Informality and the Economic Effects of Mass Migration: Evidence from Syrian Refugees in Turkey

Since the Syrian war begun in 2011, Turkey has received over 2.8 million refugees, becoming the largest host country in the world. We build and estimate a model using detailed micro data from Turkey to quantify the effects of this sudden and massive migration wave on labor market outcomes, TFP and welfare. In the model, low and high skill workers self-select into different regions based on idiosyncratic preferences and mobility costs, while firms within each region can exploit two margins of informality: to register or not their business, the extensive margin; and whether to hire their workers formally or not, the intensive margin. We combine minimum distance calibration and direct estimation from micro data to characterise the pre-shock, baseline Turkish economy and then use the calibrated model to perform counterfactual exercises. The results show that although the inflow of Syrian refugees induces an increase in informality among low skill workers, it also generates both a reduction in informality among high skill workers and a rise in the skill premium. Furthermore, while the regions receiving larger numbers of refugees experience larger effects, the shock spreads to all regions due to regional migration of native workers.

Written with Norman Loayza (World Bank), Tomoko Utsumi (Minnesota)