Is Europe facing a skilled labour shortage?

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Published on 2022-03-16 at 08:00 by Asaël Häzaq
This sounds like one of the best news for 2022. According to the latest economic growth figures, unemployment in Europe is on the decline. Faced with a labour shortage, the leading economic powers in Europe are looking for global talent, just like the United States, Canada, Switzerland, Australia. In Europe, too, there is a skilled labour shortage in all sectors. How are European countries dealing with the situation?

A general unemployment decline and rising recruitment

The Covid cataclysm led to the contraction of global GDP over the past two years, but production is on the rise again. Many economies recovered quite rapidly thanks to relatively good management of the health crisis along with support policies for businesses. Switzerland remained attractive despite the crisis and has even managed to hire qualified workers. Meanwhile, European Union countries are implementing a vast economic recovery plan. The results are pretty good so far, with a rise in investment, support for businesses, hiring, etc. This probably explains the sharp drop in the unemployment rate almost everywhere in the EU. In December 2021, 9 countries had an employment rate below 5%. The Czech Republic stands out with a 2.1% unemployment rate followed by 2.9% in Poland, 3.2% in Germany, and 3.8% in the Netherlands. In France, the unemployment rate stands at 7.4%. Only Spain and Greece have an unemployment rate above 10% (13 and 12.7%, respectively). The overall unemployment rate in the EU stands at 6.4% only.

Flexible work and talent shortage: A bad combination?

What if the problem is with the labour market itself? Faced with the labour shortage, the Belgian government proposed a new labour reform last February. The government believes that greater flexibility and mobility for workers will make companies more attractive to global talent. One of the features of this reform is that workers will enjoy a 4 days working week instead of the current 5. But for the employers' organisations, these reforms lack ambition. While flexibility and social progress are beneficial for workers, companies are totally against it. Voka, a Flemish employers' organisation, pointed out that the labor agreement does not provide any solution to the many companies that are now seeking to hire. The Federation of Belgian Enterprises (FEB) is on the same line. Employers' organisations firmly believe that these measures will not attract talent. On the contrary, accumulating new rules could be counterproductive, claiming that it will be difficult for them to reach the 80% employment rate, as expected by the federal government. Others point out that the Covid pandemic turned out to be beneficial for the best talents. Indeed, Europe has seen a rise in the number of remote workers and digital nomads over the past two years. Global talents are aware of their strong position on the market -- which helps them better negotiate their salaries and working conditions. Although Europe is less affected by the great resignation than the United States, it remains attentive to the phenomenon.

The European brain drain

Retaining their talents has become a real puzzle for Balkan countries like Croatia, Slovakia and Romania. These Eastern countries that have joined the European Union (EU) have had to deal with accelerated migration over the past years. There is a similar situation in non-EU Balkan countries where talents prefered more attractive European countries. However, some of them are trying to reverse the trend by introducing new policies, starting from the school level. Croatia relies on its entrepreneurs' success stories (starting with Mate Rimec) to modernise its image among the youth. It has started investing in the automotive, innovation and high-tech industries, with greater emphasis on e-commerce and digital sectors that are increasingly popular with young graduates and professionals. The country is also facing a drop in its birth rate. Therefore, retaining talent is a matter of survival for Croatia and the Balkan countries. In December 2021, Croatia launched an incentive program for its citizens who live abroad. Returning Croats who are looking to start a business in the country are entitled to receive 26,000 euros.

Spain has also lost its attractiveness due to lack of innovation, low wages, red tape, etc. Foreign workers, especially executives and other talents, prefer to look elsewhere. Barely some 130,000 work permits were issued in 2020 compared to more than 300,000 in 2011. Among these permits, some 5.2% only were delivered to skilled workers. The Covid-19 pandemic cannot be held responsible for this sharp drop since Spanish executives are also turning to other countries, especially the leading European economies. To catch up with Germany, Denmark, France or the Netherlands, Spain is investing tech. According to DigitalES, an organisation bringing together tech entrepreneurs, there is a shortage of around 70,000 workers in this sector. Observers believe that Spain needs to make things easier for companies, offer more attractive salaries, and speed up internationally by strengthening its command of the English language. Spain also stands to benefit from the health crisis and the boom in digital nomadism. Spain is currently planning to introduce a digital nomad visa as Croatia, Germany and Estonia did. This program will include tax benefits and simplified formalities for all startup founders and other self-employed workers. The country hopes to attract new talent and modernise its image.

Ageing populations and lack of talent

Ageing population has become a significant issue for many countries in Europe. Clearly, the demography is no longer an asset to support the economy, and this situation directly impacts growth. In Germany, the ageing of the population is an increasing concern. According to the German Institute for Economic Research (DIW), more than 300,000 workers will retire in 2022, and it's not likely that these vacancies will be filled so easily. Forecasts point out a shortage of some 5 million workers in the country by 2030. On January 11, Robert Habeck, Minister for the Economy, the Environment and Vice-Chancellor presented his ambitious program at a press conference. Still, it's going to be a major challenge to fill the 390,000 job vacancies in Germany, considering this figure could reach one million, or even more. The minister warned that if Germany fails in bringing in more talent, its economic growth will bear the brunt. Habeck hopes to bring in at least 400,000 skilled foreign workers per year. For him, a rise in talent immigration in all branches, including engineering, craftsmen, caregiving and healthcare, is essential. Christian Dürr, leader of the Liberal Democratic (FDP) parliamentary group and member of the coalition, shares similar views. In an interview with business magazine WirtschaftsWoche on January 21, he pointed out that "the skills shortage has become so serious that it is slowing down the German economy considerably". Dürr believes that change quick and profound change is needed in Germany. To attract global talent, the state is relying, in particular, on a wage rise and is inspired by the points system implemented in New Zealand and Australia. These strong measures, including simplified visa procedures, should hopefully help the country become more attractive.