OECD Employment Outlook 2026

Editorial: People to jobs and jobs to people: Reducing regional disparities in the labour market

So far this year, labour markets in OECD Member countries have continued to perform well, with employment rates at record levels in many, despite the multiple shocks to the global economy in recent years. However, with a backdrop of uncertainty and high geopolitical tensions, the risks remain elevated and policies will need to be able to anticipate and be ready to quickly respond if labour markets begin to reverse.

As it does every year, the data underpinning these messages in this Employment Outlook are at the national level but there is another layer of employment data (and data analysis) that also requires close attention to understand labour markets, namely the local and regional levels.

The value in these data quickly becomes clear when noting that disparities in employment rates between regions within OECD countries exceeds differences between the countries themselves, exceeding 20 percentage points (p.p.) in more than half of OECD economies. But understanding those disparities is more important than ever in a world of increasingly more frequent economic shocks and quickening megatrends, as they typically impact asymmetrically within countries, often exacerbating geographic labour market disparities, and, in turn, well-being, with consequential impacts on social cohesion and economic growth. Thus, zooming in on local employment data becomes a vital instrument in shaping policy.

This year, the OECD’s Centre for Entrepreneurship, SMEs, Regions and Cities – which has long tracked place‑based employment and other societal indicators – has lent its expertise to a first-ever Employment Outlook dedicated to analysing regional labour market performance. This is the kind of OECD measurement, which is both granular and global, which can help guide economic and social policy through worldwide comparisons over time and across diverse contexts.

Local effects of global shocks and megatrends

Regional employment disparities have long existed, shaped by geography, natural resources and political and economic history. And whilst they have always been high on the policy agenda, the attention on them has been sharpened in recent years by a succession of major macroeconomic shocks – the pandemic, reverberating cost-of-living crises, sharp energy price hikes, geopolitical tensions, and disruptions to international trade.

Consider how the crucial factor of energy prices plays out in rural areas, for example, where households are proportionally more fuel dependent than those in cities. In European countries where data are available and Japan, the direct financial impact of the 2022 energy price shock on household budgets was at least 30% higher in rural areas than in urban centres, with corresponding impacts on local businesses.

These repeated unexpected events of recent years are unfolding alongside slower-moving, but often accelerating, megatrends that are reshaping local labour markets in profoundly uneven ways. Digitalisation and artificial intelligence, globalisation, climate change, the energy transition, as well as ageing populations, all affect regions differently depending on their production structure, infrastructure and connectivity, governance and regulatory frameworks, workforce composition and geography.

For example:

• Negative trade shocks have typically been concentrated in manufacturing regions already facing economic difficulties. For example, this Employment Outlook estimates that, German regions (Landkreise) most exposed to import competition from low-wage economies during the 2000s saw job losses in the manufacturing sector (as a percentage of working-age population) up to 5.5 p.p. higher than those in the least exposed region.

• Technological disruption leaves some regions more exposed because of their concentration in routine occupations (such as low-skilled blue collars), or because of more limited access to enabling tools, such as high-speed internet, while others benefit disproportionately from agglomeration economies that can drive innovation and high-skilled job creation.

• The emergence of low-carbon economies is also having asymmetric impacts within countries, with regions hosting carbon intensive activities highly exposed, and widespread gaps across the OECD between urban and rural regions in the potential for new jobs.

• Demographics matter, as many rural and remote regions are ageing and shrinking faster than metropolitan areas, creating growing challenges for labour supply, service provision and local economic dynamism. Shrinking workforces could raise labour shortages by 15% within the next 15 years in the 20% of regions with the highest old-age dependency ratio.

The causes of regional differences run deep, linked to the above‑mentioned history and geography. Although regional disparities in employment rates relative to the national average have declined by over 12% on average across OECD countries since the financial crisis – a welcome development – on-going megatrends and unanticipated systemic shocks risk reversing those trends.

Global problems, local solutions

To reduce these persistent disparities, policy approaches often rely on national skills policies that help people shift to sectors that offer more job opportunities. However, such a one‑size‑fits-all solution for mobility and re‑training tend not to produce encouraging results, in part because they assume that all workers want, or are able, to move to regions where there are labour shortages or that the re‑training programmes can meet the needs of all local labour markets. In practice of course, neither of these conditions typically exist, which is why more targeted, place‑based programmes that respond to specific circumstances in the regional labour market have been shown to perform better.

This matters enormously because a place‑blind market-driven sorting of workers can create a vicious cycle that further drags down struggling areas. Workers who choose to leave declining regions are generally younger, better educated and more open-minded about change. In the countries with available data for example, the probability of leaving a low-employment region in a given year is at least 5 p.p. higher for those with education beyond high school than for those with lower levels of schooling. This makes the places they leave even less attractive to new investments and businesses, exacerbating existing labour market disparities and inequalities. People living in low-income regions have lower chances of finding better-paid jobs and face a higher likelihood of remaining stuck at the bottom of the distribution.

