Germany needs to up its game if it wants to integrate a million refugees

The influx of about 1 million refugees into Germany in 2015 has created a tense political atmosphere. The constant arrival of new refugees has had a polarising effect: on the one hand, an unprecedented number of volunteers have mobilised German civil society in impressive ways. Thousands of volunteers not only help out by organising language training, childcare and accompanying refugees to local authorities, but also by taking on tasks that are clearly the responsibility of the state. They help to find accommodation, organise first aid and catering, and even put refugees up in their private homes. On the other hand, the number of right-wing attacks against foreigners is on the rise. Refugee homes have been burnt, demonstrations organized by groups that are allegedly concerned about the “Islamisation of the west” are becoming increasingly aggressive towards politicians, and journalists and many daily newspapers have disabled online comments for articles on refugees, as too many comments have turned nasty and racist.

At Angela Merkel’s Christian Democratic Union party conference this week, many observers expected a clash between Merkel and the delegates over the maximum number of refugees allowed into Germany. For weeks, public discourse has centered on the question of how Germany can cope with large amounts of refugees, and whether there is a limit to Germany’s capacity to integrate them. The chancellor insisted that no such limit was conceivable, given the general right to asylum, while her party peers countered that many local authorities are on the brink of a breakdown as a result of the large quantities of asylum seekers. In the end, the party leadership managed to find a compromise which avoided the term “limit” but promised a significant reduction in refugees next year. What, then, is Germany’s capacity for coping with refugees really?

As a rich country, Germany’s capacity to embrace a large number of refugees is considerable. Estimates by the Leibniz Institute for Economic Research (Ifo) put public spending for refugees in 2015 alone at more than 20 billion Euros. Some observers praise this as a fiscal stimulus for the German economy. Economists at the German Institute for Economic Research (DIW) forecast further growth due to inward migration after initial additional spending for the next 5-10 years. In the context of low unemployment rates and an increasing labour shortage, many observers predict that refugees will in fact help Germany cope with demographic change.

However, there are two glitches associated with this view. While inward migration and additional public spending almost automatically feed into economic growth, the question remains whether this is a good way of expanding the economy. Public spending on tents, security firms, overpriced hostels and private landlords translates as money that is not spent on schools, early childcare or infrastructure. The government insists on balancing the budget and is forcing regional and local governments to do the same. Local authorities are heavily in debt and under constant pressure to cut costs. Decades of underinvestment in technology, infrastructure and education have, of course, compounded the situation – a sentiment that is now shared by most (if not all) mainstream economists.

A closer look reveals that the German economy is less prepared for the mammoth task of integration than many others in the OECD. This is indicated by two developments: the comparatively low levels of public spending on education and the segmentation of the labour market.

Firstly, integration of immigrants requires high levels of investment in public services, particularly in the areas of childcare, education and active labour market policies. While public spending in Germany is roughly the same as the OECD average, most of its spending is not geared towards the policy fields that need it most. For instance, public spending on childcare and early education services in Germany is far below the OECD average (0.5% of the GDP, compared to the OECD average of 0.8% in 2011). Even the expenditure per child is just above the OECD average, despite the rapid decline in the number of children in Germany. This was also the case for spending on education in general. In 2011, Germany spent 2% on primary and lower secondary education, whereas the OECD average was 2.5%; 1% on upper secondary education (OECD average: 1.2%) and 1.3% on tertiary education (OECD average: 1.6%).  As a result of this, combined with the aforementioned lack of investment, Germany does not fare well in terms of social mobility and educational achievement. Among twenty-three OECD countries, Germany ranked 22nd in terms of upward educational mobility (OECD 2014). More than in other OECD countries, children’s success at school depends on parental support, and educational accomplishment is highly correlated with parents’ qualifications. Moreover, there is still no system of full-day schooling or well-funded after-school activities.

Secondly, German society has a stratified labour market – which is masked only by the recent success of near full employment. The apprenticeship system helps to maintain low levels of youth unemployment, and young people are not as excluded from the labour market as those in many other countries. The apprenticeship system facilitates a good school-to-work transition, but at the same time discriminates against foreign qualifications, as employers insist on specific in-house training rather than general training certifications. Therefore, migrants have a hard time competing in the labour market and are consequently less integrated than migrants in other immigration countries such as Canada and Australia. There is a sizeable gap in unemployment rates between the native- and foreign-born workforce in Germany. While employers are currently on the hunt for young recruits, especially now that demographic changes have started kicking in, this is no indication that they are prepared to make huge investments in language and technical training.  Public spending on skills training has declined by 41% (to 6.1 billion Euros) between 1995 and 2012. This affects the unskilled workforce and labour market outsiders in particular (Bertelsmann Stiftung 2015).

It is, however, possible to turn the refugee crisis into a success story. Germany needs a generation of young people and most refugees, at first glance, fit the bill. Unfortunately, the potential remains untapped and undeveloped, as the government has been dealing with the refugees in the same incremental and haphazard way that was used to deal with similar problems in the past. Germany will only be able to turn the refugee crisis into an opportunity if the federal government ups its game with regard to public investment in general, and educational programmes in particular. Local authorities must be equipped with resources to meet the public service demands by the local population and must be supported in providing housing and catering for large numbers of refugees. Long-standing problems created by fiscal federalism and the quest for a balanced budget must also be overcome by a new approach.

Social partnerships between employers and trade unions in vocational training should also focus on the educational and training needs of young refugees and will require public support for training programmes. Germany needs a skilled workforce, meaning that low-wage employment is not the best solution for low-skilled refugees. Instead, training and upskilling should be prioritised, both at the vocational and tertiary levels. For this, a shift in spending priorities towards education at all levels is essential.

When compared with Angela Merkel’s bold decision to welcome a million refugees in one year, the resulting policy responses have, so far, been too timid. We need bold policy initiatives that match our Chancellor’s statement and equally prioritise public investment, education and labour market programmes if we want to turn this crisis into an opportunity.

References:

Bertelsmann Stiftung (2015): Öffentliche Finanzierung der Weiterbildung sinkt – zu Lasten Geringqualifizierter und atypisch Beschäftigter.

OECD (2014): Education at a Glance 2014. Country Note Germany. Paris