Chapter 1:
Shortages dominate labour market concerns
Workforce crisis hitting Europe
Key insights
Labour shortages are a long-term structural issue. Vacancy rates remain high, particularly in construction and ICT, two sectors critical to the EU’s green and digital transitions.
Engaging underutilised labour groups is key. Women with care responsibilities, people with disabilities and third-country nationals continue to face significant barriers to participation.
Skills shortages remain widespread across the EU, especially among SMEs. In 2023, 80% of SMEs reported difficulties finding workers with the right skills, with the problem particularly acute in the manufacturing, retail and services sectors.
Poor job quality drives shortages. Sectors with high vacancy rates, such as health and construction, often have poor working conditions, job instability and low wages.
Companies are taking action to attract and retain workers. Employers are offering better pay, flexible work, childcare facilities and training to address shortages.
The EU labour market has shown exceptional resilience following the COVID-19 pandemic, with employment surpassing pre-pandemic levels by mid-2022. Job retention schemes played a critical role, with estimates that they saved 26.9 million jobs in the EU in 2020 and 2021.
By 2024, rising labour demand pushed employment rates to historic highs and unemployment rates to historic lows, shifting the policy focus from reducing unemployment to tackling persistent labour shortages – a major concern for governments and the social partners.
Labour shortages are rooted in long-term structural changes, including the ongoing increase in employment, the shift toward service sector jobs, occupational upgrading with increasing demand for high-skilled white-collar roles and an ageing workforce. Evolving skills needs, job quality concerns, and the green and digital transitions have only intensified the challenge.
These shortages are having negative impacts on companies, affecting growth, productivity and innovation. In response, companies are increasingly putting in place initiatives to address the challenge – Eurofound research in 2024 examined the strategies they are adopting to attract new talent, engage underutilised labour, and improve job quality to attract and retain workers.
' Far from being a temporary economic condition, shortages have become a persistent, long-term structural issue.'
Vacancy rates remain high
The EU labour market remained resilient in 2023 despite weak economic growth and high but falling inflation. Following a period of sustained growth for nine consecutive quarters, the employment rate declined marginally, from 75.4% in the second quarter of 2023 to 75.3% in the third quarter of the same year. Amid these developments, labour shortages remained a persistent problem in the EU.
The post-pandemic recovery saw a spike in the EU job vacancy rate in line with the historical trend. The EU job vacancy rate reached a peak of 3% in the second quarter of 2022, before declining to 2.6% by the third quarter of 2023. However, it remains significantly above pre-pandemic rates.
Vacancy rates remain particularly high in some Member States. Figure 1 shows that in Belgium, the Netherlands, Austria, Germany and Czechia rates were at or above 3.5% in spite of declining vacancies in 2023. In the majority of countries, decreases in the vacancy rates were very small – indicating that labour shortages are likely to continue.
Figure 1: Job vacancy rates, EU Member States, Q3, 2021–2023 (%)
Activating underutilised labour market groups
These persistent shortages have prompted initiatives aimed at mobilising underutilised labour within the domestic workforce.In 2024, following consultation with the social partners, the European Commission published an action plan on addressing labour and skills shortages in the EU. A key priority of the plan is supporting the activation of underrepresented groups in the labour market, recognising that barriers to employment vary across different demographics.
Women and people with disabilities, in particular, face significant barriers to labour market participation – women due to unequal care responsibilities and limited access to quality childcare and long-term care, and people with disabilities due to structural accessibility issues and gaps in inclusive employment policies. Eurofound research highlights how gender segregation and systemic inequalities continue to hinder both groups. Tackling these challenges is essential to easing labour shortages and building a more inclusive, resilient workforce.
Tackling the gender employment gap
Tapping into underemployed part-time workers, who make up a large part of the workforce, could be a key strategy to address labour shortages. Women with caring responsibilities are key members of this underutilised workforce. In 2023, there were about 5.4 million part-time underemployed workers in the EU – of whom a striking 65% were women. Women remain overrepresented in underemployment in almost all Member States, making them the EU’s largest untapped labour force (Figure 2).
However, increasing working hours among part-time workers alone will not close the gender employment gap. To truly address this gap, more women need to be brought into employment overall – whether part-time or full-time.
Eurofound case studies found some initiatives by companies to attract women. For instance, in Czechia, Ipsos, a market and public opinion research company, opened a crèche facility. The company recognised that the age profile of new and existing employees meant that, at any given time, workers will probably be starting families; will wish to take maternity, paternity and parental leave; and will have childcare responsibilities.
