Europe’s dramatic workforce crisis and four ways how to mitigate it
Massive delays at the airport, restaurants that are closing down, waiting times of several months for installing a solar panel, or lack of firefighters to combat forest fires. Europe is facing a dramatic workforce crisis and summer 2022 was just a glimpse into what will happen in the upcoming years in Europe if we don’t act on it faster.
After having talked to 100’s of people about the European workforce crisis in the past 1.5 years, I want to give an overview of the problem, discuss possible solutions and share what I’ve learned along the way. Since I spent most of my time on upskilling and reskilling, this paragraph is more detailed than others. If you want to chat with me about that topic, please reach out anytime.
The European workforce will shrink in the next years and it’s particularly bad in Germany, Italy, and Poland
Our European workforce is expected to shrink by 13.5M people (4%) until 2030. Zooming into European countries, it’s especially bad in Germany, Italy, and Poland.
Germany is running out of workers. The country will lose 4M workers (~8%) until 2030, and 8.7M workers by 2040. The median age in Germany is 46 today — compared to 39 in the US. Germany would need on average 2.1 kids to keep the population stable, at the moment the average is 1.5 kids. Germany is actually reaching that point where the country will have more people older than 60 than younger than 30.
It’s the first time in our history that we have to deal with this problem. The problem is also visible if we look at the number of open jobs over time:
The situation in Italy is quite similar. Italy will lose 2.5M (~7%) workers by 2030. Below is the animated Italian population pyramid from 1982 to 2021:
I like to compare this problem to climate change because both have a lot in common. We know about the implications already today, we know all the numbers that we cannot change overnight — yet, too few people, companies, and countries are really acting on it.
Four ways on how to mitigate this problem
Unfortunately, there is no silver bullet to solve our workforce crisis. Given the complexity and size of this problem, we need multiple solutions. In short, there are four ways on how I think we should mitigate our workforce crisis:
- Immigration: increase the pool of workers by making immigration easier.
- Education: empower people with the skills they need for jobs that are high in demand.
- Employment and support systems: create better employment and wage opportunities.
- Technology and automation: invest in technology and automation so people can focus on high-value work.
So let’s dive into each of them specifically.
Increase the pool of workers by making immigration easier
Immigration is an obvious solution to increase the labor pool. It’s simply necessary. What we really need to do is to make immigration easier. We need to simplify the process of recruiting workers from abroad. We need global standards for the recognition of professional qualifications. And we need less bureaucracy (particularly in Germany) to speed up the visa process and make this process completely digital.
However, immigration alone won’t help to solve that problem though. Germany will need on average 500,000 skilled workers from abroad every year to satisfy the labor demand. At its peak in 10 years, Germany needs 700,000 workers. As a comparison, in 2020 the number of foreign nationals living in Germany increased by only 204,000, the smallest increase in a decade. In addition, the competition for skilled workers will increase sharply since they are becoming more scarce in other countries as well.
Empower people with the skills they need for their jobs
This is one of the most complex topics. For simplicity of this post, I will focus on:
- Apprenticeships
- Upskilling, ie. enable people to do a better job
- Reskilling, ie. enable people to do a different job
Since upskilling and reskilling are often mixed up, I like to point to the graphic below that visualizes the difference:
Let’s start with the role of apprenticeships. Apprenticeships have a long history in Europe and are highly regulated in countries such as Germany. In recent years, it has become the new normal for young people to study. The number of young people who start an apprenticeship has been steadily declining in several countries. Below you can see the number of signed apprenticeship contracts in Germany over the past 10 years.
We need to recognize the importance of apprenticeships again. As an example, rebuilding our energy infrastructure requires lots of skilled workers — from mechanics to electricians. This will be impossible if we cannot increase the number of people pursuing these jobs.
Apprenticeships today often have an image problem, especially for young people. We need to change this and make apprenticeships “cool again”. We need to ask ourselves the question: why is studying more accepted in our society today than doing an apprenticeship? And most importantly, we need to make apprenticeships shorter and more flexible. There is no point for some apprenticeships to take 2–3 years. Sometimes parts of the role are changing even faster due to technology adoption.
Let’s look at a few examples of how modern apprenticeships can look like in practice.
Multiverse is doing a great job in the UK in building modern, digital apprenticeships for roles such as “Data Literacy” or ”Digital Marketing. The same needs to happen in other countries across Europe. The big challenge here lies in building modern apprenticeships for non-digital roles. Unfortunately, that’s much harder to build but similarly needed.
