This chapter presents key insights from the OECD Global Forum on Productivity’s work on labour shortages, a growing challenge across OECD countries. While shortages spiked following the COVID-19 recovery, structural factors – such as population ageing, digitalisation, decarbonisation, and the rise of AI – have played a major role in driving persistent tightness in labour markets since the global financial crisis. Using new macro and firm-level evidence, the chapter distinguishes between cyclical and structural drivers, and between demand- and supply-side pressures. Labour shortages are shown to be more acute in high-skill sectors and where job quality is low, often disproportionately affecting smaller or less productive firms. Policy responses are discussed across three key dimensions: boosting labour force participation, improving education and training systems to meet evolving skill needs, and enabling better labour market matching and mobility. While no single measure will resolve shortages, coordinated action – especially to strengthen workforce skills and improve job quality – will be essential to address structural pressures and enhance productivity growth in the years ahead.
The Global Forum on Productivity at 10
Abstract
Following the COVID-19 pandemic, the recovery period from 2021 to 2023 was marked by a sharp intensification of labour shortages, bringing the issue to the forefront of the policy agenda. While the economic recovery in the aftermath of the pandemic led to a peak in labour shortages, these had already been rising across OECD countries since the 2008 global financial crisis. By the end of 2024, cyclical labour market pressures had largely subsided, yet labour and skill shortages remained persistently high – particularly in critical sectors such as health care and information and communication technologies (ICT). The Global Forum on Productivity (GFP) devoted its 2023–24 programme of work to examining labour market shortages. A number of forthcoming working papers (Dorville, Filippucci and Marcolin, 2025; Filippucci, Laengle and Marcolin, 2025) present evidence and research shedding light on the nature, structural causes, and consequences of persistent labour shortages, highlighting how these vary across countries, sectors, and firms. Several papers (Dorville, Filippucci and Marcolin, 2025; Filippucci, Laengle and Marcolin, 2025) present evidence and research shedding light on the nature, structural causes, and consequences of persistent labour shortages, highlighting how these vary across countries, sectors, and firms.
This chapter presents an overarching view of GFP work on labour shortages, largely based on a thematic chapter of the Fall 2024 Economic Outlook (OECD, 2024a). It outlines a framework for interpreting the drivers of labour shortages, with a particular focus on distinguishing between structural and cyclical drivers of labour shortages, as well as between demand- and supply-side factors. These drivers are explored in detail in the papers produced during the 2023–24 programme of work of the GFP. This summary also provides a detailed discussion of policy actions that can influence labour shortages and help addressing them.
Figure 5.1 illustrates the stylised framework used in this work to understand labour shortages. Labour shortages occur when the demand for labour, or for workers with specific skills, exceeds the available supply, and market frictions prevent timely adjustments in wages or labour supply. As such, labour shortages reflect both demand-side and supply-side dynamics. On the demand side, structural and technological shifts are exacerbating shortages, such as the diffusion of AI, and the green and digital transitions. These forces are driving labour shortages across sectors especially for high-skill profiles (Dorville, Filippucci and Marcolin, 2025). On the supply side, although increasing labour force participation of underrepresented groups – particularly older workers, migrants, and women – could mitigate some of the pressures, workforce ageing may decrease labour supply and heighten shortages. This is further compounded by a decline in human capital accumulation, as reflected in falling educational performance indicators.
As illustrated in Figure 5.1, labour shortages are mediated by two margins: wages and job quality, and skill and occupational mismatches. For instance, shortages can increase workers’ bargaining power, leading to upward pressure on wages – particularly in labour markets characterised by monopsonistic firm behaviour (Naidu and Dube, 2024). At the same time, poor job quality, such as low pay, limited career progression, and unfavourable working conditions, makes many jobs in high-demand sectors unattractive to potential workers. Workers in these occupations may demand higher wages as a form of compensating differentials, suggesting the importance of considering wages and job quality jointly. This challenge is especially pronounced in industries such as accommodation and food services, transportation and storage, construction, and health and social care (OECD, 2018; Causa et al., 2022, 2025). Mismatches, meanwhile, serve as an additional margin of adjustment. In the face of persistent shortages, firms may turn to workers whose skills do not fully align with job requirements or may lower recruitment standards to fill openings (Modestino et al., 2015).
