In the roughly two months since Russia invaded Ukraine, over five million Ukrainian citizens—more than one-tenth of its pre-invasion population—have fled their homes and sought refuge in other countries. It’s one of the fastest exoduses of refugees recorded in post-World War II history. By comparison, it took four years for five million Syrians to leave their country after civil war broke out in 2011, and more than four years for the same number of Venezuelans to flee after 2014, when their country’s political and socioeconomic crisis deepened. Unfortunately, the number of people running from Ukraine will likely increase as the war grinds on and as many of the Ukrainian men who stayed to fight join their families.
Based on what happened with Afghans, Rohingyas, South Sudanese, Syrians, Venezuelans, and other refugee populations, the international community will likely have a twofold response to fleeing Ukrainians. In the short term, the world will mobilize to provide humanitarian support on a massive scale for refugees (as it currently is), starting from the moment they cross the border. But in the medium to long term, states will begin to debate who should “carry the burden” of caring for displaced Ukrainians. Local governments in Poland, a country that hosts nearly 2.5 million Ukrainian refugees, have already started urging other countries to accept more. And although public support for receiving Ukrainian refugees is very high, especially compared with attitudes toward Syrian refugees in 2015, research suggests that it will drop with time.
It is true that refugees generate expenses. Humanitarian assistance, such as food and lodging, has costs, as does providing immediate access to education and health services. In 2015, the Turkish government estimated it invested roughly $7.6 billion to meet the basic needs of the 2.2 million Syrians who arrived starting in 2011—about 0.9 percent of the county’s GDP that year. Between 2017 and 2019, Colombia spent roughly $1.3 billion to provide health and education services to its then-1.7 million Venezuelan refugees, representing 0.12 percent of the country’s GDP. The countries of eastern Europe are better positioned to receive refugees than were Turkey and Colombia, given the region’s superior infrastructure. (In Poland, for example, there are 6.4 hospital beds per 1,000 inhabitants, compared to less than two per 1,000 in Colombia.) But it still won’t be cheap.
Those costs, however, are short term investments. In the medium to long term, refugees represent tremendous opportunities. They can create new economic activity that more than offsets the immediate expenses. They bring new skills to economies often resulting in higher—not lower—wages for existing residents. They start businesses at higher rates than locals that generate jobs, and they create international connections that promote trade and foreign investment, critical for rebuilding the countries they fled. All this translates into GDP growth. But in order to unlock Ukrainian refugees’ full potential, host states will need policies that let the newcomers insert themselves in the economy—and that in turn help them integrate.
OPEN THE GATES
In depicting refugees (or migrants more generally), the media and other commentators tend to focus on the costs they impose. That is natural, as the news cycle mostly produces stories about refugees when they are in the most vulnerable situations and therefore most in need of aid. This, together with the theoretical prediction that refugees (and migrants more generally) would lower wages for existing workers, has resulted in a pervasive public belief that refugees are a drag on the economy, leading to limits on the number of refugees that countries accept and to restrictions on their right to work.
But this pessimism is rarely supported by empirical research. In fact, data overwhelmingly suggests that refugees are a tremendous boon for the economies in which they resettle. A 2016 study by McKinsey Global Institute found that although migrants represent only 3.4 percent of the global population, they create nearly 10 percent of global GDP, a figure that’s more than twice the size of what they would have produced if they never moved. Some estimates show that eliminating all barriers to human mobility could increase GDP by 50 to 150 percent. The numbers may seem almost ridiculously large, but the logic is simple: the ability of people to relocate to places where they can reach their full potential dramatically increases global efficiency.
Despite the circumstances that forced them to flee, refugees—a subset of all migrants—also enlarge the pie. In the United States, working-age male refugees across the board had a 67 percent employment rate from 2009 to 2011, compared with 60 percent for native-born men, increasing economic activity. They also own homes at the same rates as natives (which makes them investors) and pay their fair share in taxes while still having enough disposable income for consumption and further investment.
All kinds of migrants generate economic gains. But populations tend to be broadly accepting of immigrants and refugees only if these newcomers have college degrees. In most advanced economies, including the United States, over 60 percent of residents support high-skilled migration. They’re right to be enthusiastic: skilled immigrants are tremendously beneficial to countries. But refugees without degrees complement the local workforce in ways that make everyone better off. This does not come at the expense of locals, as some nativists may argue. A study on Denmark, for example, looked at the economic impact of several waves of refugees between 1991 and 2008, 70 percent of whom did not have college degrees, and found that they generated upward occupational mobility for locals. That’s because refugees in fundamental occupations tend to do jobs that existing residents are less willing to perform, such as manual labor. Locals, in response to the flow, shifted toward more complex jobs with higher salaries. In a nutshell, research shows that one doesn’t need to be a nuclear scientist to be able to contribute to an economy (though some refugees are, indeed, nuclear scientists).
