Analysis Labour shortage

Great Resignation or Great Rotation? Finding better work in Europe, after Covid

Employers are desperate to recruit across Europe. This is the paradox of the current labour market: the balance of power has never been more in favour of workers, yet they still face a severe loss of purchasing power.

Published on 4 July 2023 at 20:06

The job vacancy rate is at an all-time high in the eurozone: 3.1 percent of paid jobs were unfilled in the third quarter of 2022, compared with 2.6 percent a year earlier, and 2.2 percent at the end of 2019 – before the health crisis – according to Eurostat data. "In a sign that tensions are multiplying on the labour market, the debate on labour shortages has replaced the debate on mass unemployment," says Belgian researcher Wouter Zwysen of the European Trade Union Institute (ETUI).

The labour market is particularly tight in Austria, Belgium, the Netherlands and Germany. In the Netherlands, there are currently 123 vacancies for every 100 unemployed people, 15 times more than in France. “Companies are having trouble finding workers," confirms Pieter Gautier, a researcher at the Vrije Universiteit in Amsterdam. “While their complaints are partly legitimate, it also means that they are offering wages that are too low. If employers were willing to raise wages, they would surely find candidates.”

Wages have in fact risen on average, but have failed to keep pace with inflation, meaning that they fell in real terms. As a result, strikes have broken out in a country that is usually keen to negotiate and compromise. More substantial pay rises had to be conceded in certain sectors: +10 percent in construction and railways, even +40 percent in the security sector. At the same time, employers have turned to immigration, with the Netherlands witnessing record net migration in 2022 (+277,000 people). But this was still not enough to meet all of the country’s needs.

In Germany, the index measuring labour shortages is also at its highest. “Because of democratic tendencies specific to Germany, the need for workers is higher," explains economist Gustav Horn, chief economic advisor to the SPD. “Many workers in the 'core economy' (health care in particular) have quit and gone to work in the private sector. In the catering industry, many people resigned during and after the pandemic, and went to work in the retail sector. Some hotels have lost up to 50 percent of their staff”.  Germany is short 400,000 people of working age each year. Here too, migration trends are on the rise.

In Slovenia, the job vacancy rate hit a record high in the second quarter of 2022. The processing and construction industries, as well as the education and health services, are particularly affected. But more broadly, in 2022, no fewer than 99 occupations are short of staff.

The same is true in Italy, where companies were looking for over half a million workers in January. The proportion of employers reporting difficulties hiring has risen from 38.6 percent last January to 45.6 percent this year. The proportion is 55.8 percent for those looking to recruit skilled workers, 47.8 percent for plant and machinery operators, 47.4 percent for technical occupations and 47.2 percent for managers and professionals.

France is not to be outdone here: in July 2022, the proportion of industrial companies declaring recruitment difficulties reached 67 percent, a level not seen since 1991. The long-term average for this indicator is 31 percent, according to INSEE.

As a result of this unprecedented labour shortage, resignations are soaring in a number of countries. In France, for example, the number of resignations reached an all-time high at the end of 2021 and beginning of 2022, with close to 520,000 per quarter, of which around 470,000 were resignations from permanent contracts (CDI). In proportion to the number of employees, the resignation rate stood at 2.7 percent in the first quarter of 2022. This is not so far from the United States, where the so-called "Great Resignation" has reached popular consciousness: across the Atlantic, the resignation rate peaked at 3 percent in December 2021.

In Italy, over 1.6 million resignations were recorded in the first nine months of 2022, 22 percent more than in the same period of 2021. And even with an unemployment rate of 12.5 percent, Spain is experiencing a similar phenomenon, albeit on a smaller scale: more than 70,000 people left their jobs voluntarily in 2022, more than in any year since 2001 – when this statistical series began.


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It is difficult to know how widespread this phenomenon is across the continent: there are no precise statistics aggregated at this level. It is known that 3.5 million Europeans left their jobs in the third quarter of 2022, of whom 545,400 did so either because they resigned or because their company went bankrupt. However, the precise breakdown of this figure is not known. All that is known is that there were more of such workers than a year earlier (+23,100).

