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key factor "has been the rise in both the number and
participation rate of foreign workers,” Lagarde said 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 said.
Lagarde's comments echoed a common view among economists that an
influx of foreign workers helped companies expand their output
and meet a spike in demand after the pandemic that followed
stimulus benefits. The increased supply helped 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 said. But
“political economy pressures may increasingly limit inflows.”
Lagarde also said 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 causing 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 made up half of the bloc's labor
force growth in the past three years, Lagarde said.
More elderly people also joined the workforce, Lagarde noted.
Without that increase, the unemployment rate in the 20 countries
that use the euro currency would be elevated — 6.6%, rather than
the current rate of 6.3%, she said.
Kazuo Ueda, governor of the Bank of Japan, spoke on the same
panel at Jackson Hole and noted a similar trend in Japan since
the pandemic. While the foreign-born make up just 3% of the
workforce, they have made up half of recent workforce growth.
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