IREF - Institute for Research in Economic and Fiscal issues
Fiscal competition and economic freedom
The European Union has experienced an increase in asylum applications for several
years, with 2014 seeing 570,800 applications, an increase of 47% compared to 2013.
The year-to-year increase in applications will be even more pronounced in 2015.
Germany, Austria, Hungary, Sweden, the Netherlands and Finland alone expect 1.3
million applications in 2015 — a new high since the Balkan crisis of the 1990s.
While there are plans by European Union countries to further limit asylum migration
from the Balkan states, asylum migration from the troubled countries in the Middle
East, Central Asia and Africa is expected to remain at high levels during the coming
years. The successful integration of asylum migrants in the EU therefore is a more
important issue than in the past, if only because of the increase in their numbers.
There is a large potential benefit for both asylum migrants as well as citizens of hosting nations. Asylum migrants manage to flee from bad political institutions, wars and environmental catastrophes. Furthermore, migrating to secure
societies comes along with an increase in their productivity and therefore also income. Citizens of the receiving countries benefit from a larger supply of workers, especially if the skills of both groups complement each other.
In welfare states, however, migration can have negative effects. When migrants (as a group) use up more public resources (public goods and publicly provided goods, welfare payments, etc.) than they create (through taxes and social contributions), they can become a fiscal burden to their host country. The conventional political answer to the problem is to restrict low-skill immigration. In the case of asylum migration this option is not available for moral and legal reasons.
The fiscal burden can be significantly reduced through a successful policy of increased labour market participation by asylum migrants. This promotes greater acceptance by the domestic population and better integration of asylum migrants. Therefore, the affected EU member states should take steps to improve asylum migrants’ access to the labour market and remove existing barriers.
First barriers to go are those regulations that are specifically designed to hamper asylum migrants’ access to the labour market. A detailed analysis of EU’s three most populous nations’ regulations (Germany, France, UK) reveals that such access is in reality restricted by employment bans, shortage occupation lists and priority checks.
If labour market integration is to be successful, general labour market regulation need to be removed as well since they hit asylum migrants especially hard. They tend to have lower education and qualifications, and when combined with pronounced uncertainty on the side of potential employers, labour market regulations like minimum wages or employment protection have an especially negative effects on asylum migrants’ employment.
The following proposals are offered to increase labour market participation of asylum migrants and reduce their fiscal burden:
? Abolish explicit employment bans and employment restrictions for asylum seekers.
? Allow temporary work for asylum seekers.
? Give asylum seekers easier access to activating labor market policies.
? Allow self-employment for asylum seekers.
? Don’t apply the minimum wage to asylum migrants.
? Ease employment protection for asylum migrants.
? Abolish profession-specific licensing requirements if in any EU-country that profession does not require any license.
Since currently the unemployment rates among asylum seekers (over 50%) and refugees (over 30%) are very high, we expect significant positive employment and fiscal effects from the proposed changes. For instance, a reduction in the average period of unemployment by three months would reduce the fiscal burden by at least 3.000€ on average per asylum migrant.