By Prashanta Chandra Panda and Rasananda Panda, December 3, 2015 : The tragic scene of the dead body of a 3-year-old Syrian toddler, Alan Kurdi, on Turkish Shore of Mediterranean Sea, shook the entire world.  Europe has been resistant and hesitant about accepting refugees from Middle East. But now Europe has to relook at the entire issue of refugees in a different perspective. It has to respond positive knowing well that the large-scale refugee population will influence the social, economic and the political life of the host country. Presence of these people (predominantly of a particular religion), have left their well-established lives may have both positive and negative impact at both micro and macro level on the nations accepting the refugees. We have instances of refugee risk jeopardizes the development effort of the host country.

Knowing these facts the refugees have been proposed to be distributed across nations. The weightings are based on the size of the population (40%), the total GDP (40%), the average number of asylum applications on the previous four years (10%), and the unemployment rate (10%). The proposed relocation distribution per member state the May Proposal for the 120,000 asylum applications are shared below.

The likely impact of Refugees on the Host Nations 

More Labour Options and the Threat of Lower Wages : The biggest problem for the European economy is the aging population and people taking early retirement. The influx refugees can help combat this very problem. These refugees in a new continent want to start a new life. They will be willing to work hard for it, harder than the natives.  Availability and willingness to work for lower wages will amount to loss of jobs for the locals and depression in wages. It may have the same impact as outsourcing. Yes, it will. Nevertheless, this may only be the immediate impact in a short run and possibly not for a long period. Their negative aspects may be felt long after the refugee problem is solved.

Higher Local Inflation? Refugees wherever they are settled is definite to compete with the local citizens for scarce resources. There is going to be bigger pressure on land, water, housing, food and medical services. Externalities from public utilities like government schooling, water supply, police, trusts and churches, homes for destitute will be mostly absorbed by these new populations.   Over time, their presence leads to more substantial demands for natural resources, education, health facilities, energy, transportation social service and employment.

Increase in demand for food and other commodities will lead to price rise in the m market. This stimulates local economic activity favouring the owners and traders of these services.  There will be inflationary pressure on the prices and can significantly alter the flow of the goods and services within the society.  Poor locals and people with fixed income are adversely affected. There may be violent uprising against this settlement when the poor section of the host country sees that the refugees are getting better means of living, such as education, medication, housing etc.

Revival  of EU nations on card ! So far, twenty two out of a total twenty eight EU member countries have been following minimum wages. These refugees now treated as the citizens of Europe will get the benefits as they are official entries. Joint study conducted by the World Bank, UN’s ILO and the OECD, in most countries migrants pay more in taxes as compared to social contribution that they receive. This is because most of the refugees are young and need less in the way of social benefits. At the same time it may encourage the youth of the respective European countries to work more.  In that case the taxes that would be received by these governments will also increase. It is thus believed that this exodus of refugees will actually revive the near dead European Economy.

Germany’s Story : Germany has an aging population. The economy is bleeding Euros in retirement benefits.  Germany has to sustain its own economy by bringing more domestic demand. Germany can avoid a shortage of skilled labour by providing an intense vocational education to refugees. This makes them skilled labours. With these supply of labour and productivity gains, revival of domestic demand, Germany can maintain its geo-political supremacy in Europe.

Cultural Impact and Future Politics : Real worry has always been about the clash of cultures.  Europe is still not totally ready to leave its doors ajar to a completely new Muslim population. The stability of the economy is a delicate balance between the political stability and internal environment in the respective nations.. Present rush of sympathy towards humanity will die down when the people see the actual impact on their native population.  India has seen many such instances.  Bangladeshi refugees of late sixties and early seventies continue to create local uproars in West Bengal, Assam and Tripura. Sri Lankan Tamils in eighties had lot of burden for Tamil Nadu government. The political dynamism alters once these people assert their voices and protect their interests by casting their votes. To say more we need to look at voting pattern of different ethnic people concentrated in different cities of Europe. Sensing this Slovakia is mostly open to accept Christian Syrians. Paris attack may affect the stand taken by France so far. Every government wants to avoid any rift between the behaviour of the people and the behaviour of the governments.

Need for Patience : A longer term plan is needed here. The EU members have accepted to give up their national sovereignty in many sensitive areas for the economic prosperity. The influx of refugees is threatening the very prosperity and sovereignty of the Europe.  It will be interesting to watch the future index of the free flow of labour which Europe has championed. True liberalisation of a crucial factor of production gets more complicated with the addition of these refugees. Productivity gains may come at the expense of more unrest.  In case the  growth suffers in  Europe,  severity of a global recession increases. The world does not want one addition of one more event to the already Chinese meltdown, falling crude prices across the Middle-East and slump in commodity prices across the globe.

Prashanta Chandra Panda and Rasananda Panda are Professors of Economics from KIIT University, Bhubaneswar  and MICA, Ahmadabad respectively.