Labor Markets Worldwide: Southern Europe

Key insights

• Southern Europe’s surprisingly strong post-pandemic recovery will probably tighten European labor shortages
• Southern European economies like Italy, Spain and France have seen higher GDP growth and have created more private sector jobs than Northern Europe since the beginning of the pandemic
• Job vacancies in Southern Europe remain elevated
• Out of the more than 5 million new jobs created since the pandemic began, some 1.8 million have been added by France, 1.3 million in Spain

An uneven recovery

The recovery from the COVID-19 pandemic has been quite uneven across the Eurozone. While the German economy is in a recession this year, Southern Europe is performing better than expected. Cumulative real GDP growth since the beginning of the pandemic has been stronger in Southern Europe than in the North.

There are several reasons why Southern Europe is currently experiencing higher economic growth than Germany. The strong recovery in tourism and travel has given Southern European economies a big boost in 2023. Germany’s economy, on the other hand, has suffered substantially from the massive energy price shock, which has caused a big contraction in its manufacturing sector. Being one of the largest global exporters, Germany has also been negatively affected by the Chinese economic slowdown. Finally, Germany’s housing sector has suffered disproportionately from the ECB’s interest rate hikes.

As none of these factors have been affecting Southern European economies to such an extent, Southern economies have outperformed in terms of growth and job creation. When it comes to the labor market, France and Spain are the brightest shining stars of the Eurozone lately.

Out of the more than 5 million jobs created in the Eurozone since the beginning of the pandemic, some 1.8 million have been added by France and another 1.3 million in Spain.

Particularly noteworthy is the fact that most of the job growth in the South has occurred in the private sector whereas almost all of Germany’s gains have occurred nearly exclusively in the public sector since 2020. Out of the 1.3 million salaried employees added in France since 2020, 1.2 million are private sector jobs.

Similarly, more than 740,000 private sector jobs have been added in Spain since last year after employment fell sharply during the first year of the pandemic.

The total number of job vacancies both in France and Spain also remain elevated compared to their pre-pandemic level. This is especially the case for the Spanish labor market, which is currently recording almost twice as many vacancies as in 2015. More importantly, in contrast to other European countries like Germany, vacancies in France and Spain have not seen a very strong decline throughout 2023.

The labor market in both countries remains relatively tight with high employment rates and impressively low unemployment compared to historical standards – even as the French unemployment rate has increased slightly over the last two months.

Tourism is a very important sector in Southern Europe, contributing more than 10% of GDP to the economy. In some regions, this figure is significantly higher.

Places like the Canary Islands stand out. It is one of the regions in Spain that relies heavily on tourism from abroad; a large share of local jobs is either directly or indirectly dependent on money spent by travellers. Employment therefore took a huge hit when the pandemic began, and global travel came to a halt. But since 2022, tourism to Southern Europe has more than bounced back and employment is now exceeding its pre-pandemic level as vacationers are spending more than ever.

But it is noteworthy that the increase in employment is not just happening in accommodation and food services but all sectors. Employment in information and communication in Spain has also surged. The same is true for financial and insurance activities as well as transportation. And even employment in construction is up despite rapidly rising interest rates in the Eurozone.

Suffice it to say that employment growth in Spain is broad-based and not just concentrated in the tourism sector.

What does that mean for recruiters?

Southern Europe struggled for more than a decade following the Great Recession and the subsequent European debt crisis. The economy and labor market were extremely weak for years. The table has turned ever so slightly now, as Southern European economies are currently outperforming the likes of Germany and Denmark. The labor markets in Spain, Italy, and France are strengthening, which is great news for workers.

Similar to other advanced economies, Southern Europe is facing adverse demographic developments as the population is ageing quickly. This, combined with a much stronger economy than during the last decade, could mean that recruitment becomes a little trickier. On the plus side, as wages in Southern Europe continue to go up and converge with the North, it will also become easier to attract talent from abroad.

While Southern Europe has been a talent pool for historically stronger Northern economies, employers must anticipate that competition for Southern European talent will become fiercer than in the past as more well-paying jobs appear in their home countries. Additionally, it is worth mentioning that countries like Germany – although profiting from positive net migration – also loose many professional workers emigrating every year. With the growing number of attractive jobs, competition will become stronger also on Northern markets as the South offers some very attractive places to live, not just for retirees but also for workers. Southern Europe is experiencing an influx of digital nomads and will become increasingly attractive for workers as the labor market tightens and salaries converge.