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How immigration supports the welfare state

June 19, 2015
  • A 2014 study sponsored by the Bertelsmann Foundation found the welfare state's coffers have been boosted, not depleted, by immigration to Germany
  • According to the study, in 2012 revenue from foreign citizens without passports exceed the state support they received by €3,300 per capita
  • However, to contribute more, immigrants may need quicker and better integration
  • High levels of unemployment amongst foreigners are to blame: in 2012, unemployment amongst foreigners was 16.5%, compared to 5.7% of Germans

Heidar N. has first-hand experience of the suspicion with which foreigners are regarded. "People thought I was just a useless refugee. I was on the verge of giving up." 

Two and a half years ago, Heidar fled to Germany from the ruins of Afghanistan, along with his gravely ill mother. He has had to battle with the authorities' mistrust and fight more than his fair share of prejudice; he's been accused of only coming to Germany so that his mother could receive free healthcare. 

All of this has made a lasting impression on Heidar, now 21 years old. Neither he nor his mother were ultimately granted asylum. However, they're seen as refugees from a legal perspective, and are allowed to stay – and finally to work. 

Heidar didn't give up. He was lucky, he says, that he met the right people – for example, in Munich's SchlaU school, which offers youngrefugees classes similar to those offered in a “regular” school. He's currently cramming for his German senior secondary school qualification, or Realschulabschluss, and he has an impressive target in his sights: "I want to work, I want to give back the money that society has invested in me, and I want to live a normal life."

Sentences like these – which he utters in fluent German, by the way – should nip in the bud any thoughts that he might be a benefits scrounger. But even in light of cases like Heidar’s, the fear of being swamped by foreigners persists for many, as well as the suggestion that migrants are taking jobs away from "local" residents.

"There's a fundamental flaw in the reasoning behind this. What most people fail to realize is that shares of the labor market aren't fixed: migrants can help increase the size of the whole cake," says Holger Bonin from the Center for European Economic Research (ZEW) in Mannheim. So, are immigrants more of a blessing than a curse for the welfare state? 

This infographic illustrates both the challenges and the opportunities that immigration presents for the EU, and specifically Germany.
This infographic illustrates both the challenges and the opportunities that immigration presents for the EU, and specifically Germany.

Bonin has shaken up current debates around whether immigrants are beneficial or detrimental. The economist was commissioned by the Bertelsmann Foundation to research the fiscal contribution immigrants make to the national budget. The finding of his 2014 study: the welfare state's coffers have been boosted, not depleted, by immigration to Germany. He looked at 2012, which saw revenue from foreign citizens without passports exceed the state support they received by €3,300 per capita. 

However, in his study, Bonin issued a plea: migrants, and particularly their children, need to be integrated and educated, quicker and better. After all, he points out, Germans continue to pay in four times as much per capita as the average immigrant overall. The high levels of unemployment amongst foreigners are to blame for this. In 2012, unemployment for this group was at 16.5%, compared to only 5.7% of Germans who were unemployed in the same year. So, there is an urgent need for action in terms of education.

"If we can manage to turn a poorly qualified immigrant into an immigrant with medium-level qualifications, they will pay more into the system. If we do nothing at all, there's no doubt that the end result will be a negative," says Bonin.

The migrant population ultimately did particularly well in the study as a result of its age distribution. The migrant population is, on average, much younger than the German population, meaning that immigrants living in Germany are making a long-term contribution in terms of supporting the increasing numbers of elderly people. 

There's a good chance that migrants will continue to have an increasingly positive influence on state finances. By the time of the economic crisis at the latest, Germany had become a magnet for people seeking employment. According to information from the OECD, Germany took second place in a list, published in 2012, of the most popular countries for immigrants, hot on the heels of the USA. In 2009, Germany was further down the leaderboard, in 8th place. 

This meant that new arrivals are becoming better qualified, and, if you want to use Bonin's reasoning, the net gains for the public purse and social security systems are also likely to increase. 

There is also positive news from an entrepreneurial perspective. According to the German development bank KfW, every fifth company founded over the past few years was set up by immigrants. "Since they are more likely to pursue self-employment and create jobs in the process, migrants play a key role in Germany's entrepreneurial landscape," commented KfW. The most recent wave of immigration, however, is also linked to the geopolitical situation. The number of people applying for asylum has grown considerably over recent years. Net immigration rose to 437,000 in 2013, reaching its highest level for 20 years. 

From an international perspective, the balance in Germany between the taxes received from, and payments made to, immigrants is positive, says author Bonin, even if it's hard to compare countries because welfare systems vary, sometimes considerably. This calculation becomes even more tricky if you include asylum seekers. In the first six months of 2015 alone, the number of applications for asylum in Germany was more than twice that experienced the year before, with 100,755 applications submitted. Around 21,000 of the asylum seekers came from Syria alone. 

"From a fiscal, economic perspective, asylum seekers don't represent the ideal immigrant structure. But they don't have to either," suggests Bonin. Asylum focuses on humanitarian reasons, not economic ones. Despite this, asylum seekers are often dragged into the debate, not least "because you can also find economically motivated immigrants in the asylum channel," as Bonin describes. 

But fencing off this group of "black sheep" would be near-impossible. The global wealth gap is simply too wide for that. Rich countries will come under increasing pressure. Instead of erecting fences at their borders, as Hungary has now threatened, they need to have a rethink – both socially and from an integration perspective. 

Bonin is firmly convinced of this: "These people want to work as well. Their aim isn't to line their pockets with welfare handouts – they're here to secure jobs. It's better to take on a menial job than not work at all." 

The main stumbling block both for people seeking employment and for employers is uncertainty. To date, asylum proceedings have simply gone on too long, with an average duration of 7.1 months. This figure puts Germany bottom of the EU table in terms of processing applications for asylum, according to another recent study by the Bertelsmann Foundation. 

In order to ensure that refugees can secure employment quicker, the authors of the study, entitled "Integrating refugees into Germany's labor market" ("Die Arbeitsmarktintegration von Flüchtlingen in Deutschland"), recommend hiring more people to process applications, offering asylum seekers German lessons even whilst their application is being processed, and assessing refugees' skills as early on in the process as possible.

Heidar's dream of having a job has finally come true. One day after his final oral exam, he's going to start training to be an industrial system planner. Heidar was impressed by the attitude of his future employer. "In the interview they told me that if you really want something, you can make it happen." 

Michael Grimm

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