Temporary refugee protection and labor-market outcomes

During the past decade, developments around the world have led to a large inflow of asylum seekers to Europe and in response, many European countries have implemented stricter immigration policies. A motivation has been to reduce immigration and improve the integration of immigrants granted residency (see, e.g., Mansouri et al. 2010). One such policy is the shift from permanent to temporary residence permits for refugees.¹ While several countries have, or are about to, implement such reforms, we have limited empirical evidence on their effects on refugees’ integration in society in general and in labor markets in particular. A shift to temporary permits could have both positive and negative effects on integration into society and the labor market. The public debate has been centered around the relative strengths of these effects. On the one hand, the expected return to investment in country-specific human capital falls if the probability of receiving permanent residency falls. There can also be a cost in the form of increased stress from a lower probability of being granted permanent residency. In addition, increased uncertainty may affect firms’ hiring decisions, making it more difficult for refugees with longer periods of temporary residence to find qualified work. On the other hand, actions that lead to labor-market attachment during the time with temporary residency are incentivized when they increase the probability for permanent residency. This could strengthen the incentives for labor-market investments in the host country and improve integration. The net effect of a shift from permanent to temporary residence permits for refugees is therefore an empirical question in much need of attention.

This paper aims to fill this gap. Specifically, we address what the effects are of changes in the ex-ante probability of being granted permanent residency. We study the effects of a reform that changed the criteria for eligibility for permanent residency in Denmark and that was implemented in 2002 as part of a reform package. The explicit aim of the reform package was to limit the number of asylum seekers in Denmark, while honoring international obligations, and to speed up the integration process (The Danish Immigration Service 2003). The specific reform component that we study in this paper increased the time period a refugee would have had to have been a legal resident (on a temporary residence permit) in Denmark, before being eligible to apply for permanent residency. During the time with temporary status, a residence permit could be withdrawn if the grounds for protection were no longer valid, and if the individual did not have the right to stay on other grounds, such as having a solid labor-market attachment. The change applied to individuals who lodged their first asylum application on or after February 28, 2002. This meant that refugees who applied for asylum from February 28, 2002, onward faced a longer time period with temporary status, during which they risked losing the grounds for protection, before they could apply for permanent residency. Prior to the reform, three years were sufficient, whereas after the reform a refugee would have to wait for seven years. Furthermore, some supplementary conditions, described in detail in Sect. 2, were included. Obtaining permanent residency was thus made more difficult by the reform, i.e., the ex-ante probability of receiving permanent residency in Denmark on the grounds of asylum was higher prior to the reform. This does not mean that the reform necessarily changed whether an individual got to stay in Denmark or not, ex-post. In fact, we show that around 90% of the individuals in our sample (in both the control and the treatment group) are still in Denmark twelve years after their first arrival. Crucially, even if there was a decrease in the ex-ante probability, this can still be consistent with no observed change in the share of asylum seekers staying in Denmark. These individuals could: (1) have had asylum reasons throughout the time period with a temporary permit or (2) established a labor-market attachment, which could be used as grounds for prolonged temporary residency. Although a refugee had no control over the development in the home country, or the Danish authorities’ assessment of whether the grounds for asylum were still valid, the refugee could affect the attachment to the labor market and thus affect the probability of staying in Denmark. The reform affected the perceived probability of staying in Denmark, but individuals’ responses together with external factors may have stopped this from translating into an observed increase in the risk of deportation. What is key, however, is that there was a change in the perceived probability of receiving permanent residency. Through interviews with NGOs, in a comparative study of temporary permit regimes in Denmark, Germany, and Australia, Mansouri et al. (2010) conclude that introducing temporary residence permits, or prolonging the temporary status, increased uncertainty and they suggest that integration was made more difficult. Although we cannot observe the ex-ante probability of receiving permanent residency, it is clear that the reform was intended to impact this. We can also show that there is a significant decrease in the share of individuals receiving a permanent residence permit following the reform.

