Filling the Gaps: Shaping the EU's Future Workforce
Completing my summary of “The Future of European competitiveness”, the 2024 report prepared at the request of the European Commission by Mario Draghi, former President of the European Central Bank and former Prime Minister of Italy
This was a long ride. More than 400 pages of really technical analysis and recommendations, the parts about digitalisation and advanced technologies I was already familiar with, the parts about sustaining investment and strengthening governance made my head spin - the entire Part B of the report focuses on even more in-depth analysis and recommendations for both sectoral and horizontal policies.
The more I read, the more anxious I got about the magnitude of the task. As the former PM puts it “in various sectors the EU’s complex governance system can negatively affect the effectiveness of our collective action compared to that of the US and China - global competitors that can act as one country with a single geoeconomic strategy and align all the necessary policy tools behind it.” The EU differs greatly from the US and China as many policies are still dictated at Member State level thus any advancement will always require more support and collaboration between states.
The report proposes a paradigm shift that seems like it could shake things up in a big way. I'm writing from a brexited UK, while in my home country, Romania, one of the presidential candidates is proposing a decisive break from NATO; and this report proposes a common European safe asset that would standardise pricing and provide a type of safe collateral that can be used by every country; an European Security Exchange Commission that will “share supervision with national regulators and elicit their cooperation”; and massive unprecedented investments both public and private of EUR 750-800 billion. Complications will arise as the EU includes in its pact measures and procedures that deter excessive government deficits and, if they occur, to prompt their correction.
“Europe has not had similar investment rates since the postwar period, when strong private investment led to a renovated capital base, at a time when government investment and social spending were considerably smaller.”
“Until 15 years ago, competition for world leadership in innovation was primarily between the US and Europe. Today, it involves three players, with China showing a much faster increase compared to both the US and the EU.”
Over the past 20 years, China has propelled itself to global excellence through a strategic focus on international education, attracting top scholars back home, and building world-class research environments, including with partners in third countries. “The Chinese experience shows that rapid progress is attainable.” I’m not convinced we would do well to follow China as an example, as their practices don’t always have a positive impact. I hope we remain more balanced towards our values while learning from what they were able to achieve.
I’ll focus my summary on their proposals to close the skills gap as that was my original intention for reading this report. I started this website with the desire to share what I learned in my 18 years of working experience but with great anxiety and questions on whether or not people needed what I have to offer. Turns out “skills are the foundation of a thriving and competitive economy.”
He confirms the competitiveness of the EU and the success of the European economic model - starting with the successful execution of the green and digital transitions - require a labour force endowed with the right knowledge and skills. “Education and training systems have to equip citizen with high-quality skills in an inclusive manner.”
Besides basic skills that enable individuals to communicate, perform mathematical calculations, apply reasoning and acquire new knowledge, he pinpoints a broader range of skills that are necessary to cope with this rapidly evolving socio economic environment:
The first set he talks about are digital skills. “They are essential to the EU’s digital transition. It is key that the population at large is digitally literate, but it is also important that the pool of workers with advanced digital skills, for example in the area of AI, programming, data management and cybersecurity, expands.”
Next come green skills. “Society must develop awareness, practices and skills to function in a more sustainable and circular fashion.”
Specialist skills, like STEM, are highlighted as “crucial to mastering the use of new technologies and advancing their development.”
Beyond technical and specialist skills, transversal skills (sometimes called “soft skills”) are vital. He includes creativity, teamwork, communications, adaptability, critical thinking, problem-solving, leadership and emotional intelligence here. “These skills are a key factor affecting labour productivity and will become more important for workers to add value in an increasingly machine-intensive environment. Transversal skills must be developed throughout the whole education and training process to complement more specialist skills.”
Lastly, managerial skills are highlighted as playing an essential role but being the first ones that lack optimal allocation of human capital. “The absence or inappropriate adoption of modern managerial practices is frequently given as a reason why SMEs fail to thrive. Entrepreneurs, however, often underinvest in the acquisition of managerial skills because of widespread misperceptions about the value of these skills, financial constraints, and a lack of easily accessible, publicly recognised, high-quality education programmers.”
“On average, 54% of European companies consider skills shortage one of their most pressing problems to solve, followed by administrative burden.”
