Labour Market and Wage Developments in Europe 2025

General labour market conditions in the EU and its Member States

Labour market developments in the EU and its Member States

In the last quarter of 2024, employment growth in the EU started to slow, while labour productivity showed modest signs of recovery from its previous downward trend. EU employment (in terms of persons) edged up by 0.1% in the third quarter of 2024 (0.2% in the euro area) and by 0.2% quarter-on-quarter in the fourth quarter (0.1% in the euro area). As a result, yearly employment growth slowed to 0.8% in 2024, down from 1.2% in 2023 and below the 2014-2019 average of 1.2% (Graph 1.1 and Table 1.1). In the euro area, employment growth fell to 1% from 1.4% in 2023. With economic activity picking up in the second half of the year, EU labour productivity (on headcount basis) started to recover, rising 0.3% annually (0.3% quarter-on-quarter in the third quarter and 0.2% in the fourth quarter), compared to a decline of 0.7% in 2023. In the euro area, productivity fell by 0.1%, an improvement from the sharper 0.8% drop recorded in 2023.  In the first half of 2025, the decline in the unemployment rate came to a halt. Since the end of 2024, the number of unemployed increased by about 260 thousands, an increase largely offset by the growing labour force.

Evolution of labour demand

Survey data suggest a slowdown in labour demand in late 2024. Economic sentiment in the EU dropped below pre-pandemic levels by late 2022 and remained weak in early 2025, but hiring intentions declined only gradually, an unusual divergence as these indicators typically move together (Graph 1.2). By late 2024, employment expectations fell in line with weak sentiment, and previously high unmet demand for labour started to ease. After peaking at around 3% in 2022Q1-2023Q2, the job vacancy rate declined but remained near its pre-pandemic high of 2.4%. Meanwhile, consumers’ unemployment expectations, below average until the third quarter of 2024, began to worsen, surpassing the pre-pandemic levels by late 2024 and early 2025. 

Despite some recent easing, labour shortages remain elevated across most Member States. Between the 2022 post-pandemic peak and the first quarter of 2025, job vacancy rate fell by at least 1.5 pps (percentage points) in Austria, Finland,  and Germany A more moderate decline (between 1 and 1.5 pps) was recorded in the Netherlands, Latvia, Denmark, Belgium, Slovenia, Hungary and Sweden, while the other Member States saw a reduction of less than one pp. In the first quarter of 2025, only a few Member States had a job vacancy rate lower than the pre- pandemic level, notably Latvia, Hungary and Germany. According to the European Commission’s Business and Consumer Surveys, 19% of industrial firms cited labour shortages as a constraint in the first quarter of 2025, down from 22.3% a year earlier . In services, shortages remained acute, with 24% of firms reporting constraints – only slightly down from 27% of one year earlier. 

Differences in employment growth across countries largely reflect country-specific labour market structures, in particular the share of manufacturing jobs. Countries with the highest manufacturing intensity experienced the sharpest employment decline, with manufacturing jobs falling by 0.5% in 2024, accentuating the negative trend observed during 2021-2023 (Table 1.2). Similarly, in more diversified but still manufacturing-intensive economies such as Germany and Italy, sectoral employment growth contracted by 0.5% in 2024 after growing by 0.6% yearly between 2021 and 2023 (. In both cases, job losses were offset by continued growth in market services (excluding real estate), highlighting the buffering role of the service sector. Combined these two country groups – which represents 70% of EU manufacturing employment – contributed a 0.3 pps decline to the EU overall employment drop of 0.2% in 2024. By contrast, countries with lower manufacturing shares such as France, the Netherlands and Spain saw modest gains in manufacturing employment, partly offsetting job losses elsewhere. However, in these countries wholesale and retail trade, professional services and construction recorded a notable slowdown .

