The Long-Term Impact of Employment Bans on the Economic Integration of Refugees

Many European countries impose employment bans that prevent asylum seekers from entering the local labor market for a certain waiting period upon arrival. We provide evidence on the long-term effects of such employment bans on the subsequent economic integration of refugees. We leverage a natural experiment in Germany, where a court ruling prompted the reduction in the length of the employment ban. We find that even five years after the waiting period was reduced, employment rates were about 20 percentage points lower for refugees who, upon arrival, had to wait an additional seven months before they were allowed to enter the labor market. It took up to ten years for this employment gap to disappear. Our findings suggest that longer employment bans considerably slowed down the economic integration of refugees and reduced their motivation to integrate early on after arrival. A marginal cost-benefit analysis suggests that this employment ban cost German taxpayers about 40 million Euro per year on average in terms of welfare expenditures and forgone tax revenues from unemployed refugees.