A common indicator of labour shortages is labour market tightness, defined as the ratio of job vacancies to the number of unemployed individuals. Analysing the dynamics of tightness can help disentangle the relative influence of cyclical versus structural factors in driving labour shortages. Labour market tightness spiked during the post-COVID-19 recovery, largely due to temporary factors. These included unprecedented policy support for workers and businesses, labour hoarding by firms, pandemic-related labour force withdrawals, reductions in working hours, shifting worker preferences, and mismatches stemming from structural shifts in demand – particularly between goods and services (Causa et al., 2022, 2025; Duval et al., 2022; Doornik et al., 2023).
That said, the increase in tightness in the United States, the Euro Area, and Japan started well before the COVID-19 crisis, following the 2008 global financial crisis, with the increase being particularly pronounced in the United States. By the end of 2023, the post-pandemic spike in tightness had subsided, and the ratio of vacancies to the unemployed returned to its pre-pandemic trend across all three economies. Nonetheless, the level of tightness remains elevated and on a long-term upward trend, pointing to persistent structural pressures (Figure 5.2).
Number of outstanding vacancies per unemployed person
Note: The structural component of the vacancies per unemployed ratio is estimated using the Christiano-Fitzgerald with a standard cycle length of 1.5 to 8 years.
Source: Eurostat; Statistics Bureau of Japan; US Bureau of Labor Statistics; and OECD calculations.
An alternative way to assess labour shortages is by examining the relationship between the ratio of job postings to employed individuals, i.e. the vacancy rate, and the share of jobseekers, i.e. the unemployment rate. This relationship, known as the Beveridge curve, reflects structural drivers of labour shortages when it shifts upwards and to the right or downwards and to the left, as opposed to cyclical movements along the curve that indicate changes in labour market tightness. Following the 2008 global financial crisis, the Beveridge curve shifted upwards and to the right in both the United States and the euro area, suggesting less efficient job matching (Figure 5.3). This trend is also evident in most euro area countries with available data for the period (Consolo and Dias da Silva, 2019). In the United States, the shift has been attributed to growing skill mismatches, reduced employer recruitment efforts, and a higher share of long-term unemployed facing barriers to re-employment (Barlevy et al., 2024). In the euro area, both skill mismatches and rising regional disparities in unemployment contributed to the shift (Consolo and Dias da Silva, 2019). A similar pattern occurred in Japan after the early 1990s asset bubble burst. While the Beveridge curve was unstable in the United States and the euro area during the pandemic and early recovery, current vacancy and unemployment rates are now broadly consistent with the pre-pandemic relationship.
Source: Eurostat; Statistics Bureau of Japan; and US Bureau of Labor Statistics.
Further descriptive statistics support the view that structural factors have played a key role in explaining cross-country and cross-sector variations in labour market tightness over the past decade. Figure 5.4 illustrates the divergent evolution of tightness across sectors with different skill intensities. In high-skill sectors – such as finance, ICT and professional services – labour market tightness has risen more sharply than in sectors that primarily rely on lower-skilled labour. The trend appears to go beyond cyclical dynamics, likely reflecting the growing structural demand in skill-intensive sectors for highly specialised human capital (Dorville, Filippucci and Marcolin, 2025), which takes a long time to be developed and tailored to specific sectors.
