Rich economies will need foreign workers to fuel growth, policymakers warn

NEW YORK Aug 25: Central bankers have warned that advanced economies risk weaker growth and higher inflation unless immigration plays a bigger role in sustaining shrinking workforces.

At the U.S. Federal Reserve’s annual Jackson Hole symposium in Wyoming, leaders from the Bank of Japan, European Central Bank, and Bank of England highlighted how ageing populations and falling birth rates are tightening labour markets across wealthy nations.

Kazuo Ueda, governor of the Bank of Japan, described labour shortages as one of his country’s most pressing economic problems. Foreign workers represent just 3% of Japan’s workforce, yet they have accounted for half of recent labour force growth. “Further increases will surely require a broader discussion,” he told delegates.

Christine Lagarde, president of the European Central Bank, said immigration would be “crucial” in countering Europe’s demographic decline. Without additional foreign labour, she warned, the eurozone could lose 3.4 million working-age people by 2040. Foreign workers currently make up 9% of the euro area’s workforce but were responsible for half of its employment growth in the past three years. “Without this contribution, labour market conditions could be tighter and output lower,” she said.

Bank of England governor Andrew Bailey echoed these concerns, calling demographic change an “acute” challenge for the UK. By 2040, 40% of the British population will fall outside the traditional working-age group, he said. Long-term illness, lower youth participation, and rising inactivity—driven especially by mental health problems—are further constraining labour supply. “The challenge,” Bailey noted, “is not just unemployment, but inactivity itself.”

Economists warn that shrinking workforces in advanced economies risk reducing productivity while stoking inflationary pressures, as persistent shortages give workers greater leverage to demand higher wages.

While immigration remains politically contentious across much of the developed world, the message from Jackson Hole was clear: without a steady inflow of foreign labour, the economic weight of ageing societies will become increasingly difficult to bear.

Influx of foreign workers has given the euro zone’s economy a boost

An influx of foreign workers has given the euro zone’s economy a boost in recent years, helping offset shorter working hours and lower real wages, European Central Bank President Christine Lagarde said on Saturday.

Migration into the European Union pushed its population to a record last year despite declining births but governments are placing curbs on new arrivals in response to domestic discontent.

Lagarde listed a rise in the number of workers from outside the 20 countries that share the euro as a factor that supported the bloc’s economy despite a growing preference for fewer working hours and a fall in living standards in some sectors.

“Although they represented only around 9% of the total labour force in 2022, foreign workers have accounted for half of its growth over the past three years,” Lagarde said in a speech at the U.S. Federal Reserve’s annual symposium in Jackson Hole, Wyoming. “Without this contribution, labour market conditions could be tighter and output lower.”

She said gross domestic output in Germany would be around 6% lower than in 2019 without foreign workers and added Spain’s strong economic performance since the end of the COVID-19 pandemic also owed much to the contribution of foreign labour.

The EU’s population rose to a record 450.4 million people last year as net immigration offset a natural population decline for the fourth straight year.

But this has come at a cost of political backlash from local voters, who have increasingly turned to far right parties.

Germany’s new government, for example, has suspended family reunification and resettlement programmes as it seeks to regain support from voters drawn to the Alternative for Germany.
In the United States, President Donald Trump has stepped up arrests of immigrants in the U.S. illegally, cracked down on unlawful border crossings and stripped legal status from hundreds of thousands of migrants since his inauguration.