1.2.1.3. Labour and demography: the essential contribution of foreign labour

Growth in the Luxembourg economy over the past 15 years is reflected in the growth of employment. During the ten years 1991-2001, the average employment growth rate in Luxembourg was 3.6 % per annum, compared to 0.5 % in Belgium,0.5 % in France, 1.9 % in the Netherlands and 0.4 % in the Fifteen during the same period. Only Ireland, which, unlike Luxembourg, is in a stage of catching up, recorded comparable figures. It should be noted that in terms of employment the economic downturn from 2001 in Luxembourg was only felt with a time lag of one year. The employment growth rate was still 5.6 % in 2001, and stood at the same level as in 2000. STATEC forecasts a 3.2 % growth in employment for 2002 and 1.4 % for 2003.

The demand for labour brought about by economic growth, particularly in the predominant sectors such as iron and steel and subsequently financial and other services, could only be met by using foreign labour (immigrants and cross-border workers). The number of jobs occupied by Luxembourg nationals remained virtually constant from 1980 (just over 100 000 wage earners and self-employed workers), while the number of cross-border workers rose from 3 700 in 1961 to 17 000 in 1985, followed by a spectacular rise to over 100 000 in 2001. At the start of 2002, crossborder workers occupied over 37 % of paid jobs in Luxembourg. These developments are also explained by the unemployment differential between neighbouring regions and Luxembourg (see section 2.1) and the attractive wages and salaries paid in the country.

The number of foreign workers living and employed in Luxembourg, which stood at 17 000 in 1960, rose to 38 000 in 1985 and to more than 70 000 in 2001. Cross-border workers and immigrants as a whole represent the majority in total employment in the Luxembourg economy. At present, around 35 % of wage earners employed in Luxembourg are natives of the country, compared to 70 % in 1970.

Cross-border workers Saar - Lor - Lux - Rheinland-Pfalz - Wallonie in 2001

This foreign labour (immigrants and cross-border workers) has in addition always acted as a regulator in the economic history of Luxembourg. This characteristic has made it easier for employment to adjust rapidly during downswings in the economy, while making it possible to offset the risks of social tension that might accompany waves of layoffs.

Comparison of net annual immigration rates (inflows-outflows/average population) and the rate of growth of GDP in volume (brought forward one year) shows a clear correlation between the two curves.This one-year carrying forward in GDP is justified by the delayed reaction of migration flows to economic development. The “valve” functioned perfectly during the crises of the mid- 1960s and from 1974 to 1983 (iron and steel crisis).

GDP fluctuations and net immigration rate

Recourse to immigrant and cross-border labour goes hand-in-hand with a certain segmentation of the labour market. Nationals have been able to focus partly on the protected sector, i.e., general government, railways and the para-public sector (energy, water and national health). Almost 40 % of the working population with Luxembourg nationality works in the public and para-public administration, 90 % of which is “reserved”for Luxembourg nationals. Luxembourgers are virtually absent in certain economic sectors: they occupy only 15 % of all paid jobs in the construction sector, for example, while the proportion employed in hotels, restaurants, cafés and catering is little more than 10 %.

There is some “specialisation” by nationality and country of residence. By way of example, a high proportion of Portuguese nationals resident in Luxembourg work in the construction sector, while Germans who live in the country work mostly in financial and business services. The share of cross-border workers is highest in business services, industry, financial services, trade and construction.

Weight of cross-border workers, Luxembourg nationals and foreign residents by sectors (March 2002)

Therefore, immigrants and cross-border labour contribute not only the necessary “quantity” of labour, but also help adjust the structure of qualifications to the needs of the economy.

The central position of immigration in the Luxembourg economy is not only apparent in the labour market. The characteristics of this relatively young immigrant population - whose fertility rate actually exceeds that of nationals - make the dependency rate lower than in most other European countries, even in the medium term (i.e. up to 2020).The general fertility rate from 1979 to 1981 was 64 per thousand for the foreign population compared with 47 per thousand for the national population. During the late 1990s, the rates began to converge when the national population increased (from 1996 to 1998, the fertility rate of the foreign population was 62 per thousand, compared with 58 per thousand for the national population).

Social security expenditure 1980-1999 (in % of GDP)

During the late 1990s and early 2000s, the weight of social security benefits in GDP in Luxembourg was weaker than in 1980, contrary to most other European countries. Clearly, this was partly due to the mechanical effect of the significant growth in GDP, though the development of the population structure was also a factor.

According to an analysis conducted by the EU Economic Policy Committee Working Party on ageing, public expenditure on pensions (in relation to GDP) in Luxembourg in 2000 was at the lower end of the scale of European countries. Only Ireland (whose population structure is even more favourable than Luxembourg’s) and Great Britain (whose pension system is based more closely on the second and third pillars, i.e. additional insurance and private insurance), performed better.

Furthermore, the increase in this expenditure is much less sensitive in Luxembourg than in neighbouring countries, though these scenarios must obviously be viewed with caution. On the one hand, pension systems and the means of funding them (e.g. contributory base, second and third pillars etc.) may be subject to significant structural changes. On the other hand, the underlying assumptions of projections - rate of growth of GDP, net immigration rates and fertility - may not be borne out. Projections for Luxembourg are based on an average growth rate of 4 % per annum in GDP, a 2.1 % growth in the productivity of labour and, by correlation, a substantial increase in employment, i.e. a continuous influx of cross-border workers and immigrants. This is plainly an optimistic view. A 4 % average growth rate would be close to the exceptional rates achieved from 1985 to 2000, and would be much higher than the average for the EU as a whole (1.6 % growth in GDP for the period 2000-2050, according to Economic Policy Committee forecasts).

Nevertheless, Luxembourg’s situation in terms of pension funding appears more favourable than in many other countries. Development in the short and medium term would make it possible to limit expenditure on pensions to a competitive level, while simultaneously guaranteeing a certain flexibility in budget policy, and maintenance of competitive tax and social security contributions in particular. Like other European countries, however, Luxembourg cannot avoid discussion of the structural reform of pension systems. This discussion will be even more urgent if an upturn in growth is not in the offing. The economic downswing of 2001/2002 clearly shows that Luxembourg is not immune to such developments.