Young Jin Park
Professor Joseph Lough
Economics 151
11 May 2016
An Economic Solution to the Earthquake in the European Labor Market caused by
an abrupt Entering of the Syrian refugees into Europe
An outbreak of a civil war in Syria in 2011 was just one of many regional political issues in West Asia that drew little attention from the European community. However, this conflict in Syria generated an unimaginable number of refugees who seek for a safe and better place to reside. A historically-unprecedented movement of Syrian refugees into the European continent has marked another milestone for the European community. Policy-makers in the European Union unanimously agree that this huge wave of refugees will inevitably shake the grounds of local labor markets in each member state. As a result, they find the need to implement appropriate economic policies to address the contemporary refugee crisis in Europe. Unfortunately, this recent unforeseen inflow of Syrian refugees has led to a never-ending debate between the member states as to whether or not the European Union should accommodate the majority of Syrian refugees who are currently in detention facilities and relocate them across all EU member states (Express). Amongst several European Union countries that fiercely oppose the EU’s quotas for refugee resettlement by country, Hungary is the leading member state in opposition. The Hungarian government even plans to hold referendum on this particular policy in the near future (Aljazeera). This paper aims at dissecting the Hungarian government’s stance on refugee crisis in Europe from several economic points of views, and suggesting a policy that best serves the needs of Syrian refugees and Hungarian natives.
Although most EU member states find it necessary to support Syrian refugees, primarily for humanitarian reasons, some nations like Hungary and Slovakia are extremely hostile to the EU’s current refugee relocation plan which they believe would generate unbearable economic costs. Hungary, a country that has been gradually recovering from the malicious aftereffects of the 2008 global economic downturn by implementing high sectoral taxes and cutting public spending, fears that an influx of Syrian refugees into its labor market would create a massive rightward shift on the domestic labor supply (Budapest Beacon). The Hungarian government argues that Syrian refugees would be actively looking for employment opportunities for their successful adjustments in Hungary. The presence of Syrian refugees in the labor market would then expand the domestic labor supply curve, lowering wage levels of the Hungarian laborers – especially those of low-skilled workers. The central body argues that this would eventually worsen their citizens’ quality of life. One scholarly study on the impacts of immigration on wage levels in the host community also reveals that “wage growth was strongly and inversely related to immigration-induced supply increases” (Aydemir and Borjas 3). In other words, a labor supply shock caused by an influx of immigrants or refugees may lower the market wage, making native workers worse off.
A scrutiny into the fundamental composition of Hungarian economy may also shed light on the potential impacts of Syrian refugees toward the Hungarian labor market. Ever since Hungary’s economic transition from planned economy to market economy in 1989, the government has widely focused on implementing economic policies that improve human capital and flexibility in operating businesses. Consequently, most Hungarian workers generally obtain high educational attainments, and approximately 60% of the national GDP come from the high-tech service industry in 2015 (Csizmadia 35). This implies that one essential driving force of Hungary’s economic development is skilled labor. On the other hand, according to Stave and Hillesund’s study on Syrian refugees’ impact on host communities’ labor markets, the vast majority of Syrian refugees in Jordan, Iraq, Lebanon and Turkey found their jobs in low-skilled sectors in the informal economy such as agriculture, labor-intensive retail services and construction. This is a product of regulatory restrictions in host communities and an open willingness of the refugees to work under low-paying and poor working conditions (Stave and Hillesund 8). Stave and Hillesund’s findings suggest that an influx of low-skilled Syrian refugees who are willing to work at lower wages than low-skilled Hungarian laborers may harm the native workers in terms of wages and job opportunities.
