The European refugee crisis and the natural rate of output

ABSTRACT

The European Commission follows a harmonized approach for calculating structural (potential) output for EU member states that takes into account labour as an important ingredient. This article shows how the recent huge migrants’ inflow to Europe affects trend output. Due to the fact that the immigrants immediately increase the working population but effectively do not enter the labour market, we illustrate that the potential output is potentially upward biased without any corrections. Taking Germany as an example, we find that the average medium-term potential growth rate is lower if the migration flow is modelled adequately compared to results based on the unadjusted European Commission procedure.

KEYWORDS:

• Migration
• refugee crisis
• natural rate of output
• filtering
• EU Commission

JEL CLASSIFICATION:

• F22
• J11
• J61

Acknowledgements

We thank the team of the German Joint Forecast in April 2016 for their comments and suggestions.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ De Haas (2010) gives an overview of theories on migration and development.

² See Havik et al. (2014) for detailed exposition of the approach.

³ This is based on the assumption that in 2016, about 500,000 and in 2017, about 300,000 people will request asylum in Germany.

⁴ Note that we do not refer to the European Commission projections for potential output, as we are using more detailed data for Germany from the German Statistical Office.