The North-East should introduce policies to attract and retain foreign workers to the region to boost its economy, according to a report published today.

Immigrants could solve skills shortages, fill vacant jobs and start much-needed new businesses in the region, the study by the Institute of Public Policy Research shows.

The think-tank recommends creating a similar initiative to the Working in Scotland scheme, which gives overseas students leave to stay for two years after graduating from university.

At present, migrant workers face "exploitation" by job agencies and discrimination, the study claims.

The research shows one in 40 jobs in the region is unfilled, with the figure rising to one in 20 in computing, hotels and catering.

However, a smaller proportion of the North-East population is made up of people born overseas than any other region.

The IPPR says: "A region-wide strategic framework for tackling graduate retention is still lacking."

It calls on the North-East to follow the Scottish Executive's lead in granting overseas students the right to stay and use their skills in the region. More than 1,500 foreign students took up the Working in Scotland scheme in its first seven months.

Many asylum seekers and refugees in the region have higher than average levels of education, skills and qualification, but face difficulties finding work, the IPPR says.

There should be more support for "migrant entrepreneurs" who struggle to get acquainted with a new business culture, according to the report.

But it also warns: "There is a danger that a preoccupation with the need for highly skilled, highly qualified migrants assumes a diminishing demand and role for low-skilled jobs."

The report says it is "simplistic" to assume that people from the region will be squeezed out of jobs by immigrants. But it does warn that any policy on migration should be matched by a focus on reducing regional unemployment.

It highlights research by Mori which found more people from the North-East disagreed with the statement that "it is a good thing that Britain is a multi-racial society" than any other region.

Based on interviews with workers, IPPR also claims: "There was also ample evidence of agencies that were exploiting particular issues and vulnerabilities of migrant workers."

The region is advised to increase integration, partly through improving the provision of English language teaching.

Last night, TUC regional director Kevin Rowan said: "We must ensure that the positive image we present is matched by a positive and rewarding experience for people coming to the North-East.

"That requires social and political action to provide good quality support for migrant workers, effective labour markets that direct workers to appropriate employment with good standards and quality of work, and much stronger leadership in promoting diversity and community cohesion."

One NorthEast director of strategy Pat Ritchie said: "We must ensure the region is seen as an exciting, vibrant and rewarding business start-up location, and a place where equality and diversity are fundamental to its economic and social fabric."