How Immigration Drives Countries’ Economic Growth

    Immigration remains a sensitive issue in many states that seek to tighten controls while acknowledging their dependence on foreign workers

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    Despite tougher reforms in global powerhouses, immigration remains a vital driver of growth. That’s the conclusion of the Organization for Economic Co-operation and Development’s (OECD) latest report on the subject. Let’s analyze it.

    The OECD’s Economic Outlook 2024 report is cautious but highlights a return to growth. Although modest, growth remains stable: +3.1% in 2023. The same figure is expected for this year. The OECD forecasts a slight increase in global GDP in 2025 (3.2%). These figures are considered relatively high given geopolitical conditions.

    The report highlights significant “migration flows” in several OECD countries in 2023. This was notably the case in Australia, Canada (both countries have since taken steps to restrict the number of new immigrants), the United States, Spain and the United Kingdom. Despite Brexit and a series of measures to tighten immigration conditions, the UK continues to attract foreign workers.

    Immigration remains a sensitive issue in many states that seek to tighten controls while acknowledging their dependence on foreign workers. The OECD report notes the direct impact of these workers on growth. In the UK, foreign labor contributed just over 1 percentage point of growth. It is +1.5 points for Australia, Canada, Spain and Sweden (despite Sweden’s stricter immigration policy). The figures rise to almost 3.5 points of growth in Ireland and 3.7 points in Portugal. These levels far exceed those observed during the 2010-2019 period. While the impact of foreign labor is less significant in France (almost 0.5 points), it is still a “benefit” as indicated by the Council for Economic Analysis (CAE) in 2021. The organization, which is part of the executive branch, has advocated greater investment in skilled immigration to boost growth.

    Foreign workers to fill labor shortages

    These figures should be considered alongside significant labor shortages in 2021-2023. The U.S., Canada, Japan and the Eurozone countries were particularly hard hit by these shortages. In the U.S., 1.5 to 2% of companies reported difficulties in hiring during this period. While this percentage may seem low, it represents 9 to 12 million unfilled jobs in 2021-2023. At the peak of the downturn (end of 2022), almost 2% of Canadian companies faced hiring difficulties. The figure exceeds 2.5% for the euro area. Although it has gradually decreased since 2023, it is still quite high (around 1.6%). The decline is more pronounced in the US (1%) and especially in Canada, which falls below 0%.

    However, companies in Japan continue to struggle with hiring. The figure has been rising since the healthcare crisis and exceeded 1.5% in early 2024. Japan faces the dual challenges of demographics and migration. However, the country prefers a slow approach to immigration (notably through work permit reform and the creation of new work visas).

    Immigration policies: Divergent views among states

    During his re-election campaign, Joe Biden has associated growth with immigration. Speaking May 1 at a campaign fundraiser, he asserted that immigration fosters economic development in the United States. He attributed the difficulties of China, Russia, India and Japan to their “xenophobia.”

    But his comments came as a surprise, especially to Japan, a long-time ally of the United States. While Prime Minister Kishida was received with great pomp in Washington in early April, he is now being equated with US adversaries. The country reacted on May 3, calling Biden’s comments “regrettable.” The White House spokeswoman tried to smooth things over, citing the historic alliance between the two countries, but to no avail. Japan defended itself against accusations of xenophobia and justified its migration policy.

    Was it a mistake?

    Biden had been working to strengthen ties not only with Japan, but also with India to counter China’s expansion in the Pacific. Power dynamics remain crucial amid significant geopolitical instability. Global growth reveals deep disparities between regions.

    The United States shows solid economic health (+2.5% growth in 2023). India’s +6.6% growth is enough to make many European economies envious while the eurozone stagnates. Germany, the heavyweight, struggles with only +0.2% projected growth this year. The country emerged from 2023, marked by recession (-0.3% growth). To revive growth, Germany has embarked on immigration reform. Its challenge: to attract and retain foreign talent.

    What are the impacts for immigration plans?

    Immigration is indispensable for countries. But what immigration policy should be adopted? While all powers agree on prioritizing economic immigration, their methods differ. Observers are closely watching Canada, a land known for its open immigration policy (albeit subject to specific criteria, such as points-based permitting). What will be the impact of the limit on the number of foreigners decided by the Immigration Ministry?

    Global attention is also focused on the UK, where Prime Minister Sunak intends to welcome wealthy investors and highly skilled foreign professionals with open arms, but only to them. His recent measures (taken in April and May) make plans to move abroad even more difficult. In the meantime, we should not ignore emigration hotspots. Italy, Croatia and Eastern European countries are losing residents and failing to attract foreign professionals due to inadequate immigration policies. However, the pressing demographic challenge could prompt these states to rethink their migration policies.

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