The Impact of Immigration on the Swedish Labor Market Analyzing the effect of the 2015 Refugee Crisis on the Swedish unemployment rate

Abstract

In 2015, Sweden received over 160,000 asylum applications, an increase of 100 percent compared to the previous year. The large influx of immigrants, widely known as the 2015 Refugee Crisis, is considered a natural experiment. The aim of this study is to investigate the impact of immigration on the Swedish labor market. This is conducted by analyzing the impact of a large influx of immigrants on the Swedish unemployment rate, focusing on the 2015 Refugee Crisis. We use panel data, with annual observations of Sweden’s 290 municipalities from 2013 to 2023. To estimate the potential effect of immigration on the unemployment rate, we exploit variation in the share of immigrants across municipalities and larger geographical areas (LA-regions). In addition, we use the median gross cash salary as a threshold to define low-income and high-income municipalities. We then investigate the potential effect of immigration on the unemployment for both groups, respectively. The Fixed Effects model is applied to account for time-invariant unobserved characteristics that can differ across geographic areas. Our results indicate that immigration has a positive effect on the Swedish unemployment rate at the municipal level and at the LA-regional level, suggesting that immigration has an increasing effect on the unemployment rate. The effect is found to be larger in LA-regions than in municipalities. Additionally, our findings suggest that the increasing effect of immigration on the unemployment rate is greater in low-income municipalities than in high-income municipalities. Our findings are partly consistent with previous literature, however, our estimated coefficients are larger.