Why economics can prevent Europe’s refugee crisis from becoming even worse

Emotions are running high over the refugee crisis, with heart-breaking images arousing waves of compassion across Europe. As ever, however, economics lurks in the background. The tragic stories of refugees coming to Europe rightly elicit a call to help those in need, but we must understand the underlying realities to truly do something about this crisis.

We can contrast the general composition of the refugees fleeing Syria and those already encamped at Calais, for example. The Syrians are mainly family groups, whereas in Calais young men predominate. Incentives help explain their choices of destination. As they trail across Eastern Europe, the Syrians chant “Germany!” At Calais, however, everyone wants to get into the UK. The political situation is highly fluid, but Germany has had a policy of open borders for such refugees. Other European countries are less easy to get into.

Many of those in Calais speak fluent English and have high skill levels. They would make a much more positive contribution to this country than, say, relatives imported from the poorest parts of Pakistan and Bangladesh. Their families have invested large amounts of money in their journeys, made with the specific purpose of getting into the UK. The lighter regulatory burden imposed on the British labour market than in much of the rest of the EU is in many ways a great strength. But it does mean that it is much easier to work illegally here. In theory, employers can be prosecuted for employing illegal immigrants, but in practice this doesn’t always happen. Skilled young people can thrive, which is why they want to come – not to sponge off our benefits, but to work.

Incentives feature strongly in the highly emotive issue of the boat crossings too. Since the EU took the decision to rescue the boats, the numbers crossing have soared. The demand has increased after an important component of the price of the voyage, that of the chances of being turned back, has fallen sharply. But the consequences of this misguided liberalism have been to place more lives at risk. Indeed, there is increasing evidence that the so-called boat captains are now not even bothering to get on board themselves. They simply take their large fees and let the refugees steer as best they can. After all, why put your own time and effort into a task when the EU will, or least purport to, do it for you? So the crossings have become even more dangerous.

The role of incentives is misunderstood and so, too, is the most fundamental feature of economics – the allocation of scarce resources. “Saint” Bob Geldof may be able to accommodate refugees in his large underutilised homes, but for local authorities there is a real trade-off. Every refugee housed is a person already on the waiting list who has to stay on it. Not just that, but they tend to be allocated to the poorer parts of the country where property is cheap. Simon Danczuk, the leading Labour moderate, points out that his Rochdale constituency has already been made to accept more asylum seekers than the whole of the South East of England.

Economics may often seem harsh, but keeping its principles in mind can avoid outcomes being even worse.

Paul Ormerod

As published in City AM on Wednesday 8th September 2015

Image: Un jove de Kobane (Síria) refugiat a la frontera turca. by Jordi Bernabeu Farrús is licensed under CC BY 2.0.

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