Irregular Immigration in the EU

The last couple of years have seen a huge amount of migrants come into the EU. They have come for a variety of reasons, but the principal ones have been to flee conflict and secure a better standard of living. Much of the media and public will infer from the second reason that this is to claim extensive welfare benefits that are available for asylum seekers, and if this is true it is of course a problem. But the cost of asylum seekers is of course amplified by the fact they are not allowed to work. This makes them very costly as they are not contributing in taxes, and rightly or wrongly this causes resentment. The macroeconomic benefits of migration however, have long been documented, and two recent papers address the potential economic benefits of the irregular migration that has been seen on the continent.

A paper from the Federal Reserve Bank of Dallas notes that the US used to be the main recipient of irregular immigration, but this has shifted to the European continent for a number of reasons, mostly dependent on proximity. The open borders within the exterior EU border has previously made it easy for migrants to move where they want to go, principally Germany, Austria and Sweden. The standard economic benefits are again discussed, not just for the immigrants themselves, but for recipient countries; they have higher rates of GDP growth, private investment, innovation and entrepreneurial activity. This applies to both informal and formal labour, but with asylum seekers these benefits are not entirely applicable as long as they are restricted in joining the formal labour force, they are possibly going to be working in the formal sector but the fiscal benefit will not be seen by the government as it will not be taxed.

However, in order to protect those benefits over the long term, Orrenius and Zavodny make a case that an effective border control has to be implemented, and if asylum seekers are to be allowed to work then failed asylum seekers have to be removed. This is of course a huge policy challenge with the many entry points onto the European landmass, but will mean that the EU is able to welcome not only asylum seekers but those who wish to work in the EU, balancing the line between the huge fiscal cost of irregular migration and high wages behind a border which is rigorously enforced, sending an incentive for more irregular migration.

The second paper, from the IMF again repeats the message of the first “Rapid labor market integration is also key to reducing the net fiscal cost associated with the current inflow of asylum seekers. Indeed, the sooner the refugees gain employment, the more they will help the public finances by paying income tax and social security contributions. Their successful labor market integration will also counter some of the adverse fiscal effects of population aging.”

We know that the general effects on wages at the lowest level are mostly temporary and limited, so this shouldn’t stop policy makers from loosening restrictions on asylum seekers to mitigate the potentially huge fiscal and political impacts of having many hundreds of thousand of new dependents on the state.