The EU Labor Market Recovering and Even a Lack of Workforce May be expected

A year after the first effects of the economic shock caused by the pandemic, the data shows, that the EU managed the unemployment perfectly. Moreover, it seems that the EU could soon face a different problem – the lack of workforce across economic sectors.

A year after the first effects of the economic shock caused by the pandemic, the data shows, that the EU managed the unemployment perfectly. Moreover, it seems that the EU could soon face a different problem – the lack of workforce across economic sectors.

Last year, the workforce was hit by scary forecasts. In the US, the unemployment rate in April rose to high values last seen during the Great Crisis in the 1930s. Nevertheless, the European labor market is different from the American.

Before the outbreak, the unemployment rate in the EU and the euro area was on its lowest values since 2008. The value was worth 7.5% within the euro area, and even a percentage point lower in the EU.

A better progress than after the financial crisis

When the first wave hit, a large part of the economy had to be closed down. European countries, unlike the American administration, decided to prevent rapid unemployment growth and adapted programs to support job retention.

As time passed, it became obvious that the spring wave of the Covid-19 pandemic might return in second or even third wave. The situation was devastating for some industries, especially the private sector operating in tourism, hospitality, and accommodation services, where sales dropped deeply. Due to long suspension, widespread redundancies were inevitable.

In almost all European countries, a gradual increase in the unemployment rate and the unemployed were a reality. The unemployment rate reached its peak of 8% at the end of last summer. Since that, the rate has been dropping – partially due to better economic progress in the third quarter and the time lag, which is typical for the development of unemployment.

Ongoing vaccination brings hope

A slight, yet persistent drop in unemployment continued in winter, regardless of the fact that the tourism industry had been hit by restrictions. There could be an explanation for that – no more people were losing their jobs as the imaginary bottom had been hit. Some seasonal jobs were available in the first months of spring, and some workforce relocated to different work fields.

Upcoming months bring some positive prospects. Vaccination continues within the EU continues and even speeded up in recent weeks. Therefore, possible restart dates of some economic sectors – had to be closed down for months - approaches. Yet, the damage caused by the pandemic will only be known once the pandemic is over. Some companies probably left the market permanently. In such a case, it could take some time until the released workforce would be absorbed.

However, the unemployment rate is far from the values caused by the economic crisis ten years ago. Back then, unemployment in the euro area rose over 12%, and currently, it’s only above 8%. In the European Union, when referred to as a whole, its values were roughly one percentage point lower.

Surprising differences among countries

The labor market in Poland, which was hit hard by the pandemic, coped with unemployment the best in the EU. In March, its unemployment rate grew over the year from 3 to 3.1% and the number of unemployed people grew roughly around 30,000.

On to contrary, the pandemic caused severe damage in labor markets in southern Europe, such as Spain, Italy, or Greece, where the unemployment rate rose in double digits. Sweden and France brought rather surprising results. While unemployment in Sweden rose in two percentage points to 9.1% in March, which was well above the European average, France, for example, managed to keep its unemployment rate under 8%. Surprisingly though, France has long been among countries, where the unemployment rate of 10% was nothing unusual.

Will the labor force be missing?

In addition to the pace of economic recovery in the EU, the opening of borders between countries will play a key role now, as it is tourism-related sectors that might accelerate the economic recovery this summer.

A special factor in the development of the labor market will soon be the disproportion between the vaccinated EU and “the surrounding world”. The uncertain development of the pandemic in Ukraine and other nations behind the eastern border of the EU as well as in North Africa, Turkey, and the Middle East or Central and South Asia may cause their continuing hermetic isolation from the EU. This cutting off from the potential influx of labor can be an important factor limiting the European post-crisis growth.  

Only time will tell whether the "Fortress Europe", hermetically isolated for health reasons, will be of benefit rather than harm for European economic recovery.

Evrula Papadopoulos, Executive Director

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