“The resignation rate is a cyclical indicator," according to a note from the French Ministry of Labour. “It is low during crises and rises during periods of recovery, as strong as the economic upturn is rapid. During phases of economic expansion, new job opportunities appear, prompting people to resign more often.” This is not unusual, given the current strong performance of European labour markets (see our article on this subject).

Labour shortages tend to accentuate the phenomenon, particularly with the practices of poaching labour between companies. Resigned workers’ return to employment appears to be rapid, despite the high level of resignations: in France, around eight out of 10 workers resigning from permanent contracts in the second half of 2021 were back in employment within six months.

Instead of an Anglo-Saxon "Great Resignation", Europe is witnessing a "Great Turnover". In the United States, the phenomenon has resulted in a decline in the active population: many Americans have left the labour market altogether, particularly women, for lack of childcare solutions in the wake of lockdowns. The activity rate of women in the US over 20 has still not returned to pre-pandemic levels (58.3 percent in January 2023, compared with 59.2 percent in January 2020). Nothing of the sort has happened in Europe, where the activity rate is 1.6 points higher than the level recorded before Covid-19 appeared. And for women, this figure has increased even further (+1.8 points). It is workforce turnover that has in fact accelerated.

While Europeans no longer hesitate to turn their backs on employers, it is not because they reject work per se. Rather, it is because they have become more selective about the conditions under which they work. In a favourable economic context, they finally have the opportunity to be choosy: the balance of power has been reversed. The high number of resignations "reflects the dynamism of the labour market, and a situation in which bargaining power is shifting in favour of employees," reads the note from the French Ministry of Labour.

Logically, this favourable situation for employees should fuel wage demands, and this is indeed what we are seeing. According to the latest projections of the European Central Bank (ECB) published last December, salaries likely increased by 4.5 percent in 2022 in the eurozone, and will increase by 5.2 percent in 2023. These are not insignificant increases, but they remain well below inflation: in 2022, prices rose by 8.4 percent on average, and they will continue to rise by 6.3 percent in 2023, again according to the ECB. As a result, the real wages of Europeans will fall.

This is the paradox of the current labour market situation: the balance of power has never been so good for workers, but they still suffer a severe loss of purchasing power.

This is clearly seen in the evolution of the minimum wage, increases of which in many European countries have been eaten away by inflation, as highlighted in June by a note from Eurofound, an EU agency for living and working conditions. In 15 of the 21 EU countries that have adopted a minimum wage, the minimum wage fell in real terms, i.e. after taking into account the effects of price increases, between 1 January 2021 and 1 January 2022.

This situation was also signalled by the International Labour Organisation (ILO) in their latest Global Wage Report. They note a 2.4 percent fall in real wages across the European Union between the first two quarters of 2021 and 2022. They also show that, behind these averages, it was the lowest-paid workers who paid the highest price for inflation.

“Usually, when recruitment difficulties increase, business leaders try to compensate by improving productivity gains, which results in an increase in real wages," explains French economist Eric Heyer. “Today, the opposite is true: recruitment difficulties result in productivity losses and real wage cuts. All very strange. It is probably because we are going through a period of incredible inflation. This would mean that the balance of power in favour of employees does not translate into real wage gains but into a lot of jobs – jobs of decent quality.

It is as if employees were not negotiating wage increases but better working conditions.” In fact, the share of fixed-term jobs fell by 1.8 percentage points between the third quarter of 2018 and the third quarter of 2022 in the European Union, from 15.9 to 14.1 percent. This decline can be seen in most countries, with the exception of the Netherlands. It is particularly marked in Poland, Portugal and Spain.

Another sign that the quality of employment is improving is that full-time jobs are becoming more common. The share of part-time employment in total employment has fallen from 17.9 percent in the third quarter of 2018 to 17.4 percent four years later. The decline is particularly sharp in the Netherlands (-7.3 percentage points), but the Dutch were starting from a very high level. The decline is also significant in Greece (-1.5), Sweden (-1.9) and France (-1.4).

