Report
Ombeline DE POMMEROL

The labour force shortage in euro area

Supply side bottlenecks for certain intermediate inputs, particularly semiconductors, are not the only factor holding back the economic recovery in the euro area. In fact, some companies in some sectors are facing increasing difficulties hiring workers. This shortage would seem puzzling given that the euro area economy just faced one of its deepest recession. It could appear even more confusing in light of an unemployment rate of still 7.5% in August, and employment in the EMU4 countries is still 1.4m lower than before the crisis. While the number of people employed remains rather low, demand for workers is rising strongly: job offers as reported by staffing agencies increased by 11% in September in France when compared to February 2020 (before the pandemic). The equivalent number for Germany is 32%. Even with a long-lasting issue of skill mismatch in the European labo u r market, the pandemic has aggravated shortages in some sectors. Some services (hospitality, catering ) saw their workers - which had to stay home for months – being reluctant to return to their former job. Then, some had opportunity to change sectors: in Germany, it has been estimated that one employee in six has left the hospitality / catering sector during the COVID-19 year representing 275k cooks, service and hotel workers. The construction, road haulage and home help services sectors are also facing difficulties to hire. As a resu lt, the vacant job rate in Q2- 21 was as high as two years before at 2.4%, a higher level than what we would except for an economic recovery phase. European Commission survey answers highlighting the lack of labo u r force as a factor limiting production for both industry and services came out at record high level for Q3. In France, a survey among SMEs showed that over 44% faced hiring difficulti es in the last week of August. To assess the impact of this shortage on employment, we use the correlation between the PMI employment index (indicating the level of employment that companies are willing to hire every month) and the quarterly euro area employment variation. We then calculate the counterfactual: how much the employment level would have been considering the last PMI levels, without those market frictions. For now, the number of “missing jobs” seems contained in the first semester to 225k jobs in the euro area. But, as the PMI level for Q3 is already close to 56, a record high level, we w ould expect the effect of the shortage to be higher in the second part of the year. In fact, our forecast for employment in the euro area for Q3 is “only” +0.1% QoQ vs +0.56% with the PMI simulation (representing 737k missing jobs). The focus is, as for inputs shortages, to know how long it will last, and if companies will be willing to restore job attractivity by increasing wages – heightening upward inflationary pressures already in place. At least for now, wage growth looks moderate. But the unusual behaviour of the labour market points to clear upside risks at this point .
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Natixis
Natixis

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Ombeline DE POMMEROL

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