Figure 2: Underemployment as a share of part-time employment, by gender, EU Member States, Q3 2023 (%)
©industrieblick/Adobe Stock
©industrieblick/Adobe Stock
Figure 3: Average life satisfaction rating, by disability status, EU, 2021–2024 (scale 1–10)
More integration of people with disabilities into the labour market
Individuals with disabilities continue to face significant barriers to labour market participation and often need targeted policy assistance.
Eurofound highlights that labour market participation remains a challenge for people with disabilities – a problem compounded by the COVID-19 pandemic. They face many obstacles – ranging from disability-related stereotypes to a lack of strategic vision in governance – making employment more difficult.
Bringing more people with disabilities into the workforce would not only help address the ongoing labour shortages crisis but also significantly improve their quality of life.
Unemployment reduces quality of life
Eurofound research consistently emphasises the importance of employment and income for individuals with disabilities to fully participate in society. According to the 2024 Living and Working in the EU e-survey, respondents with disabilities consistently reported lower life satisfaction levels than those without disabilities between 2021 and 2024 (Figure 3).
Respondents with disabilities also reported lower levels of optimism about their future compared to those without disabilities. Eurofound’s 2024 e-survey shows that, among people with disabilities, being unemployed is strongly associated with lower optimism – unemployed individuals in this group were 13 percentage points less likely to be optimistic than their employed counterparts. Similarly, respondents with higher incomes were 11 percentage points more likely to report feeling optimistic than those with medium incomes.
More integration of people with disabilities into the labour market
Individuals with disabilities continue to face significant barriers to labour market participation and often need targeted policy assistance.
Eurofound highlights that labour market participation remains a challenge for people with disabilities – a problem compounded by the COVID-19 pandemic. They face many obstacles – ranging from disability-related stereotypes to a lack of strategic vision in governance – making employment more difficult.
Bringing more people with disabilities into the workforce would not only help address the ongoing labour shortages crisis but also significantly improve their quality of life.
Unemployment reduces quality of life
Eurofound research consistently emphasises the importance of employment and income for individuals with disabilities to fully participate in society. According to the 2024 Living and Working in the EU e-survey, respondents with disabilities consistently reported lower life satisfaction levels than those without disabilities between 2021 and 2024 (Figure 3).
Respondents with disabilities also reported lower levels of optimism about their future compared to those without disabilities. Eurofound’s 2024 e-survey shows that, among people with disabilities, being unemployed is strongly associated with lower optimism – unemployed individuals in this group were 13 percentage points less likely to be optimistic than their employed counterparts. Similarly, respondents with higher incomes were 11 percentage points more likely to report feeling optimistic than those with medium incomes.
©industrieblick/Adobe Stock
©industrieblick/Adobe Stock
Figure 3: Average life satisfaction rating, by disability status, EU, 2021–2024 (scale 1–10)
Can migration shore up the labour market?
While improving domestic labour market inclusion remains critical, many Member States are also turning to migration to fill persistent workforce gaps. One way of doing this is by facilitating third-country nationals’ access to the labour market.
Today’s labour market is calling out for workers, be they EU citizens in their country of origin or from another EU Member State, or third-country nationals currently working inside or outside the EU. Eurostat data indicate that, in 2020, 23 million non-EU nationals were living in Member States. Therefore, third-country nationals make up around 5% of the EU population. Yet in 2022, their employment rate (62%) lagged behind that of EU nationals in their home country (75%).
Despite contributing significantly to essential services, such as providing food, care and cleaning services – often while overqualified – third-country nationals remain underrecruited.
Companies are open to using mobility and migration recruitment routes but this willingness is not matched by the reality. Around 60% of employers indicated that they are open to exploiting the possibilities of third-country migration to address shortages (BusinessEurope, 2023). Many Member State governments, for example Luxembourg, also consider migration from third countries to be an important source of labour.
Hiring third-country nationals in Luxembourg
With a vacancy rate of 1.8% and a level of labour market slack (the unmet demand for labour in a given population) of just over 10% of the extended labour force, Luxembourg is currently experiencing labour shortages. This is particularly the case in the professional, scientific and technical services sector, which has a vacancy rate of over 6%.
The national labour market in Luxembourg presents challenges linked to the high prevalence of cross-border work. In Luxembourg, 44% of the labour force are cross-border workers, which can contribute to shortages, particularly in occupations where shortages also prevail in neighbouring countries. For the same reason, Luxembourg experienced disproportionate labour shortages during the pandemic as cross-border workers were furloughed or restricted from travelling to their place of employment.
To address these shortages, Luxembourg introduced the Law of 7 August 2023 to facilitate the recruitment of third-country nationals. This legislation simplifies procedures for hiring foreign skilled workers, particularly in sectors facing significant shortages, such as IT, healthcare, engineering services, financial services and construction. For professions listed as shortage occupations, the National Employment Agency (ADEM) will no longer be required to conduct a job market test, expediting the hiring process. Furthermore, family members of third-country nationals legally residing in Luxembourg now have unrestricted access to the job market and no longer require work permits.
