Impact and Integration of Migrants in the European Union Uuriintuya Batsaikhan, Zsolt Darvas and Inês Gonçalves Raposo

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People on the move: impact and integration of migrants in the European Union Uuriintuya Batsaikhan, Zsolt Darvas and Inês Gonçalves Raposo

Bruegel workshop: Better policies for people on the move

13th December 2017 Dramatic changes in EU demographics

Components of population change in the EU28, 1960-2016 (percent of population) 1.0% • Immigration: more 0.8% important source of 0.6% population change 0.4% than natural 0.2% change since 1990s 0.0% -0.2% • Scale of immigration in 2015-16: not Natural change unprecedented Net immigration (non-adjusted) Net immigration (asylum-adjusted) Note: Net immigration (non-adjusted) indicates the data as included in the population 2 statistics. Net immigration (asylum-adjusted) also considers pending asylum seekers. Purpose of our report

• Assess the migration challenge that Europe faces, by analysing:

1. Public perception 2. The scale of immigration 3. The economic impact of immigration 4. Integration of migrants • With a special focus on financial integration 5. Policy implications

3 Public perception

4 Immigration and terrorism top the list of public concerns Most important issues facing the European Union, share of respondents 90% Terrorism 80% Immigration 70% Economic situation Member States' public finances 60% Unemployment 50% 40% 30% 20% 10% 0%

Source: Eurobarometer. Question QA5 “What do you think are the two most important issues facing the EU at the moment?” Maximum of two answers possible. 5 Attitudes towards immigration globally, share of respondents

European Union 48 36 8 8 • EU: more negative Asia 29 18 24 29 views on Africa 40 21 26 12 immigration than Latin America and Caribbean 39 30 18 13 elsewhere in North America 39 34 23 4 the world

Oceania 26 41 28 5

Global 34 22 21 22

0% 20% 40% 60% 80% 100% Decreased Present level Increased Don't know/refused to answer

Source: Gallup and IOM (2015) How the world views migration, Figure 1.2 and Table 5.1. Note: The question "In your view, should immigration in this country be kept at present 6 level, increased or decreased?". Groups are weighted by population size. Perceptions vs reality: perceived and actual stock of immigrants, 2014 (percent of population) 35 30 • Citizens 25 overestimate 20 the actual 15 number of 10 immigrants 5 0

Perceived Actual: foreign population by nationality Actual: foreign-born population

Sources: IPSOS. The question asked: “What percentage of the [Country] population do you think are immigrants to this country (i.e. not born in [Country])?” 7 Perceptions on handling the refugee crisis & common asylum policy & border control

• EU citizens generally disapprove of the way the refugee crisis was handled in Europe.

• Nevertheless, a large majority of Europeans is in favour of: • a common European asylum policy and • increased EU efforts to fight illegal immigration.

8 Support for intra-EU immigration is on the rise

Support for immigration from inside the EU, percent or responses, EU average 50% 40% 30% 20% 10% 0% Very positive Fairly positive Fairly Very negative Do not know negative May-15 Nov-15 May-16 Nov-16 May-17

Source: Eurobarometer surveys, The question asked: “Please tell me whether each of the following statements9 evokes a positive or negative feeling for you – Immigration of people from other EU Member States Support for migration from inside the EU vs. from outside the EU, percent of respondents

• Lower support for extra-EU immigration

• Yet is also relatively high in some countries, including the United Kingdom

10 Source: Eurobarometer, May 2017 No negative relationship between the share of immigrants and the support for immigration across EU countries Immigration support vs the share of immigrants in resident population, 2016 Intra-EU immigration Extra-EU immigration

11 Mapping migration in the European Union

12 Annual dynamics of immigration and emigration: home and foreign citizens, 2009- 2015 (percent of population per year)

EU 27 1.0% • Immigration from outside 0.8% the EU 0.6% increased in 2015 0.4% • Recall our 1st 0.2% chart: current level not 0.0% 2009 2010 2011 2012 2013 2014 2015 unprecedented • Unchanged Emigration: home citizens return Immigration: home citizens migration and Emigration: foreign citizens emigration Immigration: foreign citizens

13 Source: Eurostat. EU27 does not include Bulgaria. Annual dynamics of immigration and emigration: home and foreign citizens, 2009- 2015 (percent of population per year) North-West 11 CEE 10 South 4 1.0% 1.0% 1.0%

0.8% 0.8% 0.8%

0.6% 0.6% 0.6%

0.4% 0.4% 0.4% 0.2% 0.2% 0.2% 0.0% 0.0% 0.0%

Emigration: home citizens Emigration: home citizens Emigration: home citizens Immigration: home citizens Immigration: home citizens Immigration: home citizens Emigration: foreign citizens Emigration: foreign citizens Immigration: foreign citizens Emigration: foreign citizens Immigration: foreign citizens Immigration: foreign citizens • Most immigration to North-West 11 • Central Eastern Europe (CEE): higher emigration than elsewhere • South 4: recent increase in emigration, but below EU average Source: Eurostat. North-West 11: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Luxembourg, Netherlands, Sweden, United Kingdom. CEE 10: Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, 14 Romania, Slovakia and Slovenia. South 4: Greece, Italy, Portugal and Spain. Intra-EU mobility

• Intra-EU mobility has not reached high levels • E.g. population of 11 north-west EU countries include: • 1.88% residents from Central and Eastern Europe • 0.15% posted workers from Central and Eastern Europe • 1.18% residents from southern Europe • 0.02% posted workers from southern Europe • 1.13% residents from other north-west countries • 0.04% posted workers from other north-west countries • Altogether, other EU citizens (both residents and posted workers) account for 4.4% of total population of 11 north- west EU countries

• Non-EU citizens: additional 4.31% 15 Key concern in brain drain and labour shortages

Labour shortages as a factor impeding business Industry Services 35 35 30 30 25 25 20 20 15 15 10 10 5 5

0 0

2006-Q3 2003-Q3 2004-Q3 2005-Q3 2007-Q3 2008-Q3 2009-Q3 2010-Q3 2011-Q3 2012-Q3 2013-Q3 2014-Q3 2015-Q3 2016-Q3 2017-Q3

1996-Q1 1998-Q1 2000-Q1 2002-Q1 2004-Q1 2006-Q1 2008-Q1 2010-Q1 2012-Q1 2014-Q1 2016-Q1

CEE-10 NW-11 SE-4 CEE-10 NW-11 SE-4 Source: European Commission, European Business and Consumer Surveys. 16 Question: ‘Factors limiting the business: labour force’ Changing source countries and reasons for immigration from outside the EU

EU residence permits by main sending countries and reason for issuance, 2016, thousands One year or longer 500 3-11 months 300 250 400 200 300 150 200 100 100 50

0 -

Employment Other Education Family Employment Other Education Family

17 Source: Eurostat ‘First permits by reason, length of validity and citizenship’ dataset, code: migr_resfirst. First time asylum applications in the EU by place of application, Jan 2008 - Sep 2017

180 • Average 2008-11: 160 265 thousands/year 140 120 • 2015: 1.26 million 100 80 60 • 2016: 1.21 million 40 20 • 2017 (expected): 0

640 thousands

2012M01 2017M01 2008M01 2009M01 2010M01 2011M01 2013M01 2014M01 2015M01 2016M01 Germany Sweden Austria Hungary Italy Greece France United Kingdom Rest of the EU

18 Source: Eurostat. Huge differences in asylum decisions Likely reason: different implementation of EU asylum rules Positive first instance decisions on asylum applications, % of applications, 2015-17 100% 100% 2015 2016 2017 2015 2016 2017 80% 80%

60% 60%

40% 40%

20% 20%

0% 0%

Italy

Malta

Spain

Latvia

EU28

Poland

Ireland

Austria France

Cyprus

Croatia

Finland Greece

Sweden

Estonia

Portugal

Slovakia

Slovenia

Belgium

Bulgaria

Romania

Lithuania

Hungary

Denmark Germany

Netherlands CzechRep. Source: Eurostat. Luxembourg Uneven distribution of 1) first time applications, 2) accepted asylum, 3) GDP

2017 70% 60% 50% 40% 30% 20% 10% 0%

First time applications Positive decision GDP

20 Economic Impact of Immigration

21 Labour market impact

• Immigrants take jobs from and depress wages for natives? • There is a lack of conclusive evidence. Impact on the host country depends on migrant characteristics and the host country’s economic and institutional factors. • There are studies finding evidence of negative, neutral and positive impact of immigration on native wages • UK – Rowthorn (2015): competition from immigrants may result in lower wages for low skilled local workers, including previous immigrants. • Italy – Brücker, Fachin and Venturini (2011): presence of foreign workers discourages internal labour mobility • Overall European experience: small wage and employment impact on native workers (Peri, 2014) • Wage and employment assimilation: recognition of educational degrees, language skills, poor networks, etc.

22 Fiscal impact

• The fiscal impact of migrants as assessed in the literature depends on what is included in the analysis • Are migrants net contributors or net beneficiaries? - Welfare dependency depends on age, employment status and duration of stay - OECD countries: fewer contributions to taxes and not by higher dependence on benefits (Liebig and Mo, 2013) • Migrants make a greater fiscal contribution the younger and better integrated into the labour market they are.

