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Squeezing Germany's Labor Market

How refugees impact employment in Europe's biggest economy

The German labor market, which already boasts one of the lowest jobless rates in Europe, could be squeezed further as Chancellor Angela Merkel's government opens its coffers to accommodate refugees from Syria to Iraq.

With an estimated 800,000 people seeking shelter in Germany this year, the government has earmarked more than 6 billion euros ($6.7 billion). That's a ``non-trivial sum'' that roughly equals 0.2 percent of nominal spending in 2014, according to Bloomberg Intelligence economist Jamie Murray. ``In the near-term, the extra demand associated with those flows is likely to prompt a further tightening of the German labor market,'' he said.


How the biggest migration wave since the period after World War II will impact Europe's largest economy in the longer term will largely depend on how many of those people can be integrated in the workforce. One factor here: latest Eurostat data show that the bulk of migrants to Germany are of prime working age -- in the 18-34 bracket.

Assuming that about 400,000 of the refugees who arrive this year will be allowed to stay, one can expect the potential workforce to expand by some 260,000, according to Murray. That in turn may boost potential output by about half a percent in the medium term.

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