Introduction
Europe has received an influx of migrants since 1990, both legal and illegal. Most of these migrants consist of asylum seekers, refugees from war-stricken countries such as Syria, and economic migrants who cross the Mediterranean from Africa and other European countries (Razin and Wahba, 2011). Bierbach reports that in 2019 alone, 120,000 irregular migrants and refugees entered Europe, a slight drop from the previous year (2019). The countries that receive the most migrants are Greece (with the highest in 2019), Italy, Spain, and Germany (Bierbach, 2019).
There has been a lot of debate on the socio-economic effects of migrants on the host country, with many claiming that migrants burden the economy. Counter-arguments have risen over time, claiming that it is difficult to conclude that migrants are a burden to the state without looking at their net contribution, especially for those in employment and those running businesses (Sadka and Suwankiri, 2011). The impacts of migrants on state welfare depend on whether the migration policy allows free-migration or adopts restricted-migration-policy. There have been arguments that the state's welfare stability cannot be supported within a country with a free-migration policy. This paper seeks to highlight the economic impact of migrants on the host country, focusing on the welfare of the state. It will describe free-migration policy versus restricted-migration policy, discuss whether migrants are net contributors or a burden to the state, and highlight critical economic impacts of migrants on the host country.
Free Migration Policy versus Restricted Migration Policy
There are two categories of migrants based on their net economic contribution; high-skills and low-skills workers (Guerreiro et al., 2020). These two groups of migrants significantly impact the state's welfare based on their net contribution to the gross domestic product and the magnitude of state support provided to them. Guerreiro et al. argue that most European countries' contemporary migration policies align towards an optimal redistributive welfare system and provision of public commodities (2020). This means that both the native population and the migrants cannot be excluded from the state's welfare systems. The approach that has been adopted is to have the native population receive the highest percentage in the welfare distribution. Consequently, the native population remains at an advantage over the migrants, solving the fear of reduced welfare provision with an increased number of migrants applying requirements through the state welfare system.
In the cases where a country has free immigration policy, there are possibilities of the migrants overburdening the welfare state system in the long run (Guerreiro et al., 2020). The influx of migrants in Europe has brought in both skilled and unskilled persons. The net production and contribution of the migrants to a country's economy depends on their ability to find jobs, establish businesses, or even offer employment opportunities to other groups. The low-skilled migrants are highly dependent on the skilled migrants for economic support and overly on government support programs in the host country. In such instances, the country will be overburdened unless an optimal redistributive welfare system policy is implemented. Guerreiro et al. propose a system where the government charges different taxation rates between the native citizens and the migrants (2020). Therefore, the skilled and working migrant population incurs higher taxation, which would later cover their provision in the welfare state system.
Migrants as Net Contributors or Burden to the State
The debate on the effect of migrants in Europe has led to two factions with different opinions. The fear for the opponents of migrants is that migrants cause a drop in the labor income of the native citizens (Guerreiro et al., 2020). Guerreiro et al. further indicate that the falling revenue is often outweighed by the net results from the contribution of the migrants in the labor market and business enterprise (2020). Its native citizens have blamed governments in Europe for allowing migrants to compete for jobs that would otherwise be reserved for the native population. The argument that surplus migrants burden the welfare system has been disputed by some researchers who have found that the net contribution of the skilled migrants outweighs that being claimed through the welfare system as retirement benefits (Guerreiro et al., 2020).
In the article, Hard Evidence: are migrants draining the welfare system? Vargus-Silva reports that 2013 data from the UK Department for Work and Pensions show an increased number of migrants applying for working-age benefits (2013). This resulted in a significant debate on whether the government should accept migrants to access services from the welfare state and how sustainable that would be to the country's economy. The opponents of this program argue that individuals who were not initially in the welfare state system at registration of National Insurance Number and are not native British citizens would burden the government (Vargas-Silva, 2013). It is reported that there was an increase in migrants applying for welfare state from 12,610 in 2008 to 49,720 in 2012 (Vargas-Silva, 2013). This led to uproar from the public and political class, who argued that this move would burden the state and the native citizens.
