ECB Insight: Ukrainian Refugees’ Job Market Impact Seen as Limited; Consumption Effect Bigger

15 March 2022

By David Barwick – FRANKFURT (Econostream) – Some 2.5 million Ukrainian refugees have entered the EU in the last few weeks as a result of Russian military aggression, but this is so far seen by the ECB as being of limited relevance for labour market developments, Econostream understands.

‘Who are they?’ one ECB insider said to Econostream. ‘They are mainly women with children. And so in terms of the labour force, only a small part of them will be in a position to contribute quickly.’

Moreover, a disproportionate share of the latest refugee wave has gone to Poland, which however is not in the Eurozone.

While appreciable wage-dampening effects in the euro area are thus not to be expected at this point, a more significant effect of the refugees stems from the fact that they are entitled to government financial assistance, the ECB insider noted. ‘I would see this more in terms of the stimulative effect on consumption rather than the impact on the labour force’, he said.

With the Russian assault on its neighbour still less than three weeks old, the ECB has not thematized possible economic implications of the stream of refugees. However, Governing Council member Madis Müller, who heads the Estonian central bank, noted last week that ‘[a]s countries spend more on supporting Ukrainian war refugees, this in turn keeps overall economic activity higher through additional government spending.’

The insider who spoke to Econostream observed that over time, the significance of the influx of refugees could grow considerably as family members who at first stayed put eventually joined those already here. While he questioned whether many would initially come to the euro area, he also noted that there were some projections calling for a total of more than twice the number already registered.

‘That kind of number would change things a bit’, he said. ‘Many of them would then come to euro area countries. But still, in terms of the labour force, that would be a longer-term impact.’