → 12 pps by 2020. - Slow-integration scenario: unemployment gap 30 pps in 2015 → 24 pps by 2020. - Fiscal cost assumption used in simulation: support for asylum applicants of 12,000 euros per year per person. - Key headline quantitative estimates reiterated: - EU aggregate GDP deviations: 2015: 0.05 percent; 2016: 0.09 percent; 2017: 0.13 percent. - EU GDP could be about 0.25 percent higher by 2020 with successful integration. - Pension expenditures by 2030 could decline by about ¼ of a percentage point of GDP under the refugee baseline reverse-application of the Ageing Report relationship. - Old age dependency ratio: about 30 in 2015 → above 55 in 2050 (no migration). *Source: EXECUTIVE SUMMARY, REFUGEE SURGE IN EUROPE (IMF Staff Discussion Note).* ### EXECUTIVE SUMMARY ___________________________________________________________________________________ 4 ### EXECUTIVE SUMMARY ### The recent surge in asylum seekers: scale and characteristics - In 2015 about 995,000 first-time asylum applications were submitted in EU countries through October, more than twice the number over the same period in 2014. - The number of forcibly displaced people worldwide reached almost 60 million at the end of 2014; among these, 14.4 million were refugees, an increase of about 25 percent since the end of 2013. - Within the EU in the first ten months of 2015: Syrians accounted for around a quarter of asylum seekers; people from the Balkans accounted for around 15 percent; Afghanistan 13 percent; Iraq 9 percent; Pakistan 4 percent. - Acceptance rates: above 85 percent for asylum seekers from Syria and Iraq; most applications from Balkan asylum seekers were rejected. - Geographic and country patterns: the increase in applications has been fastest in Germany, Hungary, and Sweden. Austria, Germany, and Sweden are concentrated main destinations. Greece and Italy often serve as first landing points. - Refugee stocks and shares (end-2014 and 2014 values): refugees per 1,000 inhabitants ranged from 0.01 in Latvia, Luxembourg, and Slovenia, to 14.8 in Sweden. Worldwide highest proportions were Lebanon (232 registered refugees per 1,000) and Jordan (87 per 1,000). - Demographics: the male-female ratio of asylum-seekers rose from 1.9 in 2012 to about 2.7 in the first ten months of 2015. - Historic perspective: asylum applications in the EU peaked at 670,000 in 1992; asylum applications in 2015 surpassed previous peaks reached after the fall of the Berlin Wall and during the former Yugoslavia conflicts. - Turkey role and statistics (Box 1): Turkey has received about 2 million Syrian refugees (47 percent of total Syrian refugee inflows and 2.5 percent of its own population). Authorities estimate Turkey has spent US$ 8 billion (including foreign contributions of US$ 0.4 billion) or roughly 1 percent of GDP on housing Syrian refugees since 2011. As of late 2014, 86 percent of Syrian refugees had left the refugee camps; 62 percent were in provinces near the Turkish-Syrian border and 21 percent in Istanbul. ### Short-term macroeconomic impact - The short-term macroeconomic effect from the refugee surge is likely to be a modest increase in GDP growth, reflecting: - the fiscal expansion associated with support to asylum seekers, and - the expansion in labor supply as newcomers begin to enter the labor force. - The short-term impact is concentrated in the main destination countries (Austria, Germany, and Sweden). - The paper provides tentative macroeconomic model simulations of short-term GDP effects (model details and assumptions are presented in the body and Annex II). ### Labor market impact and absorption of immigrants - International experience: migrants typically have lower employment rates and wages than natives, though differences diminish over time. - Factors slowing integration: - lack of language skills; - non-transferable job qualifications and barriers to recognition of skills; - legal constraints on work during the asylum application period (for refugees); - barriers to job search; - labor market rigidities such as high entry wages; - welfare traps created by interaction of social benefits and the tax system. - Empirical evidence and country experiences highlight that: - slow integration is common but declines over time; - concerns that native workers will face lower wages and higher unemployment are generally limited and temporary in past episodes. - Policy levers to improve integration and labor-market outcomes: - minimize restrictions on taking up work during the asylum application phase; - strengthen active labor market policies (ALMPs) specifically targeted to refugees; - wage subsidies to private employers have often been effective in raising immigrants’ employment; - consider temporary exceptions to minimum or entry-level wages where appropriate; - ease avenues to self-employment (including access to credit) and facilitate skill recognition; - reduce restrictions on geographical mobility (including housing-linked restrictions) to allow movement to areas with higher labor demand. ### Long-term fiscal impact and demographics - Rapid labor market integration reduces the net fiscal cost associated with current asylum inflows since employed refugees contribute income tax and social security contributions. - Successful integration can help counter adverse fiscal effects of population aging. - The medium- and long-term growth impact depends crucially on the extent and speed of labor-market integration. ### Policy recommendations and implementation priorities (summary of lessons) - Policy priorities to maximize economic benefits and minimize fiscal costs: - Minimize legal barriers to employment during asylum procedures. - Scale up and target ALMPs toward refugees (training, language, job matching). - Use wage subsidies and targeted incentives to encourage private-sector hiring. - Facilitate recognition of foreign qualifications and ease self-employment opportunities, including access to credit. - Remove or relax constraints on internal mobility and housing that impede matching with labor demand. - Monitor and adjust social benefit and tax interactions to avoid welfare traps that deter labor market entry. - Complementary policies: - Address housing, education, and financial inclusion issues that affect integration. - Informational campaigns to clarify asylum rules and reduce irregular secondary movements. ### Conclusions (key messages) - The refugee surge is primarily a humanitarian catastrophe with substantial economic implications for EU destination countries. - In the short term, the surge is expected to modestly raise GDP growth in major recipient countries via fiscal support and labor supply expansion. - Long-term outcomes hinge on labor-market integration; policy choices can materially affect employment, wages, and fiscal balances. - Timely and targeted labor-market and complementary policies are essential to accelerate integration, reduce fiscal costs, and mitigate social and political tensions. *Source: EXECUTIVE SUMMARY, REFUGEE SURGE IN EUROPE (IMF Staff Discussion Note).