Should Germany Have Built a New Wall? Macroeconomic Lessons from the 2015-18 Refugee Wave

BY Christopher Busch, Dirk Krueger, Alexander Ludwig, Irina Popova and Zainab Iftikhar

http://d.repec.org/n?u=RePEc:hka:wpaper:2020-020&r=dge

In 2015-2016 Germany experienced a wave of predominantly low-skilled refugee immigration. We evaluate its macroeconomic and distributional effects using a quantitative overlapping generations model calibrated using German micro data to replicate education and productivity differentials between foreign born and native workers. Workers are modelled as imperfect substitutes in aggregate production leading to endogenous wage differentials. We simulate the dynamic effects of this refugee wave, with specific focus on the welfare impact on low skilled natives. Our results indicate that the small losses this group suffers can be compensated by welfare gains of other parts of the native population.

This paper addresses a question that is delicate yet needs to be answered: What are the consequences of an influx of refugees. And once more, it shows that the outcome is generally positive on the economic side. And as long losers are compensated and socio-ethnographic concerns are addressed, a wave of refugees should be fine.

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