Additionally, Dorville, Filippucci, and Marcolin (2025) examine changes in sectoral patterns of labour market tightness across 28 OECD countries over the period 2010–19. Their analysis investigates whether rising tightness is linked to the progressive impact of key structural trends – namely ageing, digitalisation, decarbonisation, globalisation, and the penetration of AI. These structural drivers are jointly assessed and contrasted with other potential determinants, such as a proxy for the economic cycle (i.e. the output gap), shifts in the skill composition of the workforce, and detailed country- and sector-level controls. Their findings show that increased efforts to digitalise and decarbonise the economy have significantly contributed to higher labour market tightness in the period 2010-19. Population ageing also adds to tightness pressures, though its effects tend to materialise gradually over the medium term. When considered jointly, these structural factors explain a substantial share of the observed changes in labour market tightness (Figure 5.5).
Increase in labour market tightness across high- versus low-skill intensive sectors
Notes: Weighted averages across 28 OECD countries (Australia, Austria, Belgium, Canada, Czechia, Denmark, Estonia, Finland, France, Germany, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, the Netherlands, Norway, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Sweden, United Kingdom and United States). High skill sectors are defined as those having a share of high-skill workers larger than the mean in the Survey of Adult Skills (PIAAC). The figure excludes the Agriculture, Public Administration and Defence, Households and Extraterritorial Organisations sector.
Source: Dorville, Filippucci and Marcolin (2025).
Note: The graph plots the share of the R-squared explained by structural and cyclical factors in a regression of the yearly change in labour market tightness by country-sector over the output gap, and indicators of exposure to demographic change, digitalisation, AI penetration, decarbonisation, and globalisation, and time fixed effects. Exposure to structural factors is defined as in Dorville, Filippucci and Marcolin (2025). Data for 28 OECD countries (see note to Fig. 5.4). Source: Australian Bureau of Statistics; Australian HILDA; Statistics Canada - Canada Labour Force Survey; Eurostat - European Labour Force Survey; Lightcast; US Bureau of Labor Statistics; US Current Population Survey; and OECD calculations.
A second key distinction in the drivers of labour shortages lies between demand-side and supply-side factors. Demand-side drivers stem from firms increasing their need for workers, leading to a rise in posted vacancies. However, if suitable candidates are scarce, many vacancies may remain unfilled, resulting in a higher number of outstanding job postings. Therefore, the increase in unfilled vacancies over time can serve as a proxy for demand-driven labour shortages. In contrast, supply-side factors are more directly linked to changes in unemployment and labour force participation, as new cohorts of jobseekers enter or exit the labour market.
Figure 5.6 decomposes the change in labour market tightness into changes in vacancies, unemployment, and the labour force. The demand side of shortages, tracked by vacancies increases, plays a prominent role. Labour demand has been robust since the recovery from the 2008 global financial crisis, with a sharp surge in the post-COVID period.
Increase in labour market tightness, vacancies and unemployed
Note: Annual growth rates, weighted averages across countries (Australia, Austria, Belgium, Canada, Czechia, Denmark, Estonia, Finland, France, Germany, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, the Netherlands, Norway, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Sweden, United Kingdom and United States). The figure decomposes the increase in tightness in the previous year into the increase in vacancies, labour force participation and the unemployed rate. The contributions enter with the sign of the overall increase in tightness. A decrease in the unemployment rate also enters the decomposition with positive sign, insofar as it results in an increase in tightness. For more information, see Dorville, Filippucci and Marcolin (2025).
Source: Australian Bureau of Statistics; Australian HILDA; Statistics Canada - Canada Labour Force Survey; Eurostat - European Labour Force Survey; Lightcast; US Bureau of Labor Statistics; US Current Population Survey; and OECD calculations.
From 2010 to 2022, increases in unfilled vacancies accounted for between half and a third of the increase in labour market tightness across the OECD in different years. However, by 2022, vacancy levels had largely returned to their pre-pandemic range. A declining unemployment rate also contributed to tighter labour markets. Increasing labour force participation provided only a partial offset to the tightness increase on the supply side, even if its increase made it exceed the 2010 levels (Figure 5.7). Although population ageing may have dampened growth in the labour supply, participation rates among older workers have reached historic highs, and migration flows have helped bolster labour supply in several countries, partially mitigating demographic pressures.
Change in labour participation rate
Source: OECD STEP 116 database.