We’ve also talked to the first companies that are building their own modern apprenticeships which are similar to a bootcamp. As an example, a large traditional logistics company is building a 2-month bootcamp to train people as “digital freight forwarders”. This company is basically doing this on the basis of a 2.5-year apprenticeship in logistics. Another company in the solar industry is training solar installers and making them ready for the job in less than two months.
I’m convinced that we will see more companies building modern apprenticeships themselves — especially as the labor shortage will increase. These modern apprenticeships will look more like a bootcamp and run for a few months. Below is a good overview of the bootcamp market and how it is evolving from B2C to B2B. This brings us to upskilling and reskilling.
In the past few years, companies have increased their investments in upskilling and reskilling. During Covid-19, a significant share of the learning has also moved online. Since the lifespan of a certain job will shrink, companies will need to take even more responsibility on training their employees. We need to create more training and career pathways. Especially smaller companies — remember SMEs represent 99% of all businesses in the EU — do not have the capacity to create in-house training programs. They are dependent on external training providers and we need to establish better quality control over these training programs.
When I talked to people about a “reskilling program for electricians”, everybody agreed that this should exist. Great idea. But who will make the participant assessment? Who will provide the training? Nobody knows and it seems like nobody wants to do that. Why? Because reskilling at scale is incredibly tough today — especially for jobs that require physical knowledge such as for electricians. Reskilling often has a long time-to-value, unclear ROI, and requires a massive investment many companies are still afraid of. So while you have probably read more about “reskilling” in the past two years, my experience is that it is still in its infancy in Europe today. The only exception might be programs that leverage government subsidies such as AZAV in Germany. They have different problems such as quality control but that’s for another post.
Create better employment and wage opportunities
We need to make today’s labor pool bigger. We need to get more willing workers off the sidelines and create better employment opportunities for them. This is in particular important for workers over age 55 and women. A woman in Western Europe still does two-thirds of all the unpaid care work. So we need to offer flexible schedules, part-time work, and remote-work options.
We also need to increase the salary of essential workers, including people who are pursuing apprenticeships. This will also happen naturally due to the market environment (supply & demand). As an example, the average salary for electricians has strongly increased over the past few years. Sebastian Dettmers, the CEO of the job portal Stepstone, is actually recommending a minimum pay of even €20 for Germany.
Lastly, there is still a lot of work to be done to increase the social status of jobs in industries such as healthcare, logistics, or utilities. It needs to be highly regarded to work as a caregiver or craftsman. In general, this part deserves a more in-depth explanation but I wanted to summarize the most important aspects for the sake of this article.
Invest in technology and automation so people can focus on high-value work
It’s obvious that we need faster technology adoption and heavily invest in automation. The higher the pressure, the faster this will happen. This is also what we’ve seen with digitization in general during Covid-19. A good example is the logistics industry where due to the spiking demand, the adoption of autonomous robots has increased sharply over the past two years.
Below is a study by the OECD about automation risk by job type that gives an indication where automation will have a strong impact on the job. I always recommend taking these studies with a grain of salt. Manufacturing often comes up on top of the list. However, when I learned one thing about automation in manufacturing in the past few years, it is that it will take much longer than the media projected.
Tasks that can be automated easier are physical tasks in a predictable environments (eg. operating machinery, preparing fast food) or collecting and processing data (eg. back-office work). Automating these tasks often moves these workers to focus on higher value or new tasks. Some people argue that Western countries need to urgently increase automation to compete effectively with China.
While automation is simply necessary, it’s obvious that we cannot automate everything. Many jobs especially in industries such as renewable energy, infrastructure, construction, or manufacturing are simply impossible to automate. But we need to equip these people with the right (digital) tools to increase their productivity. This is also where Kwest comes into play. The main question we’re asking ourselves at Kwest everyday is: how can we build technology to increase the productivity of these workers? We will share more on what we’re working on in the next few months but you can already follow our journey on LinkedIn, Twitter, and sign-up for our newsletter.
Only with collaboration between people, companies, and countries we can solve it
Every crisis is also a chance and I wouldn’t dedicate so much time on this problem if I didn’t believe we can solve it. Similar to climate change, we don’t have any other option than to act now — with full force. Please reach out any time if you want to discuss this topic with me and I appreciate any kind of feedback.
