Often when discussing refugees, the conversation frames things as though it is a burden and a cost to the host society. A recent study, from NC State, suggests that European countries that allocate resources towards infrastructure and other capital enhancements are poised to witness long-term improvements in their gross domestic product (GDP) as a result of the influx of Ukrainian refugees across the continent.

Nevertheless, it is important to acknowledge that countries receiving these refugees are likely to encounter substantial short-term financial burdens.

“The economic impact of the Ukrainian refugee crisis across Europe will vary significantly, depending on which part of the workforce you look at,” the authors explain.

“It’s important for us to understand these potential impacts so that governments and industries can make informed decisions about policies and investments in the face of an ongoing humanitarian crisis. Ideally, studies like this one can help to minimize social disruption and ultimately improve long-term outcomes for both refugees and the countries providing them with refuge.”

Long-term impact

At the onset of their study, the number of Ukrainian refugees had surpassed 7 million due to the invasion of Ukraine by Russian forces, and this figure has since escalated to over 8 million. Among these refugees, more than 4 million were of working age and predominantly dispersed throughout Europe.

To gauge the economic ramifications of the Ukrainian refugee influx, the researchers embarked on a comprehensive data collection endeavor drawing from various sources. The 2018-19 European Labor Force Survey furnished data on labor market skills and employment status, while production and trade data were sourced from the latest World Input-Output Database. Pertinent information regarding the skill sets, age demographics, employment status, and destinations of Ukrainian refugees was obtained from the United Nations High Commissioner for Refugees.

Utilizing this data, the researchers conducted an empirical analysis guided by a theoretical model. Their aim was to examine the impact of Ukrainian refugees on production, international trade, and migration patterns across 23 European Union member countries.

The model also allowed for an evaluation of the influence on household consumption, serving as an indicator of the welfare of residents in these 23 nations. Moreover, the researchers employed the model to assess the effects of different levels of capital investment on these aforementioned outcomes.

Distinct impact

The findings of the study revealed distinct impacts on three segments of the workforce: low-skill labor, high-skill labor, and capital owners.

“Low-skill workers largely benefit in the short term because most of the refugees from Ukraine are high-skill workers,” the researchers explain. “The refugees are not competing with low-skill workers, they’re effectively complimenting them and making them more productive.”

Similarly, in the short term, high-skill workers may not reap immediate benefits as Ukrainian refugees are likely to vie for high-skill employment opportunities. However, it is important to note that this scenario does not necessarily hold true in the long run.

“Owners of capital benefit in the short and long term,” the authors continue. “In the short term, this is because there is increased competition for high-skill labor, and increased access to high-skill labor means there is increased demand for capital. If you own the capital, you benefit from this. What’s more, if you see increased production in the long term, you benefit from that too.”

Capital investment

The long-term impact of Ukrainian refugees on the GDP of individual countries hinges significantly on their ability to make substantial investments in capital structures. These capital structures encompass elements beyond labor that impact production, encompassing infrastructure, manufacturing equipment, and related factors.

Countries that can secure investments in such capital structures from both government and private sectors will be better positioned to leverage their augmented access to high-skill labor.

“If a country does see investment in capital structures, and there is a resulting increase in production, that will benefit the high-skill labor in that country,” the authors conclude. “In which case, you will effectively see benefits across the workforce from the presence of Ukrainian refugees.”