Adapting Host Labor Markets to Thrive Amid Refugee Inflows and Challenges

A World Bank study reveals that forced displacement has modest or positive impacts on host labor markets, with refugees boosting demand and opportunities while some vulnerable groups face challenges. Effective policies, including work permits and targeted support, can foster economic benefits for both refugees and host communities.

The World Bank, alongside research institutes such as the Fafo Research Foundation, Departamento Administrativo Nacional de Estadística, Universidad del Rosario, the Policy Studies Institute, and Bishop Stuart University, has conducted a wide-ranging study on the labor market impacts of forced displacement. The research shows how refugee inflows shape host economies by examining Colombia, Ethiopia, Jordan, and Uganda. Contrary to common fears, the overall impact on host labor markets is generally modest or positive. While refugees increase competition in certain sectors, particularly among low-skilled and informal workers, many hosts benefit from increased demand for goods and services. However, challenges persist, especially for vulnerable groups, highlighting the need for targeted interventions to maximize the benefits of integration while addressing inequities.

Shifting Labor Markets and Economic Adaptation

The arrival of refugees inevitably alters local labor markets, but these changes often result in economic adaptation rather than disruption. In rural areas, agricultural workers in Uganda and Ethiopia benefit significantly from increased demand for food, driven by refugee consumption and aid. Farmers in these regions reported gains in income and market-oriented production. In urban settings like Colombia, the impacts are more nuanced, with modest shifts in employment patterns. For instance, young workers in Colombia experienced slight declines in job opportunities, while other groups remained unaffected. In Jordan, despite the large influx of Syrian refugees, unemployment rates among Jordanians showed little change, thanks in part to international aid and policies aimed at mitigating adverse effects. These findings underscore the resilience of host labor markets and the adaptability of workers to new economic realities.

The Role of Work Permits in Refugee Integration

Work permit programs emerge as a critical factor in shaping both refugee and host labor market outcomes. In Colombia, policies like the Special Permanence Permit (PEP) and Temporary Protection Permit (PPT) allowed Venezuelan refugees to access formal employment, leading to significant wage increases and better job prospects for refugees. These programs also alleviated informal competition, ensuring minimal disruption for host workers. Similarly, Jordan's Compact facilitated Syrian refugees’ entry into select industries, boosting formal sector earnings for hosts in its early phases. These initiatives highlight the potential of inclusive labor market policies to enhance refugees’ economic contributions while safeguarding opportunities for hosts. However, refugees still face challenges in accessing quality employment due to legal restrictions, discrimination, and limited access to capital.

Addressing Barriers to Economic Participation

Despite the progress made through work permit programs, refugees often remain trapped in low-paying, informal, or precarious jobs. In low-income countries like Ethiopia and Uganda, self-employment is a common livelihood strategy, yet refugees face significant barriers to entry. Limited access to land, credit, and business networks hampers their ability to establish sustainable enterprises. The study found that refugee households report lower asset ownership, savings, and borrowing capacity than their hosts, compounding their economic vulnerability. Policies that address these structural barriers are essential. Financial inclusion programs, access to capital, and support for small-scale entrepreneurship can empower refugees to participate more fully in the economy, benefiting both themselves and their host communities.

Changing Attitudes and Building Social Cohesion

Public attitudes toward refugees often shape the success of integration policies. In many host communities, refugees are perceived as competitors for jobs, even when evidence shows minimal actual displacement. Experimental data from Ethiopia and Uganda reveal that hosts with overlapping skills or occupations with refugees are more likely to harbor prejudices, driven by fears of competition. Such perceptions can obstruct effective policy implementation and strain social cohesion. Addressing these concerns requires a dual approach: providing economic support to mitigate real or perceived competition and fostering positive relationships between hosts and refugees. Awareness campaigns, opportunities for interaction, and efforts to highlight the contributions of refugees can help build empathy and reduce tensions.

Creating a Path to Shared Prosperity

The findings highlight the potential for mutual economic benefits when refugees are integrated into host economies. Refugee inflows often stimulate local markets through increased demand for goods and services, with aid amplifying these effects. In Uganda and Ethiopia, agriculture stands out as a sector with significant opportunities, offering both food security and economic growth for hosts and refugees alike. In urban settings, formal employment policies like work permits unlock refugees’ potential to contribute to economic development, as seen in Colombia. However, the benefits are not evenly distributed, and targeted support for vulnerable host groups is crucial. Investments in skills development, infrastructure, and mobility can help hosts adapt to changing labor markets while ensuring fair competition.

The study underscores that well-designed policies can transform the challenges of forced displacement into opportunities for shared prosperity. For refugees, access to capital, land, and networks is vital to building sustainable livelihoods. For host communities, international aid and government investments are essential to mitigating initial economic pressures and creating long-term opportunities. Policies must balance the needs of both groups, promoting inclusion while addressing inequities. With thoughtful approaches, forced displacement can become a driver of economic resilience, fostering mutual benefits for refugees and their host communities. By addressing the barriers that prevent refugees from realizing their economic potential and ensuring that host workers are supported during transitions, governments can create environments where integration drives growth and social cohesion. The study offers a roadmap for achieving these goals, emphasizing the importance of collaboration, adaptation, and inclusion in managing forced displacement.