The impact of the influx of Ukrainian refugees on the euro area labour force

Prepared by Vasco Botelho

Published as part of the ECB Economic Bulletin, Issue 4/2022.

The war in Ukraine has triggered the largest displacement of European citizens since the Second World War, with women and children accounting for the vast majority of refugees.^[1] According to the United Nations High Commissioner for Refugees (UNHCR), around seven million people have already crossed Ukraine’s borders (Chart A).^[2] As Chart A shows, an average of around 330,000 refugees are currently leaving Ukraine for neighbouring countries each week. The UNHCR estimates that a total of up to 8.3 million refugees could have fled Ukraine by the end of the year and that up to 25 million people could be displaced and require humanitarian aid as a result of the war.^[3] On the basis of this estimate, the total number of Ukrainian refugees is expected to keep growing in the coming weeks, but this is highly dependent on the duration and severity of the war. While the total number of Ukrainian refugees is increasing, a significant number of people – around 2.1 million – have temporarily re-entered Ukraine. The UNHCR indicates that such cross-border movements may be pendular and should not be regarded as permanent returns, so they have not been deducted from the gross figure.

Chart A

Number of Ukrainian refugees leaving the country

(thousands)

A significant percentage of the total number of Ukrainian refugees is expected to reach the euro area (Table A). During the Syrian refugee crisis in 2015, around 75% of all the refugees who reached Europe ended up in euro area countries. However, it is likely that refugee flows will be different in 2022, as Ukraine is an eastern European country with strong ties to its neighbours. Many refugees are expected to stay in countries bordering Ukraine in the first instance, given their geographical proximity, before gradually moving on to other places. Their final destination will be influenced by the general ability of countries to welcome and accommodate refugees, as well as by existing Ukrainian communities that could ease the process of integration. In the years leading up to the war, Ukrainian migrants tended to settle in Poland (53%), the Czech Republic (9%), Germany (8%) and Hungary (8%), with 24% settling in the euro area. However, 75% of the overall stock of Ukrainian migrants currently live in the euro area, with particularly large numbers in Italy (30%), Germany (18%) and Spain (13%). In addition, euro area countries have demonstrated an ability to accommodate significant numbers of refugees in recent year, accounting for 86% of all first-instance asylum requests made by non-EU citizens.^[4] Thus, there is a significant Ukrainian community already living in the euro area, and the recent experiences of other refugees coupled with the fact that euro area countries have the economic means to receive refugees could encourage even more Ukrainian refugees to settle in the euro area over time.

Table A

Past Ukrainian migration patterns and asylum requests by non-EU27 citizens

The proportion of Ukrainian refugees who remain in the euro area in the medium term will depend on the duration and the severity of the war. If the fighting becomes more protracted or more intense, the number of refugees will rise. On the basis of current numbers and the point estimate made by the UNHCR, the calculations in this box assume a figure of between five and ten million. A longer and more severe war will probably also reduce the share of refugees who return to Ukraine in the medium term. Accordingly, the scenario with ten million refugees corresponds to a longer and more severe war which raises the total number of refugees and increases the likelihood of them remaining in their host countries in the medium term.

The share of refugees who are of working age will be crucial in terms of establishing the impact on the euro area labour force. Ukraine imposed martial law across the country when Russia launched its offensive on 24 February, preventing men between the ages of 18 and 60 from leaving the country. Consequently, the first waves of refugees have comprised the elderly, children and women of working age. However, it is expected that future waves will also include men of working age once martial law has been lifted, gradually increasing the percentage of refugees who are of working age. This box assumes that, in the medium term, between 50% and 75% of the refugees who arrive in the euro area will be of working age. This assumption is anchored by the fact that women currently account for roughly 80% of all refugees interviewed and that 80% of female refugees are travelling with at least one child.^[5] The proportion of refugees who are of working age is expected to be higher if the war is more protracted and more severe, with some working-age men eventually relocating to join their families abroad and moving to the euro area at a later stage.^[6] Thus, back-of-an-envelope calculations assume a positive correlation between the share of refugees who are of working age and the duration and severity of the war.

Despite the swift policy action taken by European authorities, barriers to the labour market and other frictions remain significant impediments to refugees, making it difficult for them to integrate into host countries’ labour markets, especially in the short term. For refugees, the process of accessing the host country’s labour market is generally a lengthy one. Refugees may need to be granted asylum (and, in some cases, a work permit), acquire language skills and have their professional qualifications recognised. In order to ease the barriers to integration that Ukrainian refugees face, the EU has agreed to grant temporary protection to people fleeing the war in Ukraine, providing immediate assistance and giving them the right to access the labour market. By the beginning of May, over 3.5 million Ukrainian refugees had entered Poland, while more than 400,000 had registered in Germany, 200,000 in the Czech Republic and 100,000 in Italy.^[7] However, skill mismatches, insufficient language skills, a lack of childcare facilities and problems with the recognition of qualifications can all present obstacles to the integration of refugees. For example, German data on the large influx of refugees observed between 2014 and 2016 show very gradual integration into the labour market over time, with only 17% of working-age refugees being in employment after two years in the country and less than 50% after five years. Those employment rates were considerably lower for women (reflecting, to some extent, cultural barriers in the refugees’ countries of origin).^[8] The combination of Ukraine’s geographical and cultural proximity to western Europe and the temporary protection that the EU has granted to Ukrainian citizens is expected to help reduce the severity of institutional and skill mismatches, increasing Ukrainian refugees’ participation in the labour force in the short run.^[9]

Thus, taking evidence on the integration of previous waves of refugees and adapting it to the current situation, we envisage a medium-term labour force participation rate of between 25% and 55% for working-age refugees. The lower end of that range (25%) is based on the level of integration seen for previous refugees after two years in the host country, with an upward adjustment to reflect Ukraine’s cultural proximity and the impact of the EU’s swift policy action. The upper end of the range (55%) reflects recent estimates for the participation rate of working-age women who have migrated to the euro area from outside the EU27.^[10]

Overall, the influx of Ukrainian refugees is expected to lead to a gradual increase in the size of the euro area labour force. Under all of the assumptions detailed thus far, back-of-an-envelope calculations point to a median increase of between 0.2% and 0.8% in the euro area labour force in the medium term (Chart B). This corresponds to an increase of between 0.3 and 1.3 million in the size of the euro area labour force as a result of the Ukrainian refugee crisis.^[11]

Chart B

Potential medium-term impact of Ukrainian refugees on the euro area labour force

(x-axis: number of Ukrainian refugees in millions; y-axis: Ukrainian refugees as a percentage of the labour force)

The increase in labour supply that results from the influx of Ukrainian refugees could slightly ease the tightness observed in the euro area labour market. If they can find jobs without a lengthy integration process, Ukrainian refugees could help the market to respond to the currently buoyant demand for labour and address worsening skill shortages. However, the high levels of uncertainty surrounding the future course of the war makes it harder to accurately assess and quantify the eventual impact. Outside the narrowly defined scope of this box, there are also other important implications of the influx of Ukrainian refugees for the fiscal resources, housing and the provision of public services in euro area countries.