“Around 42% of Europeans lack basic digital skills, including 37% of those in the workforce.”
Future labor markets will become increasingly automated and dynamic, placing a premium on skills that enable workers to complement machines, adapt to emerging (digital) technologies, and respond effectively to evolving developments. “The European Centre for the Development of Vocational Training predicts that highly skilled occupations will expand by some 12 million jobs, whereas skilled (non-manual and manual) occupations will shrink by around 3.5 million positions.” According to another study by the European Investment Bank, only high energy costs rank higher than the inability to recruit an appropriately skilled workforce as important obstacles to long-term investment.
So where’s the problem and what are they going to do about it? Well, in terms of root causes of this gap in skills, the report states that overall, “the structure for developing skills is insufficiently coordinated, efficient and effective, and there are not enough incentives for employers and employees to invest time and money in skills development.” He groups the specific reasons into five categories: deteriorating performance of the education system, shrinking active labour population, limited adult learning, low labour mobility, and poor working conditions.
“There are important differences in the funding of education, leaving education systems in some Member States grossly underfunded, which impacts the quality of education offered.”
Too many children and young people still lack access to adequate education, the report finds, resulting in a significant loss of untapped potential. “The rate of 18-24-year-olds leaving school without attaining upper secondary education declined from 16.9% in 2002 to 9.6% in 2022. This, however, still leaves 3.1 million young people without appropriate qualifications.”
Moreover, the former PM writes, we fail in adequately supporting talented youth from disadvantaged backgrounds and that has important implications for innovation and growth. “Evidence shows that in the US the chances of becoming an investor as an adult is ten times higher if you are born into the top 1% of high-income families than if you are born in the bottom 50%. Available evidence suggests a remarkably similar phenomenon in at least one European country (Finland). Consequently, education and skills policies supporting children with high potential from disadvantaged families is a powerful instrument to support innovation and competitiveness in the EU, pointing to a powerful complementarity between innovation and education policy, especially if the latter is able to attract into research talented individuals who are financially constrained or work in other sectors.”
Additionally, education systems’ performance has deteriorated over time. “In 2022, only 8% of EU students reached a high level of competence in maths, and 7% in reading and science.”
Failures to equip children with high-quality education, the report explains, are difficult and very costly to address later in life, especially for children coming from disadvantaged backgrounds. “There is still a large pool of untapped talent in Europe. Overall, 21% of today’s population aged 20-64 remains inactive, with 8 million young people currently not in employment, education or training. The employment rate for women is still some 10 percentage points lower than that for men. This is primarily attributed to the unequal distribution of domestic responsibilities, as well as a lack of affordable childcare.”
The report puts a lot of emphasis on adult learning as increasingly vital. Regularly updating and acquiring new skills is essential, particularly during periods of rapid technological change. Despite its importance, adult learning is not fully integrated into the EU’s education and training programs.
“The current underperformance of adult training systems reflects pervasive informational frictions and poor coordination between companies, workers and training organisations. The formal schooling system, including vocational schools and universities, lacks precise input about the skills required by companies. Companies, on the other hand, might have superior information about their skills needs, but may not have the incentive to provide training opportunities to workers (especially if these skills are perceived to generate general human capital) for fear of appropriation by other companies in the market.”
Europe is good at exporting talent, but is struggling to attract and retain talent in highly skilled occupations. Poor working conditions are also part of the problem. Low wages have aggravated the existing labour shortages, together with the availability of career opportunities. “A case in point is teaching. Where a lack of attractiveness of the job (low pay, poor recognition, and high workload) have been linked to shortages across the EU.” The report speaks about other circumstances as well, like housing and connectivity. “A shortage of (affordable) housing can prevent workers from taking up jobs in particular areas, which has become an issue in (expensive) urban areas.”
Finally, the report mentions ill-designed social security measures that prove counterproductive as they actually discourage work (eg. poverty traps, excessive tax wedges and lower benefits when working more hours). “A lack of affordable, accessible and available childcare, together with lower salaries compared to male counterparts, prevent the participation of women in the labour market.”
So what about their goals? I’ve always worked in implementation thus always been a bit of a skeptic when I hear about strategies and objectives, but they do set the tone. They provide great indications of values, potential and direction. I find it more soothing when they make me a bit anxious because they seem hard to reach, then when I find them overly simplistic and not ambitious enough. Shoot for the stars sort of vibe!
