Allowing Newcomers to Work Helps, Not Hinders, The Economy

One of the hesitations people may have about accepting newcomers into their country is the idea that they are taking jobs from current citizens and will cost the government more money thus increasing taxes and so forth. Granting formal labor market access to newcomers may start with negative effects but over time the effects become positive if countries take swift and appropriate action to help both newcomers and natives adjust to the new labor market.

Multiple studies have shown that when formal labor market access is granted to newcomers it does, at first, cause a slight negative effect on the economy but over time those negative effects become positive. Evans and Fitzgerald found that after about 8 years a refugee becomes a “net positive fiscal contributor”.¹ An influx of Venezuelan newcomers in the Brazilian state of Roraima caused a drop in labor force participation and employment rates. However, both slowly came back up and formal employment increased slightly. The unemployment rate and log hourly wage were not affected significantly.²

Newcomers’ effects on the economy and labor market depend on the labor market’s characteristics. Different effects are expected based on whether the newcomers were already living in the city or were living in a refugee camp. Mainly, those living in cities would have a smaller effect on the economy when granted formal labor market access because they were already in the informal labor market. Access to the formal labor market can help spread out crowding that usually happens in the informal labor market. It also depends on the newcomer’s skills and characteristics; if they are skilled they may take more jobs.³ However, they may not take all jobs because of a lack of language skills or specific industry knowledge.⁴

Many studies have been done showing the positive economic effect of newcomers being able to work in the formal labor market. In Jordan, grants were given to make work permits easier and to make jobs for newcomers and residents. Syrian refugee presence caused their GDP to grow and increased wholesale trade by 47% from 2011-20165. In Kenya, newcomers also caused economic growth through investment in entrepreneurs which allowed for job creation.⁵Ortega et al estimated that if permanent formal status was granted to all previous DACA-protected immigrants, the US GDP would increase by 0.8 %.⁶ Liebig and Mo found that labor market integration was a major factor in the fiscal contributions of newcomers.⁷

Granting newcomers formal labor market access can have many great effects on natives as well. When newcomers take jobs they fill labor shortages and expand the labor supply. Which creates more profit for the company, growing the company, and thus creating more jobs for newcomers and natives. Allowing newcomers to be hired also results in occupational upgrading. Occupational upgrading happens when newcomers come to take the lower-skilled jobs and the residents are upgraded to more advanced jobs over time. Usually, newcomers take the lower-skilled jobs due to not having their skills verified, lack of the new host language fluency, and financial problems. However, these are all things that the host government can help with.

We can gain these positive effects faster by granting formal labor market access and other protections. They are already living here, we might as well let them grow our economy as well. When refugees work formally they pay more in taxes and thus spend more and thus contribute fiscally to the country. Newcomers need to be granted freedom of movement so they can take jobs wherever across the country, this will help spread out the burden on residents not getting jobs. Newcomers also need financial access to get jobs, they need more education, and they need their skills verified. A newcomer’s success and thus contribution to the economy is based on their skill level and education.

Economic benefits and newcomer benefits of formal labor market access are intertwined. When more is done to help the newcomers, more positive benefits are reaped. Better financial access for newcomers is needed because it can enhance resilience, increase consumption, and stimulate business growth. It can be hard to have financial access because newcomers may have shorter credit histories, have a lack of understanding of banks, don’t have all the documentation, and are discriminated against. There is also a need to make sure that their skills can be verified as newcomers bring valuable skills that can build up the labor force and the country in general. A strong determinant of a newcomer’s success in the labor market is their (verified) skill level and that contributes to how much they make and contribute fiscally. The process for obtaining formal authorization to work or own businesses should be made more accessible for newcomers. Research shows that the faster refugees can access the labor market, the more successful they will be in the long run. ⁸⁹

When done properly, newcomer’s access to the formal labor market can have a great effect on not just themselves but also the economy and natives. While newcomer effects are more evident and short-term, there are bountiful positive effects for the host country and its current citizens. Not only can GDP or income improve, but livelihoods and health can improve as well. Action just needs to be taken to allow newcomers formal labor market access and to pass other laws that can help make the integration more smoothly.