Foreign workers: a lever for economic growth

8 May 2025

By Oscar Arce, Agostino Consolo, António Dias da Silva and Marco Weissler

Sluggish productivity growth and weak capital accumulation have hampered post-pandemic recovery in the euro area.^[1] Amid this weakness, population growth and increasing labour force participation stabilised the economy. Both factors were decisively boosted by strong inflows of foreign workers.

In this ECB blog post, we explore how the growing number of workers with roots outside the euro area and stronger labour force participation have contributed to the euro area's labour force and economic growth (Chart 1). We examine the impact of these factors across the largest euro area countries, as well as some characteristics of foreign workers that have recently changed. To that end, we combine data from national accounts and the EU Labour Force Survey (EU LFS). We focus exclusively on the labour force dynamics of foreign workers and the likely direct impact on economic growth. We do not analyse other economic and social consequences of immigration.

Foreigners and labour force growth in the euro area

Lower fertility rates in the euro area have led to a shrinking of the working-age population (aged 15 to 64). This has been offset by an increasing labour force – at least for the time being. In fact, the labour force growth rate has nearly doubled compared with pre-pandemic developments. This is driven primarily by two factors: first, there has been a notable rise in the labour force participation rate among national workers, with more euro area residents in a job or looking for one. Second, there has been a significant increase in numbers and participation rates of foreign workers. Although foreign workers represented only about 9% of the total labour force in 2022, they have accounted for half of the labour force growth in the past three years (Chart 2), equivalent to 3.1 million additional workers.

Chart 2

Labour force growth by nationality

(year-on-year percentage change; percentage point contributions)

Contribution of foreigners to GDP growth

A simple way to account for the contribution of foreign workers to GDP growth is to follow a basic decomposition of growth. First, we break down quarterly GDP growth into the contribution of labour productivity, the employment rate and the growth rate of the working-age population. Second, both the employment rate and the growth rate of the working-age population are further broken down into the respective contribution of national and foreign workers.

What we see is that national workers have increased their employment rates, which partially offset the effects of the stagnating or slightly decreasing working-age population. Moreover, in line with their large contribution to overall employment growth, foreign workers have made a substantial contribution to output growth (Chart 3). Increases in their employment rates, along with growing migration, have significantly boosted real GDP. Thus, foreign workers have helped to expand labour supply, alleviate labour shortages and support economic growth – all amid otherwise tight labour markets.

Chart 3

Contribution of foreign workers to GDP growth

(percentage change since the fourth quarter of 2019 and percentage point contributions)

However, the positive contribution of foreign workers to economic growth has varied across the largest euro area countries, reflecting country-specific factors (Chart 4). Countries with relatively lower participation rates – such as Italy – have seen an increase in economic growth supported by higher participation rates of nationals. Here, foreign workers have not contributed substantially to employment and therefore output growth.

Meanwhile, in countries with high participation rates experiencing a decline in their working-age population – like Germany – foreign workers have helped to mitigate the effects of the ageing population and the shrinking national workforce.

In Spain, the influx of foreign workers has also contributed significantly to economic growth, by complementing the positive, but modest, contribution from the national working-age population. In both France and the Netherlands, foreign workers have made notable contributions, although – in relative terms – less so than in Germany and Spain.

Chart 4

Contribution to GDP growth between the fourth quarter of 2019 and the fourth quarter of 2024 by country

(percentage change since the fourth quarter of 2019 and percentage point contributions)

Jobs and characteristics of foreign workers

Despite the fast increase in the number of foreign workers, their unemployment rate has in fact declined since the COVID-19 pandemic.^[2] How can we explain this? One factor to look at is their education levels, which have noticeably improved along with those of national workers. For both groups, the share of workers with tertiary education has increased. Although foreign workers are still overrepresented in low-skilled occupations, their share in high-skilled occupations has grown (Chart 5, panel a). This also becomes apparent when analysing the skill mismatch. This is a situation in which a worker holds a degree which potentially qualifies them to fill better-paid positions. While still very high, the overqualification rate of foreign workers has been declining since 2019 (Chart 5, panel b).^[3] At the same time, foreign workers remain more likely to have a temporary labour contract. This may reflect the temporary nature of the jobs they hold and possibly indicate greater challenges in securing permanent employment.

Chart 5

Change in employment by occupation and overqualification rates by citizenship

a) Employment by occupation	b) Overqualification rates
(change in the share of employment between 2015 and 2023)	(percentage of tertiary-educated workers in low or medium-skilled occupations)

Main takeaways

The euro area population is ageing. This poses serious challenges to labour force expansion and, consequently, economic growth. As our data show, foreign workers could help to address and overcome these challenges. The influx of foreign workers in recent years has secured a robust growth in the euro area labour force, which has somewhat offset the negative demographic trends. The contribution of foreign workers is increasingly reflected in GDP growth, thanks to both their growing numbers and higher participation rates. This positive effect is evident across countries, albeit to a varying degree. In some of the largest economies, it is not an exaggeration to conclude that growth would have been much slower in the absence of foreign workers. Additionally, foreign workers have improved their standing on the labour market, as evidenced by lower unemployment figures, higher qualification levels and reduced overqualification rates. Despite these improvements, there is still ample room to better align foreign workers' qualifications with job requirements. This would improve their job stability and further support their contribution to productivity growth.