* ### Box 2. Institutional Framework for Asylum Policy ### Box 2. Institutional Framework for Asylum Policy ### Institutional setup and divergence in rules - Under the Common European Asylum System, to prevent multiple applications, the first country where the asylum seeker is registered is responsible for processing the asylum application, with a few exceptions such as family cases (the Dublin regulation). - Most other asylum rules are national and differ across EU member countries. National rules cover: - when and on what grounds residency is granted; - which countries of origin are deemed safe; - the extent and nature of the support given to asylum seekers; and - how quickly access to the labor market is granted. - Countries also have different interpretations of the “cessation of refugee status.” - Footnotes in the source: - Regulation (EU) No 604/2013. Denmark, Ireland, and the UK have opt-out rights. Norway, Iceland, Lichtenstein, and Switzerland also participate in the system. - Annex I documents heterogeneity by summarizing differences in asylum procedures for four countries: Italy; Germany and Sweden; and the United Kingdom. ### Strain on the Common European Asylum System (CEAS) - Only a few countries are fully respecting the minimum standards for asylum; the European Commission (EC) launched 41 infringement procedures during September–December 2015, in addition to 34 pending cases. - Lack of resources has led to a large backlog of pending asylum applications, totaling 809,000 for the EU at end-September. - Strict application of the Dublin system would concentrate applications in gateway countries (Greece, Italy, Hungary), overwhelming accommodation capacity. - Asylum seekers have incentives to apply in favored destination countries because rejection rates, benefits, and employment opportunities vary widely across countries. - As a result, the Dublin system is not being applied systematically; reforms are on the agenda. - Practical and recent measures: - Countries such as Germany and Sweden have accepted asylum applications from migrants entering from other EU countries. - Agreement to create “hot spots” in gateway countries for registration and temporary stay. - Agreement to relocate 160,000 asylum seekers from Greece and Italy on an ad hoc basis over the next two years; covers only a small fraction of inflow and implementation has been slow. - Agenda items: reform of the Dublin system, proposal for a European Border and Coast Guard, increased support for Syria and other sending countries and their neighbors. - November 2015: agreement between the EU and Turkey to step up cooperation in managing migration flows and provide €3 billion of additional humanitarian assistance to Turkey to support Syrian refugees. ### Short-term macroeconomic impact: transmission channels - Initial macroeconomic impact operates through aggregate demand while labor supply effects develop gradually. - Short term: additional public spending for first reception and support services (housing, food, health, education) increases aggregate demand. - Fiscal expansion, together with supportive monetary policy, helps compensate for possible downward pressures on wages and inflation associated with gradual refugee entry into employment. - Medium and long run: impact on employment and GDP depends on: - speed of labor market integration; - extent to which newcomers’ skills complement or substitute native labor; - impact on allocation of resources, product mix, and production technology. ### Immediate fiscal impact — OECD/EU estimates and country examples - IMF staff estimate that, on a GDP-weighted basis, average budgetary expenses for asylum seekers in EU countries could increase by 0.05 and 0.1 percent of GDP in 2015 and 2016, respectively, compared to 2014. - Country-specific expected increases (relative to 2014) highlighted in text: - Austria: 0.08 and 0.23 percent of GDP (2015 and 2016, respectively). - Finland: 0.04 and 0.28 percent of GDP. - Sweden: 0.2 and 0.7 percent of GDP. - Germany: 0.12 and 0.27 percent of GDP. - Stability and Growth Pact (SGP) considerations: - SGP has built-in flexibility allowing countries to respond to the refugee surge. - Under the preventive arm, deviation from adjustment path toward the Medium-Term Objective is possible for an “unusual event outside the control of the member state which has a major impact on the financial position of the general government.” - Under the corrective arm, spending on the refugee surge can be taken into account as a “relevant factor” when calculating the fiscal effort undertaken. - Whether additional spending qualifies for accommodation under the SGP should be considered case-by-case; exemptions should be temporary and expenditures clearly and fully spent on the surge response. ### Fiscal Cost of Asylum Seekers, 2014–16 (Percent of GDP) — IMF staff estimates - Table values preserved exactly as presented (2014 / 2015 / 2016): - Austria: 0.08 0.16 0.31 - Belgium: 0.07 0.09 0.11 - Croatia: 0.00 0.02 0.11 - Cyprus: 0.003 0.012 0.012 - Czech Rep.: 0.0 0.0 0.02 - Denmark: 0.24 0.47 0.57 - Finland: 0.09 0.13 0.37 - France: 0.05 0.05 0.06 - Germany: 0.08 0.20 0.35 - Greece: n.a. 0.17 n.a. - Hungary: 0.0 0.1 0.0 - Ireland: 0.03 0.04 0.05 - Italy: 0.17 0.20 0.24 - Luxembourg: 0.05 0.09 0.09 - Netherlands: 0.10 0.18 0.23 - Serbia: 0.0 0.06 0.1 - Spain: 0.006 0.006 0.03 - Sweden: 0.30 0.5 1.0 - U.K.: 0.015 0.016 n.a. - Simple average: 0.07 0.14 0.22 - GDP-weighted average: 0.08 0.13 0.19 - Note: Assumptions behind estimates vary across countries (per head spending, length of stay, benefits for rejected applicants, coverage of benefit-related spending, local government costs). - Only a small part of immediate fiscal costs is borne by the EU budget: - In September 2015, the EC proposed boosting central EU resources for the refugee surge in 2015–16 by €1.7 billion (0.01 percent of EU GDP) to €9.2 billion (0.07 percent of EU GDP) by reallocating resources from other parts of the EU budget. - Funding includes FRONTEX budgets, Asylum, Migration and Integration Fund support, transfers related to relocation and resettlement schemes, and support to countries outside the EU (e.g., EU Regional Trust Fund in response to the Syrian crisis and additional funding for Turkey). - The 2015 increases have already been adopted. ### Simulation design and key assumptions (EUROMOD / FSGM) - Model: EUROMOD (part of IMF’s Flexible System of Global Models — FSGM). FSGM is a semi-structural model: private consumption and investment micro-founded; trade, labor supply and inflation reduced form; supply via aggregate Cobb-Douglas production function. Model has one type of labor (productivity differences between refugees and natives not captured). - Two simultaneous “shocks” in simulation: - Population shock. - Government expenditure shock. - Population assumptions: - Assumed annual increase in population is 0.15 percent of the EU total population (or 0.8 million) in 2015–17 and 0.1 percent in later years. - Assumed to take up to two years for refugees to become eligible to work. - Once eligible to work, refugees have a lower participation rate than natives—a gap of 5 percentage points (pps) initially, gradually declining to 3 pps by 2020—and a higher unemployment rate—a gap of 15 pps initially, gradually declining to 12 pps by 2020. - Based on an inflow of 1.3 million first-time asylum seekers annually from 2015–17, tapering off afterwards, coupled with a 40 percent rejection rate. - Fiscal assumptions: - Direct fiscal costs include costs for all individuals in the asylum process (while not eligible to work) for up to two years, as well as financial support for rejected applicants for one year. - For the EU, these direct fiscal costs amount to about 0.1 percent each year in 2015–17. - Additional fiscal costs related to social transfers and unemployment benefits for accepted refugees who remain unemployed are endogenously generated in the model. - All associated fiscal costs are assumed not to be offset by new fiscal measures (such as cuts in other expenditures). ### Simulation results: output, debt, unemployment (baseline and slow integration scenario) - EU aggregate GDP level relative to baseline (deviation): - 2015: 0.05 percent - 2016: 0.09 percent - 2017: 0.13 percent - These effects are positive but small for the EU as a whole; first-year impact is entirely due to aggregate demand from additional fiscal spending. - Country heterogeneity by 2017: - Austria: GDP rising by 0.5 percent. - Sweden: GDP rising by 0.4 percent. - Germany: GDP rising by 0.3 percent. - These country impacts are based on inflows of 86, 107, and 413 thousand first-time asylum seekers annually from 2015–17 for Austria, Sweden and Germany, respectively, coupled with a 40 percent rejection rate. - Medium-term (by 2020) with successful labor integration: - EU level of GDP could be about 0.25 percent higher. - In main destination countries (Austria, Germany, Sweden) GDP could be between 0.5 and 1.1 percent higher. - Assumes initial employment gap between new entrants and natives