SMEs slow to recruit third-country nationals
Despite the willingness to hire third-country nationals, recruitment is challenging, particularly for small and medium-sized enterprises (SMEs).
Only 9% of SMEs in the EU hired candidates from outside the EU in 2023, and there were large differences between Member States (Figure 4).
Around one in four SMEs in Ireland and Portugal recruited workers from outside the EU. More than 1 in 10 did so in the Netherlands, Malta, France, Poland, Germany, Austria and Cyprus. At the other end of the scale, fewer than 5% of SMEs in Croatia, Spain, Estonia, Slovakia, Finland, Bulgaria, Romania, Italy and Hungary recruited non-EU workers in response to labour shortages.
Figure 4: SMEs that recruited non-EU workers, EU and Member States, 2023 (% of SMEs)
More than half (56%) of the SMEs that recruited from outside the EU reported that this hiring process was difficult.
Language requirements of candidates (27%), lack of experience in hiring from outside the EU (24%) and complexity of international recruitment and migration procedures (16%) were some of the main reasons cited (Figure 5).
Figure 5: Reasons why SMEs did not recruit from outside the EU, 2023 (% of SMEs)
Migration policies for third-country nationals
The 2023 EU Pact on Migration and Asylum and the current proposal for an EU Talent Pool aim to simplify the process enabling third-country nationals to work in Europe and to ensure fair working conditions for them. Reducing the mismatch between the qualifications of third-country migrants and the jobs performed and ensuring their effective integration is a big part of the response.
Effectively integrating third-country migrants will entail addressing barriers to sustainable recruitment, including avoiding skills underutilisation. Solutions include streamlining processes to ensure that the identification of shortage occupations is regularly updated for the purposes of granting work permits to third-country nationals, improving qualification recognition and offering language training and integration services with the involvement of the social partners.
However, policymakers acknowledge that migration alone is not the solution to labour market shortages and migration policy cannot be linked solely to the needs of the labour market – a multifaceted approach to address this complex issue is required.
Improving job quality is key
Improving job quality is key to complementing efforts to expand the labour force, as poor working conditions remain a major barrier to both attracting new workers and retaining existing ones – especially in sectors already facing acute shortages. Put simply, there is a clear link between poor-quality jobs and labour shortages (Eurofound, 2023a).
Improving job quality needs to be prioritised for the EU to address persistent labour shortages. Eurofound data show that these shortages are particularly prevalent in sectors with poor job quality. Eurofound measures this quality using its job quality index. This compares job demands (such as physical and psychological hazards, work intensity and unsocial working hours) with job resources (such as autonomy, flexible working hours and training opportunities). When the resources available to workers consistently fail to offset the demands experienced at the workplace, job quality is poor, making these positions less attractive and worsening labour shortages.
Many jobs in sectors with the highest vacancy rates have an imbalance between job demands and resources. For instance, data from the European Working Conditions Telephone Survey (EWCTS) 2021 show that the health sector is the most ‘strained’, followed by transport, agriculture, commerce and hospitality – all sectors experiencing significant labour shortages (Figure 6). Similarly, in the construction sector, poor working conditions are a factor behind labour shortages as the sector has high levels of job insecurity and health and safety concerns because of high levels of physical risk.
Figure 6: Job quality index, by sector, EU27, 2021 (%)
Labour shortages do not just reflect poor job quality – they actually make it worse. As vacancies remain unfilled, existing workers face intensified workloads, increasing stress and the risk of burnout. This, in turn, could lead to higher absenteeism and staff turnover, worsening the shortages even further. It is a vicious cycle that keeps eroding working conditions, making it even more difficult to fill these roles.
Company initiatives to improve job quality
In order to gain an insight into how organisations deal with labour shortages, Eurofound carried out 17 case studies in various sectors (construction, health and social care, ICT, marketing, consulting, retail, tourism and transport) across 13 Member States in 2024.
The case studies show that companies are making greater efforts to improve job quality to retain and attract workers, offering better pay, non-wage benefits and good working conditions. These measures include flexible working time and remote work options, but also assistance with housing and childcare.
For instance, in response to high property prices and rental costs in Prague, the Na Františku Hospital helps its workers find affordable housing. The hospital owns three dormitories within walking distance and provides rental accommodation at favourable rates – on average, around 40% below market prices – for employees who have or are planning to start a family. In order to retain staff, the management is also proactive in offering the possibility of part-time work. As a result, according to 2020 Eurostat data, the share of part-time workers at the hospital stands at 30%, compared with just 5.6% in the Czech labour market as a whole.
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