Top Six Economic Consequences of the Refugee Crisis

The picture of Aylan Kurdi, a six year old Syrian refugee who died when his boat capsized as his family was illegally migrating to Europe shook the world in 2015. Germany and most European countries opened their borders to refugees from Syria, Iraq and Turkey. Almost everybody considers it a great humanitarian gesture. Nobody should be left in the warzone since death or damage to property is almost inevitable there!

However, the economic consequence of allowing this influx of refugees into European nations is yet to be seen. Right wing parties have repeatedly mentioned their concern over the possible economic losses that may further hurt an already fragile European economy. In this article, we will have a closer look at some of these economic concerns.

The top six consequences are as follows:

  1. Shadow Economy

    The first economic impact of the refugee crisis can be seen as the emergence and thriving of a shadow economy in Europe. Many European countries have legislated high minimum wage laws. Business owners will be more than happy to employ refugees because most of them will not be legally authorized to work and therefore can be paid lower wages. This leads to an unhealthy competition amongst businesses. Businesses that follow the rule of law will end up having more costs than businesses that may employ these refugees and evade the minimum wage legislation. This creates a tendency amongst all businesses to start evading the law. In the long term this can create a significant economic hazard.

  2. Increased Pressure on Wages

    The most obvious repercussion of Syrian refugees moving to Europe is the downward pressure on wages. It has been mentioned by many politicians and media personnel. However, it must be noted that very few of the refugees that are migrating to Europe are well educated. Most of them would not be a threat to the highly skilled knowledge workers of Europe. However, they will be willing to work in menial jobs in large numbers. Hence, in such jobs, employers will find an oversupply of laborers and this might exert a downward pressure on wages. The migrant workers will therefore be largely competing with each other since the jobs that they are qualified to do are not done by European workers anyways!

  3. Drain on Welfare State

    European governments are extremely people centric. This means they have a wide variety of allowances such as subsidized or free medical aid, unemployment allowance and disability allowance. A potential pitfall of allowing refugees in the country would be the overburdening of this welfare system. The massive influx of refugees may possibly put a drain on the welfare state. However, when one considers the facts this too seems like an unlikely scenario. This is because most of the people that are migrating to Europe are young and able bodied. Hence, it is likely that they will need medical assistance or may prove to be a drain on national resources in any way.

    On the contrary it is highly likely that they will work and as a result create more revenue streams for European governments in the form of higher taxes. Also, they will spend their money within the nation. Therefore, they will end up increasing the demand and driving the GDP of Europe higher.

  4. Law Enforcement Expenditures

    Europeans are very skeptical about terrorist attacks on their soil. The attacks of Paris and Brussels have left them paranoid. As a result, they constantly look at Syrian refugees with the fear that they might possibly be terrorists. The migrants are regularly scrutinized and kept under surveillance until it is ascertained that they do not have any questionable affiliations. Apart from being a source of harassment to the migrants, these activities are also extremely expensive. European nations have seen their law enforcement budgets skyrocket ever since they have allowed Syrian refugees to set foot on their soil.

  5. Increased Pressure On Rentals

    The massive influx of Syrian migrants will also increase the demand for affordable housing options. Rentals in low income neighborhoods across Europe have shot through the roof. Although this situation is considered to be temporary and bordering on hysteria, the rentals are still expected to rise significantly in the future.

    It must be noted that the rentals in high income neighborhoods have moved very little. Also, the capital values of these properties have not changed. Only the rentals in low income neighborhoods have gone up and this can be attributed directly to the influx of immigrants.

  6. Higher Tax Revenues

    European nations are bound to earn higher tax revenues from the refugees. The refugees will consume products and therefore will contribute to the economy in the form of indirect taxes. Also, these refugees will make contributions to welfare schemes and pay income taxes.

    Most refugees would be willing to pay a higher rate of tax if it is levied on them. An opportunity to live and work in an environment free of mortal danger would definitely be worth the price!

Overall, the influx of migrants may not create adverse effects on the economies of Europe. The doom and gloom predictions were merely scaremongering. It is likely that the immigrants may actually end up adding value.

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