The turbulence underneath the apparently benign employment figures in the EU
Despite the unprecedented scale of the COVID-19 disruption, employment in European countries has remained remarkably robust. The EU unemployment rate was 6.7% in September 2021, identical the annual all-time-low in 2019. Part of the reason for this is undoubtedly the broad range of economic support measures put in place by the EU (see e.g., panel 5 in the chart here).
The absolute number of unemployed did go up by about a million individuals from Q2 2019 to Q2 2021, and total employment shrunk by around 2 million (the other million people leaving the labour force). In the scheme of things, this deterioration in labour market conditions — a 1% reduction in number of people employed — seems fairly modest, even though by Q2 2021, output (GDP) had also recovered to 98% of its pre-pandemic levels.
However, these calming figures hide a lot of turbulence underneath. The distribution of job losses and gains was by far not even across countries, sectors, occupations or age groups. The chart shown illustrates the point at the sectoral level: across the 27 EU countries, nearly a million net new jobs were created in the ICT sector, with public admin, health and social care and many other services also posting significant increases. Indeed, the increases in net new jobs were almost exclusively in relatively high-paying sectors (colour coding of the bars).
The exact opposite happened in lower-paying sectors (black coloured bars), which posted a huge number of net job losses. In accommodation and food services alone — the sector worst hit by the pandemic — nearly two million jobs were lost in total. While the jobs at risk from the pandemic and from future automation are not identical, there is a significant overlap; so now that labour markets are increasingly tight, it’s plausible that those sectors where automation is particularly relevant (e.g., admin services) might think twice before re-hiring, and might invest in automation, instead.
By the way, these structural changes also have an important technical implication for inflation-watchers. As and when we continue to be concerned about inflation, we might look at overall development in wages as one indicator of the degree to which price increases are getting dynamically incorporated into firms’ cost structures. Making sure we adjust for the compositional factors illustrated in this blog will be key. Average wages will have gone up quite a bit, by definition, just by dint of a significantly larger proportion of people working in higher-paying sectors and a significantly lower proportion of people working in lower-paying sectors.