The calculation on the difference between the taxes and other contributions in the labor market, of migrants to the public finances and the cost of the public benefits and services received by migrants indicate that there is much gained from migrants in their net contribution (Vargas-Silva, 2013). High-skilled and formally-employed migrants positively contribute to the public finances through the high taxes levied on their income. Vargas-Silva further states that the net contribution by the A9 workers to the UK public finances is positive, even though there is a high concentration of them in the low-skilled employment (2013). Based on these findings, it is inarguable that the contribution of migrants to the public finances outweighs the expected expenditures of their support in the welfare state system.
Taxes, Pensions, and Impact on Welfare System
The industrialized European countries such as Germany, UK, and France have the highest influx of migrants who allegedly burden their economic welfares. This argument has been held that migrants pay lower taxes than native citizens, whereas they have more benefits in the welfare system. Research has indicated more fiscal benefits from migrants than the actual expenses on their welfare benefits (Federal Office for Migration and Refugees, 2005). This is supported by the fact that migrants contribute immensely to the host country's GDP through its labor market and macro-economic markets. This gives a positive net contribution through the taxation of the migrants in the different economic sectors.
The Germany Federal Office for Migration and Refugees research report on The Impact of Immigration on Germany's Society reported that by 2005, migrants contributed a lot to the country's GDP, with a growth rate of 1.3 percent (2005). The figures were determined using macro-data from employment, income rates across different groups, national budget and government expenditures, and various socio-economic sectors that impact the GDP. The contributions are derived from the taxation levied on the migrants within the different economic sectors, including business enterprises. The report also indicates that immigrants who had lived and worked in Germany for more than 25 years contributed more to the welfare system than they were benefiting from it (Germany Federal Office for Migration and Refugees). This is a clear indication that their contribution to the care insurance and pension system was higher, with a prolonged stay in the host country.
Migrants and Labour Market
The other approach to explaining the highly-skilled and low-skilled migrants' positive contribution to industrialized European countries' economy is to look at the rising dependency ratios. DeVoretz argued that Germany's aging population was steadily increasing, leading to an increase in the dependency ratio (2004). The argument is that immigrants can provide the required labor force in running the various economic sectors. The opponents of this approach indicate that the migrants aging population eventually increase over time. Their dependency ratio goes high, and consequently, ineffective in solving Germany's working population (DeVoretz, 2004). However, looking at the net contribution through high taxation on highly skilled migrants seems to outweigh the risks of their benefits from the state welfare system.
There exist fears that migrants compete for employment opportunities with the native population, which eventually reduces the natives' wage income. Germany's Federal Office for Migration and Refugees indicates that the labor market policy is rigid on wages, solving the possible reduction in the wages (2005). The natives in the Industrialized European countries show a higher education level, employable skills, and technological advantage that leaves them for white-collar and high paying job opportunities. The migrants have been reported to concentrate on the low-skilled labor markets mainly.
Role of Migrants in Manufacturing and Processing Sector: The Case of Highly Qualified Migrants
Researches and theoretical explanations such as the New Growth Theory argue that the impact of migrants to a country's welfare system should be determined based on their economic contribution in all economic sectors in correlation to the magnitude of their claims for aged workers' benefits. Highly qualified migrants have been reported to ignite the host countries' financial sectors, owing to their need to succeed to not go back to their countries of origin (Federal Office for Migration and Refugees, 2005). The high skill led to increased capital growth, especially in the production and manufacturing sector. The government draws benefits to this group of migrants through taxation. Capital income from the net production of goods and services sold internally or exported outweighs the migrants' benefits from the welfare system (Saxenian, 2002).
Role of migrants in Business as Ethnic Entrepreneurs
Migrants have limited access to loaning services from banks, especially in their initial years of entry. There are many restrictions on migrants accessing financial assistance from lending institutions based on the requirements set for loan access. The European Commission notes that challenges in finding professional networks, lack of credit history, lack of protected legal status, and unfamiliarity with administrative and legal requirements hinder ease of access to immigrants' loaning facilities (2019). Those who have their capital investment have created their business enterprises that even employ the native population.
Migrants who have stayed in the host country have been reported to start their businesses and offer self-employment to their families, the immigrant community, and the native population. This creates their jobs and makes the social networks that help them navigate access to other services ("Financial Blending Facilities for Cities, Migrants, and Refugees - FUTURIUM - European Commission," 2019). The Economist argued that immigrants' enterprises could offer goods and services not available to native entrepreneurs, such as export goods from their country of origin (2002).
