Productivity growth across the OECD has slowed markedly over the last two decades. With the OECD working-age population set to decrease by 8% by 2060, pushing overall growth downwards, reviving productivity growth is key to maintaining living standards.
Immigrants now account for 16% of employment across the OECD, 3 percentage points (p.p.) more than a decade ago. In half of OECD countries, immigrants accounted for 50% or more of employment growth in the decade to 2024. Given this growing contribution of immigration to OECD labour markets, it is increasingly pertinent to question how immigration affects productivity growth.
A view often advanced in public debate is that migration is bad for productivity growth. According to this view, migrants are primarily employed in low-productivity jobs, either because they are low-skilled or because they are unable to use their skills fully in the host country. In addition, the steady supply of migrant labour allows firms to delay or avoid necessary adjustments to improve productivity, working conditions and worker retention. The affected sectors get stuck in a low-productivity, low wage, low capital investment equilibrium – as has happened in some countries in the long-term care sector, a case which is considered in detail in a special chapter of this Outlook. To the extent that this is true more generally, continued reliance on migrant labour would weigh on productivity growth.
On the other hand, migrants may boost productivity by bringing skills, entrepreneurship and innovation. Many OECD countries benefit from large inflows of highly educated workers. One in five STEM graduates in OECD countries is now foreign-born. Migrants are also heavily represented among researchers and founders of innovative firms. Moreover, while many migrants initially work in low-productivity sectors and firms, they move to more productive jobs over time.
The chapter on Migration and Productivity Growth in this edition of the Outlook analyses the various channels through which migration affects productivity growth. It argues that migration is neither inherently productivity-enhancing nor productivity-reducing. Its effects depend on the characteristics of migrants, the functioning of the labour market and, crucially, the design and effectiveness of migration and integration policies.
The relevant question for policymakers is not whether migration is good or bad for productivity, but how policies can maximise its potential. The chapter identifies four policy priorities.
First, attract, retain and make better use of talent. Competition for international talent has intensified, and migration policies make a difference. Half of OECD countries could virtually close their talent-attractiveness gap with the top performer by making it easier for highly skilled migrants to enter and settle. Retention is weak in many countries. Access to permanent residence and family reunification, less discrimination and better career prospects all contribute to higher retention of skilled migrants. Skills of all immigrants must also be put to use. The solutions are well-known: faster recognition of foreign qualifications, occupation-specific language training, fewer licensing barriers and hiring based on skills.
Second, fill today’s shortages without stalling tomorrow’s productivity. Migrants help address labour shortages in OECD countries. However, when migrant recruitment is used to circumvent structural issues and enable firms to delay or avoid necessary adjustments to improve productivity and working conditions, it may create a vicious circle negatively affecting long term productivity growth. Labour migration should complement broader strategies to raise productivity and job quality, not replace them.
Third, let migrants move to where they are most productive. Reallocation of labour towards more productive firms and sectors is a driver of productivity growth. Yet immigrants often remain stuck in entry sectors and firms. Policies to improve job matching should explicitly target the barriers immigrants face.
Fourth, unlock migrant entrepreneurship. Immigrants are more likely than the native‑born to be entrepreneurs, from small own-account businesses to founders of some of the most successful firms in the OECD. Too often, however, limited access to finance, weaker professional networks and administrative obstacles linked to residence status hold them back. Credit guarantees, incubators and help with administrative procedures can ease these constraints.
Migration policies cannot be determined solely by considerations of productivity, of course. After all, in some sectors, such as health and care, agriculture and transportation, productivity may be low, but the social and strategic value of ensuring migrant labour is high. And anyway, migration will not solve ageing-related pressures or weak productivity growth on its own, nor can it substitute for reforms that foster innovation and investment. But well-designed migration and integration policies are one of the elements that contribute to a more innovative and dynamic economy.
Mark Pearson,
Acting Director of the OECD Directorate for Employment, Labour and Social Affairs