The dilemma of integration – the refugee crisis and its distributional consequences

The massive migration of refugees to Germany has important consequences for the income distribution which can roughly be divided into two, possibly three, phases: At first, immediately after their arrival, when the refugees live in shelters and are taken care of by the government, there will be no pronounced distributional effects. Afterwards, when the refugees enter the labour market as suppliers of unskilled, poorly-paid labour and the housing market as demanders for cheap apartments, the income distribution will become more unequal because the native unskilled workers tend to suffer from decreasing wages and increasing rents whereas the owners of capital and the suppliers of skilled, well-paid labour stand to gain. Thus, a “dilemma of integration” results: The better and the quicker integration proceeds, the more unequal the income distribution will become. Eventually, there might – but by no means need – be a third phase, if the qualification of (native or immigrant) unskilled workers is improved, the capital stock is increased and the wages of low income earners rise again. Then, and only then, will the income distribution become more equal again. © 2017, List-Gesellschaft e.V.