European Employment Soars to Record Level Despite Looming Recession

Insights for What's Ahead

Changes in the composition and preferences of the labor force call for more employer flexibility. The European labor market now counts more active workers, on average older, and with a relatively stronger female presence compared to a decade ago. These workers already have a strong association with flexible working hours, indicating that flexible work will continue to be an important benefit to offer an aging and diverse workforce. However, a legacy of the pandemic is that workers around the globe are now demanding more choice in where and when they work. Flexible working is becoming a competitive edge for businesses, but it needs to be reimagined to find the optimal balance between worker preference and business requirements.

Addressing mental well-being of workers needs to remain a priority for employers. The strong economic and employment recovery from the pandemic is funneling stress through the workforce. Surveys show that mental well-being failed to improve despite the recovery, suggesting that employers need to continue to prioritize programs to support workers. Meanwhile, a new challenge is emerging: addressing the financial well-being of workers. 

Financial well-being of households is the new emergency, and it risks generating social tensions. With inflation at 9.1 percent in August in the Euro Area, an increasing number of households struggle to meet basic needs. More and more families are reporting arrears in bills, insurance payments, and loans. Multinational companies are developing new instruments to help workers combat the cost-of-living crisis, such as discount schemes or salary sacrifice schemes (less take-home income from the employer in return for noncash benefits). Unfortunately, these measures are scattered and might only touch workers in large companies. As a result, an increase in social tensions is possible in many European countries, potentially leading to strikes in the autumn. 

Ukraine refugees are beginning to integrate into the labor market in host countries. EU-level legislation has temporarily been adjusted to facilitate integration. Furthermore, many countries are rolling out active labor market policies and dedicated programs to help refugees integrate into the workforce.

On average, in the Euro Area, women drove the employment recovery that followed the COVID-19 shock, but not in Italy and Germany. Both countries have seen a decline in the number of people in the 25-64 cohort active in the labor market. Numbers are negative for men as well as for women, but the decline for women is much stronger. In the Euro Area average, by contrast, there is a decline for active men and an increase for women such that the change in the number of active workers remains positive. This is a clear reminder of the gigantic impact of demographic change on the economy.