Will Refugees Benefit The German Economy?

Asylum, European Union, Population

The news that ‘several’ of the 33 economists polled by the Financial Times (27 December) feel that recent mass migration to Germany could help its economy by boosting its ageing and declining workforce needs critical scrutiny.  (We are not told how many is ‘several’, who they are, how they were chosen or what the others think). And 33 seems rather a small sample of the hundreds of senior economists who might have been asked.  In any case the predictive record of the collective opinions of economists is not impressive. Recall the letter signed by 364 eminent economists in 1981 condemning the monetarist policies of the Thatcher government as certain to lead to economic and social breakdown. And the IMF paper of 2002 comparing 63 countries that showed that private-sector forecasts had predicted only four out of 72 recessions more than three months in advance.

So, first of all, a reality check. Prior to the current migration flows into Europe Germany has already experienced high levels of immigration, including from elsewhere in the EU. Largely as a result the population of notional working age in Germany has, in fact, increased by almost 3 million since 2004, to 42.7 million in 2013, and total in employment has risen by almost 4 million to 40.4 million (OECD). The population of Germany has not been declining since 2009, for the same reason. Germany certainly has one of the oldest populations in Europe, although not hugely so: in 2014 it had 31.5 persons aged 65 and over for every hundred aged 15-64, compared with 29.5 for the Euro area (we lack detailed data for 2015 which would take account of the recent migrant influx).

If the million or so asylum seekers and other migrants who have moved to Germany this year learn German and are adequately trained, then of course will contribute to the German workforce, and in due course ameliorate, for a while, the problems of Germany’s ageing population. But in granting a temporary and partial respite from those problems, the new influx may distract attention from Germany’s more fundamental problems which can only be managed by internal reforms. Germany has considerable demographic reserves which need to be mobilised. Labour force participation rates are lower than those in other European countries, by between 2 and 8 percentage points in comparison with the Netherlands, Norway, Sweden, Switzerland and the UK among others. (World Bank) Although official age of pension entitlement is 65, average age at leaving the workforce in Germany in 2010 was 61.8 and 60.5 for men and women respectively, between 2 and 6 years earlier than the countries noted above.  (OECD 2011). In this respect, Germany looks more like Southern than Northern Europe. For the longer run, while women in Germany keep telling pollsters that they want two children, numerous avoidable obstacles impede the realisation of those desires. For example, day care centres and primary schools usually close at 1 p.m., making life difficult for two-earner families. Mothers who leave their children all day in the care of others are still stigmatised, an attitude obsolete in modern countries with more robust birth-rates. The apparently easy option of immigration distracts attention from the need to address such problems.

Furthermore, the demographic relief from any wave of immigration, while potentially real, is transient and turns into a burden. Immigrants also age. Keeping that advantage requires the arrival of more and more immigrants, the numbers growing to astronomically high levels. In 2000 the United Nations calculated that in order to preserve the ratio of persons over 65 to those aged 15-64 (the traditional basis for the age dependency ratio), Germany would need to import up to 6 million immigrants every year between 1995 and 2050, to a total of 188 million. That would take the population of Germany in 2050 to 299 million, the great majority of course not of German origin (people with ‘foreign background’). Immigrants and their children already comprise 20% of the population of Germany. Even Mrs Merkel’s generosity might falter at that. While that calculation is a ‘reductio ad absurdum’, it has been well known for a long time that immigration cannot ‘solve’ the problem of population ageing, although it can moderate it, and it is depressing to see otherwise well-informed people continue to advocate it.

The advantages of current inflows may turn out to be a bit disappointing. Labour market participation and the educational level of all generations of Turks, the largest minority of non-EEA origin in Germany since the 1960s , remains low – very low among women – and unemployment higher than average. It would be important to find policies to avert any such problems with the new Syrian influx. Although we lack detailed statistics most Syrian migrants seem to come from urban areas and may well have a higher educational level, and more skills, than the Turkish inflow which was mostly from rural areas. Family size in Syria is relatively high and with it the burden of child dependency, and the participation rate of Syrian women correspondingly relatively low – 13% in recent pre-war years compared with 54% in Germany, according to the World Bank.

Does this have any relevance to Britain? Not much. The demographic situations are radically different. The UK has a robust birth rate – equivalent to 1.8 to 1.9 children per woman – in comparison with Germany’s 1.3 – 1.4. Thanks to that and to exceptionally high levels of immigration, the UK population – 65 million today – is growing rapidly. It is forecast on very conservative official assumptions to exceed 70 million by 2026 and 80 million by 2059. If recent actual levels of net migration (330,000) are permitted to continue, 70 million will be exceeded by 2021, 80 million by2041 and 90 million by 2056.  The population of working age in the UK is correspondingly projected to increase substantially, for example by about 3 million by 2040, by comparison with stagnation or decline in Germany. Furthermore, Germany has more space for expansion; with 229 persons per square kilometre in 2012 compared with 263 for the UK. In England where over 90% of the population live and most immigrants settle, population density is 410 and on current projections forecasts to increase substantially.

The huge influx of migrants to Germany in the last year must bring some benefit to the labour force, at considerable cost in integration and additional housing. The results may not justify the enthusiasm of some German employers. It certainly cannot solve population ageing, and has few lessons for the UK except to avoid it.

7th January 2016

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