Employment and Social Developments in Europe (ESDE) 2023

1. Introduction ⁽²⁹²⁾

This chapter presents an overview of the key policies and reform measures that could alleviate increasingly acute labour and skills shortages in the EU. Labour shortages could be addressed by: improving the financial incentives for work for some population groups, e.g. reviewing tax-benefit systems; removing barriers to entering the workforce, e.g. expanding childcare access to help mothers to engage in paid work; ⁽²⁹³⁾ improving the matching between job requirements and candidates’ education, experience, and skills; and promoting targeted temporary and/or permanent labour migration of third-country nationals to bridge labour shortages.

The tax-benefit system is the key policy tool available to governments to influence people’s financial incentives to work. Section 2. describes the effects of a number of tax reforms that could incentivise people to participate more in the labour market. Section 2.1. compares three possible tax-cut scenarios with the same direct, short-term fiscal cost of 0.2% of GDP: 1) an across-the-board personal income tax (PIT) cut; 2) a targeted PIT cut for low-income earners; and 3) introduction or extension of income tax credits for low-income earners. Results reveal that targeted tax reforms have a significantly larger impact on labour supply, and therefore on the economy in general, than across-the-board PIT cuts. Such measures promote access to inclusive labour markets as also highlighted in the 2023 Council Recommendation on adequate minimum income. Two additional simulations demonstrate the work disincentives for secondary earners created by family taxation schemes in some Member States (e.g. Belgium, Spain).

The provision of adequate and affordable early childhood education and care (ECEC) can contribute to addressing labour shortages by increasing women’s readiness to engage in paid work. Availability of accessible, affordable, and high-quality ECEC remains limited in several Member States, especially for children under three years of age. Section 2.2. uses newly available data to analyse several factors limiting childcare participation in the EU. It highlights that while net childcare costs (NCC) have decreased significantly compared to women’s median full-time earnings, formal childcare remains very expensive in a number of Member States. It also shows that while childcare (and primary education) is often within easy driving distance, it is considerably more difficult to reach on foot. Finally, it presents simulations that show that improving childcare participation would have a significant impact on mothers’ labour market activity.

Improving skills anticipation and upskilling/reskilling to match the demand in the labour market helps to address labour shortages. Section 3. gives an overview of the methods used to anticipate future labour market needs, as well as the policy instruments available at EU and national level to support skills development in sectors currently experiencing the greatest labour shortages. It then presents the impact evaluation of specific vocational training programmes in two Member States (Lithuania and Finland). The section assesses the regional economic effects of hypothetical policies that would successfully reduce skills mismatches in a number of European regions and explores the influence of travel time/distance to PES on skills matching.

Targeted labour migration policy could contribute to reducing labour shortages and boosting the economy. Section 3.4. evaluates the long-term macroeconomic impact of a hypothetical scenario in which half of the current excess labour shortages in six Member States (Austria, France, Germany, Poland, Spain and Sweden) compared to the 2011 levels (i.e. before the labour shortage measure started to steadily increase in the EU) would be addressed by targeted labour migration.

Finally, Section 3.5. highlights the importance of social dialogue and the role of social partners in tackling labour and skills shortages. It shows that social partners are key actors in providing tailored training, improving working conditions, collaborating with PES, and facilitating adult learning opportunities.