Persistent regional inequalities in employment carry significant economic and societal costs. They reflect untapped growth potential. They can also erode social cohesion and undermine trust in democratic and economic institutions, and in turn weigh down on long term growth. Policy must therefore be proactive and in place before shocks occur.

Two distinct but related lines of action should be envisaged: moving people to jobs and moving jobs to people.

Moving people to jobs

When shocks hit workers in one region, labour mobility provides a mechanism to find jobs elsewhere, but evidence in this Employment Outlook shows that this is rarely the case in most countries – instead, they remain unemployed or inactive in the region where they live.

To make geographic mobility a viable option for disadvantaged workers, robust action is required to remove the barriers that may limit movement for people that would like to move but struggle to do so. Crucial factors such as housing, childcare, portability of rights, and access to local services often limit mobility, especially for disadvantaged families. More co‑ordination across all actors, in all regions, is essential in reducing these barriers.

For example, in very few countries are priority rankings for social housing portable across locations. The Australian state of Victoria is among the few exceptions in this regard: existing social housing renters may apply to transfer to another social housing property if their employment changes and they need to move far from where they currently live. Encouraging geographic mobility of job seekers to access better employment opportunities is another example – this is set as a specific goal in some public employment service (PES) systems, such as in Sweden.

Moving jobs to people

At the same time, local job opportunities matter. Facing the inevitable limits to any policy trying to nudge people to move to new places, place‑based industrial policy is another potential solution. By aligning national sectoral priorities with local capabilities, policymakers can mobilise underused assets across regions to create new sources of economic dynamism.

In Canada, for example, place‑based policies support artificial intelligence development and diffusion by concentrating investments in regions with an existing research, talent, and industrial ecosystem. At the same time, provincial governments support local AI adoption by firms through innovation vouchers, applied research partnerships and cluster initiatives.

Another example is the European Union’s strategy for securing a stable supply of critical minerals: while national governments across the EU oversee mineral policies and regulations, regional authorities play a key role in enabling competitive and environmentally responsible mineral projects by aligning skills, infrastructure, and innovation with industry needs. They also support local development, social dialogue and transparency, helping to address social polarisation against mining.

It is important, however, that place‑based industrial policies also promote sectoral diversification to limit local vulnerabilities and strengthen resilience to sector-specific shocks. Diversification reduces dependence on a single industry and limits the impact of potential future downturns in specific sectors.

Giving people the skills they need where they live

Even when regions do recover from shocks or adapt to structural changes and transition, and most do, the new jobs created are typically in different activities benefitting recent and new entrants to the local labour market and not the workers that had earlier lost their jobs because the new opportunities are not always aligned to the skills of displaced workers or existing residents.

More tailored and forward-looking regional skills strategies should be designed to help workers develop the necessary skills to transition towards jobs that are likely to expand locally. A proven method is the use place‑based skills assessment and anticipation (SAA) exercises, such as that used by the Dutch Research Centre for Education and the Labour Market (ROA).

With regional SAAs, PES and other actors who accompany workers through job transitions are able to identify feasible training pathways from sectors that are shrinking toward jobs that will be in demand locally in the future.

Public and private employment services also have a key role to play in connecting people with local jobs. Some countries have put in place one‑stop shops that provide detailed information on local demand by occupation, as well as offer direct support on job transitions. To further facilitate connection between local labour demand and supply, PES are increasingly putting in place dedicated teams for employer engagement in addition to traditional job-seeker counsellors. This model enables the PES to have a better overview of local labour market needs, increasing opportunities for registered job seekers.

Staying and going

To turn these principles into an actionable strategy, the required interventions – which include the provision of a wide variety of services, infrastructure building and territorial planning – span across the competences of several ministries and levels of government. Effective institutional arrangements across all levels of government are essential to successfully reduce regional disparities and ensure prosperity for all. Only with clear frameworks and strong co‑ordination mechanisms can public authorities work effectively with all stakeholders to support inclusive and sustainable local development.

Unprecedented data that offer detailed proof of intra-regional inequalities demonstrate that standard national economic responses are no longer sufficient. To measure these dynamics better and deliver more integrated solutions, policymakers must balance both national and regional priorities – as well as learning from comparable regional examples elsewhere in the world.

The goal of moving people to jobs and jobs to people should never be imposed on any worker or any employer. Instead, designing a balanced and integrated framework means that the people who want to stay not only can stay but also are given reasons to do so, including access to viable local employment opportunities; and the people who want to go can do so without facing structural barriers to relocating. Such a recipe for a co‑ordinated, whole‑of-government approach can help build long-term economic resilience and ensure that no region is left behind.

Mark Pearson,

Acting Director of the OECD Directorate for Employment, Labour and Social Affairs

Lamia Kamal-Chaoui,

Director of the OECD Centre for Entrepreneurship, SMEs, Regions and Cities