narrows over time. - However, by 2020, GDP per capita including refugees will be lower by about 0.4 percent compared to the baseline as long as labor market performance of refugees falls short of natives. - Slow integration scenario (alternative assumptions): - If labor integration is less successful, the positive output impact would diminish while government debt and the unemployment rate would further rise. - In the slow integration scenario, the unemployment rate among refugees is assumed to be 30 pps higher than natives in 2015, gradually declining to 24 pps by 2020. ### Labor market impact and absorption: empirical findings and caveats - General findings on immigrant integration: - Immigrants typically integrate slowly in recipient countries’ labor markets. In Europe and other advanced economies, immigrants have, on average, lower participation rates, employment rates, and wages than natives. - Earning and employment gaps are particularly pronounced immediately after arrival and diminish with time as immigrants improve language skills or gain relevant job experience. - Heterogeneity: immigrants from advanced economies or with better initial language skills often do better. Female migrants and refugees have significantly worse labor market outcomes, especially in the short run. - Role of labor market conditions at entry: - Immigrants arriving during periods of high local unemployment face slower employment and wage assimilation for many years. - Current asylum seekers show revealed preference for destinations with low unemployment rates (Germany, Austria, Sweden), partially mitigating this risk. - Characteristics of immigrants from current surge countries: - Immigrants born in Afghanistan, Iran, Iraq, Syria, Somalia, Eritrea, and the former Yugoslavia tend to be less educated than natives or other immigrants. - They are twice as likely to have only a lower secondary education or less, and significantly less likely to have gone to college. - By contrast, immigrants born in other countries (including other EU and advanced economies) tend to have better educational outcomes than the native-born population. ### Box 3 — Labor Market Performance of Immigrants in Germany (summary of findings) - Germany context: - After earlier waves in the 1960s and 1990s, immigration to Germany rose again since the global financial crisis and “skyrocketed in 2015,” with upwards of 800,000 asylum applicants expected to have arrived. - Key empirical results (from German Socio-Economic Panel analysis): - Immigrants earn 20 percent less than natives with similar characteristics when they arrive. - Initially, immigrant wages catch up by 1 percentage point per year, but the process slows over time and wages never fully converge. - Immigrants without German writing skills or a German degree have a wage gap as high as 30 percent initially. - Good German writing skills close the gap by 12 percentage points (pps) and a German degree by another 6 pps. - The gap for migrants born in advanced economies is a third of that of other immigrants. - “Skill downgrading” is substantial: 66 percent of highly skilled natives have a job requiring higher education and over 60 percent have jobs with very high “autonomy”; for immigrants not born in advanced economies the respective fractions are 42 percent and 33 percent. - In 2013, immigrants’ unemployment rate was twice as high as natives’; the probability of unemployment is initially 7 pps higher for recent immigrants than for comparable natives, narrowing over time but remaining 3 pps higher in the long run. - Participation rate of immigrants is initially lower but converges fully after 20 years. - Conclusion: immigrants make substantial contributions to the economy but face considerable labor market obstacles that are overcome only gradually. *Source: IMF staff estimates and analysis as presented in the content unit.* ### 22. It is possible that the most recent wave of asylum seekers is better educated than past ### _sdn1602 - 22. It is possible that the most recent wave of asylum seekers is better educated than past ### Skills, education, and registration information - Reliable data on the skills and education of current asylum seekers are not available. - Example statistic: in Germany, 21 percent of the Syrian asylum seekers who arrived in 2013–14 reported having tertiary education, close to the average for the native population (23 percent). - Data source context: comparison uses data from 6 rounds of the European Social Study (ESS) survey, which cover close to 300,000 people across 36 European countries over 2002–12, and report country of birth as well as current location. - Policy implication: obtaining reliable information on age, language skills, years of education completed, and occupation at registration or in the asylum application could significantly accelerate integration and help design specific policies at a minimum incremental cost. - Risk: the longer the conflicts persist, longer spells of inactivity and absence of education will worsen refugees’ challenges. *Contributor observation (footnote): Eakin (2015) suggests the high cost of illegal border crossing implies only relatively wealthier (and more educated) individuals can afford the journey from countries like Syria to Europe.* ### Policies to facilitate labor market integration (overview) - Granting asylum seekers early access to the private and public sector labor market and self-employment is a key prerequisite for speedy workforce integration. - Across the EU, various measures have been used to help integrate immigrants and refugees once permitted to work—with varied success. - Increasing overall labor market flexibility could improve refugees’ integration; excessive employment protection significantly reduces the likelihood of exiting unemployment, particularly for workers whose productivity is a priori uncertain (such as refugees) (Blanchard, Jaumotte, and Loungani 2013). - A high statutory minimum wage may prevent hiring low-skilled workers, who are likely to be overrepresented among the refugee population. ### Specific policy measures and examples - Remove obligation for employers (Austria, Germany) to prove inability to find a “preferred employee” (national of an EU country, an EEA country, or a recognized refugee) before offering a job to an asylum-seeker with a work permit. - Grant temporary and limited exceptions from minimum wages for refugees: - Rationale: offset unique initial disadvantages relative to native workers. - Legal precedent: legislation in many countries allows this flexibility. - Example: in Germany, recognized refugees should be treated like the long-term unemployed in the minimum wage legislation—exempt from the minimum wage for the first six months of employment (as suggested by the German Council of Economic Experts). - Caution: weigh benefits against risk of creating labor market dualities; clearly communicate temporary nature and motivation to native labor force to minimize resentment. ### Tailored introductory programs and active labor market policies (ALMPs) - Tailored introductory programs help overcome lack of information, poor access to informal networks, lack of transferable skills and qualifications, and low language proficiency. - Sweden’s “introduction program” features: - Accessibility: all refugees aged 20–64 years (and those 18–19 years old without parents living in Sweden), regardless of background or routes of entry. - Components: (i) language training; (ii) employment preparation (including validation of education and professional experience); and (iii) social studies. - Incentives: participation is voluntary but comes with financial benefits that continue for six months after participants have found work, with benefits reduced in proportion to time spent working. - PES role: introduction interview to assess experience, education and ambitions and develop an “introduction plan”; PES can assist in finding accommodation where labor demand is high or to enable further education. - Austria: further strengthen ALMPs and