A jump in the share of foreign-born workers after the pandemic supported Europe bring inflation down without sharply slower growth, European Central Bank President Christine Lagarde declared Saturday.
A key factor “has been the rise in both the number and participation rate of foreign workers,” Lagarde declared in a speech in Jackson Hole, Wyoming, at a Federal Reserve economic symposium. “In Germany, for example, GDP would be around 6% lower than in 2019 without the contribution of foreign workers.”
Spain’s strong post-pandemic economic growth “also owes much to the contribution of foreign labor,” she declared.
Lagarde’s comments echoed a common view among economists that an influx of foreign workers supported companies expand their output and meet a spike in demand after the pandemic that followed stimulus benefits. The increased supply supported bring down inflation in Europe and the United States. Yet the rise in immigration also sparked a political backlash in both economies.
“Migration could, in principle, play a crucial role in easing” labor shortages as native populations age, Lagarde declared. But “political economy pressures may increasingly limit inflows.”
Lagarde also declared that a drop in inflation-adjusted wages, greater hoarding of workers by companies, and an influx of elderly people into the labor force also contributed to steady economic growth even as the ECB lifted interest rates.
Historically, Lagarde emphasized, higher borrowing costs have dragged down economic growth, often cautilizing recessions and leading to higher unemployment. Yet that didn’t happen as the ECB raised its key rate in 2022 and 2023.
While foreign born workers accounted for just 9% of the EU’s labor force in 2022, they have created up half of the bloc’s labor force growth in the past three years, Lagarde declared.
More elderly people also joined the workforce, Lagarde noted. Without that increase, the unemployment rate in the 20 countries that utilize the euro currency would be elevated — 6.6%, rather than the current rate of 6.3%, she declared.
Kazuo Ueda, governor of the Bank of Japan, spoke on the same panel at Jackson Hole and noted a similar trfinish in Japan since the pandemic. While the foreign-born create up just 3% of the workforce, they have created up half of recent workforce growth.
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