EurWORK European Observatory of Working Life

Impact on economy of high number of foreign workers

About

Country: 
Cyprus
Author: 
Polina Stavrou
Institution: 
Cyprus Labour Institute (INEK-PEO)

In December 2005, the Economics Research Centre at the University of Cyprus published a research paper on the ‘Economic Implications of Foreign Workers in Cyprus’. The paper examines the factors contributing to the increased employment of foreign workers in the Cypriot labour market, and the impact on the total domestic output of the economy and also on the output of individual sectors of activity.

In December 2005, the Economics Research Centre (Κέντρο Οικονομικών Ερευνών, ERC) at the University of Cyprus published an economic policy paper entitled Economic implications of foreign workers in Cyprus. The paper aimed to assess the effects of the employment of foreign workers on the total gross domestic product (GDP) of the Cypriot economy as well as on the output of individual sectors of activity. According to the researchers, the study’s conclusions aim to provide a clear indication of the significance of the employment of foreign workers for the economy and its various sectors.

National economic profile

Traditionally, Cyprus has been a country that ‘exported’ labour, but since 1990 it has been transformed into a ‘host’ country for other nationalities. A large increase in the employment of foreign workers was noted in particular between 1995 and 2004, with numbers ranging from 15,000 to 47,000 of such workers during that period. These data only refer to foreign workers legally employed in the Cypriot labour market, since it is impossible to calculate precisely the number of migrants working illegally in Cyprus. However, estimates place their number at between 20,000 and 30,000 workers. It should be noted that the estimates given in this paper do not include data on illegally employed foreigners in Cyprus, due to the lack of statistical data. In light of this, the authors acknowledge that the conclusions of the paper may explain only part of the reality and estimate that, if the number of foreigners working illegally in Cyprus is also taken into account, then the impact on the rate of change of economic output in Cyprus may also be expected to be higher.

Factors contributing to increase in foreign workers

The changes in the structure of the labour market in recent years have been due mainly to the increased number of Cypriots who choose not only to graduate from secondary school but also to study at third level. This has resulted in a shortage of unskilled workers, which has been alleviated by the entry of foreign workers into the labour market, who are employed mainly in the tourism sector in which the national economy specialises.

In parallel, an increased demand for domestic workers was found. This was due, among other reasons, to the improved standard of living of Cypriots, who have thus gained more leisure time. Another possible cause, according to the authors of the paper, has been the increase in the number of women attending third level education and, as a result, finding better paid work; they are then more likely to be able to cover the cost of employing a domestic worker. The need for domestic help has been met to a large extent by the foreign labour force, as it was not possible to satisfy the demand using workers from the indigenous labour force.

Impact of foreign workers

According to the authors’ estimations, foreign workers are responsible for 54.2% of the increase in total economic output in Cyprus in the period 1995–2004.

Estimates have also been made of the impact of the employment of migrants on the output of various sectors of the Cypriot economy. The study’s main conclusions show that, following an increase of 1% in the employment of foreign workers, the gross value added increases less than 1% in the sectors of manufacturing, mining and quarrying, electricity, gas and water supply, and financial intermediation. Larger increases of more than 1% occur in the sectors of construction, wholesale and retail trade, hotels and restaurants, and transport, storage and communications.

More specifically, the proportion of all workers represented by foreigners, which has increased substantially over the last 10 years, is highest among domestic workers, where it rose from 60.1% in 1991 to nearly 100% in 2000. The hotels and restaurants sector recorded the second highest proportion of foreigners, reaching 24.2% in 2003. In the 1991–2003 period, the lowest proportions of workers represented by foreigners were seen in the sectors of public administration as well as electricity, gas and water supply. The table below shows in more detail the number and percentage of legal foreign workers in the various economic sectors.

Number and percentage of legal foreign workers, by economic sector, 1991–2003
Number and percentage of legal foreign workers, by economic sector, 1991–2003
Sector 1991 1996 2000 2002 2003
No. % No. % No. % No. % No. %
Primary sector* 720 2.2 1,508 5.1 2,130 8.3 3,050 12.2 3,560 14.4
Manufacturing 1,181 2.5 2,084 4.9 2,220 6.0 2,842 8.2 3,413 10.0
Construction 579 2.4 1,334 4.9 1,516 5.8 2,506 8.6 3,458 11.0
Commerce 925 2.5 1,827 3.6 3,735 6.9 3,721 6.6 4,401 7.8
Hotels and restaurants 1,652 7.0 2,799 9.5 4,395 13.3 6,982 21.8 7,720 24.2
Transport and communication 317 2.2 503 2.7 1,204 5.6 1,358 6.2 1,388 6.4
Financial intermediation 483 2.8 801 3.1 1,688 5.4 2,064 6.5 2,198 6.7
Public administration 8 0 27 0.1 55 0.2 57 0.2 62 0.2
Education and health 542 1.6 1,190 3.2 1,718 4.1 1,960 4.3 2,217 4.9
Households 542 60.1 4,648 93.0 7,737 100 10,581 99.8 12,236 99.5
Total 7,897   16,721 5.9 26,398 8.7 35,121 11.3 40,653 12.9

Note: * The primary sector consists of agriculture, forestry and fishing, mining and quarrying.

Source: Statistical Service of Cyprus, Labour Statistics 2001–2003

In general, the proportion of all workers represented by foreigners in Cyprus during the 1991–2003 period showed an upward trend for all sectors of the economy. However, the largest increases were noted in sectors where high skills levels are not required, such as employment in private households, for example domestic help, and in tourism services.

Reference

Michael M., Christofides, L., Hadjiyiannis, C., Clerides, S. and Stephanides, M., Economic implications of foreign workers in Cyprus, Economic Policy Paper No. 10–05, Economics Research Centre, University of Cyprus, December 2005.

Polina Stavrou, Cyprus Labour Institute (INEK-PEO)