job-entry instruments such as training/apprenticeship contracts, work placement programs, and skill-bridging courses. - Temporary agency work has been a stepping stone toward regular employment in Denmark, the Netherlands, and Sweden. ### Evidence on wage subsidies and ALMP effectiveness - Wage subsidies paid to private sector employers have often been effective in raising employment of immigrants. - Danish integration program (introduced in 1999): wage subsidy programs for private employers were the most effective in improving refugees’ likelihood of obtaining a regular job. - Empirical result: participants in such programs took, on average, 14–24 fewer weeks to find employment (Clausen and others, 2009). - Germany: wage subsidy programs aimed at supporting immigrants (and native workers) during the initial phase of self-employment had durable positive effects (Caliendo and Künn, 2010). - Interpretation: effectiveness of wage subsidies may indicate high entry wages and “inactivity traps” are significant barriers to immigrant integration. ### Addressing “inactivity traps” and fiscal incentives - In most EU countries, incentive to switch from benefits to working is weak given high marginal effective tax rates (MERTs) when shifting from unemployment with social benefits to taxed labor income. - Policies that address inactivity traps for all workers would likely benefit refugees, including: - Reducing taxes and social security contributions for low-wage workers (example cited: Germany). - More gradually tapering withdrawal of benefits as individuals take up work. - Lowering personal income tax rates (examples cited: Sweden, Austria, France). - Shaving social assistance and housing benefits (example cited: Ireland). ### Entrepreneurship, product market reforms, and certification - Product market reforms and measures that lower barriers to entrepreneurship are important for immigrant self-employment: - Simpler regulatory procedures, lower administrative burden on startups, and weaker protection of incumbents are associated with higher incidence of self-employment among non-EU migrants. - Start-up funds for immigrant entrepreneurs, granting migrants equal access to public and private sector jobs, and the right to take up self-employed activity under the same conditions as natives are associated with greater entrepreneurship among non-OECD migrants in Europe. - Measures to accelerate skill recognition (for example, transcription services) and targeted training can help immigrants fulfill certification requirements for certain careers. ### Nordic experience (Box 4) — lessons and outcomes - Migration patterns: - With the exception of Sweden, immigrant population in the Nordics is still relatively low compared to other advanced economies. - Net migration inflows have picked up considerably since the mid-2000s, driven by labor migration from new EU member states. - Sweden has sizable asylum seeker inflows mainly from Syria, Eritrea, and Somalia. - Contribution to labor force and GDP: - About 80 percent of Nordic labor force growth during recent years has come from increases in the foreign born population as opposed to growth in the native workforce. - “Back-of-the-envelope” calculation: real GDP in the average Nordic country will be about 2.5 percent higher by 2020 compared to a scenario with no continued migration. - Labor market integration: - Immigrants are more prone to unemployment than Nordic natives but gaps decline over time. - Asylum seekers display the greatest gains in employment rate over time among immigrant types (Bevelander and Irastorza 2014). - Sweden allows asylum seekers to work without a work permit if certain conditions are met. - Sweden’s introduction program (see earlier subsection) has helped refugees and their families achieve relatively high rates of employment, although integration remains lengthy. ### Effects of immigration on native workers — channels and evidence - Main channels through which immigrants may affect native workers: - Labor supply effect: adverse effect on employment and wages of existing workers if migrants have similar skills to natives (Borjas 1995). - Aggregate demand effect: population increase raises demand for goods and services, increasing labor demand and spurring investment (Peri 2010a, 2010b). - Allocation of resources/product mix/technology effects: changes in goods and services produced, occupation and industry composition, or production technologies (example: Israel’s high-tech industry benefited from high-skilled migrants from the former Soviet Union). - Empirical finding: the effect of new arrivals on native workers is usually small. - Most studies find average wages of native workers respond little and effect on unemployment is limited. - Possible reasons: low substitutability between immigrants and natives due to separate labor market segments; relatively rapid investment response to sudden increases in labor supply. - Research shows employment displacement, while limited, is more likely in Europe than in the United States, possibly replacing wage displacement. *International Monetary Fund* ### 33. The size of the effect depends on several factors: ### _sdn1602 - 33. The size of the effect depends on several factors: ### Labor market effects and determinants - Complementarity of natives’ skills with those of the immigrants: - An influx of lower-skilled immigrants might hurt lower-wage native, as well as recent immigrant workers, while higher-paid workers gain. - Several studies document such effects in the cases of the United Kingdom, Switzerland, and Spain. - Flexibility in the labor market: - In the 1990s, the displacement of native workers from the sudden influx of asylum seekers due to the wars in Bosnia and Kosovo was significantly higher in countries with high employment protection, rigid wages, and high business entry costs (Angrist and Kugler, 2003). - State of the economy and size of net immigration flow: - High net migration flows have been associated with larger displacements of low-skilled workers during recessions than during booms. - Skill upgrading and task specialization: - By promoting skill upgrading, immigration can prompt native workers to specialize in more complex tasks, associated with higher skills and better pay, potentially raising natives’ incomes. ### Housing and geographical mobility - Pressure on affordable housing: - The inflow of refugees will put pressure on the market for affordable housing, increasing rents and housing prices and potentially harming lower income households and refugee access to housing where labor demand is high. - Housing barriers (for example, difficulties in securing subsidized housing in new locations, or lock-in effects from rent controls) impede refugees’ geographical mobility. - Policy responses to encourage housing supply: - Tackling bottlenecks from overly restrictive land use regulations or cumbersome construction permitting processes. - Ensuring that rent control mechanisms do not undermine incentives to build new affordable housing. - Revisiting regulations that contribute to raising construction costs. - Example policy package in Germany: increased flexibility in the urban planning code; exemptions from energy efficiency norms in buildings for asylum seekers and refugees; increased federal financing for social housing; facilitated transfer of land from federal to state governments for social housing construction; new incentives to build affordable housing. - Housing policies will be particularly challenging in countries or regions where housing is already very expensive (for example, Sweden). - Geographical mobility benefits: - Migrant mobility can help the EU adjust to asymmetric shocks and aid growth (example: cross-border migration in the Nordic region). - Immigrants tend to be geographically mobile and help balance labor markets when asymmetric shocks occur. - Revisiting EU asylum policies that prevent cross-country mobility of refugees before naturalization may be desirable, but approaches toward asylum may need further