Another reason that the Hungarian government is opposed to the EU’s refugee relocation plan is that it is extremely pessimistic about Syrian refugee’s long-term resettlement in Hungary. At the European Migration conference held in Berlin a month ago, Hungary’s minister for Foreign Affairs, Péter Szijjártó, urged that Syrian refugees who are “relocated to the Central European country would not stay” in Hungary long, but instead they would move to more economically-developed Western European countries such as Germany and France (Euractiv). Human Capital Theory elaborates that movements of laborers generally occur from regions with relatively low earnings potentials to regions with comparatively higher earnings potentials (Ehrenberg, Smith 329). Based on this theory, the Hungarian government expects that Syrian refugees who are relocated to Hungary would rather put their best efforts to make another fearless movement into the Western Europe in search for better standard of living and opportunities for success.
Furthermore, William Collins’ empirical study, When the Tide Turned: Immigration and the Delay of the Great Black Migration, illustrates that individuals decide to migrate if their “present value of the net benefits of migration is positive” (Collins 615). A key factor that influences individuals’ decision for immigration is their educational attainment levels. Collins argues that one’s educational level immensely affect one’s capability of collecting information about other possible opportunities. According to World Bank Report, Syrian refugees are not leaving their country in order to escape from the so-called downward spiral of poverty. Searching for war-free zones, about 60% of these refugees enjoyed middle-class life back in their country. It is also estimated that approximately 20% of them obtained university degrees (Szilagyi 7). This very composition of Syrian refugees implies that highly-educated Syrian refugees are likely to stay in Hungary only for a short period of time.
Supporting refugees for their adjustments to host communities may be a costly process. Once Hungary allows the refugees in, it is inevitable for the Hungarian government to increase its public spending on healthcare, education and housing. This may result in adding an extra burden on the fiscal deficit of Hungary which endeavors to maintain its deficit level less than 3% of the country’s Gross Domestic Product (CIA Factbook). Despite its efforts to help college-educated Syrian refugees to successfully resettle in Hungary, the Hungarian government may encounter a situation whereby these refugees would be soon attracted to the Western Europe with greater opportunities and better standard of living. Consequently, in the worst case scenario, Hungary and other Central European countries whose economies are relatively less-developed could be left as losers in this game of refugee relocation across EU member states.
However, a deeper look into the issue shows that the story is not wholly negative. In the short-run, a decrease in Hungarian laborers’ wages is inevitable. However, this argument is too naive in that it does not take into account the “elasticity of the labor demand curve in the market” (Ehrenberg and Smith 344). Assuming that Syrian refugees and Hungarian laborers can wholly substitute each other, the decrease in wages will not be significant, and the employment in Hungary will greatly increase if the domestic labor demand curve is more elastic. If both scale and substitution effects become large, then the demand curve is likely to be flatter, minimizing the immigrants’ adverse impact on Hungarians’ earnings (Ehrenberg and Smith 345). In real life, consumer demand may increase due to reductions in costs of production, increasing the scale effect. Moreover, an increased utilization of laborers at every output level would result in greater substitution effect. Simultaneous increases in the scale and substitution effects may moderate negative impacts of the refugee inflow, and rather contribute to increasing employment in Hungary. Thus, the Hungarian government’s argument of apparent decreases in wage levels in the labor market is somewhat unsubstantiated.
Foged and Peri’s longitudinal analysis of an “exogenous inflow of non-EU migrants” into Denmark from 1991 to 2008 notes that within Danish communities with higher volumes of immigrants, low-skilled native workers tended to search for less labor-intensive, difficult jobs that immigrants were generally not qualified for. Danish workers in these communities also displayed a higher rate of worker mobility across companies. Consequently, wages of the native workers in Denmark increased so did their standard of living (Foged and Peri 15). The Hungarian government’s fear of Syrian refugees’ driving down the native workers’ wages ‒ especially the earnings of low-skilled laborers in Hungary ‒ is reasonable; yet, the government should not neglect the positive outcome which an inflow of Syrian refugees can bring into the Hungarian economy as it did for the Danish economy over the past few decades.