We study the impact of the reform using Danish registry-based data. The retroactive implementation of this part of the reform package allows us to distinguish its effect, holding constant other aspects of the reform package. This setup naturally lends itself to a Regression Discontinuity Framework and this is the first step in our empirical analysis. However, while the reform studied in this paper is theoretically ideal for studying the effect of prolonged temporary status, the setting also offers some challenges. Our sample size is limited because we only study outcomes of individuals that are actually given asylum and we need to restrict the time interval to four months before and after the policy change. This poses challenges for the regression discontinuity estimation, and we need to be careful in the interpretation of our results. In a second step, we therefore use descriptive analysis to substantiate our understanding of the impact of the reform. To assess the behavioral responses to this reform component, our focus is on outcomes that are relevant for integration or the assessment of grounds for prolonged residency that the individual could affect herself. We therefore focus on labor-market outcomes and investments in education.²

Our main result is that there is no evidence of a positive effect on labor-market outcomes, measured in terms of employment and earnings, at any time horizon (up to twelve years after asylum). The coefficient estimates are negative but, in general, not significant using conventional estimates. For investments in education, we estimate a positive effect on enrollment in education using the regression discontinuity framework. While the positive coefficients are in line with our descriptive analysis and we attempt to control for discontinuities in predetermined characteristics, the magnitude and precision of this effect are sensitive in the regression discontinuity estimation. Our takeaway is that while the results from our causal estimation, and in particular the magnitudes, are subject to uncertainty, taken together with the descriptive evidence the findings suggest an increase in enrollment in education following the reform. However, these investments in education appear to be too late to have a positive impact on labor-market outcomes and integration relevant for permanent residency. Thus, while proponents of more stringent residency requirements argue that they will improve labor-market integration, we do not find any evidence that this is true for the reform that we study. If stricter requirements had a strong positive impact on labor-market outcomes, we should be able to detect this also with a small sample size. Thus, we add a piece to the puzzle of understanding the impact of restricting access to permanent residency for the labor-market integration of immigrants, showing that a lower ex-ante probability of permanent residency and more stringent requirements do not necessarily translate into improved labor-market attachment. Since, in the policy debate, stricter requirements are often suggested to incentivize actions that lead to stronger labor-market attachment, we argue that this is an important finding and contribution of our paper.

Our paper contributes to an empirical literature that studies the relation between immigration policies and immigrants’ outcomes. Closely related are studies on different durations of migration spells. There are various reasons why the duration in the host country may be important for the migrant’s economic behavior.³ For example, Dustmann (1999) shows that investment in host-country-specific human capital depends on the intended duration in the host country.⁴ Intended duration may matter for migrants in general, but in this paper we focus explicitly on refugees, a group that is fundamentally different from other types of migrants.⁵ While immigrants’ entrance into the labor market is relatively well studied, we know less about the integration process of refugees and their labor-market prospects. In a recent paper, Fasani et al. (2020) show that refugees perform worse in the labor market than other immigrants across Europe, and Dustmann et al. (2017) highlight the indecisiveness about the duration and permanence of the stay in the host country as one of the primary reasons for the poor labor-market integration.

Temporary protection schemes may be designed in many different ways, making them more or less comparable, and institutional settings vary between countries and over time. Thus, it is key to compare findings from different settings and policies. A couple of recent empirical papers study the impact of restricting access to permanent residency. Blomqvist et al. (2020) study the effect of a policy change in Sweden in 2016 that changed the norm from permanent to temporary residence permits. They analyze the impact on education and labor-market outcomes and find an increase in the probability of enrolling in (and validating existing) education and working, indicating a faster integration process in the intermediate horizon. Jutvik and Robinson (2020) study the impact on labor-market inclusion using another Swedish policy change that was implemented in 2013. The policy change applied to asylum seekers from Syria, most of whom got a temporary residence permit prior to the policy change, but who all got permanent residence permits after the policy change. They find that the asylum seekers with temporary residence status have higher incomes and lower unemployment rate in the short run compared to permanent residents, but are less likely to invest in education. While both papers find a positive effect on labor-market outcomes from temporary residency permits, the estimated impact on education differs. Because they study different groups of refugees and measure outcomes at somewhat different time horizons, it is not entirely straightforward to compare the results. In addition, the contexts of the two policy changes were quite different. The policy change in 2013 was due to a reassessment of the situation in Syria and meant a shift to permanent residency permits, whereas the policy change in 2016 limited access to permanent residency following a period with a large inflow of migrants to Sweden. In that sense, (Blomqvist et al. 2020) is closer to the reform that we study in this paper, which meant a shift further away from permanent residency, increasing the time period on temporary residence permits. This is also conceptually closer to the case in Arendt et al. (2021), who study a further tightening (relative to the reform studied in this paper) of the Danish immigration policy in 2007.⁶ In addition to extending the existing legislation, it added a minimum requirement in terms of employment and raised the language requirement for individuals to be eligible for permanent residency. Overall, in line with our finding that labor-market outcomes do not improve from stricter residency requirements and longer times with temporary residency, they estimate a negative effect on employment from the more stringent requirements. Turning to education, the authors find no impact on the propensity to pass the higher level language test. However, they highlight heterogeneity in the impact of the reform, suggesting that high-productivity individuals were in fact incentivized, whereas low-productivity individuals (that drive the decrease in employment) faced a disincentive effect. We also estimate an increase in investments in education (in terms of enrollment), but the increase is not immediate implying that, in our case, the increased investment would have been too late to impact labor-market integration during the time horizon when this could improve access to permanent residency.