23 Impact on output

• Immigration has a large effect on income per capita and productivity (Ortega and Peri 2014, Alesina et al. 2016)

• Portes et. al (2016) estimates a fall in UK GDP ranging from 0.63 to 1.19 percent as a result of Brexit-related reductions in immigration

• Advanced economies: Jaumotte et al. (2016) find a positive effect in per capita income levels in host economies – one p.p increase in share of migrants in the adult population can raise GDP per capita by up to 2% in the long run.

• The economic impact on receiving countries is largely influenced by the composition of migrant flows. Migrants who come for work reasons or for the short-term are associated with better economic outcomes for receiving countries.

24 The case of refugees

• The IMF estimates the fiscal cost of asylum seekers in 2014- 2016 to be around 0.19% of total EU GDP • OECD: National fiscal costs 0.5% of GDP in Germany annually from 2016-2017, 0.3% in Austria and 0.9% in Sweden for 2016 • Impact of the labour markets: cumulative impact of asylum seekers inflow by end-2016 accounts for 0.4% of EEA labour force • Germany: less than 1% of total labour force • Role of national institutions in integrating migrants

25 Integration of immigrants

26 Sweden & UK: good labour market integration record; Belgium & Italy: bad

Labour market participation by migrant status, selected countries, 2014 - total population

Second First Country Native-born generation of generation of migrants migrants Sweden 83% 78% 76% United 79% 76% 75% Kingdom Belgium 68% 59% 65% Italy 63% 48% 70% 27 Labour market integration: Much better outcomes for tertiary educated people

Labour market participation by migrant status, selected countries, 2014 - tertiary educated population

Second First Country Native-born generation of generation of migrants migrants Sweden 93% 90% 87% United 88% 89% 83% Kingdom Belgium 87% 83% 79% Italy 82% 72% 78% 28 More low-qualified among non-EU born

Population (15-64) by educational attainment level and country of birth, 2016

50 45 40 35 30 25 20 Native-born 15 Other EU-born 10 Non-EU-born 5 0 Less than Upper secondary Tertiary education primary, primary and post- and lower secondary non- secondary tertiary education

education 29 Migrants feel to be over-qualified relative to natives

Self-declared over-qualified employees • … especially in Italy, as a share of total employees, 2014, Greece, Austria, 70 Tertiary educated workers Germany, Belgium, 60 Malta

IT FI

PT AT LU

FR CZ

ES SK SE EE BE

CY UK DE

MT HR HU

PO GR Natives First and second generation of migrants 30 School drop out rates are much higher for migrants than for natives, with the exception of the UK Share of early leavers from education or training aged 18-24 40 35 30 25 20 15 10 5 0 ES UK BE FR DE NL GR Reporting country EU-28 countries except reporting country Non-EU countries 31 Student performance by family origin, 2015 • Even 2nd Reading literacy 550 generation migrants tend to 500 underperform relative to natives, 450 with the exception of the UK, Portugal, 400 Hungary, Canada

• Especially poor 350

results: Belgium,

US UK

Italy

Chile

Israel Spain

Latvia Austria, Iceland,

Ireland

France

Austria

Iceland

Finland Greece

Estonia

Norway

Canada

Sweden Belgium

Portugal

Hungary Slovakia

Slovenia

Australia

Denmark Czech R. Czech

Germany Slovakia

Switzerland

Netherlands

Luxembourg New Zealand New Native average OECD • Denmark and Second-Generation with an immigrant background France not good First-Generation students with an immigrant background either 32 Financial Inclusion of Refugees

33 From arrival to integration, refugees have very different financial needs

• Arrival: survival cash for immediate food and housing needs; • Initial displacement: savings, remittances and paying for immediate service needs such as school fees or furniture; • Stable/protracted displacement: broader options for savings beyond a bank deposit, micro-consumer credit, small business loans, health insurance, etc.; • Permanent settlement: financial services needs start to resemble those of the host population, such as access to credit, pension schemes, business loans, remittance and payment accounts, etc.

34 Contradictory forces at work in relation to financial regulation and financial inclusion

• The continuing tightening of financial regulation and oversight of the financial sector (which is important in the fight against money-laundering and terrorist financing) works against the economic integration of refugees.

• Know your customer regulations (KYC): customer due diligence process that financial institutions have to do before they provide financial services

35 Bruegel survey on banks’ attitudes towards financial integration of refugees

• 14 responses from 9 countries: Austria, Cyprus, Estonia, Germany, Greece, Italy, Luxembourg, Spain and Sweden.

1. Regulatory environment 2. Refugees as clients 3. New initiatives to foster financial inclusion

36 Has your national regulatory/supervisory authority issued guidelines regarding the offering of financial services to refugees in recent years?

• Only about half Country Guideline issued of the countries Austria Yes issued Cyprus Yes guidelines to Estonia No help banks Germany Yes accommodate Greece Yes/No refugees Italy No Luxembourg Yes Spain No Sweden No

Note: the two Greek banks surveyed by us gave opposite answers.