harmonization. ### Education - Outcomes and heterogeneity: - Children of immigrants generally have lower education outcomes than their native peers, with the gap varying across educational systems. - Substantial cross-country heterogeneity exists in immigrants’ educational achievement gaps, even for immigrants of the same origin. - In some countries (for example, Australia, Canada, United Kingdom) socio-economic background and language spoken at home explain much of the gap; in others (e.g., Germany) a significant gap persists after accounting for these factors. - Policy measures to improve outcomes: - Reduce concentration of immigrant students in low-quality schools (residential segregation contributes to widening the gap). - Delay the age of tracking (systems that delay tracking tend to reduce the disadvantage of immigrants’ children). - Early inclusion in the education system, including a well developed preschool system. - Targeted measures: allocate more resources to schools with a high share of immigrants; train teachers for intercultural education; provide adequate language support; encourage parental involvement. - Note: Evidence on policies geared to managing school choice (lotteries, ‘bussing’) is mixed and mostly inconclusive. ### Financial inclusion - Importance: - Immigrants’ access to financial services helps integration—basic payment accounts facilitate employment where salaries are paid into bank accounts; access helps manage risks, build wealth, and promote entrepreneurship. - Barriers: - Documentation requirements (such as proof of residency), high transaction fees, lack of financial literacy, language barriers, lack of infrastructure (especially in remote or rural areas), cultural and religious differences. - In most EU countries migrants are as likely as natives to have a checking account, but immigrant households with a bank account have higher overdraft rates, possibly indicating problems in financial market integration. - Microfinance: - Microcredit for self-employment and microenterprise creation can promote immigrant entrepreneurship. - In Europe, 18 percent of all new microloans were disbursed to immigrants and ethnic minorities in 2013, with large heterogeneity among countries. - Key measure to improve outcomes: ensure specific services such as pre-loan assistance with business planning followed by legal assistance. ### Long-term fiscal impact — determinants and stylized facts - Key drivers of net fiscal impact: - Success in the labor market determines taxes paid and fiscal contributions versus costs of services and benefits used. - Individual characteristics (skills, age) and the state of the business cycle are important. - Immigration can affect natives’ fiscal accounts via displacement effects (higher unemployment benefits or lower wage-related tax revenues) or by increasing capital income accruing to natives. - The generosity of the benefit system matters; asylum seekers initially receive accommodation, subsistence, and integration support and are often not allowed to work initially, lowering net fiscal contribution relative to other migrants and natives. - Stylized facts: - Cross-country OECD (2013) study: during 2007–09, the average fiscal contribution of the migrant population in advanced economies amounted to 0.35 percent of GDP, with most country results falling between ±1 percent of GDP. - Static snapshots may not reflect expected performance of future immigrants or long-term fiscal effects and indirect economic impacts. - No clear correlation between the share of immigrants in the population and net fiscal impact (excluding outliers such as Luxembourg and Switzerland). - Age-structure matters: - Immigrants have weaker net fiscal balances at young and old ages and stronger contributions during working-age; relative to natives, immigrants’ net present value of expected future contributions turns positive later, peaks at a lower level, and often turns negative earlier. - Immigrants entering at working age tend to be associated with higher net fiscal contributions (savings on host-country education expenditure and more working years). - Skill composition: - High-skilled immigrants typically make larger net fiscal contributions than natives. - Refugees vs economic immigrants: - Refugees’ fiscal contribution tends to be less favorable than that of economic immigrants. - Example: in Australia humanitarian immigrants have a negative fiscal impact during the first 10–15 years, whereas economic migrants have a positive contribution; the lifecycle impact of humanitarian immigrants can remain negative overall. ### Implications for the current wave of refugees - Uncertainty in net fiscal contribution: - Short-term costs of caring for incoming refugees could be sizable for some countries. - Medium and long-term fiscal impact depends on number and composition of incoming refugees, how many stay long term, and the speed and success of labor market integration. - Factors pointing to longer-term outcomes: - New immigrants are expected to be younger and have higher fertility rates than natives, which would point to broadly positive net fiscal contributions in the longer term, including through inclusion in public pension systems. - If the skill mix of new immigrants is less favorable than that of the current immigrant stock or natives, fiscal contributions will be relatively lower. - High unemployment in some European countries may slow labor market integration of refugees, lowering lifetime contributions of immigrants and natives; however, asylum seekers and immigrants tend to choose countries with better economic and labor market prospects and relatively low unemployment rates. *Source: _sdn1602 - 33. The size of the effect depends on several factors:* ### 53. Looking further ahead, Europe’s population is forecast to age rapidly over the next ### _sdn1602 - 53. Looking further ahead, Europe’s population is forecast to age rapidly over the next ### Demographic outlook - Europe’s population is forecast to age rapidly over the next few decades, reflecting several decades of low birth rates and rising longevity. - Eurostat projections: old age dependency ratio (persons aged 65 and over relative to working-age population) will rise steeply from about 30 in 2015 to above 55 in 2050 in the absence of migration. ### Effects on public finances, pensions, and healthcare - Population aging will lower potential growth and likely place a large burden on public finances, pensions and benefits schemes, and healthcare provision. - Migration could help counteract the economic impact of the demographic transition. - The 2015 Ageing Report variant: a reduction in immigration flows by some 210,000 individuals per year over 2015–30 would result in higher pension spending of 0.1 percent of GDP by 2030. - Applying that relationship in reverse to the refugee baseline scenario, and assuming linearity and similar characteristics to the average immigrant in the EC scenarios, pension expenditures by 2030 would decline by about ¼ of a percentage point of GDP for the EU as a whole. - The effect would differ across countries, with countries receiving the largest inflows experiencing the strongest reduction in pension outlays. - The projected increase in refugees would also help shave healthcare and long-term care spending, but: - The favorable effect on health care is likely to be smaller than that on pensions because refugees use healthcare services immediately while pension and long-term care claims occur only at retirement. - The EC’s Ageing Report does not provide a quantification under alternative migration scenarios. ### Short-term macroeconomic effects - The inflow of asylum seekers is likely to have an immediate expansionary effect on the economy through additional public spending that increases domestic demand and GDP. - IMF staff estimate this effect will be modest for the EU as a whole, raising the level of GDP by some 0.1 percent in 2017, but more pronounced in main asylum seeker destination countries. - GDP per capita will be lower, reflecting weaker labor