From an economic point of view, Germany is in a good situation – currently. The growth rates of GDP (gross domestic product) are moderate but positive. Many EU countries have higher growth rates. Spain currently has also higher growth rates than Germany. (In 2016: Spain: 3.2 % – Germany: 1.9 %). But Germany has overcome the global economic crisis very quickly, while Spain had a very long period of recession.
Germany is in a very good financial situation. In 2016, Germany achieved a budget surplus of 23.7 billion euros. Only Luxembourg had a higher surplus, measured by GDP. However, the total debt is not particularly low. As a result of reunification, Germany had to absorb new debts in order to finance the reconstruction of the East German federal states. The East German economy could not compete with Western European companies. Many companies went bankrupt. The unemployment rate rose to over 20% in eastern Germany. In the past 10 years, the number of unemployed in Germany has fallen very sharply. According to the ILO (International Labour Organisation), the unemployment rate is 4%. The main reason for the low unemployment rate is the very low birth rate in Germany. In the next few years, many older workers will retire but only a few young people are coming on the labour market, especially in East Germany. Only taking the demographic effect, the labour market will be relieved by 300,000 people in 2015. This figure will rise in the coming years. Economists agree that Germany need immigrants.
But according to a survey (Bertelsmann Stiftung and Zentrum für europäische Wirtschaftsforschung), two-thirds of the Germans are convinced that immigration means a burden on social systems. The basis for this skepticism is the (social- and work) structure of foreigners living in Germany today. It is obvious that (a lot of) foreigners have not yet been fully integrated economically, because they have:
- lower income
- lower employment rates
- higher unemployment rates
- higher dependency on social transfers.
The two institutes named above investigated the economic impact of immigration. They made a “cash flow accounting, “a balance for one year” (here: 2012). They compared the “net-payments” of the Germans and of the foreigners living in Germany. On the one side of the tax-transfer balance they recorded all payments made by the Germans in form of taxes and social security contributions to the state. On the other side they have recorded all transfer payments which the German citizens received from the state (social welfare, pensions…). They have also recorded this for the foreign population in Germany. Then they have compared both groups. So they got the “Net tax payments by age and nationality” for the German as well as for the foreign population.
Irrespective of nationality, a characteristic pattern of age is shown. The net payment of children and adolescents is negative. This part of the population are paying only small taxes (on consumption, VAT), but receives high transfers. (Very) young people have relatively high health costs, public expenditure on child day care (Kindergarten) and for school as well as the child allowance. These are the main factors. There are hardly any differences between the German and the foreign population. The net payment of the old people is also negative, because they get pensions. However, the transfer payments for the older foreign persons are lower than for the German retirees. So, “they do not cost the state so much”. The reason is that their income during their lifetime work was much lower.
During the “employment phase” (aged circa 25-65 years) they got lower wages, they had a lower employment rate, a higher unemployment rate and they have less assets. These are the main reasons why the contribution of foreigners to the public budgets during the “employment phase” is less compared with the Germans.
In the (evaluated base) year 2012 every German contributed a positive financing contribution of around + 4,000 € on average, foreigners per capita only + 3,300 €. The contribution (net payment) per foreigner is significantly lower (16.4%) but clearly positive. In 2012, 6.6 million foreigners lived in Germany. So: 6.6 million foreigners * 3.300 € = 21.8 billion euro; that is the (positive!) financial contribution to public budgets.
The current favorable financial contribution of foreigners to public budgets depends on the favorable age structure of this population. The average age of immigrants is 25 years, the average age of foreigners is 38 years and the average age of Germans is 46 years (2012). Positive migrations therefore not only lead to an increase of population, but also to a rejuvenation of the population.
The results can overstate the fiscal benefits of immigration because the result neglects the changes in the net funding contributions that will occur in the future because the current population grows older. This weakness can be illustrated by the example of a pay-financed statutory pension insurance scheme. In the case of cash flow accounting, only the contributions paid by foreigners are recorded as current financing contributions. This calculation overlooks the fact that these persons get pension entitlements in the future, which should be recognized as a liability. However, as a result of the dependence of the individual financing contributions on age, it can be foreseen that the fiscal position of the foreigners living in Germany will deteriorate if they reach the pension age more and more in the future.
The question arises: Does the foreign population also have a positive long-term contribution to the public budgets in Germany? A “generation balance” indicates the average “present value” of the net funding contributions “for persons of a certain age to the end of life”. The calculation is made under the standardized assumption that the overall economic and fiscal policy conditions of the initial year remain constant over the entire life cycle of the population living in the base year.
This model also shows overall a positive result for the foreign population. In the “present value”, the taxes and contributions per capita still paid by the current population up to the death are 22,300 euro higher than the transfers they received up to the death. This figure is clearly smaller than the contribution per capita of the German population of 88,500 euro. The surplus of all (approx.) 6.6 million foreigners, has a cash value of 147 billion euro. (6.6 mio. foreigners * 22,300). But it is not positive for all age groups. For those foreigners who were born in Germany, the present value is even negative! This is apprehensive and shows that foreigners are not fully integrated.
Can these figures provide conclusions on the immigration of refugees? It takes a long time for immigrants to integrate them into the labour market. Experiences from the past indicates that refugees integrate much slower. It takes much longer for these group to find a job. More than one million refugees came to Germany in the past 2 years. They came mainly from Syria, Iraq and Afghanistan. Two thirds of them are male, one third are female. They are very young on average. But their qualification is not very good – mostly.
Last summer, a survey of the qualification was conducted. 26% of the refugees did not have a main-school graduate degree.11 % have a main-school-degree. 6 % have a middle school degree and 26 % have a higher education. Nearly one third of the refugees didn`t give any information. These persons probably haven`t a high qualification. Germany, however, needs skilled workforce.
In Germany many people make an apprenticeship. That is a dual training system after leaving school. It usually takes 3 years. A part of the trainee program is in the training company, the other time the apprentice is in a vocational school. At the end, the apprentice receives a degree. It is a unified system. Companies in Germany (then) know the abilities of the worker. But other countries do not have such a dual education system. Especially in these countries (Syria, Irac, Afghanistan) the workers are learning by doing. A German employer cannot assess the qualifications of these persons and do not give them a job. The advantage of the refugees is that they are very young. They are still able to learn new skills. But this takes a long time and it will cost a lot. Research has shown that refugees cost 23 billion euros every year (housing, food, clothing, medical aid…). But that is not the problem. In the past year, Germany had a budget surplus of 23 billion euros. Whether immigration is socially desired is another question. In recent years, right-wing populist parties have grown stronger in Germany. They reject the arrival of further refugees. Last year England voted for the Brexit. An important argument was the migration policy – they don’t want so much immigrants. In this year there are parliamentary elections in Germany.
Prof. Dr. Oliver Sievering
University of Applied Sciences – Public Administration and Finance (Ludwigsburg)