Since early 2023, the slowdown in labour demand has been accompanied by a rise in planned job reductions due to restructuring, a trend that began in early 2022 . In 2024, they totalled around 65,000 across the EU, well below the 350,000 recorded at the peak of the financial crisis in 2009. As a share of total employment, announced job reductions represented 0.03% in 2024, compared to nearly 0.2% in 2009. Since the first quarter of 2023, net job reductions have increased alongside weaker employment growth and declining hiring intentions (Graphs 1.2 and 1.5 panel a). Although modest in scale, this rise reflects growing adjustment pressures in specific sectors. Since the onset of the energy crisis in autumn 2021, manufacturing output has declined sharply, falling below pre-pandemic levels by the end of 2024. This was driven by high energy costs, weak global demand, fragmented trade flows and rising competition from Chinese producers – particularly affecting the automotive sector. Between 2023 and 2024, the automotive industry alone accounted for around 70,000 expected net job losses. Telecommunications and postal services followed, with expected losses of 19,000 and 17,000 jobs, respectively (Graph 1.4 and Table 1.2).

Restructuring announcements may impact employment and productivity through confidence effects. There is a strong correlation between planned net job reductions and labour reallocation (Graph 1.5 panel b). While the 2008-2009 financial crisis mainly affected manufacturing, the pandemic triggered a significant shift within services, further amplifying the upward trend in manufacturing reallocation observed since 2017 . Rising uncertainty may prompt firms and households to postpone major, often irreversible, decisions such as hiring and investments, setting off adjustment mechanisms that shape the business cycle. Evidence shows that an increase in the planned job destruction tends to worsen economic conditions in the short run, leading to a gradual decline in both employment and productivity. Beyond the short-term, restructuring can enhance productivity by reallocating workers from less to more productive firms and encouraging the introduction of more efficient production processes (Annex 1.1).

Evolution of labour supply

The increase in the EU working-age population was mainly driven by the increase in the euro area countries. Between the first quarter of 2021 and the fourth quarter of 2024, the EU population aged 15-64 grew by 0.6% compared to 1.4% in the euro area (Graph 1.6 left panel) . This gap reflects a larger contribution from non-EU nationals in the euro area and declines in national populations in several large Central and Eastern European Member States outside the euro area (Graph 1.6 right panel and Graph 1.7). Ageing and labour mobility from non-euro area to euro area countries are likely drivers of this increase, with non-euro area nationals accounting for less than one fifth of the euro area population growth (Graph 1.6 right panel) .

In some Member States, the declining domestic working-age population was partially offset by inflows of non-EU nationals. The domestic population fell in about ten Member States, notably in Slovakia (-4.4%), Poland (-5.4%), Czechia (-4.8) and Bulgaria and Romania (-3%) . In general, the arrival of non-EU citizens moderated the effect on total population of the decline in the domestic population. In several countries, inflows of foreign individuals from both other Member States and non-EU countries helped to mitigate the effect of an aging domestic population. In some cases – such as Germany, Austria Portugal, Finland, Estonia, Cyprus and Malta – these inflows even contributed to overall population growth (Graph 1.7).

The rising share of non-EU born citizens may help mitigate the impact of ageing on labour supply and future employment growth. On average, non-EU nationals are 8% less likely to participate in the labour force than nationals, with the gap rising to 17% for women. Female participation has been increasing — from about 53% in 2005 to 60.8% in the first quarter of 2025 for nationals and from 50.7% to 56.6% for non-nationals. However, the high incidence of part-time work among women (28.6% of total employment in the first quarter of 2025 compared with 8.5% for men) suggests that many still face constraints that prevent full-time employment. Persistent gender gaps are often linked to the unequal distribution of informal care responsibilities.

Policies are needed to support labour force participation of women and non-EU born citizens. The design of tax and benefit systems plays a key role in shaping financial incentives to work, particularly for second wage earners. Policies that help reconcile work and family life – such as access to affordable, high-quality early childhood education and care – can significantly boost women’s labour market participation. In addition, effective public employment services may support jobseekers through counselling, job search assistance, and targeted activation measures .