Foreign Workers Bolstered Europe’s Economic Recovery and Tamed Inflation, Lagarde Reveals
JACKSON HOLE, Wyo. – Europe’s economic recovery post-pandemic and its remarkable success in curbing inflation received a significant boost from an influx of foreign-born workers, European Central Bank (ECB) President Christine Lagarde announced Saturday. Speaking at the influential Federal Reserve economic symposium in Jackson Hole, Wyoming, Lagarde detailed how this demographic shift played a pivotal role in preventing a severe economic downturn across the continent.
The Crucial Role of Foreign Labor in Economic Resilience
Lagarde underscored that a critical component of this economic resilience was “the rise in both the number and participation rate of foreign workers.” This expanded labor supply provided European companies with the capacity to meet the surge in consumer demand that followed extensive pandemic-era stimulus measures. By alleviating supply-side pressures, the increased workforce directly contributed to reducing inflation without the drastic economic contraction often associated with rising interest rates.
Impact Evident Across the Eurozone
The positive impact of foreign labor was clearly visible across the Eurozone:
- In Germany, Lagarde cited projections indicating that the nation’s Gross Domestic Product (GDP) would be “around 6% lower than in 2019” without the integral contributions of its foreign-born workforce.
- Similarly, Spain’s robust economic growth in the aftermath of the pandemic “also owes much to the contribution of foreign labor,” she noted.
Quantifying this vital contribution, Lagarde highlighted that while foreign-born individuals comprised just 9% of the European Union’s total labor force in 2022, they were responsible for a striking half of the bloc’s overall labor force growth over the preceding three years.
Beyond Immigration: Other Contributing Factors
Beyond the critical role of immigration, Lagarde identified several other factors that helped the European economy withstand the ECB’s aggressive interest rate hikes throughout 2022 and 2023. These included:
- A decrease in inflation-adjusted wages.
- Companies’ tendency to retain employees, a phenomenon known as “labor hoarding.”
- An increased participation of elderly individuals in the workforce.
Without the latter, she explained, the unemployment rate across the 20 countries that use the euro would have climbed to 6.6%, rather than its current 6.3%. Collectively, these elements defied the historical trend where tighter monetary policy typically leads to slower growth and higher joblessness.
A Global Perspective: Japan’s Similar Experience
A similar pattern emerged in Asia, with Bank of Japan Governor Kazuo Ueda, a fellow panelist at the symposium, observing that in Japan, foreign-born workers, despite making up only 3% of the total workforce, accounted for half of the country’s recent labor force expansion.
Future Outlook: Migration’s Potential and Political Headwinds
Looking ahead, Lagarde cautioned that while migration could theoretically “play a crucial role in easing” future labor shortages — a growing concern as native European populations age — this potential benefit faces significant headwinds. The noticeable increase in immigration has already fueled a political backlash in both Europe and the United States, leading Lagarde to suggest that “political economy pressures may increasingly limit inflows” in the future. This indicates a complex interplay between economic necessity and societal response that will shape Europe’s demographic and economic landscape.
