Bjarni Már Gylfason

The economic effect of The economic effect of free movement of labourfree movement of labour

Intustry perspectiveIntustry perspective

EURES mobility conferenceEURES mobility conference

Bjarni Már Gylfason

Chief Economist

Federation of Icelandic Industries

June 22nd 2007

Bjarni Már Gylfason

Production = Prosperity

Fixed capital Human capital Natural resources Technological knowledge

Bjarni Már Gylfason

Imigration and economic growth - A clear positive correlation

-2000

-1000

0

1000

2000

3000

4000

5000

6000

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Net

im

igra

tio

n

-4

-2

0

2

4

6

8

10

Eco

no

mic

gro

wth

Net imigration

Economic growth in %

Bjarni Már Gylfason

Uneymployment and imigration - A clear negative correlation

-2000

-1000

0

1000

2000

3000

4000

5000

6000

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Net

im

igra

tio

n

0,0

1,0

2,0

3,0

4,0

5,0

6,0

Un

emp

loym

ent

rate

Net imigration

Unemployment in %

Bjarni Már Gylfason

Overall economic effects of foreign labour in recent years

• Without the use of new foreign workers in these years:– Inflation had been 0,5-1,5% points higher– Central bank interest rates 1,5-2,5% points higher– Economic growth 1,5-2,5% points lower.– Private consumption 3,5-6% points less.– Business investments 2-3% points less.– Purchasing power 2-4,5% points less.– Household wealth 2-5% points less

Bjarni Már Gylfason

Proportion of foreigners working in different sectors 1998 and 2005

1998 2005 Change in % from 1998

Total 2,3% 5,5% 134%

Agriculture 3,1% 6,7% 115%

Fishing 1,8% 5,4% 202%

Fish processing 11,6% 19,1% 64%

Manufacturing except fish processing 2,5% 6,8% 175%

Construction 1,2% 13,5% 984%

Wholesale, retail trade, repairs 1,1% 2,7% 139%

Hotels, restaurants 5,0% 10,6% 110%

Transport, communication 1,0% 2,5% 158%

Financial intermediation 0,4% 0,6% 56%

Real estate & business activities 1,7% 6,6% 281%

Public administration 1,0% 1,8% 84%

Education 1,9% 2,7% 39%

Health services, social work 2,2% 3,8% 75%

Bjarni Már Gylfason

Problems / Challenges in the near future

• Wage agreements• Future wage agreements• Changing economic situation in Iceland

• Social adjustments / changes