Wages serve as a key adjustment mechanism when labour demand exceeds supply and shortages arise. Over the past decade, changes in labour market tightness and real labour compensation have been positively and significantly correlated across OECD countries and sectors (Figure 5.8). However, despite pronounced labour shortages during the early post-COVID-19 recovery, real wage growth remained relatively subdued, with few exceptions (Figure 5.9). During this period of rising shortages, certain workforce segments experienced particularly strong wage increases. Wages in low-skill occupations grew faster than the average, driven by acute shortages in low-skill sectors and hikes in statutory minimum wages (Autor, Dube and McGrew, 2023). The lower panel of Figure 5.8 shows a similar pattern in sectors such as construction and manufacturing. In contrast, in sectors like finance and professional services, tightness rose more than wages, suggesting a weaker wage response.
Several factors may help explain why the wage response was sometimes muted, beyond the effects of inflation on nominal wage adjustments. First, wage increases are difficult to reverse, and some firms may have viewed the surge in demand for their products or services as only temporary and uncertain, making them reluctant to increase wages. Additionally, raising wages to attract new hires can create internal wage compression, generating tensions among existing staff. In some cases, firms may also retain monopsony power, though this is likely diminished in periods of acute labour market tightness (Naidu and Dube, 2024).
Annualised increase in labour market tightness and deflated labour compensation per employee, 2010-2022
Note: Labour compensation per employee deflated by the consumers’ expenditure deflator. Country coverage is determined by the availability of data on labour compensation per employee since 2010 from the OECD Economic Outlook database, and of data on labour market tightness from Dorville, Filippucci, and Marcolin (2024). The correlation in panel (a) is significant at the 5% confidence level.
Source: OECD STEP 116 database; OECD Annual National Accounts; Australian Bureau of Statistics; Australian HILDA; Eurostat - European Labour Force Survey; Lightcast; Statistics Canada - Canada Labour Force Survey; US Current Population Survey (unemployment); US Bureau of Labor Statistics (vacancies); and OECD calculations.
Change from Q4 2019 to Q2 2024 or latest available
Note: Labour compensation per employee deflated by the consumers’ expenditure deflator. OECD refers to the unweighted average of the countries shown on this graph.
Source: OECD STEP 116 database.
When wages fail to adequately compensate for difficult or undesirable job characteristics and labour markets are tight, workers may disproportionately try to exit or avoid searching for employment in sectors with low-quality jobs. A significant share of firms across OECD countries report experiencing shortages precisely because they offer unattractive working conditions (Figure 5.10). For instance, around 40% of firms in the transportation sector cite long or unsociable hours as a key reason for shortages – a figure that rises even further when focusing on firms facing severe shortages. Geographical disadvantages also contribute to shortages: for example, 37% of firms in mining report location as a major challenge, compared to just 17% in arts and entertainment. Sectors like accommodation and health care face shortages largely because the work attracts little interest from jobseekers. This lack of appeal is often linked to physical and mental health risks, which are not offset by sufficient economic compensation. Notably, these low-quality jobs tend to be disproportionately filled by women and migrants, underscoring broader structural and equity-related dimensions of labour market imbalances (Causa et al., 2025).
Share of firms with shortage due to unfavourable condition, by sector
Note: « Top » vs « Lowest » sectors are the sectors displaying the highest versus lowest percentage of firms declaring that shortages are due to the mentioned working condition, on average across the considered countries.
Source: Filippucci, Laengle and Marcolin (2025) based on GFP Employer Survey data.
Other firm characteristics can also affect the probability that a firm experiences labour shortages. Firm demographics such as size and age, for instance, matter for firms’ hiring patterns, skill requirements and labour demand. Small firms face greater challenges in attracting talent compared to larger firms with stronger employer branding and resources (Commission, 2023). Young firms also display greater difficulties in recruiting (Filippucci, Laengle and Marcolin, 2025). These distinctions help policymakers better identifying the underlying causes of labour shortages and develop solutions to better align the workforce with the needs of businesses and the broader economy.
