In the face of a global economic downturn triggered by geopolitical events and an energy crisis, the European Union’s labour market and wages have demonstrated remarkable resilience, as highlighted in this year’s Labour Market and Wage Developments in Europe report published by the Directorate-General for Employment, Social Affairs, and Inclusion (DG EMPL).
Labour market overview
Despite a slowdown in economic growth since the second half of 2022, following Russia’s war of aggression against Ukraine and the ensuing energy crisis, the EU labour market has remained robust. The report reveals that the unemployment rate stabilised at a historic low of approximately 6%, and employment continued to grow at an annual rate of 2% in the first half of 2023. Notably, several businesses reported ongoing challenges in finding qualified personnel, leading to persistent labour shortages.
The report indicates that despite variations in employment growth across sectors, the energy-intensive industries did not experience a proportional decline in job creation. This unexpected performance is attributed to the tight labour market conditions, with employers choosing to withdraw unfilled vacancies rather than resorting to employee layoffs.
Labour force participation and demographics
The sustained growth in employment was supported by an expanding labour supply, marked by a resurgence in labour market participation following a temporary contraction during the COVID-19 pandemic. Women, older workers, EU mobile citizens, and non-EU nationals have significantly contributed to the increased participation, aligning with the European Pillar of Social Rights’ target of achieving 78% employment for the working-age population by 2030.
While wage growth has been robust, reaching 6% in nominal compensation per employee in the second quarter of 2023 compared to the same quarter in 2022, it has not been sufficient to offset the impact of high inflation. Real wage losses since the end of 2021 have negatively affected households’ purchasing power, leading to an increase in workers’ financial distress and material and social deprivation.
The report also acknowledges that statutory minimum wage policies in half of the Member States have successfully protected the purchasing power of minimum-wage earners from January 2022 to July 2023.
Working time dynamics
In a new addition to the report, working time dynamics were examined, revealing a gradual decrease in working hours across EU Member States. The average weekly hours worked decreased by 2% between 2008 and 2022, with an even more pronounced decline of 5% in average annual hours.
The report highlights a growing mismatch between workers’ preferences and their actual hours worked, resulting in a rise in overemployment. Working time reduction policies are identified as a potential solution to this issue, positively impacting workers’ well-being, hourly productivity, and pay.
As the report anticipates a further decrease in real wages in 2023, it underscores the importance of remaining vigilant about second-round effects on inflation. However, moderate long-term inflation expectations and resilient business profit margins suggest potential room for increasing wages.
Despite the challenging economic environment, the EU labour market has showcased resilience, with employment growth, labour force participation, and wage developments remaining positive. The report emphasizes the need for ongoing monitoring and policy considerations to ensure the continued stability of the EU labour market. The Commission is expected to provide an update on economic indicators, including unemployment, in the upcoming Autumn Economic Forecast.