Employment and Social Developments in Europe (ESDE) 2023

1. Introduction ⁽⁹⁸⁾

Labour shortages occur when the demand for workers qualified in a particular area of the labour market exceeds the supply of those workers. This can arise for a variety of interrelated reasons, such as insufficient labour supply in certain segments of the labour market or in certain geographical locations (quantitative shortages), or a discrepancy between the skills and qualifications sought by employers and those held by individuals seeking employment (qualitative shortages). In order to successfully fill a vacancy, people with the right skills and qualifications must be in the right place at the right time and must be willing to work under the conditions offered. Accordingly, individuals seeking employment must have adequate information about the requirements, working conditions, and availability of vacant positions.

Although the trend in increasing labour shortages was interrupted by the COVID-19 crisis, labour shortages have now reached or exceeded pre-pandemic levels in many EU countries (see Chapter 1). Labour shortages represent a longstanding challenge for some sectors and occupations, while others are newly facing these challenges. According to the Business and Consumer Survey (BCS) and job vacancy statistics for Q1 2023, sectoral labour shortages are most prevalent in healthcare, hospitality, professional, scientific and technical activities, transportation and construction. ⁽⁹⁹⁾ Based on the 2022 European Employment Services (EURES) report – which provides information at occupational level – labour shortages and surpluses are most evident for software and healthcare-related occupations, construction and engineering craft workers. ⁽¹⁰⁰⁾

Labour shortages are shaped by structural determinants (including skills) and cyclical drivers. According to the 2022 Labour Market and Wage Developments in Europe review, the geographical, occupational and sectoral patterns of labour shortages in the COVID-19 recovery have followed pre-pandemic trends, suggesting important underlying structural drivers. ⁽¹⁰¹⁾ These drivers include the influence of skills shortages and mismatches (exacerbated by companies unwilling or unable to invest in training), ⁽¹⁰²⁾ creation of jobs and demand for additional skills linked to the ongoing green and digital transitions, decline in the labour force due to demographic trends, low labour market participation of certain population groups (such as women, persons with disabilities, or people with a minority racial or ethnic background), labour market segregation across occupations and sectors, influence of labour mobility and migration, poor working conditions in some sectors and occupations, inefficient recruitment and human resources management (HRM) practices, incentives provided by the tax and benefit systems, and changing workers’ preferences. ⁽¹⁰³⁾

While temporary labour shortages might be a sign of an economic upswing and give workers some bargaining power, persistent labour shortages are likely to have negative effects on the wider economy. ⁽¹⁰⁴⁾ Labour shortages may provide an opportunity for workers to demand higher wages, better working conditions, or investment in their skillsets, as well as enabling marginal workers to enter or remain in the labour market. However, they may also negatively impact existing workers, potentially increasing their work intensity and worsening their work-life balance. Labour shortages may limit the economic activity of companies and public institutions, lower their capacity for innovation, ⁽¹⁰⁵⁾ or force them to reduce the quality of their services and products. They may also lead to outsourcing, offshoring, remote work, or automation. ⁽¹⁰⁶⁾ At macro level, countries with labour and skills shortages may become less attractive for innovation and investment in research and development (R&D), which could weaken their competitiveness in the medium and long term. In addition, a shortage of workers with the required skills could impede the green and digital transitions. Given the prevalence of structural drivers even when economic conditions worsen, understanding them is crucial to developing the right policy responses.

In light of the European Year of Skills in 2023, this chapter analyses the structural drivers of persistent labour shortages, with a specific focus on changing skills needs in the context of the green and digital transitions. Chapter 1 presented the latest developments in labour shortages, and this chapter identifies sectors and occupations that have faced persistent labour shortages over the last 10 years. Section 2. analyses the skills needed in those occupations and presents future projections for labour shortages. Section 3. looks at how demand for new skills in the context of the green and digital transitions changes the demand for labour and contributes to labour shortages. The remainder of the chapter presents an in-depth analysis of other structural drivers of persistent labour shortages: section 4. looks at the impact of demographic trends of population ageing and lower labour market participation of some population groups; section 5. examines gender segregation in sectors and occupations with persistent labour shortages and its contribution to shortages in certain skilled occupations in science, technology, engineering and mathematics (STEM) and healthcare; section 6. considers the labour market participation of migrants born outside the EU in occupations facing persistent labour shortages; and section 7. describes the extent to which working conditions might contribute to persistent labour shortages in some sectors and occupations. Section 8. concludes with a brief overview of the chapter findings.