Receiving Ukrainian Refugees: Policy Lessons from Economics and Political Science

Last fall, we published a survey on the economic and political implications of receiving refugees, with a focus on the 2015 European refugee protection crisis and its aftermath. Our aim was to help policymakers facing future refugee protection crises by presenting a review and an interpretation of the relevant research in economics and political science. Sadly, this work has become pertinent far sooner than we anticipated.

In this post, we highlight the key insights from our paper and contrast the contexts of the reviewed work with the current situation. We start with the main conclusions of our survey:

1. The direct labor market and fiscal impacts of receiving refugees tend to be relatively modest.
2. The political impact of receiving refugees can be substantial and has the potential to indirectly affect policies beyond immigration.
3. Integration policies facilitate labor market integration. This mitigates fiscal repercussions and has the potential to reduce political effects.

Direct economic effects and labor market integration

The research behind conclusions 1 and 3 is directly applicable to the current situation. A large body of work suggests that immigration has modest effects on native wages and employment. Furthermore, employment rates of refugees are typically lower than those of other immigrants, at least initially, which further reduces the competitive pressure they exert on natives in the labor market. However, the potentially very large number of Ukrainian refugees – many of whom are highly skilled – means that we should not rule out meaningful labor market effects in some of the receiving countries. Nevertheless, the most important direct economic effect will likely occur through public finances. For example, 1% of Swedish GDP was redistributed to its accumulated refugee population in 2007. To put this number into context: at the time, refugees accounted for 5% of the Swedish population (the largest refugee population share in Europe) and Sweden’s foreign aid was also roughly 1% of its GDP.

In our review, we emphasized that the fiscal effects critically depend on refugees’ employment rates, which in turn can be affected by integration policies. Most importantly, a growing body of work suggests that (i) a lengthy asylum process reduces later employment prospects; (ii) temporary employment bans for asylum seekers have a detrimental impact on the long-term economic integration; and (iii) appropriate active labor market policies (including language training) have substantial positive effects on refugees’ – and their children’s – integration. We believe that these findings continue to be relevant to today’s policymakers who have the discretion to improve integration policies.

Political repercussions

Research on the political consequences of past refugee protection crises also remains informative but requires careful interpretation because of the context-dependent nature of such effects. Past work suggests that the reception of refugees can fuel anti-immigrant sentiment and propel the rise of authoritarian, populist, anti-immigrant parties. Since these parties typically support isolationist policies more broadly (e.g., withdrawal from trade agreements or the European Union), we argue that refugee protection crises have the potential to trigger indirect economic consequences that can be more substantial than any direct economic effects.

However, existing research also suggests that such political effects are conditional on several factors, including the macro-level narrative surrounding asylum seekers and refugees and policies regulating their reception and integration. In the following, we briefly discuss the differences between the current and the 2015 refugee protection crisis and how these differences affect our conclusions about likely economic and political consequences.

Macro-level narrative

How native citizens interact with immigrants is framed by macro-level narratives. For example, more positive, generous, and welcoming media coverage of the plight and deservingness of arriving refugees may give later encounters with refugees a positive spin and reduce the chances of a backlash against refugees. In comparison to 2015, the initial macro-level narrative surrounding Ukrainian refugees appears to be more positive in terms of media responses and natives’ baseline attitudes across Europe. At least part of this divergence in initial narratives and attitudes is likely due to differences in the gender and age composition of the refugees (i.e., more women with children), the perception of Putin as a common threat, and a perceived closeness in terms of culture, religion, and ethnicity. This interpretation is also echoed by policymakers and pundits across Europe, who tend to suggest that the plight of Ukrainian refugees calls closer to home. However, it is important to keep in mind that this initial positive narrative may change over time.

Entry and allocation

Unlike other refugees and asylum seekers, people fleeing the war in Ukraine have the right to visa-free entry and residence permits in the country of their choice within the EU, Switzerland and Norway. These freedoms were laid out in the EU’s Temporary Protection Directive, which also guarantees “access to education and to the labour market.”

Thus far, Ukrainian refugees have settled predominantly in neighboring countries but according to the Directive, a “Solidarity Platform” will be set up “where Member States can exchange information about reception capacity”. In line with this goal, the Commission has been “gauging the pressure on member states hosting refugees as tens of thousands of people continue to cross daily from Ukraine.”

Existing research indicates that Europeans are more willing to receive refugees when their allocation across European countries is perceived as fair. While the current allocation mechanism is not proportional (an alternative the surveyed voters strongly preferred), the EU’s response to the arrival of Ukrainian refugees outlined above addresses at least some of the fairness concerns voiced in 2015.

Communication and contact

Across Europe, communities are volunteering to host Ukrainian refugees and many governments and non-governmental organizations have created schemes that allow individuals to receive and support Ukrainian refugees (e.g., #Unterkunft Ukraine campaign in Germany and Homes for Ukraine in the UK). In our review, we discussed research suggesting that meaningful and repeated contact between locals and arriving refugees has the potential to reduce anti-refugee prejudice. Well-managed co-sponsorship and co-living programs could be one way to increase both reception capacity and opportunities for meaningful contact. However, the nature of the contact is crucial as there is plenty of evidence of superficial contact (e.g., seeing refugees passing through) leading to an increase in anti-refugee attitudes.

Concluding thoughts

These are early days, and it is hard to anticipate how many displaced Ukrainians eventually settle outside of Ukraine, and for how long. Nevertheless, governments around Europe need to prepare to host a substantial number of Ukrainians, some of them most likely permanently.

In comparison to earlier refugee protection crises, the starting point is in some ways promising. Initial narratives surrounding people fleeing Ukraine, attitudes and policy responses have been less exclusionary and more welcoming across European countries. The policy decisions taken thus far – particularly the freedom of settlement in the EU, Switzerland and Norway and the direct access to labor markets without a lengthy asylum application process – have removed some obstacles that hold back other refugees. On the other hand, the scale of the crisis means that the short-term fiscal effects will be substantial even if Ukrainian refugees fare better in the labor market than refugees from other origin countries. The large number of refugee arrivals also means that it is possible that labor market effects turn out to be non-negligible.

Furthermore, it is important to keep in mind that in 2015, too, the initial reaction was largely welcoming. It is entirely possible that attitudes towards Ukrainians harden in the months and years ahead, which could also fuel the rise of anti-refugee politicians and thereby trigger major economic and geopolitical effects. There are at least three ways to mitigate this risk. First, the EU’s discussion of a Solidarity Platform and burden sharing needs to turn into a concrete policy that voters perceive to be fair. Second, governments need to make sufficient investments in language training and other forms of integration policies to facilitate integration into local labor markets and host communities. Finally, it is vital that governments provide opportunities and spaces that facilitate meaningful contact between locals and refugees. We hope that future refugees will benefit from these policy learnings – including those refugees that might have a different skin tone or religion than the majority of the host community.

If you'd like to learn more, please read this survey article by Dominik Hangartner, Matti Sarvimäki, and Judith Spirig.

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