According to the report, massive vaccination campaigns all around Europe have contributed to reopening the economies. However, while EU GDP (Gross Domestic Product) was back to the pre-pandemic level in the second quarter of 2021, the recovery of employment was slower. The report shows that employment stood about 1 per cent below the level of the fourth quarter of 2019, with 19 countries having employment levels below the pre-pandemic ones and the largest shortfalls being recorded in Spain (4 per cent), Belgium (3 per cent) and Estonia (3 per cent).

The EU economy gained strength in the third quarter allowing employment to return close to its pre-pandemic levels.

The employment impact of the pandemic has been heterogeneous. This report shows that a strong decline of employment has been observed in manufacturing as well as in contact-intensive service sectors, namely wholesale and retail trade, transport, and hospitality. The pandemic has also accelerated the transition towards digital technologies, boosting the demand for labour performing tasks that cannot be automatised.

The youth were particularly affected by the crisis, but they achieved to recover more swiftly.

Labour shortages are emerging in some parts of the economy, reflecting an insufficient supply of labour due to structural factors, such as ageing, poor working conditions in some occupations and skills imbalances. By country, employers report labour shortages in Malta, Ireland, the Netherlands, Slovenia, Finland, and Poland, while the phenomenon remain below the level of 2019 in 13 Member States. This may put pressure on employers to increase wages and offer better working conditions, as wage hikes, improvements in the quality of workplaces and investments in training can help firms attract or retain employees.

The report shows that, after the decline of wages in 2020, linked to the drop in hours worked, wage growth rebounded in all Member States in 2021, especially in catching-up countries, supporting wage convergence within the EU. In the first half of 2021, compensation per employee expanded in all Member States, especially in Central and Eastern European Member States.

Looking forward, the report identifies three main emerging challenges for the functioning of labour markets:

1. the reallocation in the labour market should be supported to facilitate the adaptation of workers’ skills to the news needs

2.  the recovery should be inclusive;

3. structural factors of labour shortages should be addressed.

Active labour market policies, such as employment incentives subsidising private employment, training programmes and enhanced support by employment services, can promote job creation and facilitate the reallocation of workers between different occupations, supporting the recovery and contributing to a sustainable and inclusive growth.