Firms reporting shortages, by labour productivity. Predicted probability and 90% confidence interval
Note: Predicted values from a regression of the probability for a firm to report a shortage on the firm’s (log) sales per worker, indicators for the firm’s industry and country, size, increase in size and age. Weighted averages over 36 countries.
Source: Filippucci, Laengle and Marcolin (2025) based on GFP Employer Survey data.
Less productive firms tend to experience higher shortages, regardless of their sector and country (Figure 5.11). Less productive firms do not typically offer competitive wages, invest in employee training, or provide sound working conditions, making them less attractive to potential hires. Their potentially weaker management practices can also translate into less efficient recruitment strategies, contributing to hiring difficulties. In fact, both low-productivity firms and firms at the productivity frontier experience important labour shortages (Filippucci, Laengle and Marcolin, 2025). As a result, labour shortages may further act as a drag on economic growth.
Reducing the pervasiveness of labour shortages will require transformative policies that enable quicker labour market adjustments to the business cycle while addressing longer-term challenges such as ageing, digitalisation, the green transition, and AI adoption. While some supply-side measures take time to show results, others can faster improve the composition and allocation of the workforce, boosting short-term responsiveness. Table 5.1summarises the different policies that are discussed hereafter, dividing them between policies that are mostly affecting labour supply, labour demand or the matching of the two. The table also distinguishes between policies that can be leveraged to adapt the labour market in the short run to rising labour shortages, and policies that can anticipate future shortages by acting on structural drivers.
Note: Policies to “adapt” aim at taking stock of the current context in the labour and skills markets and adjusting to it. Policies to “anticipate” look at the longer-term future needs and how the emergence of future shortages can be prevented.
Invest in education and lifelong learning
As skill shortages are a central driver of labour shortages, boosting labour supply requires scaled-up investment in education and lifelong learning. Education reforms include expanding early childhood education, improving teacher quality, providing structured homework support, and regulating digital device use in classrooms. Bridging the skills provided at schools and in training programmes with the ones required in the workplace also remains important. Denmark, for example, has fostered collaboration between businesses, educational institutions, and the public sector (Klein and Smith, 2024). Recent technological change highlights the need to strengthen STEM education, but it has also raised demand for soft skills, especially when combined with cognitive skills (Grundke et al., 2018). In the United States, jobs requiring high social interaction rose by 12 percentage points between 1980 and 2012 (Deming, 2017). In France, those requiring both high maths and social skills grew by over nine percentage points between 1982 and 2020 (Guadalupe et al., 2022).
Education reforms can enhance labour supply, though typically with a long lag. More immediate improvements depend on overhauling lifelong learning systems to ensure broad access to quality, market-relevant training. While structural change reshapes skills needs, only 40% of adults in OECD countries engage in training each year – mostly the high-skilled (OECD, 2019). Nordic countries stand out for robust adult learning systems, supported by strong cooperation among social partners and institutions. Reforms in Austria, Estonia, Italy, Hungary, and the Netherlands have also raised participation, driven by stakeholder engagement, flexibility, quality assurance, and alignment with labour market needs. While market failures may result in inefficient investments in skills, leading to a mismatch between the skills employers need and those individuals obtain (OECD, 2017), public financial incentives (such as subsidies, tax incentives and subsidised loans) can encourage individuals and employers to invest in training.
Yet, it is essential to invest not only in more skills, but in the right ones. First, public programmes should focus on workers who are the least likely to train without public support. Financial barriers to training are particularly high for the unemployed, low-skilled, and small and medium-sized enterprises (SMEs) (OECD, 2019). Consistently with this fact, many OECD countries provide free training to the unemployed (OECD, 2017). Some specific tools are also designed to be accessible and scalable specifically for SMEs (OECD, 2019). Second, support should focus on high-return, high-quality training on the skills that are most in demand. Although most OECD countries have systems to anticipate skill needs and allow users to self-select into the most effective training programmes, their effectiveness remains limited (OECD, 2016). Better coordination and data use across stakeholders, including social partners, are needed. Diagnostic tools can also help firms assess current and future skill gaps (OECD, 2021a). Third, timing is crucial, and governments should weigh the risk of individuals remaining in training for too long and out of employment, against the need for longer training to develop stronger skills. Micro-credentials, i.e., short, focused learning modules that enable individuals to upskill and reskill rapidly, offer a flexible way for individuals to quickly upskill in high-demand areas, can help reduce talent shortages and signal commitment to prospective employers (OECD, 2024b).
