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The role of migration in weak labour force developments during the COVID-19 pandemic

Prepared by Katalin Bodnár and Derry O’Brien

Published as part of the ECB Economic Bulletin, Issue 1/2022.

Weaker than expected developments in the labour force during the coronavirus (COVID-19) pandemic may partly reflect weak net immigration. In the third quarter of 2021 the size of the euro area labour force recovered to around its pre-pandemic level in the fourth quarter of 2019.[1] However, it remains substantially below the level expected prior to the COVID-19 outbreak. This reflects the strong impact of the pandemic on the dynamics of both the working age population and the labour force participation rate (LFPR).[2] Subdued net immigration may have been a contributory factor, stemming from moderate migrant inflow and some foreign workers resettling in their home countries. Bringing together the available data on migration for euro area countries, this box examines the role of migration in weak labour force developments during the pandemic and the longer-term implications.

Weak net immigration partly explains a flattening out of the working age population. The working age population is usually considered to be independent of the business cycle[3] and is influenced by two factors: natural entry and exit from the population of residents aged 15-74 and net immigration of those aged 15-74. It was rising before the pandemic and was projected to continue increasing until 2024, albeit at a moderating rate.[4] This was predicated on a moderation or even a negative net flow in natural entry and exit from the population of residents aged 15-74. Net immigration flows were projected to contribute positively to the working age population, more than offsetting any declines in the number of working age residents. However, since the onset of the pandemic, net immigration flows have been much weaker than expected, resulting in a broadly flat profile for the working age population (Chart A).

Chart A

Working age population in the euro area

(millions; cumulative change since the first quarter of 2014)

Sources: Eurostat EU Labour Force Survey and ECB staff calculations.
Notes: The breakdown is based on citizenship. “Foreign citizens” refers to all those who do not live in their own country of citizenship (i.e. citizens of a given euro area country who are living in another euro area country are considered foreign citizens).

Declines in the prime-age labour force are primarily due to secular population ageing, but may also partly reflect subdued inward migration. In general, since the outbreak of the pandemic, there have been strong declines in the population of prime-age cohorts (aged 25 to 54), which tends to have a relatively high LFPR, alongside increases in the population aged 55-64, which has a low LFPR (Chart B). Such developments within age cohorts are partially related to general demographic trends that reflect population ageing. In effect, the size of the cohorts leaving the prime-age group and entering the 55-64 age group is larger than the size of those entering the prime-age group. However, it is likely that these developments also reflect migration trends during the pandemic, as inward migrants to the euro area tend to be in the prime-age bracket.

Chart B

Factors affecting labour force by age group and the decomposition of the change in the labour force between the fourth quarter of 2019 and the third quarter of 2021

(left-hand scale: millions; cumulative changes since the fourth quarter of 2019; right-hand scale: percentages of the population)

Sources: Eurostat Integrated European Social Statistics and ECB staff calculations.
Note: Series are seasonally adjusted.

Net immigration into the euro area fell short of the trend increase seen before the pandemic. Given data limitations and the ongoing implementation of the Integrated European Social Statistics (IESS) Regulation,[5] it is only possible to draw tentative conclusions on how migration flows have evolved during the pandemic. EU Labour Force Survey (EU-LFS) data are used as the underlying data are available by citizenship. According to EU-LFS data, the number of foreign citizens of working age in the euro area has remained broadly unchanged since the start of the pandemic, in contrast to the rising trend observed in the preceding years. This slowdown was partly driven by a marked decline in the number of permanent migrants with foreign citizenship – mainly from non-euro area EU countries – into the euro area in 2020, a phenomenon that was common to many euro area countries (Chart C).

Chart C

Inflows of permanent migrants with foreign citizenship in some euro area countries


Source: OECD Migration Outlook 2021.
Notes: Includes foreign citizens only. The inflows include status changes, namely persons who entered the country on a temporary basis and subsequently obtained the right to stay on a longer-term basis.

The labour force of foreign citizens in the euro area is about 0.2 million below the pre-pandemic level, but well below its pre-pandemic trend. While the data are surrounded by some uncertainty, a drop in foreign citizens relative to the pre-pandemic period appears to account for more than 0.1 percentage points of the 0.2% decrease in the labour force (Chart D). This is mainly owing to a lower labour supply of prime-age and younger foreign workers. The unemployment rate among foreign citizens also increased substantially more than that of nationals (increasing by 3.1 percentage points and 0.9 percentage points between the fourth quarter of 2019 and the first quarter of 2021 respectively), reflecting the more cyclical nature of the unemployment rate of foreign citizens. It is likely that the higher unemployment rate for foreign citizens triggered greater outflows, while also dissuading potential migrants from relocating to the euro area.