The objectives and proposals the former PM describes in the report are definitely ambitious and visionary. They ring so true, you would think them pedantic even, if it was not for the effort their implementation implies. He would have to gather all the support from colleagues, public institutions and private ones. My faith comes from my research in the UK through the UCL Institute for Innovation and Public Purpose and my course at Saïd Business School for the Oxford Strategic Innovation Programme. Everyone speaks about collaboration, massive investments and rethinking of the design and implementation of policies.
First, we should definitely no longer assume that formal education until the first years of adulthood is sufficient. We need to fully embed a lifelong approach through a continuous effort to upgrade and update skills “irrespective of gender, social background, age and sector”. He confirms again, investment in education should be elevated to a strategic priority requiring “not only adequate funds, but also much more effective governance and attention to implementation.”
“It will be crucial to involve social partners and companies in the design and implementation of skills policies. Companies, in particular large ones, can play a valuable role in contributing to skills development in collaboration with local and regional employment offices, social partners and training providers. The direct involvement of companies - especially those that have already made significant investment in internal skills policies – in this process, is critical in many respects.”
“The ultimate vision is to lay the foundations for the creation of a “Union of Skills” with a focus on relevant skills of high-quality, irrespective of where and how they were acquired. Formal certification and recognition of these skills needs to be designed in a way that facilitates matching in dynamic and fast-evolving labour markets. Certification should become less reliant on formal education attainment, and more flexible and granular. This would imply recognising and validating skills acquired through diverse learning pathways, vocational training, and work-based learning. Micro-credentials and digital badges to demonstrate skills and competencies should also be considered and promoted.”
The foundation for this new European skills policy would start, the report states, from collecting granular data on skills needs, how to design and where to allocate funds for training. This will have to happen at Member State level and to this aim, the Commission will prepare a common standard for collecting this information. I can’t wait! I really want to do this for the UK and for Romania. This is where my life is, it will be incredible to compare and use the information going forward. The design of the curricula needs to adhere to agreed upon standards of excellence across Member States.
“Political commitment behind adult learning is key if Europe is to overcome the economic challenges outlined in this report.” However, the report states “adult learning is not the sole responsibility of public institutions, but an outcome of broader partnerships between private and public stakeholders. [...] Equally key is the involvement of trade unions, who have the ability to build the trust necessary to shape pathways of technology and skills upgrades that can truly benefit both companies and workers, ensuring that the correct incentives to build up human capital exist for all stakeholders involved.”
He encourages the creation of public-private partnerships to prototype these types of activities as they would be particularly challenging for SMEs for whom training costs are often higher. He also talks about minimising the frictions that are currently preventing access to training. Information should be easy to find, to understand and to use (rather than being available only through private networks). Furthermore, he acknowledges the conditions surrounding adult learning should be made more favourable to people’s needs, e.g. by providing part-time, evening, weekend, and online courses.
The former PM proposes the use of individual learning accounts where funds or credits can be allocated, which would then be used to pay for a wide range of education and training. They would allow EU citizen the freedom to choose how and when to use the allocated funds, selecting programmes that best meet their needs.
He uses the example of the UK’s ‘Help to Grow: Management programme” that the UK government funded in 2021 to facilitate access to managerial training. “The cost of that programme for participants is GBP 750, which represents 10% of its actual cost. The remaining 90% is paid by the national government.” That still feels quite expensive, there is definitely a lot to do in balancing costs and gains.
He talks at length about reducing misallocation of future talent, attracting more highly skilled workers from outside the EU, improving the availability and working conditions of teachers and over and above that, removing the obstacles that are currently reducing labour market participation, particularly by women. “Adding investment in high-quality early childhood education and childcare infrastructure is needed.”
So what is my conclusion? I definitely feel less out of the loop and more eager to share what I’ve been learning myself. I have more confidence that it is needed and could be impactful! We have a long way to go, an ever changing revolving door of work ahead of us, hopefully with a purpose bigger than a competitive advantage. If there’s one thing I believe in, it’s learning. It should be fun, interesting, easy to digest, it should be patient while forever pushing the boundaries of what is possible. I hope that I get to contribute to this!
For those interested in exploring further, the full report is accessible at:
