Eurozone: Employment engine roars but slows towards new balance | Oxford Economics Skip to content
Research briefing | July 3, 2024
Despite the accelerating economic recovery, employment growth in the euro area is expected to continue to slow. Future employment will be constrained by demographic trends and by only modest declines in unemployment, given that it is at historic lows and close to its long-term natural level. This could result in lower dormant wage growth than before the pandemic.
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There is a structural lack of suitable candidates among the unemployed, and an aging population will limit the scope for increased participation unless policies, preferences and culture change. However, if productivity recovers as labor hoarding is resolved and working hours recover in a controlled manner, a significant tightening of the labor market will be avoided. In the short term, nominal wage growth will continue to slow as the inflation shock eases and workers recoup real income losses. However, over the medium term, the combination of strong demand and less responsive supply should encourage labor market redistribution, resulting in less slow wage growth than before the pandemic, increasing disposable income and supporting spending. Probably. Cost savings from improved productivity will offset the inflationary effects of weaker wage growth. Risks to employment prospects are balanced. If the economic recovery does not meet expectations, companies may pause hiring to reassess their prospects for expansion. Higher-than-expected immigration inflows will support employment growth by easing supply-side constraints. Return to resource hub
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