As the New York Times notes this morning, Germany is being inundated with Syrian refugees. And while many of them are highly educated, most of them are not. The median refugee is a young Arabic-speaking man with limited job skills that are not up to German standards.
This has happened to Germany before. After World War 2, the Soviets transferred large chunks of eastern Germany to the USSR and the Polish People’s Republic. Czechoslovakia and Hungary also expelled their German populations. Within two years, more than 7.0 million people had been expelled to what later became West Germany; ultimately 8.5 million refugees would settle there. (Another 3.5 million settled in the Soviet Zone.)
The entire resettlement was chaotic, with refugees settling down wherever the Western occupation authorities decided to set up camps. These camps were located wherever it was most convenient. In the words of the U.S. military government: “Expellees of Eastern Europe have been settled, not where their skills could be best utilized, but in accordance with the availability of food and housing to meet their needs. Thus, labor supply is often remote from the centers of labor demand ... Most of these have been placed without regard to their skills, and many where there is no demand or material for them to pursue their trades.” Despite their awareness of the problem, American officials were more afraid of further disruptive population movements than they were of mass unemployment: they proceeded to deploy military forces along state lines to prevent refugees from moving.
By 1948, refugees made up 25% of the population of Lower Saxony but only 8% of neighboring Nordrhein-Westfalen. Refugees were kept out of the cities of Bremen and Hamburg. Remarkably, there was no mass population redistribution once the situation settled down after 1948: as late as 1969, the distribution of the refugees had barely budged.
So what happened? Michael Peters (LSE) looked into the data and found something fascinating. Not unexpectedly, the former easterners were crowded into low-skilled jobs: by 1960, almost 45% of the refugees worked in unskilled occupations, as opposed to only 18% of the same age cohorts of Western natives. (Page 21.) Also not unexpectedly, refugees aged 20 and older in 1945 earned about 10% less than natives in 1961 and 6% less than natives as late as 1970. (Pages 22-23.) Two-thirds of that difference was due to refugees being shunted into lower-wage occupations, rather than earning less than a native at the same job.
OK, fine, whatever. But then it gets weird. Sure, the refugees didn’t close the wage gap after even a quarter-century. But wages grew much faster in the unskilled occupations they flooded into than in other occupations. (Tables 9 and 11 on pages 24 and 26.) A 10% higher refugee share in 1950 increases wages by about 5% in 1975.
Basically, firms in refugee-rich counties picked technologies that unskilled workers could learn to use on the job. Those workers then got better as they worked ... and their employers got better at deploying technologies suited to their (lack of) skills. The individual refugees never recovered from the trauma of their separation. But they led to technological innovation that benefitted those low down on the ladder.
So does this have any bearing on the current refugee inflow? Sadly, probably not. The first thing to note is that the distribution of human capital was about the same for the refugees and the natives. Circumstances pushed the refugees into unskilled jobs. They may have therefore been more equipped to learn on the job and help their employers innovate than a less skilled refugee wave would have been.
The second thing to note is times have indeed changed: deskilling might have been relatively easy to do in an industrial sector with no computers, but harder to carry out today, where (at least in theory) computer-controlled machines can purely substitute for labor.
Finally, discrimination was minor for the earlier wave. Silesia, Pomerania, and East Prussia might have been different from the rest of Germany, but they were not Syria.
In short, the work opens up the possibility that the influx of unskilled refugees might unleash a wave of income-inequality-reducing innovation, even if the refugees themselves never catch up to the natives. But it only opens the possibility. There are, sadly, too many reasons to believe that this smaller influx will end less happily than the giant migration of 70 years ago.