How Much Does Migration Affect Labor Supply in Europe? Methodological Insights and Contemporary Evidence from the European Union and Selected European Countries

Abstract

In Europe, the slowdown in working-age population growth and population aging pose challenges, particularly vis-à-vis the current and future volume of labor supply. Throughout the 2010s, these demographic transformations took place against a backdrop of increasing migration flows and stocks. This IMR Research Note aims to enrich the discussion of the aforementioned issues and to provide methodological and empirical evidence on the role of migration stocks in shaping changes over time in two main aspects of the European labor supply: the size of the labor force and aggregate labor force participation rates from 2006 to 2018. Based on annual LFS data, we use a mixed standardization and decomposition method to determine to what extent trends in the European labor supply are driven over time by changes in population or in labor force participation rates within specific groups selected on the basis of age, gender, birth country (native- versus foreign-born), and origin country (European Union versus non-European Union). Our Research Note points out that, despite the upward trend in the labor force participation rates of native-born women and of native-born persons aged 55 years and over, the increase in labor supply in the European Union and in the 10 European countries under study in this article between 2006 and 2018 was driven by foreign-born persons. These developments suggest that, in a context of political desire for less migration, international migration has become a structural feature of European labor markets.