The labour market is tightening, meaning that attracting the right talent will become an increasingly important issue for businesses. Many factors are affecting the demand for jobs and skills, such as the digital revolution, globalisation and demographic changes (including high migration flows). Besides, the financial and economic crisis crushed the Lisbon Strategy’s willingness to increase the EU’s employment rate to 70 per cent by 2010.

As PwC’s report The Untapped Potential on the European Labour Market explains, the supply of labour does not only matter at the micro-level, but the performance of entire economies hinges on the ability of businesses to find the right workers to fill their vacancies.

Many European countries are failing to entirely exploit the potential of the labour market, meaning that young generations, older people and women are not always contributing all they can towards economic development.

Youth unemployment has risen sharply in most European countries. Engaging youth in the labour market is not only beneficial for national economies, but young workers also benefit from it. PwC research shows that lifetime earnings for those who have been long-term unemployed in their youth is reduced by approximately 50,000 euros. Consequently, these young people will also receive lower pensions.

“An important and growing number of youth who have exited the education system are not (or no longer) looking for work and thus are not included in the official unemployment statistics,” writes Stefano Scarpetta, OECD’s Directorate for Employment, Labour and Social Affairs.

“While some may have chosen to withdraw from the labour market and stay on in education because of the depressed labour market, for many young people inactivity is the result of discouragement and marginalisation, which tend to reflect the accumulation of multiple disadvantages, such as lack of qualifications, health issues, poverty and other forms of social exclusion,” he explains.

Investing in youth

But investing in youth has been a key policy priority everywhere. In 2012 the youth unemployment rate was 23.7 per cent (within EU member states) while in 2018 it dropped to 7.1 per cent, with many central and eastern European countries scoring below the average (the Czech Republic, Hungary, Poland, Estonia, Slovenia, Bulgaria and Romania).

“Thanks to strong growth and a dynamic job market in most central and eastern European countries, youth are benefiting from new opportunities and rising incomes,” Mark Keese, head of the Skills and Employability Division at the OECD tells Emerging Europe.

“However, just getting a job is not all that matters for young people. Job quality, including a good alignment between the skills that young people possess and those required in their job, is also crucial. Some skills mismatch early in a young person’s career may be expected but, if it persists, the costs can be high for individuals (lower wages and lower satisfaction), firms (lower productivity and higher turnover) and the economy (‘wasted’ or ‘unused’ investment in education)”, he adds.

“Along with significant economic growth the unemployment level, including unemployment amongst youth, has significantly reduced during the past few years in eastern Europe,” the Latvian Minister of Finance Dana Reizniece-Ozola tells Emerging Europe.

In Latvia, total unemployment has declined, including unemployment amongst the youth. Traditionally higher, young unemployment has been reduced from 36.2 per cent in 2010 to 17 per cent in 2017.

“Although the unemployment indicators are now low, in the long-term we can see that a lack of employees will become increasingly relevant. Of course, the simplest way to solve the issue of insufficiency of employees is to bring in guest-workers, however, while local human resources are not being fully used, there are no grounds to make use of it. Firstly, significant structural reforms in the field of education must be carried out and further economic development and overall growth in the level of life must be ensured,” she adds.

The educational challenge

Not only is there a lack of trust in the labour market, but also the conservative educational system can be considered as one of the reasons behind the high youth unemployment rate, as professional education is not in line with recent labour market needs.

“The problem stems from the less flexible educational system compared with dynamic changes in skill needs due to intensive technological development,” notes Professor Iskra Spasova Beleva, deputy director of the Economic Research Institute at the Bulgarian Academy of Science.

In fact, the three top performers on the PwC index (Iceland, Sweden and Norway) have some labour market features in common: a dual education system in which students are offered the opportunity to undertake an apprenticeship alongside their formal classroom education, a strong engagement of businesses in youth and schools, and a focus on social inclusion.

“Another big challenge is the increasing inactivity of youths due to low incentives for labour market participation. There are many studies on the topic, trying to answer why that is so, however, the efficiency of respective policies is not sustainable. Entrepreneurship is one of the most important drivers of job creation, but young people are underrepresented in it. Why is that so? Is it because the world of capital is highly monopolised or there are other factors?”, she tells Emerging Europe.

“A stable and modern education system is the basis of mitigation of unemployment amongst youth. However, the education system is conservative and difficult to change,” Minister Reizniece-Ozola says.

