Europe staves off mass unemployment but needs to redeploy workers

The coronavirus pandemic is exacerbating the divide in Europe’s job market between skilled and unskilled workers, despite governments’ financial support preventing a repeat of the mass unemployment caused by the financial crisis a decade ago.

The bloc’s labour market has been largely shielded from the fallout of the pandemic by generous government and central bank stimulus, including furlough schemes that subsidised the wages of about 50m people who were put on reduced hours.

And the outlook has continued to brighten since the summer, despite a second wave of coronavirus infections and lockdowns, according to Consensus Economics, which averages economic forecasts of leading economists. 

Employment in the bloc rose almost 1 per cent in the third quarter as many of those who left the workforce and were considered inactive when the pandemic hit returned to their old jobs or found new ones, according to Eurostat.

“This time around we are talking about huge fiscal recovery plans in Europe and that should be able to prevent a massive surge in unemployment,” said Stephano Scarpetta, director of employment, labour and social affairs at the OECD club of wealthy nations.

The number of adverts on jobs website Indeed fell sharply when the pandemic struck but has since partially recovered. For instance, job adverts in Italy were down 25 per cent from a year ago in November — compared with a shortfall of 43 per cent in June.

Across the eurozone, the unemployment rate this year is now expected to be 8.1 per cent, down from the 9.7 per cent forecast in May, according to Consensus Economics. That would leave this year’s unemployment level only a little higher than the 7.5 per cent of 2019.

But the overall improvement masks a considerable difference: in the first half of the year, there was a 7 per cent contraction in low skilled jobs in the eurozone, while the number of high skilled jobs grew 3 per cent, according to the European Central Bank.

After this month’s vaccine breakthroughs, the challenge for policymakers is to keep supporting the labour market until an economic recovery takes hold, economists and policymakers said; people who lose their jobs still need retraining for new roles being created, because there is a mismatch between the jobs being created and those destroyed by the crisis.

Winners and losers

Several companies have significant hiring plans in Europe — including logistics group DHL which is seeking to add 3,000 staff in the region, Volkswagen planning to recruit 2,000 people and Tesla looking to hire 12,000 workers for its new German factory.

At the same time, many companies are shedding staff. Airbus, the aerospace group, is cutting 15,000 workers. Danone, the maker of Evian bottled water and Activia yoghurts, this week announced 2,000 job cuts, while steelmaker Thyssenkrupp last week said it was cutting 5,000.

The pandemic has also hit airlines hard. Lufthansa put 80,000 of its 130,000 workers on furlough after receiving a €9bn state bailout. The 700 students at its pilot school in Bremen were recently told they would no longer have jobs when they graduate.

And some industries face structural change. While German carmakers are hiring staff to work on electric vehicles, they and their parts suppliers are also cutting tens of thousands of jobs involved in making internal combustion engines. IG Metall, the union, has estimated 300,000 jobs will be lost in Germany’s metal and electrical industries this year.

“Even if enough new jobs are created in the post-pandemic economy, they may not be equally accessible to everyone,” said Christine Lagarde, ECB president, in a speech last week.

That exacerbates the structural changes already confronting the European labour market. Increased automation in many industries across the world’s 26 largest economies is expected to destroy 85m jobs by 2025, but it will also create 97m new ones, leading to a net gain of 12m, according to a recent report by the World Economic Forum.

The challenge for policymakers is to help workers losing their jobs to learn new skills that allow them to shift into areas where there are vacancies, said Christoph Kahlenberg, head of labour market projects at the Randstad Academy in Eschborn.

“If you are an engineer at Airbus or VW who is in their 50s and you lose your job, it is hard to find a new one — you are not really suitable for Tesla,” he said.

For example, to boost the supply of IT specialists that VW needs for its €33bn push into electric vehicles, the carmaker has sponsored the construction of an offshoot of the coding school 42 near its Wolfsburg headquarters, which aims to train 600 students next year.

“You can use tons of artificial intelligence PhDs in the current climate, but what do you do with all the people on the production line? We need them too,” said Max Senges, head of the new Wolfsburg school. It will not require students to have any existing educational qualifications, only to take a logic test, in order to attract workers from less educated backgrounds who need to pick up coding and digital skills.

Economists are urging European governments to shift their focus from spending to prop up existing jobs to doing more to retrain and redeploy those in affected industries.

“It is important to switch from just protecting the status quo jobs to preventing an overall rise in unemployment,” said Katharina Utermöhl, economist at Allianz. “Giving companies hiring bonuses could incentivise them to create more jobs.”

Neil Shearing, chief economist at Capital Economics, said: “It’s certainly the case that government support has helped to insulate the labour market from the worst effects of the pandemic.” But, he added “it’s too soon to say that governments have prevented a larger rise in unemployment”.