This paper examines the long-term effects of immigration and integration policies on refugees’ labor market outcomes in Denmark. The analysis is based on a review of 17 empirical studies.
More than 155,000 individuals were granted protection in Denmark between 1984 and 2019, with numbers peaking in 1992–93 and 2014–16. This inflow was due to conflicts in the former Yugoslavia and Syria, respectively. On average, the employment rate for refugees increases rapidly during the first seven years of residency in Denmark, after which it increases only gradually and then plateaus. The employment rate for refugees is substantially lower than the corresponding rate for natives and other immigrants, especially in the initial years of residency in Denmark. While this gap narrows over time, even after 30 years the employment rate for refugees remains about 10 percentage points lower than the rate for other immigrants and about 25 percentage points lower than the rate for natives. There are substantial differences in the evolution of employment for different arrival cohorts, depending on the refugee policies at the time of their arrival in Denmark.
The authors consider the effects of five types of policies: (i) dispersal policies for newly admitted refugees aimed at spreading the burden of accommodating refugees evenly across the country, exposing refugees to different local conditions; (ii) employment support policies; (iii) integration and language programs; (iv) reductions in welfare benefit transfers, with the objective of incentivizing the labor market participation of refugees; and (v) policies that set out conditions for permanent residency.
Main conclusions:
- Settlement of refugees oriented according to economic opportunity is preferable to quasi-random dispersal policies. Refugees benefit from being allocated to municipalities that provides them with large ethnic networks and better labor market conditions. Refugees’ earnings are higher in the long term if they can settle in bigger cities which offer employment opportunities in high-wage industries. Quasi-random dispersal may induce inefficiencies, by preventing refugees from settling in areas where their skills are most employable and obtain the highest reward. Policies that allocate refugees according to the availability of cheap housing—often correlated with local disadvantage—may lead to long-term disadvantages for refugees.
- Employment support, particularly in the form of subsidized employment, can be beneficial to refugees. Settlement according to economic conditions can enhance the efficiency of policies aimed at incentivizing refugees’ labor market performance.
- Programs aimed at enhancing the skills of refugees and adapting existing skill sets to the needs of the labor market are effective and important. On-the-job training raises employment of refugees, and job training administered early on can speed up entry into the labor market. Language programs enhance employment probabilities, although effects are found to materialize only in the long term. However, there is some evidence of a trade-off between job training programs and language programs, where early job training crowds out enrolment in language training and therefore language proficiency. This in turn may have detrimental effects in the longer run.
- Reductions in welfare transfers are unlikely to achieve the objective of better longer-term integration of refugees into the labor market. In the short-term, reductions in welfare benefits cause a short-term increase in employment probabilities, mainly for male refugees. However, short-term responses do not carry over into the longer run and cease after 5 years. Moreover, the dramatic reduction in disposable income for affected households has many undesirable side effects, including increases in criminal activity.
- Policies that increase conditions for permanent residency should be carefully crafted and take account of the heterogeneous responses of individuals. More demanding permanent residency requirements (e.g., language tests and employment experience) can potentially provide incentives to integrate, motivating refugees to invest in their skills to qualify for permanent residency. However, this requires that individuals believe they can fulfil the new requirements without incurring large costs. Otherwise, more onerous requirements can lead to poorer labor market outcomes.
Overall, of the five types of refugee policies evaluated in this study, only two produce effects that on average seem to outweigh costs: allowing refugees to choose where to settle, and active labor market programs that raise language skill investments. By contrast, policies that emphasize early job-training and policies that regulate access to welfare benefit or use permanence of residence to incentivize skill investment, while beneficial for some, create disadvantage for others.