General labour market conditions in the EU and its Member States
Conclusions
The EU labour market has entered the economic slowdown from a very strong position.The unemployment rate stabilised at (what was then) an all-time low in the second half of 2022 and edged further down in the first months of 2023 (reaching 5.9 % in the EU and 6.5 % in the euro area in May 2023), while the job vacancy rate remained at a very high level of 2.8 %, after peaking at 3 % in the second quarter of 2022. These tight labour market conditions imply that it was harder for firms to find workers, and easier for jobseekers to find job opportunities; this is consistent with the high levels of labour shortages reported by businesses.
The energy price shock contributed to lower employment growth in the sectors with higher levels of energy intensity.For industries where energy is a key input, the surge in its price affected production, holding back employment growth. Data show that industries with a relatively high energy consumption per value added experienced worse employment outcomes than those with lower energy intensity. In the industries with the lowest energy intensity, employment is now 7 % higher than its pre-pandemic level. By contrast, employment in most energy-intensive sectors is still about 3.5 % below its pre-pandemic level. At the same time, this gap is not so much due to job destruction after the energy crisis but, rather, stems mainly from lower job creation in energy-intensive industries on account of both persistent supply chain disruption during the recovery and sharply increasing energy costs. Still, future employment growth can be supported by greening the EU economy through reductions in energy consumption and energy dependency.
The evolution of the labour supply is particularly important in the context of a tight labour market.Because there is very low unemployment, most of the increase in employment in the current year should come from the activation of inactive people. Maintaining the upward trend in labour market participation is particularly important, as it can help moderate labour shortages and mitigate negative demographic trends, which will increasingly weigh on the potential labour supply and on welfare policies . As discussed in Section 1.2.2., positive contributions to labour market participation and employment growth can also come from increased EU labour mobility and migration. The increase in the participation rate of EU mobile workers and of non-EU nationals provided a positive although small contribution to the increase in the overall participation rate. Finally, ensuring stable employment relationships can help preserve labour market attachment – since unemployed people are more likely to leave the labour force – thereby sustaining the positive trend in labour market participation observed in recent years.
Low economic growth in 2023 should not have a significant impact on unemployment, but uncertainty is elevated and significant risks remain. The prospect of an economic slowdown raises the question of its possible effect on unemployment. The analysis in this chapter shows that, considering the tight labour market conditions prevailing at the end of 2022 and in the first half of 2023, the effect of a possible slowdown of labour demand is likely to be relatively contained. In particular, faced with still high labour shortages, employers would be reluctant to dismiss their workforce and would most likely engage in labour hoarding (i.e. retaining workers even when production is reduced); this would make the labour market more resilient to an already moderate slowdown. Possible risks of a more sizeable increase in unemployment could materialise if the economic slowdown is accompanied by an increase in the dismissal rate (e.g. due to an increase in job churn caused by a new rise in energy prices, or disruption caused by instability in the financial markets), and/or by a deterioration in matching efficiency due, for instance, to a rise in mismatches linked to the digital and twin transitions if accompanying measures are not implemented.
In the context of high uncertainty and ongoing structural changes, policies need to be ready to accompany workers in transitioning between jobs and occupations.The weakening of the economic cycle might entail different employment responses between sectors. The impact of a decline in job vacancies might be stronger in sectors such as services where the level of vacancies is relatively higher and the average duration of employment relations is shorter. Policies might need to address this cyclical challenge to ensure adequate protection is given to those who are more exposed to business cycle fluctuations. In addition, the EU economy is undergoing significant changes related to the twin transitions. Education and re-skilling policies are needed to ensure the workforce’s gradual adjustment to new digital and green technologies. In parallel, avoiding mismatches and the risks of an extended duration of joblessness require effective active labour market measures that combine benefit and income supports with training.