“During the past few years Latvia has carried out significant structural changes in the approach of education in order to develop and introduce such general education content and approach to learning that would develop the knowledge, competencies and habits important for the life in the 21st century. Significant resources are invested in the development of vocational education institutions and higher education by improving the infrastructure and study content, and adjusting new specialists for the needs of the labour market.”

But what maybe five years ago was seen as a challenge today represents an opportunity.

“As job opportunities for young people dried up in CEE countries, it also led to many more of them to decide to stay on longer in school and obtain additional qualifications. Now that the labour market recovery is underway and new job opportunities are opening up, this extra time spent in education should help young people get off to a better start. Hopefully labour markets in the CEE region will be more resilient to any future economic shocks and the impact on youth unemployment will be more moderate,” says Mr Keese.

At the same time, Bulgaria, after 10 years of building up a modern and efficiently working labour market, is still looking at the free movement of people as the highest challenge.

“The opportunities for youths to travel, to study and to work in other countries is a personnel advantage. But it could turn in national advantage only in case we have back these people”, Mrs Beleva comments.

Digital skills for a digital world

The digital revolution (meaning the new digital technologies such as data analytics, artificial intelligence, 3D printing, cloud computing, IoT, robotics) is also affecting the labour market.
According to the latest OECD research 14 per cent of all jobs across 32 OECD countries have a high risk of automation and a further 32 per cent of jobs may experience significant changes to how they are carried out.

“In some of the CEE countries these risks are even higher as, for example, more than 30 per cent of jobs in the Slovak Republic are at high risk of automation. However, these estimates are subject to considerable uncertainty. Moreover, not all jobs that are technically automatable will disappear. Other jobs will also be created and so employment in total may continue to rise,” Mr Keese says.
The tendency is clear: there is a lack of specialists and adult learning will be a crucial aspect. Most workers will need to train to adapt to significant change in the way they work, including to work with new technologies. Unfortunately, according to Mr Keese the likelihood of participating in any type of training, on-the-job and outside the job, is found to be significantly lower among workers in jobs at risk of being automated.

But how can new modes of work live together with traditional institutions and industries?

“Digitalisation and the emergence of new business models have led to rapid growth in new forms of work in the so-called platform economy. This includes online gig work (which is carried out entirely online and often globally) and work-on demand via web-based platforms (which is carried out offline and locally)”, Mr Keese says. “The flexibility of gig work in terms of how much to work and where this work takes place offers new opportunities for people to find work and to combine work with family and other personal responsibilities and interests. It also potentially enables traditional businesses, including smaller ones, to offer more services or to obtain more specialised services via the web than was possible previously. It can therefore expand their business opportunities and enhance their productivity.”

However, employment and social protection regulations are required, including a clarification on how gig workers are classified with respect to employment protection legislation; improving social protection coverage for independent contractors; and removing restrictions that competition law may place on the rights of gig workers to collectively organise.

The positive side of migration

The notion that “immigrants are taking our jobs” is spreading worldwide. Not only when it comes to refugees but also concerns intra-mobility as Western and Northern European countries are afraid that migration flows from the East will take away the jobs of local workers. The usual clichéd concerns about doctors cleaning tables in a cafe because of the lack of recognition of their qualifications contributes to this fear.

In fact, as reported by Bruegel’s report People on the Move: Migration and Mobility in the European Union, 22 per cent of immigrants to Europe are over-educated for the jobs they do, compared to 13 per cent of natives. Moreover, a good majority of immigrants obtained their degree prior to immigration, meaning that in most cases the host country is benefiting from an education paid for by others.

“Nothing is perfect under the sun”, says Mrs Beleva. “From this point of view the competitiveness among the labour force given the free movement of people, goods and capital should be valid irrespective whether local people or emigrants are concerned. These are the rules of fair play in a market.”

“However, in many countries the national labour markets are protected by different policies. But if investments in less developed countries are stimulated so as jobs can be created there, this may be an efficient way to slow down emigration from CEE to the West,” she adds.

According to the European Investment Bank, intra-EU mobility is a largely untapped resource of higher employment and higher growth as it contributes to improving labour allocation within the EU, helping reduce unemployment in times of crises.

“The labour force continues to shrink because of population ageing combined with emigration. Recent economic and labour market developments have been positive. Unemployment rate is 6.1 per cent and the youth unemployment rate is 11.6 per cent, but structural problems remain. As the economy is undergoing structural changes, it is essential to tap into the unused labour potential,” says Mrs Beleva in regards of Bulgaria.