Reinventing Dynamism: An in-depth look at the future of work in Europe beyond the pandemic
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Over the past decade, Europe’s labour market has undergone fundamental shifts as a result of increasing automation adoption and the changing geography of employment. To understand these shifts, and to model how they could continue playing out over the next decade, we recently published research that looks at the European employment scene not by country, as is often done, but through a highly-detailed view of the forces at work in 1,095 European regional labour markets. We used Eurostat’s NUTS3 regions as the basis for our analysis, and cover the 27 EU countries, the United Kingdom and Switzerland.
Find out more about McKinsey Global Institute's The Future of Work in Europe: Automation, workforce transitions, and the shifting geography of employment
The results are highly revealing, for they indicate that the future of work was already taking place even before COVID-19 struck, and that some of the trends we see could be accelerated by the crisis. The pandemic is understandably overshadowing the labour outlook in Europe, with about one in four workers at risk in the short term through reductions in hours or pay, temporary furloughs or permanent layoffs. But our work suggests that it is important not to lose sight of longer-term trends that will decisively shape the employment picture over the next decade, once the pandemic has eased.
Three findings stand out. First is the regional divergence and increasing concentration of talent, business dynamism and employment. Forty-eight dynamic cities including Amsterdam, Copenhagen, London, Madrid, Munich and Paris are home to just 20% of Europe’s population, but accounted for 43% of GDP growth and 35% of job growth between 2007 and 2018. These 48 cities are also home to about 83% of STEM graduates, and more than 40% of the resident population has tertiary education. By contrast, 438 shrinking regions with 30% of the population, mostly in Eastern and Southern Europe, have declining workforces, older populations and lower educational attainment; less than 25% have tertiary education. The remaining half of the population lives in a wide range of economies that have been largely stable, with modest job growth prior to the pandemic. Over the next decade, we expect this geographic concentration to grow even more pronounced, with the top 48 cities generating more than half of employment growth across Europe, assuming they are able to find people with the requisite skills to fill the work available.
Generation L: How COVID-19 affects young people’s jobs and what we can do about it by François Balate, Policy & Advocacy Director, European Youth Forum
A second critical factor is the shrinking of Europe’s labour supply, which could potentially lead to a shortage of labour in the long term once Europe has recovered from the pandemic. The working-age population will decline by 13.5 million (4%) by 2030, and the trend to shorter workweeks will also reduce labour supply by an additional 2%. Automation is often framed in Europe as a threat to jobs, and according our estimates based on a midpoint automation scenario, work activities equivalent to 53 million jobs (out of the total 235 million) could be displaced by machines by 2030. However, the drop in labour supply combined with stable or positive job creation could relieve automation-related pressure on work. The challenge may not be a shortage of jobs at all, but rather a shortage of skilled workers to fill the jobs that are available. Employment rates may need to increase almost everywhere to meet potential job growth.
The third factor is the growing mismatch of skills amid automation-related occupational shifts. Automation will require all workers to acquire new skills. For about 94 million workers in Europe, we estimate that technology could take over as much as 20% of their work activities. They may not need to change occupations, but 21 million others in declining occupations probably will. Newly created jobs will require more sophisticated skills that are already scarce today. Many of the growing occupations such as STEM-related occupations and business and legal professional roles require tertiary education, while declining occupations such as office support roles and production work tend to be low-wage jobs, primarily held by workers without tertiary education. Our analysis of job profiles shows that Europeans frequently switch jobs. However, we found that people switching jobs typically move from one growing occupation to another or from one declining occupation to another, with little crossover.
Read the OECD Policy Brief Youth and COVID-19: Response, Recovery and Resilience and more on key policy responses
COVID-19 could accelerate some of these trends. Workers most likely to be displaced by automation are also those most at risk from the coronavirus impact in the short term. The overlap is especially pronounced in sectors such as wholesale and retail. The crisis may thus upset the balance of employment, especially if automation turns out to be faster and deeper as a result.
Given these findings, it will be critically important to ensure large-scale retraining and heightened job mobility, and match people with the positions available. Among the challenges will be how to revitalise regions in Europe in which labour markets were already flagging before the pandemic. Large cities will also need to find ways to attract workers to fill needs, unless the current work-from-home movement becomes a permanent fixture and alters urbanisation trends. To maintain their dynamism places like London and Paris, where housing and other living costs have soared, will also need to reinvent themselves to ensure they can remain attractive.
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