market performance of refugees and restrictions on labor market access to asylum seekers in some countries. - Long-run economic impact depends on the speed of integration of refugees into the labor market. ### Fiscal policy treatment and the SGP - Deviations from prior Stability and Growth Pact (SGP) targets to accommodate asylum seeker spending should be considered on a case-by-case basis and should be only temporary. - The SGP framework provides flexibility to accommodate exceptional spending linked to unusual events outside the government’s control. - Significant additional expenditures should be taken into account when assessing a country’s fiscal effort toward its SGP targets, consistent with overall fiscal consolidation progress. - The European Commission should develop transparent criteria to identify refugee-related expenditures, recognizing that the composition of these expenditures might differ between transit and host countries. ### Labor market integration: benefits, barriers, and policy tools - Rapid labor market integration has important economic, fiscal, and social benefits: - Unlocks potential economic benefits of the refugee inflow. - Minimizes risk of social exclusion. - Maximizes refugees’ net contribution to public finances in the longer term. - Could help alleviate fiscal effects of population aging, though the effect is likely to be small and not a panacea. - Integration policies entail upfront fiscal costs (education, housing, active labor market policies—ALMPs). - Displacement effects on native workers are likely to be short-lived and small, based on past experience; adverse effects on wages or employment are limited and temporary. - Policy areas for attention include asylum regulation, labor and product markets, housing, and education. ### Specific policy recommendations to foster integration - Asylum regulation and labor access - Ease legal obstacles restricting asylum seekers from working while cases are processed. - Allow asylum seekers to work and receive targeted support early on. - Survey asylum seekers’ characteristics at registration to tailor policies. - Active labor market policies and incentives - Strengthen ALMPs targeting language barriers and skill identification. - Temporary wage subsidies for employers who hire refugees have proved effective. - Consider temporary, targeted exceptions to minimum or entry level wages or other labor market regulations for refugees where such regulations are tight, weighing benefits against risks of labor market dualities. - Strengthen incentives to find work via tax/benefit reforms that make work pay. - Ease restrictions on geographical mobility of refugees to allow movement to areas with better labor market prospects. - Product market and entrepreneurship - Ease barriers to starting new businesses: simpler regulatory and administrative procedures, equal market and job access, access to finance, and start-up support. - Education and housing - School systems with well-developed preschools, less school segregation, and limited early tracking are more suitable to educational success of immigrants’ children. - Housing policies should foster expansion of affordable accommodation and ensure housing supply responds promptly to increased demand, especially where migrants can more easily find work. ### Key quantitative estimates and points - Old age dependency ratio: about 30 in 2015 → above 55 in 2050 (no migration). - Reduction in immigration by some 210,000 individuals per year over 2015–30 → higher pension spending of 0.1 percent of GDP by 2030 (Ageing Report variant). - Reverse application to refugee baseline → pension expenditures by 2030 would decline by about ¼ of a percentage point of GDP for the EU as a whole. - IMF staff estimate asylum seeker inflow raises level of GDP by some 0.1 percent in 2017 for the EU as a whole. *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/sdn/2016/_sdn1602.pdf* ### 2011. Paris. ### _sdn1602 - 2011. Paris. ### Annex I — Asylum Seekers and Refugees: Italy, United Kingdom, Germany, Sweden (Facts) - Applicants in 2015: - Italy: 77,970 (through November) - United Kingdom: 32,090 (through October) - Germany: 476,649 - Sweden: 162,877 - Top countries of origin (by country column as listed): - Italy: Nigeria, Pakistan, Gambia, Senegal, Bangladesh - United Kingdom: Eritrea, Sudan, Pakistan, Iran, Syria - Germany: Syria, Albania, Kosovo, Afghanistan, Iraq - Sweden: Syria, Afghanistan, Iraq, Eritrea, Somalia - Recognition rate (share of first instance positive decisions; Q3 2015, Eurostat): - Italy: 40 percent - United Kingdom: 37 percent - Germany: 50 percent - Sweden: 80 percent - Average time to process application: - Italy: 5.3 months - United Kingdom: 4.5 months in 2014 rising to an average of 7 months in 2015 - Germany: (no single average given; procedural notes provided) - Sweden: (procedural notes provided) - Permit to work (summary of country rules): - Italy: Granted after 2 months from asylum application. New residence permit is of a 6 month duration and renewable until decision on application made. - United Kingdom: May be possible 1 year from asylum application. - Germany: Entitled to a work permit 3 months after registering. - Sweden: Asylum seekers are allowed to work without a work permit if certain conditions are met. This right lasts until the final decision on their asylum application, including during appeal procedures, and can extend beyond that if the applicant cooperates in preparations to leave the country voluntarily. Asylum seekers who get jobs can switch status to become labor market migrants if they work for 6 months before receiving a final negative decision at the second instance or after their appeal to the Migration Court of Appeal is refused. A successful applicant will receive a temporary permit of at least 1 year and at most 2. After 4 years on temporary permits, a person who still has a job can then apply for a permanent residence permit. - Restrictions to work permit once granted: - Italy: None - United Kingdom: Asylum applicants have access to vocational training. Can only apply for vacancies in narrowly defined “shortage” occupation, making it difficult to find employment. No special access to retraining. Self-employment prohibited. - Germany: Employers must prove that they were not able to find preferred employees—German nationals, EU citizens or recognized refugees—for the job. This priority check is not applied in case of professions with labor bottlenecks and after 15 months of residence. - Sweden: None - Reception facilities (summary): - Italy: Yes but only after asylum application formalized. This can take weeks or months. In the meantime asylum seeker has to rely on friends or be homeless. - United Kingdom: Shortage of facilities and overcrowding is a major problem. Centers are located in remote areas and there is no subsidy for public service provided to access city centers. - Germany: Typically asylum seekers stay in second accommodation facilities for 6 to 12 months. If they work, they need to contribute financially to the accommodation center. - Sweden: Usual first accommodation is in reception centers. These tend to be overcrowded. No cash is provided. Max time spent here is 19 days. After this phase they are dispersed to smaller units mainly flats or shared houses. Policy is to disperse asylum seekers away from south east. This leads to asylum seekers preferring to “sofa hop” in order to stay in London. Asylum seekers are entitled to housing and monthly allowance if deemed destitute. Application procedures are very cumbersome and not available in languages other than English. - Germany (continued): Asylum seekers are distributed across states, according to quotas. The reception centers are stretched far beyond capacity, and other buildings (gym halls at schools and so on) are now also being used. The maximum time in the reception center has been increased from 3 to 6 months, as of October 2015. After that, asylum seekers will stay in collective accommodations or be granted a permit to take an apartment. - Sweden (continued): The residence obligation ends once the asylum or refugee status is granted. Housing offered by the Migration Agency is either in an apartment, in a normal housing area, or at a reception center. The approach to accommodating asylum seekers is based on a dispersal or solidarity principle where every municipality is expected to be ready to accommodate asylum seekers. However, municipalities have the right to refuse receiving asylum seekers, although the government is changing these rules, so that municipalities will be designated to receive refugees according to criteria that mainly involve employment prospects. - Cash support (amounts and notes): - Italy: In addition to accommodation asylum seekers are entitled to 2.5 euros per day in first accommodation centers and between 1.5 and 2.5 in secondary accommodation. - United Kingdom: Cash support amounts to 374 euros for a couple. Payments are not automatic. You need to apply for them. The amount of support is not adequate to meet basic living needs. The link to welfare payments for nationals has been broken with benefits being 52 percent of that of nationals. - Germany: Until October 2015, the following cash allowances were provided for 15 months in addition to benefits in kind: individuals received €143 a month and adults sharing a household €129 each; a family also received between €85 and €92 a month for each child, depending on age. Since late October 2015, cash allowances have been replaced by benefits in kind "as much as possible" for those waiting in reception centers. - Sweden: All asylum applicants have access to the benefits of the reception system. If they have their own resources, they must use these first. Monthly cash support is about 76 euros for a single adult (38 euros for children age up to age 17) if applicant is in an accommodation center (food included) or about 225 euros (about an average of 130 euros per child, though it varies slightly by age) if in an apartment (no food included). - Application period and processing timetables (country summaries with exact procedural notes): - Italy: Formal asylum request should happen within 8 days (although no legal requirement). Personal interview should happen within 30 days that the claim and documents have been received. Commission should decide within 3 days but typically it takes 6 to 12 months. Legislation does not allow for admissibility/screening procedure or any border or accelerated procedure. - United Kingdom: All requests go through a screening process and then applications are divided into unaccompanied minors, accelerated procedures (detained fast track or unfounded-processed in 15 days), safe third country procedure or regular procedure. Safe third country cases are made very quickly and do not allow for an appeal. - Germany: Typically a decision by regional office or home office should be made within 6 months. This happens in only half the cases. It is not unusual for cases to take 36 months. An appointment to make the application is set in consultation with the initial reception center. The asylum seeker is briefed on his or her rights and obligations. The date for a personal interview is set (which can take several weeks, given capacity problems). The case officer provides a decision in writing, including reasons for the decision. If the application is denied, the instructions for appeal are also provided. - Sweden: Fast-track procedure for “well-founded” (Syria, Eritrea, to some extent Somalia) and “unfounded” (Western Balkans) applications. Decisions in accelerated procedures must be taken within 3 months from the lodging of an application. However, with the rising numbers of late, these times have been extended. - Right to appeal (levels and time limits): - Italy: Yes, two levels. Asylum seekers can appeal within max 30 days against a negative decision. Average appeal time is 6 months to 1.5 years. Short time frame to lodge appeal undermines the asylum seeker’s ability to build a case, given legal and linguistic challenges. - United Kingdom: Yes, two levels. Need to lodge appeal within 14 days. Appeals are completed within 15 weeks. Applications are very cumbersome, fee must be paid (can be waived for destitute). - Germany: Yes, three levels. Asylum seekers may lodge a complaint to the Administrative Court within 14 days of the decision. If the Court refuses to hear the complaint because it is manifestly inadmissible or unfounded, no further appeal is possible. Other decisions may be appealed to the Higher Administrative Court within 1 month if it grants the permission to appeal. The decision may be appealed in the final instance to the Federal Administrative Court, if the Higher Court grants the permission to appeal. There is no appeal against the Federal Court’s decision, though a complaint can be filed with the European Court of Human Rights. No court costs are imposed on the asylum seeker. - Sweden: Yes, two levels. A first appeal may be lodged before the Migration Court. A special division of the County Administrative Courts. There is a further possibility to appeal before the Migration Court of Appeal, where leave to appeal has to be requested. First-instance decisions must be appealed within 3 weeks. When the Migration Court of Appeal hands down its decision, the expulsion order is enforceable and the rejected applicant is expected to leave Sweden voluntarily within 2 weeks. - Education: - Italy: Schooling is mandatory until age 16 for asylum seekers or their children. - United Kingdom: Schooling is mandatory between ages 5 and 16 for asylum seekers or their children. No prep classes to facilitate entry are offered. - Germany: Compulsory schooling between ages 6 and 15. - Sweden: Voluntary and available for children ages 6 to 16. Children between 16 and 19 often have to attend a preparatory course to improve their skills in Swedish and other core subjects before being able to access vocational education. - Access to healthcare: - Italy: Free access (if destitute) - United Kingdom: Free emergency access and registration with a general doctor. Asylum-Seekers' Benefits Act ensures that basic needs such as healthcare are met. - Germany: Entitled to emergency medical, dental care, and maternity care until residency permit granted or asylum application denied. Asylum-seeking children and young people under 18 have the right to the same cost-free medical care and dental care as other children. A small nominal fee is charged but can be waived if health-related expenditures exceed a total of 42 euros for 6 months. - Sweden: (healthcare notes integrated under other columns) ### Annex II — Assumptions Underlying the Short-Term Economic Impact Simulation - Arrivals and applications: - It is assumed that about 1.3 million of first-time asylum seekers enter the EU each year over 2015–17, declining by one-half in 2018, and growing again thereafter at 5 percent annually, roughly in line with the historcal trend. - The distribution of asylum seekers across the EU is assumed to be the same as in the first nine months of 2015. - Approval, support, and transition to the labor market: - It is assumed that 40 percent of asylum applications are rejected. - Rejected applicants receive support for one year and then leave the country. - Accepted applicants become eligible to work at a rate of 25 percent in the first year and 50 percent in the second year. - Those not eligible to work continue to receive support for two years after arrival. - Demographics: - The share of working-age population (ages 15–64) among the accepted asylum seekers is assumed to be 81 percent, based on the average share among total aslyum applicants in the first eight months of 2015. - Labor market integration (baseline scenario): - The participation rate of asylum seekers is assumed to be 5 percentage points (pps) lower than that of the native population in 2015, with the gap gradually declining to 3 pps by 2020. - The unemployment rate is assumed to be 15 pps higher than that of the native population in 2015, with the gap gradually declining