What does migration do to an economy?
There are a lot of folks that are being forced to move right now. The Syrian Civil War has generated over 4 million who have fled their country. In 2014, the UN estimated that almost 60 million people were forcibly displaced from their homes—by war, persecution, or other trouble. Of these, only a fraction sought refuge in the developed world. But that number has been going up, and will be a record in 2015.
Source: UN, Robert Shiller
In many ways, human migration has been an essential driver of history. The US was founded both by refugees from religious persecution and by people who sought greater economic opportunities. Ten thousand years before, aboriginal tribes migrated across a land bridge from Asia in what is now Alaska. My own ancestors came to America from Sweden and Norway just three generations ago – for religious and economic reasons.
And as long as there have been refugees, there have been people who have told them to keep moving on. It’s not a simple thing to for folks to re-settle after being displaced. Short-term issues are important: the simple need to feed, clothe, and house people who have left their homes with almost nothing can overwhelm a community.
A group of economists studied several regions of Turkey where Syrian refugees have been staying. They compared different areas, based on the ratio of refugees to the population—which in some cases exceeded 10%. They found that the immediate effects of the influx have indeed been dramatic—pushing unemployment up and consumer prices down. Also, the price of housing has been affected—low cost rentals have stayed the same, but the price of high-quality rentals has gone up. It has been suggested that the immigrant wave has increased the demand for better and safer neighborhoods, especially among the natives.
But short-term effects are not the same as long term ones. When we look at migration patterns in the animal world, an influx of new species can seem to overwhelm an ecosystem. But after the area adjusts, it usually becomes much more dynamic—supporting more species and more productivity. That is, if the new residents aren’t too disruptive. It’s possible for invasive species to displace the native residents. Then diversity and production go down.
That’s the issue with Syrian refugees right now. The short-term economic effects are real, and they are governed by issues of supply and demand. The refugees will put downward pressure on wages and prices, intensifying a deflationary problem that’s already plaguing Europe. In many ways, it’s similar to the US in the late 19th century, when increased immigration exacerbated our own deflationary issues. Then, as now, resentment against immigrants was greatest among those most directly affected.
But short-term effects are different than long-term effects. Increased competition is good for an economy—it forces firms to be more efficient and to improve the services that they offer. It also offers more opportunities for specialization—something that almost always improves productivity and wages.
The world has seen mass immigrations before, and we’ve adjusted. In many ways, Germany is best situated to absorb the greatest number of immigrants right now. They have the strongest economy in Europe, with unemployment around 4.5%–the lowest it has ever been. In the long run, this will make their economy stronger and more diverse. They just need to remember: you have to get through the short run, to get to the long run.
Douglas R. Tengdin, CFA
Chief Investment Officer