Another empirical study on the immigrants’ effect on local laborers’ wages also indicates that the influx of non-natives is likely to increase the domestic labor supply as well as labor demand. Immigrants who resettle in a community consume necessities – generally, these are non-traded goods and services such as hospitals, schools and retail stores – for living, leading to an increase in labor demand for non-traded goods and services markets (Hong and McLaren 2). One statistical evidence from Are Immigrants a Shot in the Arm for the Local Economy? shows that “each immigrant generates about 1.2 jobs in the city in which he or she locates, about 62% of which are in the non-traded industries” (Hong and McLaren 40). This finding implies that the influx of immigrants can also be perceived as the advent of a new group of consumers that notably expands demand for local goods and services. Such increase triggers another increase in the local labor demand, moderating the lowering of native workers’ wages due to the rightward shift of the labor supply curve. The Hungarian government should consider the functionality of Syrian refugees as consumers for the domestic goods and services markets in Hungary. If the refugees’ contribution to the aggregate income of Hungary is greater than their influence on labor supply, it is likely that the overall earnings of the Hungarian workers increase than the present.
Furthermore, the intake of Syrian refugees may not entirely strain the country’s labor market. Consumers in Hungary may benefit from the EU’s refugee relocation plan as the low cost of labor provided by Syrian refugees can lead to an increase in quantities of goods and services and a decrease in prices of these outputs. Additionally, the presence of new-comers as consumers can indirectly contribute to the diversification of “non-traded services available” in the local economy, broadening the range of consumption for both immigrants and the natives (Hong and McLaren 46). This increase in the variety of services may benefit every single consumer in Hungary, improving his or her quality of life.
Local employers in Hungary may also enjoy some benefits. In the short-run, producers that hire Syrian refugees may experience some levels of rises in returns to capital. This increase in profits might encourage investors to expand their investments in capital and more people to participate in the economy as employers. Although producers’ making positive profits may not last in the long-run, these “increases in capital and the number of employers” will not only generate more employment opportunities for workers but also create a benign business prospect that will eventually boost up the Hungarian economy (Ehrenberg and Smith 344).
Additionally, if the scale effect is greater than the substitution effect in the skilled labor market in Hungary, the demand for skilled workers, who comprise the majority of laborers in Hungary at the moment, might increase. This would ultimately lead to rises in both wage and employment level of the entire country (Ehrenberg and Smith 346). The phenomenon where the scale effect exceeds the substitution effect occurs if high-skilled and low-skilled laborers can substitute each other, and if an influx of Syrian refugees lowers the Hungarian laborers’ wages. The relationship between the scale and substitution effects has not been thoroughly proven in the field of Economics; therefore, this argument holds some uncertainty about the possibility of a situation where the scale effect may not dominate the substitution effect in real life. Yet, the Hungarian government ought to take this desirable possibility associated with Syrian refugees entering into its territory into account when projecting impacts of an inflow of refugees on the Hungarian labor market.
Some EU member states and economists also suggest that the current Hungarian government’s stance on refugee crisis is not so reasonable for another critical reason. In February 2015, three economists, Yusuf Akgündüz, Marcel van den Berg and Wolter Hassink, released their in-depth study on the impact of the influx of Syrian refugees in the Turkish labor market. Their statistical data reveal that both “regional and provincial” employment levels are not affected by the refugee inflow. The authors argue that Syrian refugees cannot compete with the native Turkish workers in the labor market due to socio-cultural differences. Besides, employers of the low-skilled jobs in Turkey responded to a sudden increase in the labor supply by heightening employment requirements that favor Turkish workers over Syrian refugees (Akgündüz, Berg, and Hassink 15). At least in the Turkish low-skilled labor market, Syrian refugees, who are not completely familiar to Turkish culture and local communities, are not considered as equally-competent for jobs as the native Turks. Consequently, the Turkish labor market condition remained somewhat same even after a historic surge of the refugee inflow from Syria. Cultural and language differences between Hungarians and Syrians are enormous. After their relocation to Hungary, Syrian refugees would need to spend a considerable amount of time for adapting themselves to Hungarian customs and cultural norms. They should also learn to speak Hungarian which is the official language spoken in the country. Unless Syrian refugees attain such cultural and language proficiencies where employers cannot differentiate them from the native Hungarian workers, it would be extremely difficult for the refugees to find jobs, both in low- and high-skilled labor markets. As it was the case in the Turkish labor market, it is very likely that the influx of Syrian refugees into Hungary might not considerably disturb the regional labor markets in the country. This single empirical study is not sufficient enough to explain every possible outcome that the refugee influx would have on the host communities’ labor market. There may also be other factors such as internal migration rates that also partake in the employment rate. One criticism about this study is that, in the long-run, Syrian refugees might still lead to lowering wages of the native workers. Nonetheless, the Hungarian government should note that the sudden inflow of Syrian refugees would not drastically reduce the native workers’ employment levels.
