Today, let’s build on our understanding of Sweden by looking at how the country’s welfare state interacts with the immigration system.
Writing for CapX, Nima Sanandaji discusses these issues in his adopted country of Sweden.
“Sweden has had an unusually open policy towards refugee and family immigrants. The Swedish Migration Agency estimates that around 105,000 individuals will apply for asylum only this year, corresponding to over one percent of Sweden’s entire population.”
This openness is admirable, but is it successful? Are immigrants assimilating and contributing to Sweden’s economy?
Unfortunately, the answer in many cases is no.
“… the open attitude towards granting immigrants asylum is not matched by good opportunities on the labor market. An in-depth study by the daily paper Dagens Nyheter shows that many migrants struggle to find decent work even ten years after entering the country. … The median income for the refugees in the group was found to be as low as £880 a month. The family immigrants of refugees earned even less. Ten years after arriving in the country, their median income was merely £360 a month. These very low figures suggest that a large segment of the group is still relying on welfare payments. Dagens Nyheter can show that at least four out of ten refugees ten years after arrival are supported by welfare. The paper acknowledges that this is likely an underestimation.”
So what’s the problem? Why are immigrants failing to prosper?
Nima suggests that government policies are the problem, creating perverse incentives for long-term dependency.
To be more specific, the country’s extravagant welfare state acts as flypaper, preventing people from climbing the ladder of opportunity.
“The combination of generous benefits, high taxes and rigid labour regulations reduce the incentives and possibilities to find work. Entrapment in welfare dependency is therefore extensive, in particular amongst immigrants. Studies have previously shown that even highly educated groups of foreign descent struggle to become self-dependent in countries such as Norway and Sweden. … The high-spending model is simply not fit to cope with the challenges of integration.”
The part about “highly educated groups” is particularly important since it shows that the welfare trap doesn’t just affect low-skilled immigrants (particularly when high tax rates make productive activity relatively unattractive).
And when the recipients are immigrants, redistribution is especially perverse since it makes it far less likely that newcomers will be net contributors to a nation.
And that then causes native populations to be less sympathetic to immigration, which is unfortunate since new blood – in the absence of bad government policy – can help boost national prosperity.
Daniel J. Mitchell is a top expert on tax reform and supply-side tax policy at the Cato Institute. Mitchell is a strong advocate of a flat tax and international tax competition.