OECD Employment Outlook 2026

Executive summary

Labour markets remain resilient but show further signs of weakening

OECD labour markets have been resilient over the past year. At 72.1% on average in Q1 2026, employment rates have reached historically high levels in the OECD. However, there have been new signs of weakening, with a slight rise in unemployment, flattening employment trends, and continued easing of labour market tightness – even though structural labour shortages persist. Young labour market entrants have increasingly high unemployment compared to the rest of the working age population. In addition, even before the recent surge in energy prices, the real wage recovery was slowing down, and real wages were still below the levels of early 2021 – just before the 2022 spike in inflation – in one-third of OECD countries. Looking ahead, geopolitical uncertainties, high tariff rates and elevated energy costs are expected to lead to higher inflation and slow down the labour market and wage recovery further.

Regional employment gaps remain large

Where people live shapes employment opportunities and living standards. In over half of OECD countries, employment rates across small regions can differ by more than 20 percentage points. Few people move from low- to high-employment regions, and those who do are often the most employable, limiting the ability of labour mobility to reduce regional disparities. Most OECD countries have seen some convergence since the early 2010s, but disparities remain wide – and they reflect by and large the unequal distribution of economic opportunities across places, with capital regions usually offering better prospects.

People in lagging regions face lower incomes and weaker chances of climbing the income ladder

Labour market disparities across regions translate directly into disparities in disposable household incomes and living standards, even if regional income gaps are narrower than regional differences in GDP per capita. Compounding disadvantages also mean that people in lower-income regions face weaker prospects for upward mobility over time. For example, over a five‑year horizon, people in the poorest regions are nearly 40% more likely to stay among the lowest-income group than their peers in the most affluent regions. Closing these gaps will require co‑ordination of labour and social policies with place‑based policies that boost economic dynamism and strengthen labour markets in lagging regions.

Resilience of places to structural shocks hides disparities across people

While in the medium term aggregate regional employment is often resilient to structural shocks, such as import competition from low-wage countries and breakthroughs in digital technologies, adjustment in the most exposed regions involves significant reallocation across industries. These transitions generate substantial and persistent social costs for displaced workers, reflecting limited mobility across sectors and regions. Although new economic activities create jobs over time, many displaced workers struggle to access these opportunities, often experiencing prolonged unemployment or leaving the labour force altogether. The central policy challenge is to reduce local vulnerabilities and better anticipate structural change by fostering industrial diversification, investing in education and infrastructure, and anticipating evolving skills needs. At the same time, policies need to alleviate the social costs of adjustment by supporting displaced workers transitioning toward new jobs, removing barriers to mobility across regions, especially for the most vulnerable, and promoting new job opportunities.

Skills and training pay off, but returns depend on occupations, work practices and training design

Evidence from the 2022-2023 cycle of the Survey of Adult Skills (PIAAC) shows that numeracy and formal education remain strong predictors of employment and wages, although their influence has weakened over the past decade. A large share of their association with wages operates through occupational sorting: education and skills raise earnings primarily by facilitating access to higher‑paid occupations. Non-cognitive skills, such as task autonomy and co‑operation, are also associated with higher wages and amplify the positive link between wages and numeracy. Non‑formal training shows a consistent positive link with wages, especially when focussed on leadership, teamwork and project management, and delivered flexibly. These findings support policies that make skills visible, promote flexible high‑quality learning, and strengthen employer engagement to sustain skills development in a changing labour market.

Non-compete clauses are pervasive and have adverse effects on productivity and wages

One-third of workers in the OECD countries analysed are bound by non-compete clauses, which prevent workers from joining (or starting) a competing firm, and their use has increased in recent years. Other post-employment restraint clauses – including non-disclosure agreements, non-solicitation clauses and repayment provisions for bonuses or training costs – are also widely used, often in combination with non-compete clauses. Originally intended to protect legitimate business interests such as trade secrets, these clauses have spread well beyond knowledge‑intensive occupations to cover many workers with limited access to confidential information. New evidence suggests that non-compete clauses can reduce job mobility, weaken workers’ bargaining power, depress wages and slow productivity growth by limiting labour reallocation and the diffusion of knowledge across firms. The pervasiveness of non-compete clauses – even in countries where they are more tightly regulated – coupled with the evidence of their adverse consequences raises questions about whether current policy frameworks are fit for purpose.

Tailored employment protection legislation can help labour markets navigate short-term fluctuations and structural changes

Employment protection legislation (EPL), which consists of dismissal and hiring regulations, aims to protect workers from arbitrary job separations and to make companies bear part of the social costs of separations. These regulations are important determinants of people’s job security, career path and working conditions but, if ill-designed, can also reduce firms’ ability to adapt to fluctuations in demand and structural changes. EPL disparities across OECD countries remain large. English-speaking countries continue to have less strict regulations than many EU countries, for example. Most EPL reforms implemented since the start of the current decade have focussed on harmonising dismissal regulation of workers on open-ended contracts (e.g. reducing differences between white‑ and blue‑collar workers) and strengthening regulation of temporary contracts. These reforms could help reduce labour market dualism by making dismissal regulation for workers on open-ended contracts more predictable and temporary contracts less attractive and more difficult to use.