Refugees' Right to Work: Efficiency and Equity in Host Country Labor Markets

About this event

One out of every 200 people in the world is a refugee. In most host countries, refugees face legal barriers to work, confining them to informal work or unemployment. This paper studies how granting refugees the right to work reshapes the allocation of both refugee and host labor across occupations. I leverage a unique natural experiment – a large-scale work permit scheme for Syrian refugees in Jordan – and assemble a novel dataset to study how the policy impacted the labor market outcomes of both refugees and hosts. Using a shift-share measure of exposure to refugee entry, I document three effects on Jordanian workers. First, Jordanians exit occupations highly exposed to refugees, re-sorting elsewhere. Second, consistent with a standard sorting model, exit coincides with an increase in the average wage of Jordanians in exposed occupations. Third, re-sorting leads to occupational upgrading, as college-educated Jordanians move into less exposed, higher-paying jobs. To decompose refugee entry effects from locals' re-sorting, I build a model of occupational choice nested in general equilibrium. The estimated model implies Jordanians experience modest wage gains and a small rise in unemployment from the policy. Distributionally, the poorest Jordanian workers benefit the most from the work permit scheme, despite being the ones to lose in a benchmark without re-sorting. Aggregate output increases by nearly 11%, driven by an improved utilization of refugee labor and translating into large wage gains for refugees. Work permits unlock aggregate efficiency gains and, through re-sorting, reduce host country income inequality.