Golden Opportunity – The Refugee Crisis’s Economic Potential for Germany

Last fall at the 2015 Frankfurt Auto Show, Dr. Dieter Zetsche, Chairman of the Board at Daimler AG, Head of Mercedes-Benz, and recipient of the 2015 Global Leadership Award abruptly interrupted his speech on the future of automobiles to discuss a more pressing current issue: the hundreds of thousands of displaced refugees arriving in Germany from war-torn Syria. Of the crisis, Dr. Zetsche said, “Some people believe that immigration endangers a country’s future perspective. I am convinced that the opposite is the case.” This unexpected yet necessary dialogue from the head of Daimler and Mercedes-Benz was quickly picked up by several German businesses. This dialogue adds to the continuing debate on the impact of asylum seekers on the German economy. The discussion shouldn’t focus on whether the refugees will make an impact, but rather on when and how Germany can position them for success.

Germany was not prepared for the astronomical influx of asylum seekers, making their integration into German society difficult both culturally and economically. With many unemployed migrants, the strain on the social welfare system is growing. There is no quick fix solution, but rather a lengthy process that will involve patience and an increased budget to account for this crisis. However, the German budget surplus will rise from 0.3 percent to 0.6 percent due to the extra spending by and on the migrants—spending that is actually stimulating internal demand in Germany. The sustainability and to what extent refugees will be able to make contributions to the German welfare state will depend on several factors, including if the German government makes access to the labor market easier. The ease of access to the labor market could mean the increase in employment levels, and more taxes paid.

This refugee crisis is uniquely interesting because it has the potential to be the catalyst for the next economic miracle given Germany’s current demographics: only 36 percent of the entire population is under the age of 35. Compare this with the refugee population: 80 percent is under the age of 35. With the current level of immigration from EU countries at 300,000, and expected to reduce to just 70,000 per year by 2050, economists argue that there is no getting around immigration from outside of Europe to counteract Germany’s labor ailments. Germany can take advantage of this influx of millennials to overcome its existing demographic challenges of low birthrates, rapid aging, and shrinking population. In Germany’s case the literature on labor immigration is problematic because it makes the generalization that refugees for the most part are not highly skilled. In reality, refugees coming to Germany, the majority of them from Syria, have an economic background as diverse as the German population.

Germany’s reaction to the refugee crisis, specifically accepting them with open arms, has silenced the critics who argue that Germany is still afraid to take on an important leadership role. From here on, both the business community and the government need to play a more hands-on role so that these refugees can eventually benefit the long-term sustainability of Germany’s economic welfare. Dr. Zetsche’s comment about incorporating the incoming refugees is an important step because the business community desperately needs workers to fill the gaps in the workforce. Willingness to adapt is evident, as demonstrated by Siemens AG, which has incorporated refugees into the workforce through its apprentice program. Germany’s dual education system is an effective training system in which trainees split their time between classroom instruction at a vocational school and on the job time, which has attributed to the country’s low youth unemployment. Subsequently, this system is an important mechanism that can jump start the refugees’ successful transition into the work force.

The second aspect of creating polices and setting up procedures in order for this crisis to benefit Germany’s future will be determined by how proactive German lawmakers are in providing support. Obviously it is impossible to integrate the surge of refugees coming into Germany at an alarming rate, so the issue of regulating the influx needs to be discussed. If policymakers don’t stress the importance of investing in education and training programs to the business community, Germany will be confronted not only with the burden of providing for the refugees, but also with instability of the social security system in the long term. A source of optimism for Germany is that it has dealt with issues of integrating refugees before successfully, as in the 1990s, when Germany absorbed 300,000 refugees from the Balkans with much lower skill levels.

German chancellor Angela Merkel understands the importance and moral imperative of giving refugees arriving to Germany a second chance. Success will not be automatic in integrating this population into the economy. Germany knows the difficulties of integrating refugees as well as the economic risks of ignoring this population. However, as the strongest and biggest economy in Europe, the strength of the German economy allows it to take on this long-term project, a project that has realistic potential to save the welfare state in the future. Although Germany has economic stability now, the aging workforce is slowly starting to produce strains on the economy and social security. A weaker Germany could not only create domestic problems, but also affect the status quo both in Europe and globally. The solutions Germany finds now will determine its future outlook.

The views expressed are those of the author(s) alone. They do not necessarily reflect the views of the American-German Institute.