37 Restrictiveness of the ‘know your customer’ (KYC) regulations (percent of responses)

% responses • No bank assess 60% rules too loose 50% All banks 40% • Banks with 30% refugee clients 20% Banks with assess rule refugee clients 10% more restrictive 0% than banks Banks without refugee clients without refugee clients

In your opinion, or that of your institution, do the ‘know your customer’ (KYC) regulations of your country strike the right balance between the need for offering financial services to refugees and the anti-money-laundering (AML) / counter-terrorist financing (CFT) goals? 38 Refugees as potential clients for financial instituions (percent of responses)

% responses • Moderate 50% business 40% All banks interest in

30% offering financial 20% Banks with refugee clients services to 10% refugees 0% Banks without refugee clients • Somewhat larger by banks that actually have refugee clients

On a scale from 1 to 5, how interesting is the offering of financial services to refugees as a business prospect for your institution? 39 Does your institution have specific financial products for refugees?

% responses

100% All banks

75% Banks with refugee clients 50% Banks without 25% refugee clients

0% Yes No

40 Did your institution make active steps to approach refugee clients (for instance, visiting refugee settlement centres, printing flyers and brochures)?

% responses 100% All banks

75%

Banks with refugee clients 50%

Banks without 25% refugee clients

0% Yes No

41 New initiatives to foster financial inclusion 1

• Private sector initiatives • Offer micro-credit and other specific products that refugees need to be able to get started, to support self-employed persons, to contribute job creation and to facilitate social integration • Employ refugees short-term, thereby helping them to obtain their first work experience in the host country. Financial institutions could take the lead. • Access to communications (mobile phone and internet access) • Foster the private sector’s commitment to prevent the risk of exploitation at work

42 New initiatives to foster financial inclusion 2

• Public sector initiatives • Set-up of a national central registry of refugees • Create a pan-European registry linked to national registries • European ID issued to each refugee

• Public-private partnerships • Hold consultations between banks and regulators on how to tackle the challenges faced by refugees and foster their financial inclusion. • Common regulation on how to address refugee clients • Provide trainings by private/public schools or professional training organisations, including language schools and financial literacy education • Promote social inclusion via working activities, vocational training and cultural exchange by public-private partnerships, with the help of social cooperatives, social enterprises and associations

43 Policy recommendations

44 Policy recommendations, 1-3

1. Address anti-immigrant attitudes: public understanding of immigration is often far from reality, making it important to disseminate accurate information about various aspects of immigration. 2. Protect the EU’s borders and fight illegal immigration: while various measures have been introduced, 85-90 percent of the EU population would like to see additional measures. 3. Continue to build partnerships with neighbourhood countries, which can help to contain refugee and immigration inflows into the EU, facilitate the successful and safe return of ineligible migrants and provide information about eligible migrants.

45 Policy recommendations, 4-6

4. Provide additional funding for border protection, neighbourhood partnerships and immigrant integration: a small percent of the EU budget is spent on these areas, which we find insufficient given that immigration is a priority concern of citizens. 5. Ensure the consistent implementation of the EU’s asylum rules: the widely different rates of acceptance of asylum seekers in different EU countries suggest different implementation of the EU’s asylum rules. Clear guidelines are needed for the evaluation of asylum applications and their consistent implementation. 6. Address the very uneven distribution of refugees among EU countries: relocation of refugees from, and financial support to, heavily impacted countries is essential. Countries that resist accepting refugees for political and ideological reasons should make large enough financial contributions instead of being forced to accept refugees.

46 Policy recommendations, 7-9

7. Improve identification of refugees by issuing a European ID to each refugee and creating of a pan-European registry of refugees, linked to national central registries: such instruments, established with European financing, would greatly facilitate the identification and integration of refugees. 8. Learn from the best integration practices: only a few European countries can be regarded as successful in terms of integration of immigrants. Cooperation with the private sector and social partners should also play a role in improving integration systems. 9. Combat educational and spatial segregation: early childhood education, language and professional training for recently arrived immigrants, and better access to higher education for young and second-generation migrants, are essential for their integration and to limit spatial segregation.

47 Policy recommendations, 10-12

10. Ensure the EU strategy for integration is well articulated with national governments and other institutions: the EU’s 2016 action plan on the integration of third country nationals includes several useful initiatives which should be better implemented by member states; 11. Review financial regulation to promote the financial inclusion of refugees: regulation should strike a balance between the fight against money-laundering/financing of terrorism and the economic integration of refugees. At the minimum, all supervisory authorities should issue guidelines on financial inclusion of refugees. 12. Address labour shortages in EU member states by fostering labour force participation, increasing the pool of labour for the private sector through reduced public-sector employment, education and specific training programmes and overhauling the tax/social security contribution system to promote higher net wages, while keeping gross wage costs and fiscal revenues unchanged. 48