Structural change in EU labour markets: A generation of employment shifts

The European Union is confronted with major social, geopolitical and economic challenges, including declining productivity growth and emerging competitive threats to important industries. The European Commission’s recent Competitiveness Compass highlights that Europe’s industrial structure is itself a drag on growth, dominated as it is by traditional sectors with relatively low levels of research and development investment and limited prospects of fast growth.

One of the conclusions of this report is that the EU has failed to translate a generation of occupational upgrading into improved productivity performance. The forthcoming union of skills initiative will focus on adult and lifelong learning, future-proofing skills creation and skills portability across borders, as well as attracting and recruiting qualified workers from abroad. This could contribute to harnessing the EU’s abundance of talent to increase mobility, foster innovation and steer sustainable growth.

• Structural change in the labour markets of modern, advanced economies has manifested itself in similar ways, albeit with varying intensity, across all EU Member States from 1995 to 2024. In all 27 Member States, the share of employment in services has increased and that of employment in manufacturing, agriculture and extractive industries has declined.

• Construction is the only broad sector where the employment share trend has varied in sign across Member States over the most recent two decades. In most Member States, its share has declined. There were nearly two million fewer construction workers in the EU in 2024 than before the global economic crisis (pre-2007).

• The rate of structural change in EU labour markets – as measured by the rate of job reallocation across broad sectors – has been trending lower since the global economic crisis. Similar trends over longer time frames have been observed in the United States and United Kingdom labour markets.

• The strongest vector of change in EU labour markets has been occupational upgrading. This has occurred across all broad sectors. The share of professional employment doubled in the EU in 1995–2023, from 11 % to 22 % across the 12 Member States for which data are available.

• There are many drivers of structural change in the labour markets of advanced economies. Technological change, notably computerisation and digitalisation, is the most cited demand-side driver, but trade and labour market institutions and supply-side factors, including migration and increased female labour market participation, all count. The mix of these drivers varies across Member States, leading to a variety of employment shift patterns at the national level.

• More than two thirds of net new employment in the EU created over the last three decades has been taken up by women, contributing to a narrowing of the gender employment gap.

• Employment growth has strengthened in well-paid jobs and weakened in low-paid jobs. At the aggregate EU level, employment shifts have changed from being asymmetrically polarising in 1995–2008 to increasingly upgrading over the period after the global economic crisis (2011–2024).

• Jobs in the top quintile by pay have accounted for all net employment growth in the EU during 2019–2024.

• Occupational upgrading – one consequence of increasing levels of education and growing shares of workers educated to tertiary level – has not been accompanied by a boost in productivity growth in the EU. Productivity growth has decelerated steadily since 1995.

• Significant differences in productivity growth exist within the EU. Unlike the Member States that acceded to the EU before 2004, in which productivity growth has stalled in recent decades, the Member States that acceded after 2004 are witnessing productivity increases driven by an ongoing shift towards services industries, alongside continued strength in manufacturing. In the post-2004 Member States, structural change – the movement of workers between sectors – is contributing positively to productivity growth, suggesting a reallocation of labour to more productive sectors.

• Growing divergences in productivity performance between the United States and the EU derive mainly from faster output growth within private services sectors in the former. This is due to greater investment and more efficient leveraging of ICT in sectors such as retail, financial services, information and communication services, and professional, scientific and technical services in the United States.

• The adoption of new technologies in the workplace has coincided with increasing employment rates and the addition of nearly 30 million workers to the EU headcount over the last three decades. The EU has (again) become a high-participation labour market. Policy should therefore be focused less on the spectre of technological unemployment and more on increasing supply, in particular overcoming barriers to labour market participation among currently under-represented groups. Making work attractive by improving job quality – creating jobs that are stable and decent – contributes to this outcome.

• The EU lacks a sectoral driver of renewed productivity growth. Manufacturing and private services performed this role until 2008 but have contributed little to output growth since 2011. The sectoral focus of the Draghi report and its identification of specialisations with strong growth potential in the EU – for example, clean technologies, high-performance computing and advanced materials production – establish potential drivers.

• The EU is not gaining the benefits that it should from human capital improvements. Most of the net increase in employment in the EU over the last three decades has been in well-paid and good-quality jobs. But this has not led to improved productivity performance.

• Much of the decline in EU productivity growth relates to how factors of production are combined to generate more or better-quality products or services (total factor productivity). This suggests that changes in how work is organised and managed could help take advantage of new generations of workers with higher levels of education and training and with access to increasingly sophisticated digital technologies. Member States, in cooperation with social partners, have a significant role in this regard, through reforms in public investment and education, as well as through employment policies prioritising sustainable, innovation-driven growth.