How does hosting refugees affect local labor markets?

Across the world, communities are often concerned about the impact that hosting refugees may have on jobs. At the same time, the displaced themselves wonder how they will make a living. While high-income countries get most of the attention in this debate, it is low- and middle-income countries that host 75% of refugees worldwide. In our new book, The Labor Market Impact of Forced Displacement, we use new data and re-analysis to study host communities in Colombia, Ethiopia (data set), Jordan, and Uganda (data set) and address key concerns about jobs for both refugees and their hosts.

Forced displacement has little effect on average job outcomes for hosts – and sometimes, the effect is positive

Across the countries we studied, hosting refugees has modest or even positive effects on labor markets overall. In Ethiopia and Uganda, average consumption increases by about 3% with a doubling in the number of refugees. We also found little evidence of an overall employment decline among hosts. This might surprise some, but it aligns with existing literature. Our research shows that this pattern holds true across diverse economies when we apply carefully harmonized methods.
 

How does forced displacement affect job outcomes for hosts?

Some workers in host communities face additional competition, even while others benefit

Hosting refugees brings opportunities for some workers. For instance, we found that subsistence and commercial farmers in host communities in Uganda do well with rising market demand (a 3% and 7% increase in consumption, respectively, with a doubling of refugees). However, others face competition: for instance, we estimate that in Colombia, employment among men and young workers declined by about one percentage point with a doubling of the number of refugees.

Hosts are concerned about these effects: in an experiment conducted for our book, hosts only held negative views of refugees when they were prompted to think about competing against them in the labor market. If we want to support host communities, we need to take this message seriously, look for ways to support those who face adversity, and enable hosts to seize opportunities that come with the arrival of refugees.

Work permits don’t change labor markets as much as some fear, but they make a big difference for refugees

We analyzed work permit schemes and found few effects on hosts’ jobs on average – though again, some host workers face challenges. Dispelling some myths about refugees in the labor market helps explain why.

Firstly, even in labor markets that tightly restrict work permits, many refugees find ways to work, out of necessity. For instance, refugees’ access to jobs in Ethiopia was heavily restricted when we collected data. But in the two localities we studied in detail, refugees’ labor force participation was 42% – below the 64% among hosts, but substantial, given the restrictions.

Secondly, therefore, competition doesn’t start with work permits. Rather, work permits change the patterns of competition – for instance, by allowing refugees to look for formal jobs.

Even if permits don’t change outcomes for hosts much, they can make a very large difference for refugee workers. One permit program in Colombia raised wage earnings by one-third among refugees who obtained a permit.

We cannot support host communities effectively without understanding local labor markets 

Based on the evidence, host communities can be reasonably confident that their labor markets will not be negatively affected overall, especially if the international community provides some support. But how can policy makers best support those who face competition?

Policy recipes from high-income economies won’t work, because developing-country labor markets are so different. For instance, in low-income countries, most jobs are in self-employment. And in many middle-income countries, most employment is informal with few high-paying formal wage jobs. We use new primary data to look for clues on what policy should look like, and show, for instance, that refugees matter not only as competitors but also as consumers, that skill profiles matter less when there is a small range of job activities, and that access to capital is key for host jobs in labor markets dominated by self-employment.

Most of all, good policy needs to be based on a hard look at the realities of the local labor markets.

To find out more on this topic, explore the training video and e-Learning module (requires registration) on jobs and forced displacement that is based on the book – and explore other new research from the Building the Evidence on Forced Displacement initiative.

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