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Integrating the refugees will have a positive effect on the economy in the long run

Press Release of November 12, 2015

DIW economists simulate various scenarios based on different assumptions – in every projected scenario, investment pays off in the longer term – successful integration will increase per capita income of Germany’s current population

The recent influx of refugees has created enormous challenges for politicians and society at large - but according to a simulation conducted by economists at the German Institute for Economic Research (DIW Berlin), a successful refugee integration is a win for everyone.

German Institute for Economic Research (DIW Berlin)

The German Institute for Economic Research (DIW Berlin) is one of the leading economic research institutions in Germany. Its core mandates are applied economic research and economic policy advice as well as provision of research infrastructure. As an independent non-profit institution, DIW Berlin is committed to serving the common good. The institute was founded in 1925 as Institut für Konjunkturforschung (Institute for economic cycle research). Since 1982, the Research Infrastructure SOEP (German Socio-Economic Panel Study), a long-term study, is affiliated to DIW Berlin. The institute has been headquartered in Berlin since its founding. As a member of the Leibniz Society, DIW Berlin is predominantly publicly funded.

“The current debate on refugees in Germany often focuses too much on government expenditures needed to support the new arrivals. This is narrow-minded and short-sighted,” explains Marcel Fratzscher, President of DIW. “Even if many of the refugees initially have comparatively poor prospects on the job market due to a lack of qualifications, the positive economic impulses for Germany outweigh the costs in the long run. Most importantly, everyone will benefit from the integration of refugees, as the incomes of German citizens are also likely to rise in the long run.”

Refugees increase consumer demand

To carry out their calculations, Fratzscher and co-author Simon Junker, Deputy Head of the Department of Forecasting and Economic Policy at DIW, used various assumptions, among them those related to the number of expected migrants, their ages and earning capacities as well as an assessment of their qualifications. In addition to the baseline scenario, the two authors outline a more “optimistic” and a more “pessimistic” scenario.

In all three cases, the profits exceed the initial costs. “Refugees who are able to find jobs stimulate the economy, even if they have minimal skills,” explains Fratzscher. “They strengthen the supply side by contributing to corporations’ success and revenue, and simultaneously increase demand. As consumers themselves, they contribute to more investment and higher incomes for other households.” All in all, economic growth will increase - it’s just a matter of when.

Positive effects will reveal themselves over the next ten years

While the initial costs to taxpayers are considerable, the simulation indicates that these costs will bring about benefits in the longer term. “Even in our ‘pessimistic’ scenario, the per capita income of people living in Germany will increase within the next ten years, and in a favorable situation, the positive effect can even come about more rapidly - possibly after only four to five years,” says Junker. “Even if only some of the refugees are successfully integrated into the labor market, the investment pays off.”

The authors stress that the large number of refugees also comes with considerable uncertainty: It is difficult to predict how quickly the labor market can absorb the large number of low-skilled workers in particular. Moreover, it must be emphasized that this report comprises only simulations, and not forecasts about the future.

Both experts are available for inquiries and interviews.