Blog Post

The ever-rising labour shortages in Europe

Historically high labour shortages in most central-eastern and north-western EU countries suggest that the immigration of central Europeans to north-west EU countries did not take away jobs from local workers on a significant scale. But as labour shortages now exceed their pre-crisis peak, several urgent measures must be considered to help to combat the problem.

By: , and Date: January 25, 2018 Topic: European Macroeconomics & Governance

A frequently voiced concern by citizens of western and northern European countries is that immigration from the newer central and eastern EU member states has taken away the jobs of local workers. What do business surveys say about this hypothesis?

The business and consumer survey, which is conducted by the European Commission in all EU countries using the same methodology, asks about the role of labour as a factor limiting economic activity.

Figure 1 shows that in all three major sectors – industry, building and services – the share of companies reporting lack of labour as a reason for limiting business increased among north-west EU countries between the 2004 EU enlargement and the 2007 crisis. It has also increased in the central and eastern European member states, but not in southern European countries.

These findings have two implications: first, emigration from central and eastern European countries after EU enlargement had a negative impact on their home labour markets and created labour shortages. Second, the immigration of these central Europeans to north-west EU countries did not take jobs from local workers at any significant rate, because labour shortages in those countries were on the rise in parallel with the arrival of central and eastern European workers.

With the recession and increased unemployment after 2008, labour shortages became a minor problem, but have re-emerged with the recovery after 2012.

More recently, the severity of these shortages exceeded its pre-crisis peak, especially in central and eastern European countries, but also in north-west European countries.

Therefore, the conclusions reached for the pre-crisis period continue to apply. It is also noticeable that in the four southern European countries, labour shortages have not posed a major problem, either before the crisis or more recently.

Labour shortages could be overcome by immigration (either from other EU countries or from non-EU countries), increased supply of domestic workers and by robotisation.

Robotisation is at best a long-term prospect and not all tasks can be performed by robots, while there is often resistance to immigration from outside the EU. Emigration from central and eastern Europe to north-western EU countries increases labour shortages in the former and reduces them in the latter.

So how should labour shortages be addressed? In our recently published book of research on migration, we make the following recommendations for both north-west and central European countries:

  • Take steps to foster greater labour-force participation;
  • Undertake a careful examination of public-sector efficiency. The resulting reduction in public-sector employment would free up more workers for the private sector;
  • Prioritise the development of training programmes targeting the professions and skills suffering from the greatest shortages;
  • Increase the progressivity of personal income tax and social security contributions (by cutting rates applied to low earners and increasing the rates applied to high earners) to facilitate a net income increase for low earners in a budget-neutral way.

Figure 2 shows that there is scope for increasing progressivity in most EU countries. A lower total tax and social security burden on low-income earners would also facilitate a reduction in the black economy.

In central and eastern European countries, higher net wages throughout the wage distribution could slow emigration and speed up return migration.

For five of the six central and eastern European counties for which data is available, the tax wedge of low-wage earners is even higher than in the highly-indebted Greece and Spain (Figure 2).

Cutting labour taxes and social security contributions while increasing other taxes (in a fiscally-neutral way) might facilitate net wage increases without increasing the overall wage bill for companies and undermining fiscal sustainability.

Wealth and inheritance taxes are important candidates to counterbalance the labour tax reduction; such tax adjustments would also foster more inclusive growth, as argued by Darvas and Wolff (2016).

The labour shortage problem has become so severe that these remedial measures require urgent consideration.

 


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read article More on this topic More by this author
 

Blog Post

Designing a hybrid work organisation

Post-pandemic hybrid work models should be carefully planned, taking into account individual and organisational needs.

By: Laura Nurski Topic: Innovation & Competition Policy Date: July 5, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

The skills of the future

What challenges and opportunities does technology bring to the labour market?

By: The Sound of Economics Topic: Innovation & Competition Policy Date: June 23, 2021
Read article More on this topic More by this author
 

Blog Post

Algorithmic management is the past, not the future of work

Algorithmic management is the twenty-first century’s scientific management. Job quality measures should be included explicitly in health and safety risk assessments for workplace artificial-intelligence systems.

By: Laura Nurski Topic: Innovation & Competition Policy Date: May 6, 2021
Read article More on this topic
 

External Publication

Wealth distribution and social mobility

This report explores the distribution of household wealth in the EU Member States and analyses the role of wealth in social mobility.

By: Zsolt Darvas and Catarina Midões Topic: European Macroeconomics & Governance Date: April 1, 2021
Read article Download PDF More by this author
 

Working Paper

The unequal inequality impact of the COVID-19 pandemic

Less-educated workers have suffered most from job losses in the COVID-19 pandemic, and it is quite likely there was a significant increase in European Union income inequality in 2020.

By: Zsolt Darvas Topic: European Macroeconomics & Governance, Global Economics & Governance Date: March 30, 2021
Read article More on this topic More by this author
 

Blog Post

Self-employment, COVID-19, and the future of work for knowledge workers

The experiences of the self-employed could give a glimpse into the future of work for knowledge workers in a post-pandemic world.

By: Milena Nikolova Topic: Innovation & Competition Policy Date: March 8, 2021
Read about event More on this topic
 

Past Event

Past Event

What will the EU's new migration policy do differently?

What does the EU's new migration policy look like and is it likely to succeed?

Speakers: Hanne Beirens, Margaritis Schinas and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: December 10, 2020
Read article More on this topic More by this author
 

Blog Post

COVID-19 has widened the income gap in Europe

Workers with low-educational levels suffered far worse than others in terms of COVID-19 related job losses during the first half of 2020 in the EU. Jobs for tertiary-educated workers even increased. Thus, the pandemic has increased income inequality, reinforcing the case for inclusive development.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: December 3, 2020
Read article More on this topic
 

Blog Post

The scarring effect of COVID-19: youth unemployment in Europe

Even before the pandemic, youth unemployment in the European Union was three times higher than among the over-55s. COVID-19 threatens to undo the last decade of progress: policymakers must act to avoid Europe’s youth suffering the scarring effect.

By: Monika Grzegorczyk and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: November 28, 2020
Read article More on this topic More by this author
 

Opinion

COVID-19 could leave another generation of young people on the scrapheap

It is time that the highest political level focuses on the risk of a lost generation.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: November 12, 2020
Read article More on this topic
 

Blog Post

Job polarisation and the Great Recession

A job polarisation trend has seen relatively more workers in the European Union employed in skilled and unskilled jobs, while mid-skilled jobs have been squeezed. Since the Great Recession, the supply of university graduates has risen, but the labour market’s demand for skills has not kept up. Graduates have, however, fared better than less-educated workers in terms of wages.

By: Sybrand Brekelmans and Georgios Petropoulos Topic: European Macroeconomics & Governance Date: November 3, 2020
Read article More by this author
 

Parliamentary Testimony

House of Lords

Employment and COVID-19

Testimony before the Economic Affairs Committee at the House of Lords, British Parliament on Employment and COVID-19.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance, Finance & Financial Regulation, House of Lords, Testimonies Date: September 9, 2020
Load more posts