German Workers, Thank Refugees When Your Paychecks Are Growing

(Bloomberg) -- The arrival of more than a million refugees in Germany in recent years nearly tore apart the government. It’s also a reason why the country’s workers could soon be taking home more pay.

Even if the influx of mostly young workers is likely to be a drag on gross wage growth as competition in the labor market increases, net pay might still rise, according to Oxford Economics’ Daniel Harenberg. His research shows that more overall contributions to Germany’s social insurance system gives the government room to keep individual burdens lower.

The additional increase in net pay, compared to a scenario without refugees, could reach 0.5 percent by 2025 and accelerate to 2.5 percent by 2055, Harenberg’s calculations show. He predicts wages will rise around 3 percent a year through 2050.

While the impact of migration on overall growth in compensation is small -- the existing scarcity of labor will already do a lot to push up wages -- the argument shows that, despite populist warnings, an overwhelming majority of Germans is set to benefit economically from an expansion of the workforce. Unemployment insurance contributions are set to fall next year as companies keep hiring and joblessness declines.

To accommodate workers who will be crowded out by increased competition, Harenberg suggests the government could redistribute some of the gains from its improved finances, for instance by reducing taxes for low-income earners.

“Immigration is an important component in solving the problem of an unfunded pension system and an aging society,” according to the economist. “As such, the refugee inflow offers some much needed breathing room.”

©2018 Bloomberg L.P.

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