My last piece discussed the various structural problems that caused “Eurosclerosis” — the persistent stagnation of European labor markets.
Powerful unions and collective bargaining; strict employment protection laws that raise firing costs and discourage hiring; poorly designed welfare systems and high marginal tax rates that reduce the incentive to work. These are just some of the factors that create rigid labor markets, favoring insiders over outsiders.
While high unemployment has mostly disappeared thanks to an aging workforce, European labor markets continue to be extremely sclerotic. Today, it is not so much economic inactivity but rather a lack of worker mobility that is plaguing Europe’s economies. A stagnant job ladder weakens the economy, stifles career progression, and limits workers’ lifetime earnings.
Europe’s main problem today is the lack of job switching
While the Eurozone unemployment rate continues to be at historic lows, worker churn has fallen significantly due to a cooling economy.
Europe has always exhibited structurally lower job mobility. While more than 6% of all workers change jobs on a quarterly basis in the U.S., most European countries sit closer to 3% or lower — Denmark being the notable exception.
Since Americans change jobs more frequently, median job tenure sits under four years! For comparison, job tenure in Germany exceeds a decade — and it is typically even higher in Southern European countries like France, Italy, and Greece.
In Italy, for example, more than 66% of workers have spent 5 years or more with their current employer.
In Germany, more than half of German workers have a tenure more than five years.
Denmark stands out as having one of the most flexible labor markets: only 40% of workers have a tenure of five years or more. But even there, mobility is lower than in the U.S.
Denmark also has one the lowest long-term unemployment rates and one of the highest per capita incomes in the world. This is no coincidence! The more dynamic job market creates better opportunities for workers.
Worker career progression and lifetime earnings
Does it matter that European workers stay with the same employer for much longer than Americans?
The answer is yes! Workers typically change jobs when there is an opportunity for growth. This could mean a change of tasks and responsibilities or a different job altogether. It might also mean a promotion. That is why a job change usually involves a salary bump.
Economic research shows that there is a very strong correlation between lifetime earnings and labor market fluidity. Workers who change their jobs more regularly outearn job stayers by a significant margin over their work life. The static European labor markets with fewer job switching opportunities therefore cost European workers dearly in terms of total career earnings. This obviously matters a lot, especially since European workers recently face the worst cost-of-living crisis in decades. It even spills over into retirement because workers with a flat lifetime earnings profile have substantially lower savings.
Job creation and destruction are key for economic growth
Static labor markets can explain why Europe has underperformed other advanced economies in terms of economic growth (especially the U.S.).
The most important driver of long-term increases in living standards is innovation. Worker productivity drives wage growth, and creative destruction is key. Austrian economist Joseph Schumpeter argued that progress depends on new technologies and innovations displacing obsolete ideas and outdated firms. But for creative destruction to work, workers need to be able to move freely between different companies and even sectors.
However, many European institutions prevent worker reallocation. Unions and strict firing laws make it extremely costly for employers to let people go. While this benefits some workers, it comes at the expense of a healthier labor market. When layoff costs are prohibitive, businesses will hire fewer workers. Startups in particular — the potential growth engine of the economy — are being stifled.
Unlike Europe, the U.S. chose to protect people over jobs during the pandemic. Unemployment briefly surged to 15%. Meanwhile, households received substantial stimulus checks that protected them from income losses during unemployment spells.
When the economy recovered, unemployment fell rapidly and many workers found jobs in different sectors and occupations than before. Job reallocation surged to unprecedented levels.
It is surely no coincidence that labor productivity in the U.S. has boomed since 2023. Without a doubt, workers moving towards better and more productive jobs has contributed to the exceptional American economic performance in recent years.
Meanwhile, European governments chose to protect jobs instead, putting workers on furlough. While job churn also rose slightly during the boom of 2022/23, the “Great Resignation” was more pronounced in America than in Europe.
The aging workforce is contributing to the lack of dynamism
Europe’s adverse demographic developments — including a rapidly aging workforce — contribute to the problem. Older workers are significantly less likely to change jobs because they are generally more risk-averse.
The median age of the German population rose from less than 35 years in the 1970s to more than 45 years more recently. By 2040, it is expected to be close to 50 years.
Germany will face an unprecedented retirement crisis as large baby boomer birth cohorts are about to leave the workforce in the coming years. As workers age and get closer to retirement, job switching becomes less appealing.
The problem is aggravated by company benefits, which typically increase with tenure. Extremely lengthy notice periods and generous pensions create a certain lock-in effect for workers. In some cases, jobs are protected for years. Mercedes is currently offering some employees up to half a million Euros for leaving voluntarily because it cannot lay them off before 2034!
The combination of these rigidities together with an aging workforce create a static labor market that inhibits job switching. The end-effect is a less dynamic economy with lower productivity and less job growth, which hurts workers.
What does that mean for recruiters?
When businesses cannot fire workers easily, they also will not hire! A more dynamic job market is good for growth, and good for workers. Career mobility, career progression, and lifetime earnings depend on it!
For recruiters, this means European employers will remain more cautious and selective than their U.S. counterparts once economic growth picks up.
All the rigidities mentioned above leave fewer active jobseekers and fewer mid-career movers. As a result, even in a weak economy recruiters face smaller candidate pools — especially for experienced and high-skill roles.
Two implications follow directly:
- Roles take longer to fill: with fewer qualified applicants and more passive candidates, convincing someone to move becomes harder.
- Higher hiring costs: wage expectations become stickier, and employers must offer larger premiums to entice workers out of secure jobs with generous benefits.
Rigid labor markets also amplify hiring pressures in sectors where demand is rising: — healthcare, infrastructure, defense, and energy. These areas will tighten significantly, even if the broader economy does not.
Ultimately, low mobility depresses hiring and slows job matching. The challenge for recruiters is to activate passive talent, guide employers toward more competitive offers, and help firms adapt to a market where job switching is the exception rather than the norm.
