(Photo Credit: Mstyslav Chernov, Wikimedia Commons) Since the eruption of the Syrian conflict in March 2011, the world came to face the largest wave of forced migration in recent history. What began as a small-scale internal displacement problem quickly escalated into a large-scale crisis, one that spilled across borders into neighboring countries. As of October 2015, Turkey, Lebanon, Jordan, Iraq, and Egypt host more than four million Syrians refugees, as shown in Figure 1. The number of internally displaced has reached 6.5 million – a significant number considering Syria’s population only totaled about 22 million on the eve of the crisis. Smaller economies, like those of Jordan and Lebanon, are impacted the most by this population displacement. For instance, Jordan currently holds the world record for the lowest ratio of natives to refugees, at a rate of three to one. Against this backdrop, Jordan constitutes an interesting case study to examine the economic impacts of the Syrian refugee crisis and of forced migration on host countries’ economies.

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Source: United Nations Office for the Coordination of Humanitarian Affairs (OCHA), 2015.

The economic pressures on Jordan’s economy caused by the influx of Syrian refugees are substantial. As of October 2015, the total number of Syrian refugees in Jordan is 630,000. While it may be too early to determine the full impact of this influx on long-run macroeconomic outcomes, a number of socio-economic indicators already provide a grim picture. In 2013, the Jordanian government incurred a total cost of $81.4 million in enrolling 78,531 Syrian children in public schools.[1] The funding needed to enroll Syrian students and to maintain the infrastructure for local students reached $257 million in 2015.[2] Jordan’s government has also spent $168 million on basic health services for refugees. Available figures regarding infrastructure costs indicate that some $62 million per year is needed to cover the additional demand derived from the influx of Syrian refugees. These infrastructure investments are mainly related to the provision of municipal services, such as access to running water, connections to the power grid, and road maintenance and construction. The funding needed in response to the influx of refugees as percentage of Jordan’s budget reached around 35 percent in 2015.[3] Such swift budgetary shocks highlight the need for international solidarity to meet the incremental funding requirements of vulnerable, middle-income countries hosting large numbers of refugees.

Another issue of concern to policy makers in host countries is the impact of the refugee influx on the local labor market. Paradoxically, the unemployment rate in Jordan has been relatively stable over the past few years, running from 11.4 percent in the first quarter of 2012 to 12.9 percent in the first quarter of 2015.[4] A recent study, using monthly data by Fakih and Ibrahim (2015), finds the influx of Syrian refugees has had no discernable impact on the Jordanian labor market. [5] The study reaches this conclusion by using three labor market indicators: unemployment, employment, and labor force participation rates. The authors support their claims by alluding to (i) the recent measures taken by Jordan to impose restrictions on firms hiring Syrian refugees, (ii) the presence of border refugee camps that implement tight movement restrictions and are located far from urban centers, and (iii) the important size of the informal sector, which has absorbed a large number of refugees of working age.[6] Overall, the severe economic pressure on social and physical infrastructure has not had marked impacts on the labor market, at least in the short-run.

A number of issues pertaining to non-neighboring countries can be extrapolated from the Jordanian case. First, most neighboring countries have been able to deal with the influx of refugees without causing a labor market crisis in the short-run. This is the case despite the number of refugees being substantially large relative to the host countries’ populations. Given that smaller numbers of refugees in absolute and relative terms are and will affect Europe and North America, one can expect that a similar scenario will unfold. Second, and in relation to the efficiency of labor markets, the refugees’ labor supply provides an imperfect substitute for local workers. This is the case because most of the supply is absorbed by the demand for unskilled workers and by the informal economy. Given that many countries, especially European ones, have a shortage of unskilled labor, the influx of refugees may actually contribute positively to economic growth.

Despite the neutral or even positive impact on labor markets and growth, Jordan’s case indicates that a trade-off between these impacts and the added strain on public finances will arise in the short-run. The additional financial requirements to satisfy humanitarian needs are substantial for small countries, and at the very least, non-trivial for larger economies in Europe and elsewhere. German industrialists, for example, recently supported government measures to host a large number of Syrian asylum seekers, though the German population was apprehensive. As policy makers ponder this trade-off, it is important to remember the long-run benefits that could transform this trade-off into a win-win situation. Indeed, advanced economies that are hosting or planning to host refugees can benefit from an increase in the labor supply that reduces the dependency ratio caused by an aging population. Of course, such benefits can only be reaped if the refugees are fully integrated into the labor market in the long-run. This reality highlights the need for policies to actionably facilitate such integration. For instance, Sweden recently established a number of programs designed to provide language and vocational training to refugees on an accelerated basis.

Finally, investments in social infrastructure to meet the urgent humanitarian needs of refugees result in immediate costs and benefits, where the net benefits are often negative and create a degree of resentment on the part of hosting populations. However, investment in physical infrastructure, despite having an immediate cost, results in long-term benefits that typically exceed their cost. These public investments, coupled with smart policies that target labor market integration, may improve the long-run growth prospects of host countries, thus turning a crisis into an opportunity for development.

 

Footnotes:

[1] Needs Assessment Review of the Impact of the Syrian Crisis on Jordan, Ministry of Planning and International Cooperation, 2013.

[2] Jordan Response Plan to the Syrian Crisis, United Nations, 2015.

[3] This number is obtained by dividing the total budget requirement, which is equal to $2,868,100,284 (Source: Jordan Response Plan to the Syrian Crisis, United Nations, 2015) by the 2015 budget of $8,096,000,000 (Source: Ministry of Finance).

[4] Jordan’s Department of Statistics, 2015.

[5] Fakih, A., & Ibrahim, M. (2015), The impact of Syrian refugees on the labor market in neighboring countries: empirical evidence from Jordan, Forthcoming, Defence and Peace Economics.

[6] According to the International Labour Organization, Regional Office for Arab States, 160,000 Syrians were working illegally in the informal sectors in Jordan in 2013, additionally an estimate of 30,000 Syrian children were engaged in child labor.

Ali Fakih is an associate professor of economics. He received his PhD in Applied Economics from HEC Montréal and his MSc in Economics from the University of Montréal. He is an affiliated researcher at the Centre for Interdisciplinary Research and Analysis of Organizations (CIRANO) in Canada, and the Institute for the Study of Labor (IZA) in Germany.

Walid Marrouch is an associate professor of economics and is currently the associate chair of the Department of Economics at Adnan Kassar School of Business. He holds a PhD in Applied Economics from HEC Montréal and an MA in Economics from Concordia University, Canada. He is actively involved in academic research in addition to consultancy work for a number of international organizations. He is also an associate fellow at the Center for Interuniversity Research and Analysis of Organizations (CIRANO) in Montreal, Canada.