The labour market recovery in the euro area through the lens of the ECB Consumer Expectations Survey

Prepared by António Dias da Silva, Desislava Rusinova and Marco Weißler

Published as part of the ECB Economic Bulletin, Issue 2/2022.

This box analyses the current labour market recovery using data from the ECB Consumer Expectations Survey (CES).^[1] The CES offers new insights into the euro area labour market.^[2] Respondents provide information about their employment status, job searches, expectations regarding employment and earnings, their level of job satisfaction and how well their skills match their job. Some of this information is not available from the official EU labour market statistics and, for the main labour market aggregates, the CES provides more timely data. Thus, the CES data are a useful complement to the official EU data. This box uses these data to shed light on the current recovery in the euro area labour market.

The labour force participation rate is recovering overall, in line with a decline in the numbers of discouraged workers. The CES data show that the labour force participation rate – i.e. the proportion of the working-age population that is in work or actively looking for work – has rebounded since January last year (Chart A).^[3] However, the data for January 2022 show a decline in the labour force participation rate and an increase in discouraged workers – i.e. those who are not currently searching for work because they think there are no suitable jobs available, or who have not yet started searching. These recent developments are likely related to the tightening of coronavirus (COVID-19) containment measures as well as seasonal factors suppressing labour demand during the winter months. The increase in the labour force participation rate during 2021 was accompanied by a decrease in discouragement.^[4] Therefore, the increase in the participation rate has in part been the result of transitions of respondents who are not actively searching for work (i.e. inactive) directly into employment, hence indicating improving labour market prospects also for unemployed respondents who are actively searching for jobs. The unemployment rate, as measured by the CES, continued to decline in January 2022 to stand about 2.4 percentage points below the highest level it reached during the pandemic period.

Perceptions about developments in the labour market improved substantially after the first few months of the COVID-19 pandemic (Chart B). As economic conditions recovered in aggregate terms, perceptions about labour market developments improved, which was reflected in a steady decline in unemployment rate expectations across all groups of respondents based on their level of education. Respondents who have completed primary or secondary education tend to expect the unemployment rate 12 months ahead to be higher than the levels expected by respondents with a tertiary education. Unemployment rate expectations of all groups have proven significantly higher than observed rates, which is a common finding of surveys on expectations.^[5] Consistent with expectations regarding the unemployment rate, employees have recently been reporting less concern that they will lose their jobs.

Job-to-job transitions and improved earnings expectations show that employees’ perceptions of the labour market situation improved overall (Chart C). Job-to-job transitions tend to decrease during economic downturns and increase during upturns. As labour market conditions improve during upturns, firms compete for workers currently employed by other firms and workers use the opportunity to move to better paid jobs, which possibly implies some upward pressure on wages.^[6] CES data suggest that the share of employees moving to another firm in a quarter has been steadily increasing since January 2021, except for a small decline in the latest data for January 2022, which is potentially related to similar reasons as for the drop in labour force participation. The improvement in job-to-job transitions during 2021 was accompanied by an increase in the share of respondents expecting higher total net household income over the next 12 months, as workers searching for jobs became more optimistic about their wages, hours worked or overall employment prospects.

At the same time, workers do not perceive their working conditions to have worsened considerably during the pandemic. The CES includes questions on how respondents perceive skill match quality and job satisfaction, which allow information on job quality to be inferred (Chart D). In January 2022 less than 13% of respondents said that there was a low skill match in their current job and about 26% expressed low satisfaction with their jobs. Neither of the two indicators points to a significant worsening of job quality since the beginning of the pandemic, suggesting that the labour market recovery is not being driven by a surge in low quality jobs. Linking this information with the responses on job-to-job transitions suggests that workers who change jobs are more likely to report an increase in skill match and job satisfaction.

Overall, the CES suggests positive dynamics in the labour market, while the pandemic continues to affect the pace of the recovery. During 2021 the number of workers in the labour force increased, accompanied by a decline in discouragement and a decrease in the unemployment rate. Labour supply has thus responded quickly to the strengthening of demand. In addition, more respondents changed jobs, revised up their earnings expectations and expected better labour market conditions. These developments suggest a dynamic labour market.