In addition to policies that regulate the duration of temporary residency permits, or requirements for permanent residency, several other aspects of asylum policies may also matter for the economic behavior of asylum seekers. Examples include waiting times (see, e.g., Hainmueller et al. 2016; Hvidtfeldt et al. 2018), language training (see, e.g., Arendt et al. 2020), employment bans (see, e.g., Hainmueller et al. 2018; Fasani et al. 2021), income support and benefits (see, e.g., LoPalo 2019; Agersnap et al. 2020), and active labor-market programs (see, e.g., Clausen et al. 2009; Sarvimäki and Hämäläinen 2016). Finally, this paper is related to the growing literature that studies the importance of residency status for immigrant outcomes (see, e.g., Pinotti 2017; Mastrobuoni and Pinotti 2015; Baker 2015; Fasani 2018; Felfe et al. 2020, 2018; Kuka et al. 2020; Lozano and Sørensen 2011; Cascio and Lewis 2019; Orrenius and Zavodny 2015; Amuedo-Dorantes et al. 2007; Kossoudji and Cobb-Clark 2002; Bahar et al. 2021; Devillanova et al. 2018; Dustmann et al. 2017; Adda et al. 2020; Bratsberg et al. 2002)

The rest of the paper is organized as follows. Section 2 describes the details of the reform. Section 3 describes the data and empirical strategy. In Sect. 4, we present our empirical results. We perform sensitivity analysis in Sect. 5 to assess the robustness of our results. Section 6 concludes the paper.

The time period of interest to us is the early 2000s. This was a time of substantial change in terms of Danish asylum policies.⁷ On November 27, 2001, a new minority center-right-wing coalition government was appointed in Denmark. This shift of government reflected a shift in the public opinion on immigration (see, e.g., Mansouri et al. 2010). The new government introduced a number of legislative changes regarding asylum and immigration policies that were passed by the Danish parliament as amendments to the Aliens Act and the Integration Act. We study the effects of a specific reform component that changed the criteria for eligibility for permanent residency in Denmark (henceforth referred to as the reform). This change was part of a suggestion for a new Bill to amend the Danish Integration Act, presented by the new government in February 2002 (Ersbøll and Gravesen 2010) and passed by the Danish parliament (Folketinget) on June 6, 2002.⁸

Both before and after the reform, individuals given asylum were initially granted a temporary residence permit if protection was deemed necessary. While under temporary status, the residence permit could be discontinued if the grounds for residency were no longer valid. Generally, temporary protection would be sustained if the need for protection was intact and there were no legal reasons to withdraw it.⁹ Refugees could also be allowed to sustain their temporary residence permits based on labor-market attachments, even if there was no longer any need for protection. After a certain time period as a resident in Denmark, a refugee (above 18 years old) would be eligible to apply for permanent residency. The main change implied by the reform studied here was in how long a refugee would need a temporary residence permit before being considered for permanent residence status. Prior to the reform, three years were sufficient, whereas after the reform a refugee would have to wait for seven years.¹⁰ This change implied that individuals subject to the new rules lived with temporary protection for a longer time period, facing the risk of having their permit discontinued. Once eligible to apply for permanent residency, refugees would be granted permanent residence if the need for protection remained or if they had a labor-market attachment, given the fulfillment of some supplementary conditions, and unless there were legal reasons to withdraw the residence permit. Prior to the reform, these supplementary conditions included completing an integration program and having limited debt. Under the new rules, in addition to completing the integration course, asylum seekers would now have to pass a (basic level) language test and hold no overdue debt. In addition, while a criminal record used to lead to a longer waiting time, a serious criminal record would prevent permanent residency altogether post-reform (Ersbøll and Gravesen 2010). Obtaining permanent residency was thus made more difficult by the reform and the key takeaway for this paper is that the policy change implied a lower ex-ante probability of being granted permanent residency based on asylum reasons. At the same time, permanent residency could be obtained through labor-market attachment and a potential effect of the reform is that this option became more important.