Designing a policy that satisfies every group of individuals in a country is nearly impossible. Therefore, policy-makers should carefully consider whether a new policy can benefit their country as a whole. Indeed, refugee crisis in Europe bears numerous economic and social problems. It is evident that the relocation of refugees across the entire continent may increase member states’ fiscal burdens, lower native workers’ wages and standard of living in host communities, and create negative externalities such as long-term environmental problems (Szilagyi 3). However, several academic studies suggest that the influx of Syrian refugees may not significantly worsen the labor market condition in host communities. Some even argue that the refugee inflow can strengthen the local economy by increasing both consumer and labor demands. These increases will also attract more investors to expand their capitals, igniting the economic growth. In my opinion, the Hungarian government should not just view Syrian refugees as toddlers that are one-sidedly in need of its financial and societal supports. As discussed earlier, they can be indispensable contributors to local economy when their impact on local labor market is carefully regulated by appropriate policies. In my opinion, the Hungarian government should allow the inflow of Syrian refugees in, and offer them resettlement programs that encompass provisions of housing and education for Hungarian language and culture. The government spending on the program is fixed cost. However, if Syrian refugees’ contributions to the economy become greater than the amount of the Hungarian government’s transfer payments for refugees, the presence of college-educated Syrian refugees would be a great driving force of an economic growth. At the same time, the Hungarian government ought to offer the natives workshops and other informative events that educate them how the influx of refugees can actually increase the natives’ wages and diversify goods and services available in the local economy. Another important issue for Hungary is how to make Syrian refugees permanently resettle in Hungary instead of letting them migrate to other Western European countries. I believe that in real life, economic opportunities are not the only factor which decides where individuals live. If Syrian refugees consider Hungary as a safe and good place to reside with their families, it would not be easy for them to leave the country once resettled. Therefore, the Hungarian government should implement policies that encourage fair treatments between the natives and Syrian refugees in the labor market and society. The central body should also provide the refugees with education on Hungarian culture for their quick assimilation into the local community. If these refugees can overcome some cultural barriers and receive equal treatments in the labor market, they are more likely to stay in Hungary permanently. Moreover, as most refugees enter Europe as a family unit, the Hungarian government should also design education and healthcare policies that specifically target children of Syrian refugees because parents are generally reluctant to move once the entire family completely adjusts to the local community (ILO). In order for these efforts by the Hungarian government to properly work, the European Union should also require Syrian refugees to stay in a relocated country for a certain number of years. For instance, EU may make the refugees stay in Hungary for at least 5 years for their permanent residence. A combination of these abovementioned policies would benefit both Syrian refugees and Hungary.
Syrian refugee crisis in Europe is a contemporary issue that can be only addressed through a harmonious collaboration among nations. It seems that economic costs for receiving refugees are great than the benefits in the short-run. However, if governmental policies are appropriately undertaken, Syrian refugees can be essential for Hungary’s long-term economic growth and betterment of the natives’ living standard. Thus, it is wise for the Hungarian government to withdraw its current opposition towards the refugee intake, and to begin carefully formulating strategies for refugees’ smooth adjustment to Hungary.
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