European CFOs say employment is stabilizing

Optimism about the economy has reached its highest level. CFOs in Europe do not expect any further downsizing in fulltime employment for the next twelve months. Imbalances on labor market supply side could seriously inhibit growth in employment. These are the results of the latest CFO Survey, jointly conducted by TIAS School for Business and Society and Duke University.

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Optimism among European CFOs about the economic outlook of their own country has increased significantly to 61 (on a scale of 0-100). This is the highest level recorded since the start of CFO Survey and well above its current five-year average of 54. The economic confidence among financial directors in the US also remains robust at 63, suggesting that recovery in the world’s largest economy continues to materialize. The upbeat sentiment is encouraging and suggests that both business and politics should nurture the underlying dynamics. 

Employment is stabilizing but remains fragile due to structural imbalances on supply side

With expected growth in fulltime contracts to remain flat at 0% during the next twelve months, European companies clearly hint that they no longer plan on curtailing fulltime hiring as they have been doing over the last eight quarters. Although recovery in employment is slowly improving, the situation on the European labor markets remains fragile. Companies say they have great difficulty in filling vacant positions for senior management, highly skilled professionals, and engineers, though find it very easy to fill positions for lower paid manual laborers and line workers. 

This imbalance in available skills and competencies on the labor market supply side is likely to widen further as more than one third of European companies either have made or are planning to make investments aimed at further reducing the amount of (manual) labor. Those which are shifting towards labor saving-technologies expect to reduce the need for workers by more than 8%. Unsurprisingly, less-skilled and lower wage workers will be hit hardest as they generally compete directly with such technologies. 

Higher minimum wages in Europe could severely impact economic recovery

If minimum wages were to increase by 40% in Europe, 37% of firms with minimum wage employees would reduce current employment and 69% would reduce future hiring. Nearly two thirds would shift towards labor-saving technologies. Clearly, under such scenario the impact would be detrimental and could seriously inhibit economic recovery. 

“With the recently approved and much debated introduction of a minimum wage regime in Germany, set to take off on January 2015, the concern is quite real as in certain cases, for the very lowest income segments, wages indeed will increase by as much as 35%. Many argue that this move will actually cause major job losses among low skilled, low wage workers as they will be priced out of the market. The effects could be substantial if private consumption deteriorates and labor intensive sectors see their cost base increase. As the country is widely considered as the growth engine of Europe, any economic slowdown in Germany would pose a direct risk to the piecemeal recovery that is taking place in other Eurozone countries”, says Kees Koedijk, Dean and Director of TIAS.

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