The Contribution of Migration to Regional Development

In 2019, 5.3 million new permanent migrants settled in OECD countries, an increase of around a quarter since 2010. Migration is highly concentrated geographically, with more than half of the foreign-born population (53%) living in large metropolitan regions, compared to only 40% of natives. Migration has also increased faster in specific OECD regions such as capitals or regions with more dynamic labour markets. Yet, despite the scale of migration, the localised impacts, and the high political attention around the issue, there remains a lack of detailed analysis of the local challenges and opportunities associated with migration. This report presents novel, highly granular data and analysis on migration in regions and cities and sheds new light on the role of migration in regional development.

To fully capitalise on the potential of migrants’ skills and talent, regions need to successfully integrate them into their labour markets. Over the past 5 years, most regions have made significant progress on this front: the employment rate of migrants increased by 4.3 percentage points in the OECD, faster than for the native-born population. Yet migrants’ employment rates still fall below that of natives, especially in European regions. On average, migrants are around 4 percentage points less likely to be in employment than their native peers, although in capital regions and regions with a relatively larger service economy, these gaps tend to be smaller.

The paper highlights in particular three key areas where actions could be taken to improve migrants’ integration in regional labour markets. First, European regions face difficulties in supporting non-EU migrants into employment. Compared to migrants from EU countries, migrants from a non-EU country have a 10 percentage points lower employment rate, with the largest differences in high-income regions in Northern Europe. Second, gender gaps are particularly striking for migrants. While foreign- and native-born have similar employment rates among males, the gap between female foreign- and native-born remains significant in the majority of OECD regions, on average around 7 percentage points. Gaps are particularly large outside of capitals and metropolitan regions, driven by a relatively low labour force participation of female migrants. Third, even though migrants can provide valuable skills to regional economies, their skills are often not fully used. In fact, more migrants have completed tertiary education (40%) than their native-born counterparts (35%), but highly qualified migrants often work in jobs that do not match their qualifications.

Many migrants have played a critical role in countries’ responses to the pandemic as key workers in essential sectors, such as food processing, delivery, transportation, and haulier services or health care, that were vital for the continuity of economic activity. On average, migrants accounted for 14 percent of key workers across European regions and for around 20 percent in capital regions. Migrants were particularly important for supporting local health care systems, especially in cities, accounting for 23 percent of medical doctors and 14 percent of nurses in European regions. While the pandemic highlighted the important role of migrants as key workers across regions and cities, it also revealed their heightened vulnerability. Worse socio-economic conditions in terms of housing, lower possibilities to work remotely, and lower employment security put migrants at greater health and economic risks.

Regions can benefit from migration not only as a vital source of labour, especially in key sectors with significant shortages, but also in several other dimensions of economic development. This report shows that migration is an important mechanism to boost regional GDP per capita, especially in lower-income regions, thus contributing to within-country economic convergence. On average, a 10 percent increase in the migrant share is associated with 0.15 percent higher regional GDP per capita. Overall, for the 25 percent of poorest regions in a country, the positive effect of migration on per capita incomes is more than twice as high (0.36 percent).

Migrants can also contribute to regions’ internationalisation and innovation. By bringing new ideas to their host regions, migrants help foster local innovation. This effect is particularly strong in the most innovative municipalities, where a 10 percent increase in the share of migrants is linked to a 1 percent rise in the number of patents per capita. Furthermore, migrants help their host regions establish new trade networks and thus boost regions’ internationalisation via exports and imports. On average, a 10 percent increase in the number of migrants equates to a 1.2 percent increase in a region’s exports and a 2.5 percent increase in imports. For trade with places outside the European Union, including emerging markets, the positive impact of migration is even larger.

While migration can generate valuable benefits for regional economic development, those benefits are not necessarily shared equally across space and different types of workers. Regions with more highly educated migrants record larger increases in international trade compared to those with migrants with lower levels of education. Similarly, the contribution of migrants to patenting activities appears to be higher in more developed regions. In the labour market, an increase in the labour supply due to migration can affect natives’ employment in the short term. Between 2010 and 2019, growth in natives’ employment rates slowed down in European regions following increases in the labour force due to migration, especially for low-educated workers in lower-income regions. However, this effect disappears over time, as regional labour markets adjust. Regions with higher levels of GDP per capita are faster to absorb new workers, resulting in little or no effect on the native workforce, especially those with higher education, even in the short term.

Targeted policies could help to fully capitalise on the potential of migration. To ensure that all regions and groups profit from migration, policies should aim to mitigate any short-term adverse labour market effects on, in particular, non-university educated workers and economically lagging regions. Furthermore, strengthened support for female migrants and faster recognition of foreign qualifications could alleviate labour shortages regions face and at the same time foster migrants’ economic integration in their host region. Policies that ensure fair pay and decent working conditions can enable regions to attract migrants, which is particularly relevant for shrinking regions and essential services. Such policies would also improve migrant integration in labour markets while offering them better protection from economic and health crises.