Refugees help native-born workers and the economy at large in other ways as well. In the United States, a study by New American Economy using 2015 data found that 13 percent of refugees were entrepreneurs (defined as being self-employed), compared to nine percent of locals and 11.5 percent of non-refugee foreign-born residents. Their businesses generated $4.6 billion in income that year. These small businesses are the main engine of job creation in the American economy. One of the best examples of this phenomenon is Huy Fong Foods, the company that produces sriracha sauce. Founded by refugee David Tran in 1980, Huy Fong now employs close to 200 workers in Irwindale, California, and its sales exceed $60 million per year. Tran named the company after the freighter Huey Fong, which carried him and over 3,000 other refugees out of Vietnam to the coast of California in December 1978.
DEVIL IN THE DETAILS
Ukrainians, then, can be tremendous assets to the economies welcoming them—regardless of their education levels. This also applies to the many Russians who have fled their country because of its politics. But to capitalize on this outflow, states will need to not just accept large numbers of refugees; they will need to implement the right policies.
First and foremost, this means countries must give refugees the freedom of movement and full access to labor markets. This is often the hardest policy to implement, due to the incorrect perception that immigrants steal jobs and reduce wages. But keeping refugees out of the labor market or keeping them trapped in refugee camps has detrimental results down the road. Take Turkey, which started giving its Syrian refugees work permits only in 2016—five years after they began arriving. During all those years, the millions of Syrians living in Turkey had to either stay home or work in the informal labor markets. This was a lose-lose formula: it meant enormous numbers of people who could contribute to Turkish society were boxed out or could receive only small amounts of income. The refugees who did work paid no income tax, making it harder for them to contribute to the country’s fiscal health. The result was a vicious cycle. Turkey’s informal sector kept thriving, resulting in many inefficiencies that slowed down economic growth.
Governments must also provide refugees with long-lasting—ideally permanent—legal residency. Colombia gave its Venezuelan refugees full access to health care, education, and labor markets almost as soon as its refugee crisis began, but these benefits were limited because Colombia’s Special Stay Permit lasted for only two years. Although it was renewable, Venezuelans workers struggled to get jobs because employers were uncertain about whether they were worth the risk. Colombia has learned this lesson, and it is now giving Venezuelans formal, 10-year protection status.
The United States and European countries are already off to a bad start when it comes to Ukrainian refugees. The White House has announced it will admit up to 100,000 of them—a shamefully low number—through a humanitarian parole system, which requires that they have a U.S. sponsor and limits their stay to two years. Europe, in turn, has established a one-year residency permit that is renewable for up to three years in total. The temporary nature of these measures will prevent Ukrainians from properly participating in the economy, undermining their full potential.
Giving refugees long-term status, however, is only part of the solution. To really harness the power of refugees, host countries—along with donor countries through their foreign aid agencies (such as USAID) or multilateral institutions such as the World Bank—must give host communities funds to upgrade schools, hospitals, roads, and even telecommunication systems. Governments should offer companies tax credits in areas with high concentrations of refugees, to expand and hire more workers, many of whom could be newly arrived residents. The Colombian government did this in 2018, when it provided credit lines worth $30 million to the private sector to finance capital investments in areas with large numbers of Venezuelan migrants. To be effective, however, credits must be orders of magnitude larger than Colombia’s were. Governments should also try to actively match refugees with employers by offering voluntary relocation for refugees to areas where data shows there is demand for their skills. These programs all have upfront costs, but they are a worthwhile investment. Integration does wonders to help refugees become productive members of their new countries.
The process can also help refugees’ homelands. In the early 1990s, Germany took in 700,000 displaced Yugoslavians. As my own research has shown, in the years after, the industries in the former Yugoslavian countries that performed best were the same industries in which these refugees worked while in Germany—thanks in part to the knowledge and best practices they learned while there. The 1.4 million Vietnamese refugees who arrived in the United States between 1975 and 1994 created international business networks that have had a positive effect on U.S. investment in Vietnam and on trade between the two countries. If the world really cares about rebuilding Ukraine, its goal must be for Ukrainian refugees to integrate as much as possible in other countries—not the opposite.
Countries, then, should get busy welcoming fleeing Ukrainians. They should do so for the sake of the refugees, who need safety and stability: it is simply the right thing to do. But they also should do so for themselves. They should do so for the future of Ukraine. And they should do so for future refugee groups, who would benefit from a system practiced in taking in the displaced and helping them thrive.
Dany Bahar is an economist and an Associate Professor of Practice of International and Public Affairs at Brown University. He is also a Senior Fellow at Harvard University’s Growth Lab and is affiliated with the Center for Global Development and the Brookings Institution.