While the EU tightens its immigration policy, a new analysis by the ECB admits that the slow growth is largely due to migrant workers.
In a text signed by four economists and labor experts, they record with quantitative and qualitative data the contribution of migrant labor to GDP and employment growth.
As they emphasize, despite the problems after the pandemic, the eurozone economy stabilized thanks to population growth and increased participation in the labor market. Both of these factors were significantly strengthened by the influx of foreign workers.
According to the ECB’s analysis, based on data from national accounts and the Eurostat Labour Force Survey, the eurozone’s labour force is growing despite low birth rates and a shrinking working-age population (15-64 years old) (“Foreign workers: a lever for economic growth“).
How do Foreign workers boost GDP?
Although foreign workers represented just 9% of the total workforce in 2022, they have accounted for 50% of the growth in the workforce over the past three years. That’s the equivalent of 3.1 million additional workers.
ECB economists are “analyzing” how immigrant workers contribute to GDP growth.
A. First, they analyze quarterly GDP growth in three factors:
- The contribution of labor productivity,
- the employment rate, and
- the growth rate of the working-age population.
B. They then analyze employment rates and the growth rate of the working-age population,
- in terms of the contribution of native and
- foreign workers.
They observe that native workers have increased their employment rates, which partially offsets the effects of the stagnation or decline in the working-age population.
C. Furthermore, as foreign workers make a large contribution to overall employment growth, they contribute accordingly to productivity growth.
The increase in their employment rates, combined with increasing immigration, has significantly boosted real GDP in the Eurozone.
D. Foreign workers have contributed to
- expanding the labor supply,
- alleviating labor shortages, and
- supporting economic growth, at a time when labor markets in the Eurozone remain “tight.”
Differences between countries
The positive contribution of foreign workers varies among the largest economies in the euro area.
A. In countries with relatively low labour force participation rates, such as Italy, economic growth has been based mainly on increasing participation of the local labour force. The contribution of migrant workers to GDP growth is considered secondary.
B. In contrast, in countries with high labour force participation rates, such as Germany, which are facing a decline in the working-age population, foreign workers have helped to counter the effects of an ageing population and a shrinking national labour force.
C. In countries such as Spain, the inflow of foreign workers has made a significant contribution to economic growth, complementing the positive but modest contribution of the local working-age population.
D. In France and the Netherlands, foreign workers also made a notable contribution to economic growth, although relatively smaller than in Germany and Spain.
Migrant workers are the most overqualified
Migrants continue to be employed mainly in manual and low-skilled jobs. However, their share in highly skilled jobs has increased, as has the share of migrant workers with tertiary education.
Migrant workers in the Eurozone still have very high rates of overqualification, although they are gradually decreasing. Overqualification refers to when a worker qualified for better-paid jobs is employed in poorly paid, low-skilled jobs. We know this all too well if we have met female migrants from the former Eastern Bloc, with degrees in engineering and sociology, who clean houses and care for the elderly.
At the same time, migrant workers are more likely to be employed on temporary contracts, which indicates greater difficulties in securing permanent employment.
What would we do without immigrants?
As the eurozone population ages, serious challenges arise for expanding the workforce and economic growth. The data show that foreign workers can help address these challenges, the ECB concludes.
In some of the largest eurozone economies, growth would be much slower without foreign workers. It concludes that there is significant scope for improving working conditions for immigrants and better matching their qualifications to job requirements. This would help to stabilize their jobs and further enhance immigrants’ contribution to productivity growth.
