Foreign workers have increasingly become integral to the labor markets within the euro area, impacting economic growth amidst challenges such as sluggish productivity and weak capital accumulation following the pandemic.

Recent findings indicate that foreign labor not only stabilizes the economy but also contributes significantly to the labor force and overall economic growth.

In 2022, foreign workers comprised approximately 9% of the euro area labor force, yet accounted for half of the labor force growth in the preceding three years, translating into an addition of 3.1 million workers.

An examination of labor force dynamics reveals that a decline in fertility rates has led to a reduction in the working-age population.

However, the labor force growth rate has notably increased, largely due to rising participation rates among both national and foreign workers.

In this period, the participation rate for foreign nationals has significantly contributed to labor market expansion.

The contribution of foreign workers to GDP growth can be understood through a breakdown of quarterly GDP attributes: labor productivity, employment rates, and the working-age population growth rate.

Data shows that foreign workers have played a pivotal role in output growth due to their increasing employment rates, especially in nations with tightening labor markets.

Countries such as Germany and Spain have experienced augmented economic growth attributed to foreign workers, who help alleviate labor shortages and meet market demands.

Contrasts exist among euro area nations regarding the impact of foreign workers.

For instance, Italy has seen its economic growth supported primarily by an increased participation rate of national workers.

In contrast, Germany has benefitted from foreign labor as a counterbalance to its declining working-age population.

Similarly, while Spain has seen pronounced contributions from foreign workers, countries like France and the Netherlands have had less pronounced impacts, although foreign labor remains significant.

Despite witnessing a swift increase in foreign workers, their unemployment rate has decreased since the onset of the COVID-19 pandemic.

The improvement in education levels among foreign workers parallels that of national workers, with an increasing proportion of both groups now holding tertiary qualifications.

Although foreign workers still predominate in low-skilled jobs, there has been an uptick in their representation in high-skilled occupations.

Data indicates a decreasing trend in overqualification among foreign workers, although they continue to experience higher rates of temporary contracts, which may suggest ongoing barriers to achieving permanent employment.

As the euro area confronts demographic challenges with an aging population, the influx and increased integration of foreign workers present a potential avenue for mitigating the adverse effects on labor supply and economic performance.

The interplay between foreign labor and domestic employment trends signifies their vital role in shaping the future economic landscape of the region.