This paper investigates how the rapid increase in the low-skilled labor supply in Turkey induced by the inflow of 2.5 million Syrian refugees changed the tasks performed by Turkish workers and the capital intensity of Turkish firms. Despite the unexpected nature of the refugee inflow, refugees’ choice of location may be endogenous to labor market opportunities of host regions. To handle this endogeneity, the authors identify the causal effects of Syrian refugees by using the distance between the host cities in Turkey and hometowns in Syria in an instrumental variables approach. The empirical analysis also builds on the stylized fact that most Syrian refugees have few skills that are valued in the Turkish labor market and that the low-skill labor they provide will be complements with some inputs and substitutes for others. The analysis is based on several administrative and survey datasets (using 2014 and 2015 as treatment years and 2010 and 2011 as control years).
- Overall, the refugee inflow pushed Turkish workers from manual-intensive jobs towards more complex jobs that involve abstract tasks—either by replacing Turkish workers in manual intensive jobs or by transforming the mix of tasks performed by Turkish workers.
- Young and highly educated natives moved towards higher complexity jobs. Highly educated workers are better able to adapt their occupations to those that are complementary to the labor supply of refugees. Their employment and abstract intensity rises while routine and manual intensities fall. The reallocation of employees to more complex tasks occurs for younger employees aged 15-34.
- Lower educated employees show no significant change in their tasks and also drive the negative effect on native employment. Refugee labor is a substitute for the tasks performed by the lower educated, who are driven out of employment as result. Their inability to adjust to tasks that are complementary to Syrian labor inputs may explain why their employment outcomes are negatively affected.
- The refugee inflow causes a decline in the capital intensity and investment rates of manufacturing firms in refugee hosting regions. This effect is larger and more precisely estimated for smaller firms compared to medium and large firms.
The authors conclude that the adjustment to the large-scale refugee shock is rapid, varied for different skill and age groups and affects both labor tasks and capital inputs. Specifically, highly educated Turkish workers moved to more complex tasks and firms reduced their capital use in refugee-hosting regions implying a substitutability between refugee labor supply and manual tasks and capital; and complementarity between refugee labor supply and abstract tasks. The authors argue that the reduction in capital is particularly worrying if it damages long-term investments and productivity. They warn that Turkish firms may end up reliant on informal refugee labor and may be left with a suboptimal mix of capital and labor inputs if the refugees return to Syria after the settlement of the crisis.