European Central Bank research links recent euro area labour force and GDP growth to rising foreign worker participation

The European Central Bank published an analysis of how foreign workers have affected labour force dynamics and economic growth in the euro area’s largest countries in recent years, focusing on the direct contribution to GDP growth. It concludes that, amid weak productivity growth and capital accumulation, population growth and higher labour force participation driven by strong inflows of foreign workers have helped stabilise the economy and support output. Using national accounts data and the EU Labour Force Survey, the blog finds that foreign workers were around 9% of the euro area labour force in 2022 but accounted for half of labour force growth over the past three years, equivalent to 3.1 million additional workers. A growth decomposition indicates that higher foreign worker employment rates and migration have made a substantial contribution to real GDP, with cross-country differences: higher national participation played a larger role in Italy, while foreign workers helped offset a shrinking national workforce in Germany and contributed significantly in Spain, with notable but relatively smaller contributions in France and the Netherlands. The post also notes improving labour market outcomes for foreign workers since the pandemic, including lower unemployment, higher educational attainment, a rising share in high-skilled occupations and declining (though still high) overqualification rates, alongside a continued higher prevalence of temporary contracts.