Summary

While the COVID-19 pandemic put a temporary brake on growing labour shortages, the subsequent labour market recovery brought them back in line with their historical trend. The job vacancy rate reached a peak of 3% in the second quarter of 2022, falling to 2.6% by the third quarter of 2023. Rates in Austria, Belgium, Czechia, Germany and the Netherlands were at or above 3.5%.

Labour shortages remain widespread despite the economic slowdown triggered by rising inflation and supply chain shocks. This indicates that rising shortages reflect structural shifts in European economies, driven by demographic ageing and the digital and green transition.

At the same time, despite tight labour markets and persistently high labour shortages, changes in unemployment rates and, more broadly, levels of labour market slack were muted in 2023. This seems to indicate a mismatch between the skills of the potential additional labour force and the needs of employers.

Movements on the Beveridge curve suggest that, when facing recruitment challenges, especially in a context of tight labour markets, employers shift their recruitment strategies towards attracting already employed workers. This is especially the case in Member States with low levels of slack. While such an environment can provide opportunities for employed workers to negotiate better pay and working conditions, it also provides fewer opportunities for those not in the labour force to enter employment. This suggests shortcomings in policies aimed at the integration of unemployed people and those currently outside the labour market.

Companies are reporting that lack of labour is limiting production. In some Member States, this sentiment is expressed across sectors, whereas in others it is concentrated in specific sectors. For instance, more than half of companies in the construction sector in Croatia, Czechia, Greece, Poland and Slovenia indicate that shortages are a factor limiting production, whereas more than one-third of services sector companies in Croatia, Germany, Malta, the Netherlands, Poland and Slovenia report the same.

A related issue is skills shortages, which are prevalent across the EU, with 77% of employers reporting difficulty hiring workers with the right skills in 2019. A mismatch between skills needs and skills supply is apparent: 17% of employees were overqualified for their job while 13% were underqualified. One in four newly recruited candidates did not have the skills required for the job.

Summary

Skills shortages are generalised among European SMEs, which make up 99% of all businesses in the EU: 9 out of 10 SMEs faced difficulties finding workers with the right skills in 2023. This has broad implications for the digital and green transition because of the impact on SMEs’ business activities.

Given the tight labour market and unfavourable external conditions, most SMEs resort to internal measures to address existing shortages (such as making better use of talent, investing in training, and offering more attractive financial and non-financial reward packages).

Fewer than 1 in 10 SMEs recruited workers from outside the EU in response to skills shortages, and most of those that did found the process to be difficult.

SMEs that did not hire from outside the EU cited the candidates’ lack of language skills or their own lack of experience with hiring non-EU candidates as the main reasons for not opting for this route.

Highlights

Labour shortages have a significant impact at organisational level. An inability to draw from a sufficient pool of labour with the right skills and competencies to meet workplace requirements can either lead to inefficient matching (if employers are forced to recruit workers lacking the right qualifications and capabilities) or result in vacancies remaining unfilled.

Both results can negatively affect productivity, competitiveness and the ability to innovate. Working conditions for existing workers and managers in affected organisations or teams can also suffer. New orders or business may have to be turned down or delivered with delays, reducing customer satisfaction and the quality of service and thus contributing to medium-term loss of consumer confidence. Furthermore, new initiatives may need to be abandoned, affecting business viability in the longer term.

Labour shortages are also risk factors for clients in areas such as health and social care and other essential services. This can in turn impact the overall health of the workforce and wider society.

In order to gain an insight into how organisations deal with recruitment and retention challenges in a tight labour market, Eurofound carried out 17 case studies in various sectors (construction, health and social care, ICT, marketing, consulting, retail, tourism and transport) across 13 Member States.

The types of measures adopted at organisational level can be broadly categorised following Eurofound’s typology, with a number of organisations utilising more than one approach:

1. Attracting workers
2. Activating underutilised labour
3. Enhancing the use of existing labour