Despite the war in Ukraine, Europe’s post-pandemic recovery is well underway, with distinct differences from America’s recovery. Shortage of workers continues across Europe, in both highly-skilled and low-skilled jobs, and are projected to continue to increase in the coming years. So why do wages continue to fall?

Europe’s Great Turnover

During the pandemic lockdowns, the US and the UK witnessed a phenomenon called the “Great Resignation”, with record numbers of people leaving the workforce. The economic activity level of adult women and older people has not yet risen to pre-pandemic levels in those countries. 

In Europe, the opposite is true: overall employment activity is 1.6% higher than it was before the pandemic, and women’s participation has increased by 1.8%.

However, continued labor shortages in Europe mean that workers are leaving low-quality jobs at record rates, seeking jobs with better wages, better hours, and better working conditions. In the Netherlands alone, 14% of workers have changed jobs since the pandemic, and there has been a huge drop in part-time employment. Germany has lost more than 3 million of its lowest paid, most precarious, “mini-jobs” as employees move to better jobs. 

As a result, most hiring difficulties are experienced in companies offering low-quality jobs. Companies with more arduous working conditions report 18% greater hiring difficulties than other private sector jobs, and the hardest jobs to fill are jobs that require heavy manual labor, exposure to hazardous conditions, loud noise, or atypical hours. These companies not only struggle to recruit, but struggle to retain existing employees. 

Causes of Wage Stagnation

Given the shortage of workers and the increased demand, one would expect wages to be rising in Europe. But instead, real-term wages continue to fall. Salaries increased by 4.5% in 2022, and are projected to reach 5.2% in 2023, but Eurozone prices increased by 8.4% on average in 2022 and 5.6% in 2023. Despite high demand and higher wages, average purchasing power is decreasing, allowing the average American worker to become more wealthy compared to their European counterparts. These real-terms wage decreases are driven by several factors:

  1. Inflation. Inflation is predicted to peak in 2023, and decrease to 2.1% in 2025. It is possible that this discrepancy is short-lived, and that salary and minimum-wage increases will once again overtake inflation in the coming years. 
  2. Profitability. According to French economist Eric Heyer, as inflation reduces profitability, some companies react by increasing productivity goals and reducing wages. The inflation rate itself has been strongly driven by corporate profit margins, leading to a paradoxical situation where companies make record profits while wages continue to fall.
  3. Government intervention. In recent years, governments have increasingly intervened to support businesses at the expense of workers. Minimum staffing levels, unemployment insurance guidelines, social programs, and other government institutions across Europe have tightened regulations to reduce the negotiating power of workers and unions. 

The Future of Europe’s Labor Market

Like employment itself, the economy is expected to shift significantly in the coming decades. In most cases, the shift is anticipated to move toward already understaffed industries like green energy, biotechnology, and computer sciences. Across Europe, a range of strategies are being adopted to resolve current labor shortages and prepare for the economy of the future. Here are some of the potential solutions:

  • Skills training and education. The European Commission continues to study labor and skills shortages, and propose a range of solutions including adult education, increasing participation, and improving pay and working conditions
  • Targeted migration. Many countries are increasing efforts to attract skilled workers from outside the EU in targeted industries. There are initiatives to improve the understanding and recognition of non-EU education and qualifications, and to partner with non-EU countries to attract and retain workers with the desired skills. 
  • Automation. Automation and robotics are promising technologies to address labor shortages in demanding, dangerous, physical jobs. A recent study shows that up to 35% of European enterprises are seeking automated solutions in food service, janitorial labor, delivery services, manufacturing, and even health care. 

The current state of employment and skills shortages means that it’s never been a better time for a European worker to “shop around” and find a job with better wages and working conditions. If you are a highly trained professional looking for a “turnover” of your own, contact grapefrute today.