Short- and long-run determinants of labour shortages

With the swift economic recovery in 2021, labour shortages re-emerged quickly. The lack of labour was reported in several industries, especially the labour-intensive ones. This is not a new phenomenon, as high shortages were reported already in 2019, and their decline during the pandemic was only temporary. After the start of Russia’s invasion of Ukraine, labour shortages in the EU kept rising, especially in services, with some signs of lessening towards the end of 2022 as the economy slowed. This suggests that the economic cycle plays a strong role in driving up labour shortages. The cross-country and cross-sectoral patterns of labour shortages during the recovery have followed prepandemic patterns, suggesting that besides cyclical drivers, long-term factors constraining the supply of labour, such as the ageing of the population, are also influence labour shortages. In addition to demographic changes, other drivers include skills shortages driven by the digital and green transitions and other ongoing structural changes, changes to the patterns of labour mobility, migration and poor working conditions in some sectors and occupations. Regarding skills shortages, the availability of digital skills is of particular relevance for labour shortages. Policies tackling the structural causes of labour shortages are necessary to ensure that growth prospects are not hampered in the medium and long term. In particular, these policies should support labour market transitions to improve the efficiency of job matching and anticipate potential skills imbalances stemming from the two transitions. Policies that support labour market participation and reallocation can help reduce shortages. In addition, labour mobility and migration policies can also help reduce skill shortages. Yet movement of labour around the EU may just redistribute shortages among Member States, as scarcity in certain occupations is widespread. EU policies support a broad range of policies that can be used to reduce labour shortages, in particular under the European Pillar of Social Rights Action Plan and the European Semester and EU instruments such as the Recovery and Resilience Facility, the European Social Fund Plus and Invest EU.