The ILO’s World Employment and Social Outlook: Trends 2020 report finds that almost half a billion workers worldwide are affected by some form of labour underutilization. This figure greatly exceeds the tally of 188 million unemployed, because it also accounts for those workers that would like to work more paid hours than they are currently able to, and those persons who are marginally attached to the labour force.
Labour underutilization is a broader indicator to measure the status of the labour market. For instance, the standard unemployment rate does not cover those who work, but would like to work more (time-related underemployed), or those who are ‘discouraged’, i.e. have given up the active search for job as they do not think they will find work. The notion of labour underutilization also covers these categories and helps to unveil major gaps in access to work.
Interestingly, for Central and Eastern Europe the report finds that the region has one of the lowest rates of total labour underutilization, with a markedly low incidence of time-related underemployment and discouragement. However, the report warns that additional efforts shall focus on the labour market integration of young people, particularly those who are inactive, especially in light of an aging population. In addition, measurements of labour underutilization do not account for working conditions, including in temporary and precarious jobs.
The slowdown in economic activity puts an end to a decade-long fall in unemployment ratesEastern Europe is one of the regions in the world with the lowest rate of labour underutilization, standing at 7.7 per cent of the extended labour force in 2019. Furthermore, an estimated two-thirds of underutilized labour are unemployed, showing that labour underutilization other than unemployment is less important than in other regions of the world.
The region has made great progress over the last 10 years, reducing its unemployment rate from 8.2 per cent in 2009 to 4.9 per cent in 2019, raising the share of the working-age population that is in employment. However, the unemployment rate is projected to stagnate over the coming years due to an expected slowdown in the global economy.
Labour shortages can jeopardise economic growth in the region
Some Central and Eastern European countries have been struggling to satisfy the demands of local labour markets as more and more workers migrate to Western Europe in search of higher wages. More than 50 per cent of local employers in Poland, Slovakia and Hungary report difficulties to fill vacant posts.¹ In the Czech Republic, the job vacancy rate – a measurement of the unmet demand for labour, almost doubled over a 12-month period from 3.3 at the end of 2016 to 6.3 in 2017, and it had already reached 10.3 per cent by the end of 2019.² A decline in the overall population and other demographic challenges partially explain this shortfall. Whilst leading to a considerably higher wages in certain occupations, labour shortages may hamper growth in the medium term.
Young people’s prospects need to improve, especially in light of an aging population and a shrinking labour force
The employment-to-population ratio rose by 2 percentage points since 2009, to 56 per cent in 2019. This development is welcome in a region in which the population is rapidly aging. Indeed, the average age of the labour force is projected to increase by 2.7 years by 2030, more than in any other region in Europe. As a result of the shrinking labour force and stagnating unemployment rates, the economic dependency ratio is projected to increase.
Given these developments, it is particularly worrisome that in 2019 still 16 per cent of young people aged 15-24 in the region were NEET (not in employment, education or training), a figure that has declined by a mere 0.8 percentage points since 2009 despite the overall positive labour market development. Therefore, labour market prospects for young people in the region desperately need to be improved – the region cannot afford to leave their potential untapped.
Policy options may include modernising and strengthening labour market institutions, notably employment services; better anticipating skill needs, labour market shortages and bottlenecks; managing economic migration; and improving the adaptability of workers and enterprises so that there is a greater capacity to anticipate, trigger and absorb economic and social change.
A six page executive summary as well as the full version of the report can be found here
¹ https://ec.europa.eu/commission/sites/beta-political/files/soteu2018-legal-pathways-europe-communication-635_en.pdf, p.2-3 (with reference to the Manpower Talent Shortage Survey (2018 Q3).
² Eurostat, Job vacancies, downloadable at https://ec.europa.eu/eurostat/web/products-datasets/product?code=ei_lmjv_q_r2