Chart D

Labour force by citizenship in the euro area


Source: Eurostat EU Labour Force Survey.
Notes: Seasonally adjusted by ECB Staff. The dotted lines show an extrapolation of the pre-pandemic trend in labour force developments (from the first quarter of 2018 to the fourth quarter of 2019). The latest observation is for the third quarter of 2021.

Migration flows during the pandemic were affected by several factors. The weaker employment prospects and pervasive uncertainty induced by the pandemic may have dissuaded potential immigrants. Moreover, it is likely that travel restrictions hindered the inflow of migrants and may have also triggered some outflows (for example, migrants may have returned to their home country for fear of not being able to visit).[6] The share of foreign citizens is relatively high in sectors heavily affected by the lockdown measures, such as accommodation and food services (Chart E). Moreover, foreign citizens in general tend to work under less favourable conditions.[7] They are more often on temporary contracts, and thus have a higher probability of redundancy. In addition, they may be less likely to be covered by job retention schemes and other state support programmes. Some forces may have been at work that at least partially counterbalanced the previously mentioned ones. For example, the shares of foreign workers in some essential sectors (for example, the retail trade and health sectors) are relatively high, which would have supported their employment.[8]

Chart E

Share of foreign citizens in employment by sector in 2019 before the pandemic

(percentages of total employment)

Sources: Eurostat EU Labour Force Survey and ECB staff calculations.
Notes: Based on aggregation of microdata for 11 euro area countries (Belgium, Germany, Ireland, Greece, Spain, France, Italy, the Netherlands, Austria, Portugal and Finland).

The share of foreign citizens in euro area total employment may gradually converge towards the levels expected pre-pandemic, but risks are overall tilted to the downside. Inward migration flows are likely to recover as the international channel for job vacancy search and matching gradually picks up. They could also be temporarily boosted as potential immigrants currently waiting for the risk of infection and the threat of further lockdown measures to recede decide to come to work in the euro area. However, it may also be the case that some migrants who returned to their home countries have resettled on a permanent basis. This could reflect a reassessment of work-life balance or improved employment opportunities in their respective home countries. It could also be supported by remote working arrangements offered by euro area employers. Overall, the outlook for migration flows over the projection horizon and beyond remains surrounded by a high degree of uncertainty.[9]

  1. According to EU Integrated European Social Statistics (IESS) data, the labour force was 0.2% smaller in the third quarter of 2021 than in the fourth quarter of 2019, as also indicated by data from the EU Labour Force Survey. The latter data source is used for the remainder of this box as it provides the necessary breakdown.
  2. With regard to the drivers of the recent changes in the labour force participation rate, see the box entitled “Labour supply developments in the euro area during the COVID-19 pandemic”, Economic Bulletin, Issue 7, ECB, 2021.
  3. See, for example, footnote 8 in Havik, K., Mc Morrow, K., Orlandi, F., Planas, C., Raciborski, R., Werner, R., Rossi, A., Thum-Thysen, A. and Vandermeulen, V., “The Production Function Methodology for Calculating Potential Growth Rates & Output Gaps”, Economic Papers, No 535, November 2014.
  4. Eurostat baseline projections, which were prepared before the pandemic, foresaw a decline in the working age population from 2024.
  5. Migrants may not be fully captured in official statistics, an issue that may have been exacerbated during the pandemic. The EU-LFS uses households as sampling units, but some migrants – especially seasonal workers – do not live in households in the destination country. Also, where migrants stay for a short time only, they may not be captured in the statistics (for example, some countries do not collect data on stays of 12 months or less). In some countries, the EU-LFS does not properly capture citizenship; however, these statistics are consistent with the labour force data generally used. Finally, official migration statistics tend to have a long release delay.
  6. To counteract this, the international movement of seasonal workers was in some cases facilitated by bilateral agreements. See also “Essential but unprotected: highly mobile workers in the EU during the Covid-19 pandemic”, ETUI Policy Brief, No 9, 2020.
  7. See the article entitled “Labour supply and employment”, Economic Bulletin, Issue 1, ECB, 2018.
  8. See, for example, Bossavie, L., Garrote Sanchez, D., Makovec, M., Özden, Ç., “Immigration and natives’ exposure to COVID-related risks in the EU”, VoxEU Column, 1 September 2021.
  9. Currently available projections of migration flows by Eurostat do not yet take into account the impact of the COVID-19 shock.