EUROPE SHOULD PRIORITISE ACTIVE POLICIES TO FIGHT LABOUR SHORTAGES

Active measures such as public employment services, training, employment incentives, supported employment and rehabilitation, direct job creation, and start-up incentives work better than passive ones, which include out-of-work income maintenance and early retirement plans, according to a policy brief by Fabrizio Pompei of the University of Perugia. The document draws on the three-year Project UNTANGLED findings, expert consultations, and stakeholder inputs.

Project UNTANGLED recommends how policymakers can address structural labour-market challenges arising from the megatrends of digitalisation, globalisation and demographic shifts.

“The European labour market is in a good shape, but these megatrends and recent challenges such as geopolitical tensions and the Covid-19 pandemic have threatened job quality, working conditions and labour supply,” Pompei said. “Demographic shifts will only deepen the problem of labour shortages, so we have to do everything we can to mobilise existing reserves and resources. We can achieve that by prioritising social inclusion and new measures combating relatively low workforce participation among vulnerable social groups, older women, migrants, and people without digital skills or internet access.”

Many social policies today are inefficient and do not address the source of the problem, Pompei found. European countries still have a disproportionate number of participants in passive labour market policies, compared to more efficient active ones.

Similarly, the increasing use of automation technologies is affecting wages and employment, leading to unequal distribution of labour income. However, the degree to which inequality in the labour market translates into income inequality in households depends on government policies that redistribute resources to low-income working-age households, specifically non-pensioners in the poorest quartile of the population, Pompei found. For instance, social transfers are crucial for reducing the risk of poverty and income inequality for women and children.

“The pandemic has made it clear that labour shortages cannot be solely attributed to wages and income, as the multidimensional aspect of job quality is crucial to understanding the situation in some sectors and labour markets,” Fabrizio Pompei said. “Inadequate working conditions arising from a mismatch between job demands—including physical and psychological hazards, high work intensity and irregular working hours—and available job resources, such as task discretion, flexible work hours and training opportunities, have resulted in strained environments. This is particularly evident in sectors such as healthcare and transport.”

To simultaneously address the three issues of job quality, integration of migrants and labour shortages in strained sectors, policymakers have to adopt a holistic approach. While there is no single solution for all EU countries and policies have to be tailored to social conditions, certain programmes can serve as a blueprint for efficient reforms. In particular, Germany’s Concerted Action on Care (Konzertierte Aktion Pflege, KAP) serves as a model for addressing all three challenges simultaneously, with a specific emphasis on sectors such as healthcare.

UNTANGLED research finds that wage-based incentives alone are insufficient for retaining or recruiting staff; they must be complemented by factors such as access to training and greater autonomy over working hours.

Certain issues of job quality are caused by labour shortages, which can be partially addressed by the migration of workers from outside the EU. In this area, researchers point out that the mismatch between labour demand in European companies and labour supply from non-European migrants may be caused by the difficulties migrants face in having their formal qualifications recognised in the EU.

For policymakers, therefore, the issue of migrants’ diploma recognition should be one of the priorities for inclusive policies. The Swedish Fast Track is an example of a successful programme that facilitates the recognition of migrants’ qualifications gained abroad, and provides advice, information and training to validate skills for both migrants and employers, as well as training on the language, local culture and institutions.

Finally, institutions providing employment services and those delivering social services, for example addressing challenges related to housing, mental health and personal financial difficulties, must have the capacity and willingness to cooperate, Pompei said.

The full policy brief is available here.