The economics of Syrian refugees

The economics of Syrian refugees

Every few weeks, a journalist calls me up to talk about the economics of Syrian refugees. They all ask about their burden on Turkey’s budget, and I always refer them to Finance Minister Mehmet “Nominal” Şimşek’s remarks from last November that the financial cost of Syrian refugees on Turkey had reached $4.5 billion, including $2.3 billion from the central government.

That number, which sounded like a total figure rather than an annual sum, seemed very low to me. While I did not manage to find the annual cost of a Syrian refugee for the Turkish government, that figure has been estimated to be $3,750 for Jordan, the country with the second highest number of Syrian refugees after Turkey. Even with Jordan’s costs, the burden of 2 million Syrian refugees on the Turkish budget would be $7.5 billion per year.

By the way, this figure has been calculated to be more than $13,000 for Germany. It is therefore no surprise that Chancellor Angela Merkel’s laudable openness to receiving more refugees has raised concern for their costs by Germans, a folk known for, among other traits such as their Protestant work ethic as well as warmongering and beer-drinking prowess, their economic prudence.

Economics offers a simple solution: If the costs of Syrian refugees are much higher in the European Union and other developed countries, why couldn’t they offer financial assistance to the likes of Turkey and Jordan? After all, if the refugees were able to live in better conditions in these countries, they would be more likely to settle instead of continuing on to Europe. However, such assistance has been almost inexistent until now.

The more interesting question on the Syrian refugees is, at least in my humble opinion, their impact on the Turkish labor market. After all, the influx of so many people in such a short period of time is a labor supply shock of unprecedented scale. To put things into perspective, Turkey’s labor force, which has been increasing on the order of several hundred thousand per year, rose by 1.7 million last in 2014.

Syrian refugees, even the more educated ones who used to be doctors or engineers back home, would usually work in low-wage, low-skilled jobs. Basic economic theory would predict that they would displace workers in such jobs and drive down their wages. A recent World Bank paper combines newly available data on the 2014 distribution of Syrian refugees across regions of Turkey with a Turkish Labor Force Survey to see if that has been the case.

The authors find that “the refugees, who overwhelmingly do not have work permits, result in the large-scale displacement of informal, low-educated, female Turkish workers, especially in agriculture.” Interestingly enough, “while there is net displacement, the inflow of refugees also creates higher-wage formal jobs, allowing for occupational upgrading of Turkish workers.” As a result, average Turkish wages have actually risen with the change in the composition of jobs. Another paper has obtained similar results for the U.S.

So the next time you see a Syrian refugee trying to make ends meet in a miserable job, you should show respect, not pity. After all, not only he is looking after his family, he is also probably putting money into the pocket of someone you know.