The challenge of plenty: Tackling labour shortages in the EU

Unemployment in the EU is continuing to fall, with the rate approaching its 2008 low point. This is good news: the Europe 2020 target of 75% employment in the working age population is now in sight for many Member States. However, as unemployment reaches new lows, the opposite problem is emerging – labour shortages. With the regained dynamism of EU labour markets, employers in a number of Member States are having difficulty filling job vacancies. Tight labour markets are starting to drive up wages and threatening economic growth.

As this becomes an urgent matter, different approaches are being tried to increase the supply of labour. We’ve looked at four Member States with the lowest unemployment rates (see the chart below) and the highest vacancy rates – the Czech Republic, Germany, Hungary and the United Kingdom – and identified the strategies that employers and governments are using to deal with labour shortages.

Unemployment rates in EU Member States, 2007, 2012 and 2017

Source: Eurofound analysis of Eurostat data (tps00203)

Making work attractive

Employers are attempting to win in the recruitment stakes by making jobs more attractive. In addition to increasing wages, employers in the Czech Republic are offering part-time and telework options to attract job-seekers, as well as other flexible working time arrangements. Demand is especially high for low-skilled workers. According to the Czech-Moravian Trade Union Confederation (ČMKOS), this is linked to insufficient investment in new technologies: the country requires cheap human labour for tasks that have been automated elsewhere.

Extending working time

In Germany, a new collective agreement concluded in the metal sector in February 2018 enables companies to increase working time while offering workers the option to cut their hours. Under the agreement, companies can negotiate a longer working week of 40 hours (up from 35 or 38 hours). At the same time, workers are entitled to decrease their working hours to a minimum of 28 hours for up to two years. No more than 10% of the workforce may take up this option, however. The companies are hoping that the agreement will boost workforce retention and equip them to cope with labour shortages by prolonging working hours.

Tapping into reserves

Governments, meanwhile, are trying to draw in people who are currently outside the labour market. Hungary is targeting pensioners. ‘Public interest cooperatives’ enable retired people to work occasionally under favourable conditions: they pay income tax at 15%, with no social security contributions. Further incentives are likely to be introduced – the government, for instance, plans to extend similar conditions to all pensioners in employment, not just those working within the cooperatives.

The German government is taking steps to attract stay-at-home mothers into the labour market and to encourage those with part-time jobs to work more (currently, 69% of all working mothers are part-timers). In September, it published the Gute-Kita(Good Kindergarten) Act, which makes provision for childcare subsidies for lower-income families. It also addresses the quality of childcare and includes measures to improve the qualifications of carers and to increase the opening hours of day-care centres. The government will invest €5.5 billion up to 2020 in the programme.

Germany is also targeting the long-term unemployed, proposing higher wage subsidies for employers who hire from this group. A company will receive up to 75% of the wage in the first year and 50% year in the second year if they retain a previously long-term unemployed person for at least 30 months.

Increasing immigration

Another option is to look outside the EU. The Czech Republic launched recruitment programmes in 2018 in Ukraine, Mongolia and the Philippines to cope with the shortage of low-qualified workers in some sectors. The Confederation of Industry has called for an acceleration of the procedure for Ukrainian workers by lifting the obligation to offer vacancies first to domestic job-seekers. At the same time, the Ministry of Labour and Social Affairs plans to speed up the issuing of work permits and visas to Ukrainian workers in industry and social care. The government also recently extended recruitment from Serbia. Under this programme, which started in August 2018, up to 2,000 Serbian workers can take up work in the Czech Republic.

Germany is discussing a proposed law that would make it easier for skilled non-EU nationals to take up job offers. It would mean that employers could fill vacancies with these nationals without the Federal Employment Agency checking whether the positions could be filled by EU nationals. These non-EU workers, however, would have to meet specific criteria regarding qualifications, language capacity and age.

In the United Kingdom, the prospect of Brexit has led to a decrease in net migration of EU nationals, especially in agriculture, hospitality, retail and construction. The median number of applicants per vacancy for medium-skilled roles fell in the summer of 2017 from 19 to 10 and for high-skilled positions from 8 to 6.[1] London could face particular issues: non-UK European workers make up 15% of the workforce in finance, 30% in construction and 40% in hospitality. The difficulty will be to replace those workers with UK nationals who have matching skills.[2] To help boost the UK economy,the Home Office has eased immigration rules in some cases to allow researchers and technology experts from outside the EU into Britain.

Given demographic trends, labour shortages are likely to affect more Member States in the future, and it remains to be seen whether the types of measures discussed here will be sufficient to meet the challenges and ensure that the EU economy has access to the talent and skills it requires to grow.

More details of these developments are available in the Annual review of working life 2017 and the EurWORK working life developments in Member States for quarter 2 and quarter 3 (the latter is due for publication later this month).