Employment and Social Developments in Europe (ESDE) 2023

1. Introduction ⁽¹⁾

In 2022, the European Union (EU) economy and the labour market proved resilient to exceptional shocks. The Russian war of aggression against Ukraine caused immense destruction and precipitated a humanitarian crisis in Ukraine. ⁽²⁾ It also affected the EU economy significantly, with its impact on the energy market prompting prices for gas and electricity to skyrocket. This further increased inflation levels, which were already elevated following strong recovery from the impacts of the COVID-19 pandemic and supply chain bottlenecks in 2021. Inflation averaged 9.2% in 2022, with a record high of 11.5% in October. Nevertheless, in 2022 the EU economy grew by 3.5% ‒ slowing in the second half of 2022 ‒ with soaring energy prices and record high inflation felt by all businesses and households, especially the most vulnerable. That economic expansion was the result of growing employment, increased consumption, substantial fiscal support, and a further decrease in the household saving rate, with the reduction in savings also likely signalling increased financial pressure on households. ⁽³⁾

Despite difficult circumstances, labour markets continued to perform strongly. In 2022, the unemployment rate reached a record low of 6.2% in the EU and 6.8% in the euro area. The employment rate of people aged 20-64 rose by 1.5 percentage points (pp) to reach a record high of 74.6%. In the current economic environment, this highlights the resilience of labour markets and represents an important step towards the EU Porto target of 78.0% employment by 2030.

In the context of record high employment and low unemployment rates, the EU labour market remained tight, with high and persistent labour shortages. In 2022, labour market slack (i.e. all people who have an unmet need for employment, including unemployed and underemployed people) was 12.3% of the extended labour force aged 15-74, notably lower than before the COVID-19 pandemic (13.6% in 2019). In addition, the job vacancy rate spiked at a historically high 2.9%, as companies found it increasingly difficult to fill vacancies following the sustained economic growth during the pandemic recovery period.

Following increases in 2021, prices continued to rise substantially in 2022, especially for necessity items. Overall, more than 90% of the core items in the Harmonised Index of Consumer Prices (HICP) basket recorded above-average price increases. ⁽⁴⁾ Prices rose for necessity items (including gas,electricity, food, and transport), disproportionately affecting lower-income households, for which these items make up a larger share of consumption. ⁽⁵⁾ In the context of price spikes, certain households are likely to have relied on savings to offset financial pressures, with the overall household saving rate decreasing in 2022, including as the result of an increase in consumption demand following the COVID-19 pandemic. Supported by the EU, all Member States implemented measures to contain the impact of price increases on lower-income and middle-income households, but energy poverty (i.e. the inability to keep one’s home adequately warm) nevertheless increased to 9.3% in 2022, compared to 6.9% in 2021.

Despite the relatively high nominal wage growth and interventions at EU and national level, inflation continued to erode purchasing power in 2022. While high by historical standards, nominal wage growth remained far below inflation, leading to purchasing power declines and a negative impact on real household incomes. ⁽⁶⁾ While Gross Domestic Product (GDP) increased by 3.5% in 2022, in Q3 and Q4, the growth of real household incomes (as measured by gross disposable household income (GDHI)) ⁽⁷⁾ was negative for the first time in around two years. With consumer prices rising, reported financial distress increased to 15.8%, a level similar to the end of 2012, during the aftermath of the financial crisis. It was particularly high (27%) for lower-income households in December 2022, compared to the households in the top income quartile (7.4%).

In this challenging context, the overall share of those at-risk of poverty or social exclusion (AROPE rate) remained broadly stable in 2022. Broken down by its three sub-components, the at-risk-of poverty (AROP) rate ⁽⁸⁾ (2021 incomes) and the share of people living in quasi-jobless households (referring to the situation in 2021) decreased slightly compared to the previous year. Eurostat flash estimates (2022 incomes) indicate that the AROP rate and income inequality remained stable at EU level. However, the proportion of the population living in severe material and social deprivation, which more directly reflects declines in the purchasing power of households, increased from 6.3% in 2021 to 6.7% in 2022.

The share of those at risk of poverty or social exclusion (whether in work or not) and those at risk of in-work poverty varied considerably across education levels, a trend that persists over time. In 2022, the AROPE rate was 34.5% for those with lower levels of education, substantially higher than the rate for those with medium (19.8%) and higher (10.5%) levels of education at EU level. ⁽⁹⁾ Those with lower education also faced higher risks of in-work poverty (18.4%) than those with medium (8.7%) and higher (4.1%) levels of education. With 2023 designated the European Year of Skills, this is a timely reminder of the importance of opportunities for upskilling and reskilling.

This chapter reviews the latest socioeconomic developments in the EU and its Member States, with a particular focus on labour shortages and skills. It starts by reviewing the macroeconomic outlook in the EU, as well as the main labour market indicators. It then turns to households’ financial situations, poverty, and inequality outcomes, with a focus on differences by level of educational attainment.