Making Sense of Angela Merkel's Refugee Policy

*Mughal, Abdul-Ghaffar co-authored this post. He is a research faculty with the Center for Humanities and Social Sciences of College of Arts and Sciences at Qatar University.

Angela Merkel continues to be attacked by xenophobic leaders even within EU for her asylum policy towards refugees from war-torn areas of the Middle East. Contrary to the perception of the critics who misread her policy as 'imperial humanitarianism' or 'historic error,' we would like to suggest that in welcoming over a million refugees last year, Angela Merkel has demonstrated her far-sightedness and statesmanship par excellence.

Angela Merkel in the 21st Century Followed Sultan Bayezid II Generosity of 15th Century toward Refugees

A little known historical narrative may shed some light on the economic logic of admitting a 'swarm' of refugees.

Following the fall of the last Muslim stronghold of Granada at the hands of Isabella I of Castile and Ferdinand II of Aragon, the victors issued what is known as the Alhambra Decree. The decree, issued ‎on 31 March 1492, ordered the expulsion of practicing Jews from the Kingdoms of Castile and Aragon and its ‎territories and possessions by 31 July of that year. Sultan Bayezid II (1481-1512) of the Ottoman Empire, ‎learning about the expulsion decree, dispatched the Ottoman Navy under ‎the command of Kemal Reis to bring the Jews safely to Ottoman lands. Sultan Bayezid II sent out ‎proclamations throughout the empire (spanning South Eastern Europe to North Africa) that the refugees were to be welcomed. Indeed, he threatened ‎with death all those who treated the Jews harshly or refused them admission into the empire. Ridiculing ‎Ferdinand and Isabella for their short-sightedness, the Sultan remarked to his courtiers, 'You venture to call ‎Ferdinand a wise ruler,' 'he who has impoverished his own country and enriched mine!'‎ ‎ Some 100,000 Jews are estimated to have flocked to the Ottoman lands. The Ottoman Empire became a safe haven for Iberian Jews fleeing persecution, and in its heyday, the city ‎of Thessaloniki had a Jewish majority. The Jews of Al-Andalus (Iberia) contributed much to the rising economic power of the ‎Ottoman Empire by introducing new ideas, methods and craftsmanship, with the presence of luminaries, such as, the Talmudist and scientist Mordecai Comtino; ‎astronomer and poet Solomon ben Elijah Sharbiṭ ha-Zahab; Shabbethai ben Malkiel Cohen, and the liturgical ‎poet Menahem Tamar. ‎

The Logic of Admitting Large Number of Refugees

This example of the positive impact of refugees on host societies is not unique. There is near consensus in the economic literature on the positive impact of refugees. Both demand and supply forces contribute to the favorable economic impact of refugee integration into the labor market. First, on the supply side, refugees who find work stimulate the economy by contributing to production.‎ Second, on the demand side, the refugee-related expenditures by the government are accompanied ‎by positive economic demand impulses, as increase in expenditure leads to a chain of spending and ‎re-spending with the eventual increase in GDP being a multiple of the initial dose of expenditure. This is the celebrated Keynesian Multiplier Effect. Thus, over the intermediate and long run, the economic benefits of integrating refugees into the labor market more than offset the short term economic costs borne in the immediate aftermath of admission.

what are the cost of admitting large numbers of refugees?
It is alleged that refugees are willing to work for less, they will compete workers with similar skills out of well-paying jobs, particularly in areas of refugee settlement.

Undeniably, there are gainers and losers from hiring refugees at the expense of locals. What is needed is appropriate government job adjustment and training programs and subsidies in the short run to facilitate absorption and diversion of the unemployed into high productivity sectors.

The issues is does lower compensation of refugees reduce the welfare of local labor force as a whole or of specific groups of workers? ‎Both economic history and logic show that higher percentage of unskilled and semi-skilled ‎laborers increases the productivity of skilled and professional workers simply because it helps high-skilled workers and professionals to allocate more of their time to more productive activities with higher value-added, and shift activities with low value-added to the relatively unskilled workers!‎

It is alleged that availability of cheap labor willing to work under unpleasant conditions and terms that locals find undesirable and unacceptable will result in an overall deterioration in working conditions in the refugee receiving country.

The is simply a very short run phenomenon that requires regulatory supervision to ensure that the vulnerable groups in society are not taken undue advantage of and that employers of refugees play by the rules.

‎It is also alleged that refugees will squeeze natives out of new jobs currently being created.

