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From refugees to citizens

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Understanding labor market returns to naturalization

The German government is currently undertaking a significant reform of its citizenship law, making it more accessible for foreign residents to naturalize. While it is straightforward to forecast that such a reform will increase the propensity for naturalization, the broader repercussions on migrants' social and economic integration are more uncertain to predict. Citizenship brings crucial entitlements, such as unrestricted residency, international mobility, and voting rights. Whether naturalization additionally leads to improved economic outcomes for migrants remains an open question.

Citizenship law reforms are often met with mixed feelings among voters. On one side, there is widespread recognition that granting citizenship aids migrant inclusion and integration into the host society. Conversely, deep concerns persist about making the rules too lenient for the migrant population and the country too attractive for future arrivals. Beyond the ideological political debate between those advocating for restrictive rules on migration and those supporting a more open approach, there exists a clear economic trade-off when designing optimal naturalization regimes.

Access to citizenship is typically regulated through stringent eligibility criteria, encompassing a minimum residence requirement and additional conditions (e.g., language fluency, income thresholds). This turns naturalization into a reward for successful integration, and the eligibility criteria should reinforce migrants' incentives to invest in host country-specific human capital and integration efforts. More restrictive rules should thus foster migrants’ integration. However, an opposing argument posits that acquiring citizenship may act as a “catalyst” for integration, leading to enhanced labor market outcomes for those who manage to naturalize. If the “catalyst” argument holds, removing obstacles to naturalization should then lead to more integrated immigrants. Adding complexity to the issue is the fact that gains from citizenship may be highly heterogenous: Restricting access to citizenship may intensify incentives to integrate for some migrants, while discouraging efforts for others, potentially hindering their assimilation process.

In a recent IZA discussion paper, we contribute novel empirical insights to this multifaceted policy debate. We use survey data containing information on refugee status, naturalization and labor market outcomes for over 130 thousand foreign-born workers across 21 European countries. We match these individual records with information on the citizenship regime each migrant was exposed to. Our analysis addresses two distinct but closely connected questions.

We first examine the impact of naturalization on refugees' labor market outcomes compared to non-refugee migrants. Our findings reveal that while refugees tend to initially lag behind comparable migrants in labor market integration, naturalization serves as a crucial mechanism in bridging these gaps, significantly enhancing their overall integration. Conversely, the impact of naturalization on non-refugee migrants appears negligible. These results imply that relatively marginalized migrant groups are expected to benefit the most from citizenship.

We then explore the more general question of whether migrants who manage to naturalize are reaping economic benefits from their naturalization, and whether their returns are larger or smaller than the potential gains of those who struggle to integrate and, therefore, to naturalize. According to our estimates, the returns from naturalization are estimated to be zero (on average) for the individuals who successfully naturalize, while they would be positive and substantial for those who fail to do so. This finding implies that current naturalization regimes in Europe are leaving out those who would benefit the most from naturalization. 

Our evidence strongly indicates that easing eligibility rules for all categories of migrants – not solely refugees – has the potential to result in a more economically active and integrated migrant workforce, thereby generating substantial economic benefits for host societies.

© Francesco Fasani, Tommaso Frattini and Maxime Pirot

Francesco Fasani is Associate Professor at the Department of Economics, Management and Quantitative Methods (DEMM) at the University of Milan and IZA Research Fellow
Tommaso Frattini is Professor of Economics at the Department of Economics, Management and Quantitative Methods of the University of Milan and IZA Research Fellow
Maxime Pirot is an economist at the Research and Statistic Directorate of the French Ministry of Labour (DARES)

Please note:
We recognize that IZA World of Labor articles may prompt discussion and possibly controversy. Opinion pieces, such as the one above, capture ideas and debates concisely, and anchor them with real-world examples. Opinions stated here do not necessarily reflect those of the IZA.

Related IZA World of Labor content:
Naturalization and citizenship: Who benefits? by Christina Gathmann and Ole Monscheuer
Integrating refugees into labor markets by Pieter Bevelander
Refugee children's earnings in adulthood by Yoko YoshidaJonathan Amoyaw, and Rachel McLay

Photo by Global Residency Index on Unsplash