Labor shortage Gaining from a Crisis

Angela Merkel's decision to open up Germany to refugees fleeing war in Syria was one of the great humanitarian gestures. But more importantly it should spur her government to introduce immigration reforms that shore up Germany's workforce.
The answer to Germany's labor shortage prayers?

Nearly two years ago, Europe’s refugee crisis hit Germany in full force. Dramatic daily television footage gave the impression of uncontrolled and unsustainable migration. In Berlin, thousands of refugees camped out in streets overnight waiting to get into registration offices and shelters.

In Germany and beyond, dire predictions spread of overloaded labor markets flooded with migrants, social benefits being plundered, government agencies overwhelmed and housing shortages.

But nearly two years on, the catastrophe everyone was waiting for never seemed to arrive.

Undoubtedly, there have been severe administrative bottlenecks over the past year, especially in the regional centers of immigration, where waiting times for processing asylum applications have increased. But the predicted social disaster has been largely averted in most German communities and regions, as the flow of refugees has tapered off.

Germany's society and politics have been stubbornly unwilling to lay the legal foundation to position Germany as an open immigration country, like the United States and Canada.

To be sure, what’s left for Germany is a Herculean task of integrating nearly 1 million newcomers into the workforce and society. Crucial to the task's success will be fighting prejudice on the ground and mitigating conflicts between refugees and Germany’s poorest, who feel threatened by the newcomers. This will also be a difficult challenge for Germany's two major federal institutions, the Federal Employment Agency (BA) and the Office of Migration and Refugees (BAMF), operating through a country-wide branch network with a combined staff of more than 110,000 people. Under the joint leadership of former BA head Frank-Jürgen Weise as “refugee czar,” they improved their efficiency.

It is still not fully clear how many of the refugees who began entering Germany in 2014 have remained in the country. Predicting future immigration trends is even more difficult.

The German Institute for Labor Market and Vocational Research, a part of the German Labor Ministry, estimates that 770,000 refugees are still in Germany. Approximately 425,000 are categorized as “available for work.’’ That is less than 1 percent of Germany’s work force of 43.6 million.

A country of 82 million, Germany has Europe’s largest economy with a GDP of about €3 trillion. If one takes into account that Germany’s labor force is expected to shrink by 3.6 million workers through 2030 because of demographic trends, there should be scope to integrate the refugees into the labor market.

This should be seen as a chance to correct the economic downside of Germany’s aging population. But our politicians, who for years have avoided acknowledging the reality of our country’s demographic challenges, will finally have to step up to the plate and pass immigration reform.

For decades, there have been severe shortcomings in German immigration policies. On the one hand, economic prosperity could not have been achieved in Germany without millions of immigrants; especially those from Turkey who helped rebuild our nation’s industrial base starting in the 1960s.

On the other hand, Germany's society and politics have been stubbornly unwilling to lay the legal foundation to position Germany as an open immigration country, much like the United States and Canada. As a result, until recently there has been no coherent national legislation passed in Germany to handle the immigration challenge. The problem had been simply swept under the rug, as the major parties avoided taking the necessary action for fear of angering their own voters.

The major conservative parties — the Christian Democratic Union party of Chancellor Angela Merkel and its Bavarian sister party, the Christian Social Union — have traditionally opposed adopting sweeping reforms that would provide a coherent legal base for regulating immigration. The Social Democratic Party (SPD) has been unsuccessfully pushing for immigration legislation, to get qualified labor into the country.

Over the past 15 years, economic planning in Germany has been based on net inflows of an average of 200,000 immigrants per year. But with the sudden, dramatic influx of more than 1 million refugees from Syria, Iraq and points to the east which peaked in late 2015, the domestic political debate over footing the refugee bill has taken center stage, only months before this year’s national elections.

In January, the German Finance Ministry said the refugee crisis had cost German taxpayers close to €21.7 billion in 2016. Those costs are expected to be just as high in 2017. The government outlays also include €7 billion in financial help for the host countries of most refugees, as incentives to improve economic conditions on the ground and give people fewer reasons to come to Europe.

More than €5 billion is earmarked for the costs of registration, infrastructure and social welfare for refugees, and €9.3 billion has been allocated to Germany’s 16 states to help house and accommodate the newcomers.

There is a heated debate over the economic and financial implications of the huge annual refugee bill. Based on economic analyses, the public integration expenditures are having the de facto effect of an economic stimulus program, especially for a range of producers, service providers and general consumer spending. There has been a spike in demand for temporary housing, and for all products required by more than close to 1 million new residents in Germany.

The International Monetary Fund and the Bundesbank agree that the integration of refugees can lead to higher German economic growth — which could be more than an additional 1 percentage point annually by 2020. There is, they argue, sufficient scope for financing the refugee bill. At the same time, integration costs will amount to only about 0.3 percent of German GDP.

The refugee cost as a share of GDP is much lower in Germany than in Sweden and Denmark, and about the same as in Austria, Germany’s central bankers note. Their advice to Berlin's finance minister: “Thanks to the current favorable economic situation, however, there is sufficient scope within government budgets to absorb the associated financial burdens without breaching the (EU) deficit ceilings.”

This September, Germans will go to the polls to elect a new government. Based on current voter surveys, the likely outcome is a continuation of the center-right coalition of CDU and Social Democrats led by Angela Merkel, who - with the backing of the SPD - opened the country’s doors to some of the world’s neediest people in one of the biggest humanitarian gestures of the last century.

If the polls are right, German voters have already decided on Ms. Merkel’s decision to let the refugees in. In essence, they agree she did the right thing, even if her decision is likely to catapult the far-right Alternative for Germany party into the Bundestag, at least in a minor role.

Now German politicians have to do their part and pass comprehensive immigration reforms to recognize that Europe’s largest economy is as dependent on the influx of qualified labor as the United States, Canada or any other major world economy.


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