Would these new jobs have been created if there had been no additional ‎demand? Thanks to the influx of refugees and the jobs associated with the refugee assistance infrastructure? ‎

‎Finally, it is also alleged that refugees threaten natives out of new jobs expected to be created in the future as a large number of these refugees will potentially enter the labour market once ‎the initial and short term humanitarian aid dries up.

Just as we welcome participation of any marginalized group into the labor market, labor force participation of refugees can be ‎viewed as an opportunity given the overall benefit to the economy in terms of increased output and the fiscal contribution of refugee workers.‎ one can look at the glass as half full or half empty! However, to a jaundiced person, honey tastes bitter!

The economic case for admitting large number of refugees becomes stronger when the host countries face a demographic deficit, with the proportion of working age population in the economy shrinking. Most advanced countries, including Germany, have been suffering from a huge demographic deficit with local fertility rate falling below replacement level. Refugees who manage to brave the perils of drowning or the risk of starvation and subhuman living conditions for months and years are the kind of young, energetic, and motivated people that can inject badly needed fresh blood into the labor market of these countries. Refugees want to live in dignity, they want to work! ‎

Some Empirical Evidence on the Economic Impact of Refugees
‎ The mass emigration of Cubans, who traveled ‎from Cuba's Mariel Harbor to the United States between 15 April and 31 ‎October 1980 increased the Miami labor force by 7% - with as many as ‎‎125,000 Cubans being admitted to the United States. In his seminal study of the impact of the Mariel Boatlift, David Card (1990) found that the Mariel influx had virtually no effect on the wages or unemployment rates of less-skilled workers, even among Cubans who had emigrated during the earlier waves of immigration from Cuba.

Impact of Refugees on Germany
‎ It is against the backdrop of the looming demographic drought that the German hospitality towards refugees should make sense. The ‎German Institute for Economic Research (DIW) conducted a study on the impact of Syrian ‎refugees on German economy. They found that in the most favorable scenario, the positive effect of [integrating refugees in the labor market] can come about after just four or five years.‎ See the Figure.

‎Refugee influx is a major opportunity for Germany," the authors observe, ‎"[E]ven if the labor market integration turns out to be sluggish, the refugees will still have a ‎positive impact on the German economy after five to ten years. ‎Most importantly, even in terms of per capita income of non-refugees, the benefits will ‎exceed the costs in the long-term, thus highlighting the benefits to the entire economy."‎

Moreover, the authors of the study found this effect to be robust: even in a very unfavorable case - i.e., assuming a significantly lower productivity among refugees, and, ‎costs that are twice as high as those in the baseline scenario - ‎integration is still an investment that will pay off in the long run.‎

Finally, the study concluded that the positive effects apply not only to economic performance of ‎refugees; individuals already living in Germany will benefit in the long term through ‎a higher per capita income.‎

Moral of the Story: Turn Challenges into Opportunities
‎Despite the misperceived negative economic impact of refugees on ‎the receiving countries, which might be partially true in the short run, it is possible to view this challenge as an opportunity ‎to boost the economy, with the cultural and demographic enrichment as a bonus. ‎ Costs associated with short-term humanitarian cash and food assistance are necessary to ease the integration of refugees into society, and should be seen as ‎an ‎investment in the future.‎

For Bayezid's hospitality ‎to Jews, or Angela Merkel's generosity in admitting a ‎million refugees, while we don't know whether humanitarianism or ‎economic rationality has the better claim, ‎ ‎we do know that the economic argument is quite powerful in terms of both logic and empirical evidence. Thus, there is a method in the madness of German generosity towards refugees! ‎Two cheers for Angela Merkel!

Additional References:
Zachary Karabell, Peace Be Upon You (New York: Knopf, 2007), pp. 171-72.
Skolnik, F., Harkins, A. K., & Harkins, F. T. (2007). Encyclopedia Judaica. Second Ed. Vol. 3. P. 230. "the Virtual Jewish World: Turkey," online from . Retrieved April 23, 2016. Immanual Aboab, "A Consolacam as Tribulacoes de Israel, III Israel." Sultan Bayezid II's statesmanship, tolerance, and intellectual abilities are depicted in a recent historical novel The Sultan's Helmsman (2009) by Robert Colburn.
Fratzscher, M., & Junker, S. (2015). Integrating refugees: A long-term, ‎worthwhile investment. DIW Economic Bulletin, 5(45/46), 612-616.‎