Christine Lagarde, president of the European Central Bank, stated on Saturday that Europe was able to cut inflation without experiencing a significant slowdown in GDP due to an increase in the proportion of foreign-born workers during the pandemic.
Speaking at a Federal Reserve economic symposium in Jackson Hole, Wyoming, Lagarde stated that a significant contributing element “has been the rise in both the number and participation rate of foreign workers.”
“In Germany, for instance, without the contribution of foreign workers, GDP would be about 6% lower than in 2019.”
“The contribution of foreign labor also owes much to Spain’s strong post-pandemic economic growth,” she said.
Lagarde’s remarks reflected a widely held belief among economists that corporations were able to increase their output and satisfy a surge in demand following the pandemic, thanks to the influx of migrant labor, which preceded stimulus payments.
Inflation in the US and Europe was reduced in part by the expanded supply.
However, in both economies, the increase in immigration also led to a political backlash.
Lagarde stated that as the local population ages, “migration could, in principle, play a crucial role in easing” labor shortages.
However, “pressures from the political economy may increasingly limit inflows.”
Lagarde stated that even as the ECB raised interest rates, the economy continued to grow steadily due to a decline in inflation-adjusted salaries, increased employee hoarding by businesses, and an influx of older workers.
Higher borrowing costs have historically slowed economic growth, frequently resulting in recessions and increased unemployment, Lagarde said.
But in 2022 and 2023, the ECB increased its key rate, so that didn’t happen.
According to Lagarde, foreign-born workers have contributed half of the EU’s labor force growth over the last three years, although they made up only 9% of the bloc’s labor force in 2022.
Additionally, more senior citizens entered the workforce, according to Lagarde.
According to her, the unemployment rate in the 20 nations that use the euro would be higher without that increase, at 6.6% instead of the current 6.3%.
Speaking at Jackson Hole, Kazuo Ueda, the governor of the Bank of Japan, saw a similar pattern in Japan since the pandemic.
Foreign-born people have accounted for half of recent workforce growth, although making up only 3% of the workforce.
