Policymakers must seek solutions for tomorrow’s labour markets. The workforce is dwindling due to ageing. Our recent work within the EU-funded FutuRes project has found that robots and migration may be part of adaptive solutions - but they aren’t viable on their own, nor do they have the same effects everywhere. Our research further shows that policy strategies must be attuned to the specific economic and social contexts. Looking at data (both the pan-European and country level data) gives us an idea of the varied policies and strategies that are needed.
Firstly, a reminder: labour market shortages in Europe exist largely due to ageing workforces. Our ageing populations in Europe increase the old-age dependency ratio (OADR). Costs of ageing-associated pressures (such as care and pensions) are left to the shrinking workforce. This means that increased taxes to maintain the same level of government spending will have to be distributed among fewer workers.
The 2024 EU Ageing Report details the costs associated with ageing societies in the EU, including pensions, healthcare, long-term care and education amongst others: these costs could stretch to 24.4% of the EU’s GDP. Public pensions alone account for an average of 11.4 %.
Saying that, there is great disparity in existing levels of education, jobs in the labour market, immigration and OADR across Europe, which translate into different speeds and intensity of pressure.
For example, Southern European countries (Greece, Italy, Portugal and Spain) are likely going to face the toughest challenges, with their lower-than-average fertility rates, high current and future OADR, lower-than-average education rates, as well as low employment rates (all relative within the EU). While low employment rates might give the impression that there are “lots of people available to work”, in fact there are structural changes needed first to increase employment rates and to better match education and skill development to the jobs that are needed.
Labour markets in countries in western and northern countries are currently set to fair better, while the Eastern European countries will need to focus on the challenges posed by a high OADR by 2050, driven by their lower fertility rates and low immigration.
Taking these differences into account, as well as the fact that automation will have different impacts on different labour markets, here are some policy pathways forward:
- Maximise employment by making work more accessible: A key policy focus should be to increase the employment rate. Standard pro-employment policies such as promoting childcare to re-integrate mothers to the workforce, allowing for flexible work arrangements, and keeping early retirees active (even part-time) are all examples of this. The policies need to go beyond what currently exists. Labour market practices should also focus more on hiring for skills, rather than for degrees.
- Reduce skill-job mismatches by targeting education to existing industries. A small hope is that while unemployment is low, labour market participation has room to increase. In the short-term, governments should direct migration policy towards industries facing extreme shortages that require years of training and experience. Again, while this already being done to some extent, it could be further expanded, especially to migrants who in particular are working in jobs beneath their potential.
- Re-think and restructure education: Education should not be limited to children and young-adults, but should include the existing workforce seeking to up- or re-skill. In a medium to long-term, providing education systems that give young people and adults opportunities to gain skills especially in areas where there are shortages in the labour market should be prioritised. These programs should also be formed in conjunction with business leaders and also made accessible to immigrants, who wish to careers.
- But still invest in education: One of the keys to European society’s resilience is education. Investment and opportunities for all must continue. In concrete terms, low-skill professions are at particularly high-risk of automation in the short-term, which means that we need people with higher educations to fill medium and higher skilled jobs.
- Invest in up-skilling people to work with automation: Without a doubt, job automation can help us, for example to increase productivity and to decrease physical strain. While some jobs will be replaced or less in demand with up-coming technological developments, most jobs will still require people, but they will have to work more with automation. Governments (education systems) and employers must invest in up-skilling the labour force to work alongside new developments, including AI.
- Harness the potential of migrants: Different parts of Europe are able to attract migrants to different extents. There are still huge issues with migrants working below their capabilities and qualifications. Many are unable to work even if they want to, due to restrictive visa policies. Policymakers should instead make labour markets (and societies) more accessible to newcomers so that they can contribute and thrive.
- EU labour markets must work together: Europe can get through the up-coming pressures on the labour market by working together and coordinating their specialisations to maximise the comparative advantages that the members of the common market possess. For example, southern European countries have better weather conditions for food production, but less capabilities for heavy manufacturing industries. Diverting production of goods with specialisation, rather than competing in both markets. Germany makes wine and cars, as does Italy and Romania; however, Germany is more efficient in car production than wine making, with Italy or Romania (arguably) the opposite.
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This is a publication by the FutuRes Project. FutuRes is funded by the European Union’s Horizon Europe Programme, Grant Agreement n° 101094741. Views and opinions expressed are those of the author(s) only and do not necessarily reflect those of the European Union. Neither the European Union nor the granting authority can be held responsible for them.
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