General labour market conditions in the EU and its Member States
Introduction
The EU labour market has remained resilient in recent years, with strong employment growth and historically low unemployment. This was supported by robust labour demand, high profit margins, moderate real wage growth, and a growing labour force . After stagnating in 2023, EU economic growth picked up in the second half of 2024. GDP rose by 1.1% in 2024, up from 0.5% in 2023, but below the 2014-2019 average of 2.2%. At the end of 2024, the job vacancy rate had declined to 2.3%, 0.1 pp below the pre-pandemic peak. However, recent trends suggest a weakening labour market in 2025, as profit margins and labour demand fell back to pre-COVID levels in late 2024.
Elevated geopolitical tensions and trade policy uncertainty are weighing on the EU economy. In early 2025, the economic sentiment indicator declined, with confidence falling in industry, services and retail. Employment expectations dropped below their historical average for the first time since the pandemic. Services continued to grow faster than manufacturing, raising concerns about divergences between countries with different industrial structures. Looking ahead, rising tensions, trade barriers and uncertainty could further dampen investment and consumption, slow global growth and fuel inflation.
In the Spring European Economic Forecast, the growth outlook for 2025 has been revised downwards to 1.1% in the EU and 0.9% in the euro area, broadly in line with 2024 rates. This downward revision from 1.5% in the Autumn forecast mainly reflects the impact of higher tariffs and increased uncertainty stemming from shifts in US trade policy. Employment growth is expected to slow from 0.8% in 2024 (1.0% in the euro area) to 0.5% in both regions in 2025, while unemployment is set to remain at record lows (5.9%). Looking ahead, solid consumption, supported by real wage growth, is expected to drive GDP, while weaker external demand and subdued investment will weigh on growth. This trend is likely to favour services, with labour demand in manufacturing remaining subdued.
While labour market outcomes have been favourable in recent years, the sustainability of high employment growth is increasingly challenged by structural trends. Demographic change is slowing labour force expansion and driving labour and skill shortages, which in turn risks to hamper the EU growth potential and EU’s competitiveness. The recent decline in manufacturing employment raises concerns about the service sector's ability to fully absorb displaced workers . Unlike in the past, this shift is not accompanied by stronger productivity growth in manufacturing compared to services, potentially limiting future employment and income gains. The EU's persistently weak productivity growth – especially compared to other advanced economies like the United States – is a major challenge, undermining competitiveness, job creation, and economic resilience. Rising global trade uncertainty poses short- and long-term employment risks, notably for countries and sectors more reliant on international trade.
Against this backdrop, the chapter reviews recent labour market developments in the EU and its Member States. Section 1.2 sets the stage by analysing recent trends in labour demand and supply. It also examines the impact of announced job reductions linked to restructuring. Section 1.3. presents some early evidence of how increased trade uncertainty and potential changes in the US trade policy may affect employment. Section 1.4. explores job composition and whether job shifts over the past decade point to the transition towards a more productive service economy. Section 1.5. discusses the implications for policy and Section 1.6. concludes.