to 12 pps by 2020. - The assumed gaps are the same across countries. - Labor market integration (slower integration scenario): - The unemployment rate among refugees is assumed to be 30 pps higher than among natives in 2015, with the gap gradually declining to 24 pps by 2020. - Fiscal costs: - Fiscal costs are assumed to comprise support for asylum applicants of 12,000 euros per year per person. - Additional fiscal costs occur related to basic social support for those who are not of working age or who entered the labor market but are unemployed. This support is provided at the same rate as for natives. - Note: The fiscal assumptions are consistent with the fiscal cost estimates discussed in the Fiscal Impact section. - Simulation population flow schematic (verbatim labels shown in figure): - Flow of Applicants (Percent of applicants) over year 0, year 1, year 2, year 3 with stacked categories: Accepted / Rejected / In asylum program / Employed / Unemployed / Not of working age / Inactive. - Note under figure: Refugees not of working age or would be inactive in labor market are assumed to stay in asylum program for two years and are included in the red block. - Source: IMF staff estimates. ### Annex III — Selected Studies on Labor Market Programs for Immigrant Integration - General: Annex lists multiple empirical evaluations across countries, program types, and reported effects. Column indicates whether the program is targeted specifically at immigrants or available to all job seekers. - Selected program findings (study — country — program type — migrant-targeted? — reported effect): - Thomsen and Walter, 2010 — Germany — Temporary Extra Jobs (public sector temporary work, 1–2 euro hourly wage) — No — Negative effect on employment of immigrants. - Aldashev, Thomsen and Walter, 2010 — Germany — Four different types of training under "integration contract" within UB II scheme: - Aptitude Tests (up to 4 weeks) — No — Positive effect on employment. - Job Search Training (up to 2 weeks) — No — No effect. - Skill Provision (up to 8 weeks) — No — Positive effect on employment, especially for female immigrants. - Combined training programs (up to 12 weeks) — No — No effect. - Caliendo and Kunn, 2010; Wolff and Nivorozhkin, 2012 — Germany — Start-up subsidy (allowance conditional on externally approved business plan) — No — Significant effect on employment, income, and occupational satisfaction; program most effective for disadvantaged groups. - Clausen, Heinesen, et al., 2009 — Denmark — 3 year integration program (language training and 6 types of ALMPs for immigrants receiving social security) — Yes — Significant lock-in effects of language training and ALMPs (probability of finding employment falls while part of program). Among ALMPs, only private sector subsidized employment has significant positive effect on employment probability; employment with wage subsidy shortens time to employment by 14–24 weeks. Other program types vary (some no effect, some positive). - Heinesen, Husted and Rosholm, 2011 — Denmark — Programs for immigrants receiving social assistance — Yes — Significant effect of all types of programs on hazard rate of regular employment; largest effects for subsidized employment programs (reduce duration of social assistance by 10–15 months); direct employment programs reduce it by 4 months; other programs reduce it by 2 months. - Jahn and Rosholm, 2012 — Denmark — Temporary agency employment — No — Significant positive effect on transition to regular employment for both natives and immigrants, particularly for immigrants. - De Graaf-Zijl, Van den Berg, and A. Hemya, 2011 — Netherlands — Temporary agency employment — No — Significant positive effect on transition to regular employment, especially for ethnic minorities. - Andersson and Wadensjo, 2004 — Sweden — Temporary agency employment — No — Immigrants more likely to use temporary employment agencies and more likely to leave temp work for regular employment, relative to natives. - Sarvimaki and Hamalainen, 2010 — Finland — Integration program (tailored sequence of training and subsidized employment with sanctions for non-compliance) — Yes — Significant positive effect on employment and reduction in welfare dependency. Overall impact estimated; elements not separately identified. - Aslund and Johansson, 2011 — Sweden — Special Introduction (SIN) pilot (2003) targeted at job-ready immigrants/refugees; 6-month program with SIN officer providing job search analysis, job gathering, work analysis, workplace introduction, follow-up — Yes — SIN increases transition into work experience schemes associated with higher chances of becoming employed. The cost per job year created is 30,000 euros. - Andersson, Joona and Nekby, 2012 — Sweden — Trial program (2006) providing intensive coaching by public employment services plus access to standard ALMPs — Yes — Significant (but small) positive effect on employment rates. - Cohen-Goldner and Eckstein, 2010 — Israel — Training program for immigrants from the Soviet Union — Yes — Significant positive effect on job offer rates, and a small positive effect on wages of female immigrants. - Program-type patterns: - Temporary agency employment and subsidized private-sector employment frequently show significant positive effects on transitions to regular employment. - Language training and some ALMPs can have lock-in effects reducing short-term employment probability. - Start-up subsidies and targeted coaching/caseworker models can be effective, with explicit cost metrics reported (e.g., SIN cost per job year of 30,000 euros). *International Monetary Fund* ### Annex IV. Summary of Policy Recommendations ### Annex IV. Summary of Policy Recommendations ### Asylum policies - Issue: The European asylum system for registering and absorbing refugees is strained. - Policy Recommendations: - Create a more harmonized and cooperative approach to processing and accommodating asylum seekers among member states. - Take collective action to secure the external border. - Give assistance to countries bordering conflict areas, where the majority of displaced people are resident. ### Labor market integration - Issue: In the short term, slow integration of refugees raises fiscal costs and could exacerbate social tensions. - Policy Recommendations: - Lower barriers to work eligibility during asylum processing phase. Provide language and job search training early. - Where high entry wages are a concern, allow for temporary exemptions to the minimum wage regime or provide wage subsidies to employers. - Tackle “inactivity traps” by reducing marginal taxes on low wage workers and / or tapering social benefits more gradually upon entering employment. ### Stability and Growth Pact (SGP) - Issue: In some countries the short-turn costs of absorbing refugees could conflict with the SGP rules. - Policy Recommendations: - Allow for temporary deviations from the SGP to accommodate refugee expenditures on a case-by-case basis, as announced by the EC. ### Longer-term problems - Issue: Persistent lack of integration will raise government debt, worsen income inequality, and miss an opportunity to alleviate demographic pressures on social insurance systems. - Policy Recommendations: - Tackle bottlenecks to low-cost housing such as overly restrictive land use laws and time-consuming construction permits. - Ensure early inclusion of immigrants’ children to the schooling system; avoid segregating immigrants’ children in particular schools; provide adequate language support and cultural immersion. - Facilitate access to basic financial services (for example, bank accounts) for refugees. - Grant geographical mobility to accepted refugees. ### Product markets - Issue: Inflexible product markets can raise barriers to self-employment for refugees. - Policy Recommendations: - Simplify regulations, reduce effective protection of incumbent firms, and accelerate skills-recognition for refugees. *Annex IV. Summary of Policy Recommendations* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/sdn/2016/_sdn1602.pdf_