“There has been no great resignation in Europe as in the United States, but there has been a flight from low-quality jobs," says Wouter Zwysen. “The boom in vacancies can be explained either by the fact that people have more options, or by a kind of re-evaluation of what is important, of the meaning they want to give to their work, but also by a rejection of jobs that require contact with the public, perceived as less secure since Covid.”

Even before the pandemic, working conditions played a very important role in recruitment difficulties. This was shown in a study conducted in France by the economist Thomas Coutrot for Dares, the Ministry of Labour’s data department, published in June 2022. It shows that more employers who report that their employees are exposed to arduous working conditions experience such hiring difficulties: 89 percent, compared with 71 percent for all private sector employers. Unsurprisingly, office staff and manual workers are particularly affected.

The hardest jobs to fill are those that involve physical constraints for employees, such as carrying heavy loads, exposure to loud noise, or handling chemicals. Time constraints are also important, such as having to work nights, or other atypical working hours. Employers whose employees are worn out at work not only have great difficulty in hiring, they also have great difficulty in retaining their workers.

The post-Covid recovery has only exacerbated this situation: "In the Netherlands, 14 percent of employees have changed jobs since Covid," explains Pieter Gautier. “For example, airport employees who loaded suitcases, who were very poorly paid, have resigned and found other jobs. This is very good news: people had no power before Covid, but this is changing. At airports, with huge queues of passengers to manage, employers are slowly beginning to realise that they can't get away with underpaying such workers”.

Drop in mini-jobs

Another example: in Germany, there has been a significant drop in mini-jobs, the precarious jobs that flourished in the 2000s, emblematic of the strategy to increase competitiveness by lowering German labour costs. “Covid-19 has clearly highlighted the strengths, but also the weaknesses of our labour market," says German researcher Enzo Weber. “Mini-jobs, in particular, have disappeared by the hundreds of thousands in a very short time, without entitlement to short-time allowance”. For Weber, the post-Coronavirus revival of the German labour market must be based on quality, rather than quantity, by combining the employment contract with the right to social protection and training.

More broadly, the overall structure of the job market has changed in Europe as a result of the pandemic, as highlighted in a Eurofound report. Between the end of 2019 and the end of 2021, job creation has been particularly dynamic in the highest paid jobs: 2.5 million additional jobs among the first quintile, or top 20 percent, of jobs.

Conversely, there has been no recovery in low-paid jobs: more than 3 million jobs were destroyed over this period among the lowest-paid 20 percent of jobs. It is as if the quality of employment underwent an "upgrade", or a flight upwards, and that labour from low-paid sectors was reallocated to higher-paid sectors. "This is quite different from the polarisation of employment that occurred during the last crisis of comparable severity, the great recession of 2007-2009," the report states. "The good news is that at the bottom of the social ladder, the situation of workers is starting to improve, because the labour force is becoming scarce," says Pieter Gautier.

However, even if the trend is going in the right direction, there is still a long way to go before precarity and underpaid jobs are eliminated. For the time being, inflation is wiping out any wage increases won by employees, and the share of temporary jobs remains high in a number of countries, such as the Netherlands, Spain, Italy, France, Portugal and Sweden. “The real challenge is to improve the quality of employment," says Eric Heyer.

“In the end, it is quite simple to achieve full employment. If I were to caricature it, all you have to do is create quarter-time jobs. Germany has achieved full employment at the cost of a very significant increase in the poverty rate. Quality full employment means full employment on permanent contracts and full time, and that means not leaving anyone by the wayside, neither unqualified young people, nor older people at the end of their careers.”

It is not clear that all heads of state share this concern. Rather than encouraging this movement towards full employment, some governments prefer to return the balance of power to employers. This is the case in France, where unemployment insurance rules have been changed twice in three years, to the  disadvantage of employees, forcing them to be less careful about the job offers they are prepared to accept. Last December in Italy, Giorgia Meloni's government tightened the conditions for receiving the Citizen’s Income introduced in 2019. The famous "next world" that we have been hearing so much about will not transpire any time soon: when it comes to employment policy, the revolution will have to wait.

👉 Original article on Alternatives Economiques
EDJNet
In partnership with the European Data Journalism Network

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