In addition to changes in the requirements for permanent residency, the 2002 reform package also entailed lower benefit levels, made family reunification more difficult, abolished the de facto status, and removed the possibility to apply for asylum at Danish embassies abroad. We are able to isolate the effect of changes to the eligibility for permanent residency from other parts of the reform package, as this was the only component introduced retroactively and it applied to all individuals who lodged their asylum application on or after February 28, 2002 (the date when the new Bill was proposed). The other components of the reform package took effect after the Bill had been passed, on July 1, 2002. For more details on the other components of the reform, see Online Appendix B. In 2003, another potentially important reform was implemented, allowing immigrants that had lodged their applications on or after February 28, 2002, to apply for permanent residency already after five years if they were “well integrated,” i.e., if they had a strong labor-market attachment and had not relied on social welfare.¹¹ Furthermore, in the case of exceptionally successful integration, it was possible to receive a permanent permit already after three years of legal residency (Ersbøll and Gravesen 2010). The implication for our analysis is that the integration motive—and the incentives to acquire a strong labor-market attachment—was made stronger.¹²

In this section, we describe our data sources and the empirical strategy used for the analysis.

This section presents and discusses our empirical findings for education and labor-market outcomes, separately. First, from the regression discontinuity framework we present both graphical evidence and coefficient estimates.³¹ Then, we turn to the descriptive analysis and study average outcomes.

While our main result is that there is no positive effect on labor-market outcomes, we turn to a sensitivity analysis to assess the robustness of our results. First, we discuss potential attrition due to asylum holders leaving Denmark. Second, we investigate the importance of calendar effects. Third, we consider standard tests for the validity of the regression discontinuity approach.

We study the effects of lowering the ex-ante probability of receiving permanent residency status on refugees’ outcomes. We exploit a Danish reform in 2002 that prolonged the time period that a refugee was required to have been a legal resident before being eligible to apply for a permanent residence permit. While the results from our causal estimation are subject to uncertainty, together with our descriptive analysis we find no evidence that the reform improved labor-market integration. Our findings are also in line with an increased enrollment in education in the treatment group. However, we want to be cautious about the interpretation of these results as they are sensitive to regression specifications. We further find that the reform had a significant negative impact on the share receiving permanent residency permits, but it did not impact the share of asylum seekers that actually stayed in Denmark. To sum up, while proponents of more stringent residency requirements argue that such policies will improve labor-market integration, we do not find any evidence that this is true for the reform that we study. In particular, if stricter requirements had a strong positive impact, we should be able to detect this also with a small sample size.

We emphasize some limitations of our study that highlight the need for further research. While the reform studied in this paper is theoretically ideal for studying the effect of prolonged temporary status, the setting also offers some notable challenges, in particular because of a small sample size. Furthermore, the external validity of our results, as in any study of a specific reform, depends on the institutional setting. The composition of refugees is clearly time dependent and depends on many things outside the control of the policy maker. Temporary protection schemes may also be designed in many different ways, making them more or less comparable to the reform we are studying in this paper. Therefore, it is important to compare our results to the findings of future studies of temporary permits studied in other settings. Comparing our findings to some recent empirical papers, we highlight the difference between policy changes that apply to specific groups of refugees, due to the situation in their home country, versus policy changes aimed at generally limiting access to permanent residency or incentivizing investments to promote labor-market attachment, but also the difference between different institutional contexts and points in time. Finally, we focus on a specific set of outcomes that we argue are particularly relevant for the integration of refugees, but have abstracted from many others. How to design policies to successfully promote and incentivize labor-market attachment for different groups of refugees remains an important and crucial question. Furthermore, exploring other outcomes and assessing potential mechanisms at work, such as the determinants of investment in different types of education and the timing of these investments, remain interesting tasks for future research. For example, the role of intra-household relationships may be important in order to understand heterogeneous responses of females and males, as well as the timing of investments in education.