Migrants and refugees cross the Greek-Macedonian border near Gevgelija on November 8, 2015. Three million migrants fleeing war and poverty are seen entering the EU by 2017. (Photo credit ROBERT ATANASOVSKI/AFP/Getty Images)
Last week the European Union released a regularly scheduled economic forecast. Within this report, a section covered the economic impact of the huge influx of migrants from Syria and other Middle Eastern countries that have surged into Europe this year. Pro-immigration advocates loved the report because it forecast an extra one-quarter of one percent in GDP growth thanks to those migrants. Unfortunately for pro-immigration arguments, there are some caveats to that forecast.
First, and most obviously, the three million migrants assumed in the report (counting those who have already arrived and those anticipated to arrive) would represent about 0.6 percent of the EU’s population, so an increase in GDP of 0.25 percent would mean that GDP per capita is declining. For migrants to be a positive economic force, they must do more than simply increase aggregate GDP; they must increase the amount per person. The EU’s report admits that on average, the migrants are making Europeans poorer.
Second, the forecast economic growth from the migrants does not come primarily from labor output produced by those three million new residents who likely represent 1.5 to 2 million new workers. Rather, the report ascribes its hypothesized growth to the increased government spending to train, house, and feed the migrants.
While it is true that the formula for GDP includes government purchases, so that a government putting on training classes or paying rent for migrants does count as GDP, the money being spent has to come from somewhere. Europe doesn’t print money to finance government deficits thanks to Germany’s fear of inflation; thus, the money must come from higher taxes or government borrowing. In either case, the additional government spending is diverting money from what likely would have been more productive uses. Therefore, I would question the EU’s forecasts due to wondering if they truly accounted for the lost investment or private consumption that might have occurred had the migrants not arrived.
Government spending on infrastructure, such as highways, ports, and airports, generally delivers excellent returns and competes with private sector uses of capital in terms of return on investment. However, spending on social programs simply replaces either private consumption (basically an even trade) or private investment which would produce much greater economic growth in the long run. If migration reduces the future capital stock, Europeans will be poorer down the road.
Third, the EU’s report (see p48 and onward for the specific discussion) admits that their entire model of the economic impact of the migrants is highly speculative and the uncertainty is large. In other words, they really have no idea and the impact could just as easily be zero, meaning an even larger drop in per capita output.
The lesson for those pushing for developed countries around the world to take in more refugees right now and more migrants in general is that migration is not a positive driver of economic growth in the short or medium term. Studies have shown that children and grandchildren of migrants in the U.S. have been very productive and entrepreneurial, so in the very long-run migration can be positive, but that is expecting politicians and taxpayers to look very far down the road.