The biggest obstacle to refugees economic success is not a lack of compassion — but a set of broken markets. That is the central argument of our new review article, forthcoming in the Journal of Economic Literature.
We examine the growing body of evidence on policies designed to help refugees integrate economically, and we find that the most effective interventions share a common logic: they correct specific market failures that disproportionately affect refugees. Information asymmetries, matching frictions and liquidity constraints represent concrete reasons why a qualified engineer ends up washing dishes for years, or why a motivated entrepreneur cannot access a $200 loan to start a business.
The growing number of refugees coming from conflict areas of the world to Europe or North America as well as into developing countries would benefit substantially from addressing these problems.
The market failure frame
Consider the information problem. Searching for a job is hard for everyone. Now imagine a refugee who does not speak the language, does not know anyone, cannot prove their qualifications, and might not even be legally allowed to work. Employers, meanwhile, cannot verify a refugee’s skills, do not know if they will stay, and may not trust credentials from a country they know nothing about. Both sides want to make a deal, but neither has the information to make it work. Economists call this an information asymmetry — and for refugees, it is severe.
Then there is the liquidity problem. Most refugees arrive with nothing. They cannot borrow, because they have no credit history, no collateral, no local networks to tap for informal loans. Without cash, they cannot invest in language classes, cannot afford to relocate to where the jobs are, cannot take the time to find a good job match. They grab the first opportunity available, which is often a bad one — and that bad initial match can affect their career trajectory for years.
What the evidence says
In our review, we organize the evidence around five categories of interventions. Here is what works — and why.
Grant legal status and labor market access early. Many countries impose employment bans on asylum seekers that last months or years. The evidence is striking: Across Europe, employment bans reduced employment probability by 12.5 percentage points over the first decade after arrival. Banning refugees from working destroys the very human capital that makes integration possible, and it harms refugees’ mental health in the process.
Place refugees where the jobs are. Where refugees initially settle shapes their economic trajectory for years, because moving later is costly and rare. Being settled in a large city with low unemployment permanently improves employment and earnings. Yet many dispersal policies prioritize spreading refugees evenly across regions for political reasons, often sending them to economically weak areas. Research suggests that optimized placement could improve employment outcomes by 22–38% at essentially zero additional cost.
Invest in language training. Language is possibly the most cost-effective integration tool in the evidence base. In several countries expansion of mandatory language classes produced increases in employment and annual earnings — effects that persisted for many years. Why does language matter so much? It unlocks access to better jobs such as caretakers or nursing assistants— jobs that pay better, last longer, and have more room for advancement.
Design active labor market programs carefully. Job training and placement programs can work, but design matters enormously. Programs that combine language instruction with hands-on job training show the strongest results. Employer-involved programs — where firms help design training and commit to hiring — boost employment. But programs offering only basic job search help, without building skills, show limited impact.
Provide early cash in support of skill acquisition. Newly arrived refugees are severely cash-constrained, and that constraint forces them to take a low-quality job immediately rather than investing in language or training. Evidence from the U.S. suggests that a $100 increase in early welfare transfers increased earnings by 5–8% five years later.
Timing and sequencing
One important lesson from all five policy areas is that the first years after arrival are critical. This is when refugees face maximum information gaps, minimal local networks, and the most severe liquidity constraints. Interventions during this window have disproportionate returns — and delays during this period create persistent scars.
The evidence points toward a logical sequence in interventions. First, resolving legal status and granting labor market access quickly — uncertainty alone is a major barrier. Then investing in language and basic skills. Then layering on more targeted job matching and training, ideally in locations with strong labor demand. Cash support in the early phase complement all of this by giving refugees the financial room to make these investments.
Reframing the message
The conversation about refugees is almost always framed around compassion versus burden. We think that framing misses the point. Aging population in rich countries are rapidly running out of workers while demanding many services that those workers provide. Older Europeans and North Americans need surgeons, physical therapists and home assistants. The surgeons need nurses and technicians. Nurses need cooks in the restaurant and cleaners and hairdressers. In complex economies workers are complementary to each other and refugees can be many of those workers.
Refugees are not asking for a favor. They are people whose market access has been broken by forces beyond their control. The evidence shows we know how to fix those broken markets — through early legal access, efficient placement, language training, and targeted support. These are investments with measurable returns, often many times their cost.