Enterprises are the main providers of reskilling and upskilling opportunities for adults. Investing in workforce training enables them to adapt to technological changes, onboard new employees effectively, and maintain competitiveness. In 2022-23, over one-third of firms experiencing recruitment challenges offered training to their existing staff to help address labour shortages (Figure 5.12). This proportion is roughly equal to the share of firms offering greater schedule flexibility, and slightly below those planning to increase salaries and bonuses.
Probability to implement a given remedy against labour shortage, as a percentage of firms reporting severe difficulties recruiting (%)
Source: Filippucci, Laengle and Marcolin (2025) based on GFP Employer Survey data.
However, other evidence suggests that many companies and entrepreneurs, particularly among SMEs, do not recognise the need to invest in skills and are often not proactive in doing so (OECD, 2019). Successful programmes therefore combine financial support with non-financial tools – such as awareness campaigns, tailored outreach, and value chain initiatives – that help firms identify when and how to invest. Moreover, a firm’s capacity to invest in human capital and boost productivity depends heavily on the skills and learning mindset of its management (Bender et al., 2018). Coaching, mentoring, and peer learning among managers and entrepreneurs have proven effective in fostering knowledge sharing and increasing training uptake, especially within SMEs (OECD, 2021a).
Enhance labour market reallocation and worker mobility
Moving to regions or industries where their skills are in demand is especially important when labour markets are tight. In 2022, nearly all sectors would have needed to hire jobseekers previously employed in other sectors to fill their open positions (Figure 5.13). This is up from around half of the sectors in 2019. For instance, even if all unemployed in ICT or professional services were immediately matched to jobs, about 6% of vacancies in those sectors would remain unfilled on average across countries. Clearly, when geographic, economic, or policy barriers hinder relocation or job transitions across sectors, businesses face greater difficulty filling vacancies, exacerbating labour shortages. This current situation contrasts with 2010, when unemployment outnumbered vacancies in most sectors and firms could have filled vacancies without requiring worker reallocation across sectors.
Difference between vacancies and an assumed natural rate of unemployment of 3% (missing jobs without reallocation), % employment in the sector
Note: the chart reports the difference between vacancies and the 3% unemployment level (missing jobs without reallocation) as a share of employment. The 3% unemployment level is chosen as a proxy for the natural rate of unemployment across countries. The estimates exclude the agriculture, public administration, households and extraterritorial organisations sector.
Source: Australian Bureau of Statistics (vacancies); Australian HILDA; Encuesta Continua de Empleo for Costa Rica and PNAD Continua for Brazil (employment by qualification and unemployment); Eurostat - European Labour Force Survey; Lightcast; Statistics Canada - Canada Labour Force Survey; US Current Population Survey; US Bureau of Labor Statistics; and OECD calculations (Dorville, Filippucci and Marcolin, 2025).
Several policies can enhance the effective reallocation of workers across sectors. First, ALMPs such as job placement and career guidance boost employability. Well-funded, flexible ALMPs enable public employment services to respond to cyclical changes and structural shifts like the green transition (Keese and Marcolin, 2023), with room for improvement in countries like Chile, Ireland, and Spain. While career guidance is well developed for youth, it remains underused for adults despite its importance in overcoming barriers to career changes later in life (OECD, 2021b). Digitalisation further aids profiling and matching workers to firm needs.
Second, passive labour market policies can complement active ones, especially for the most disadvantaged jobseekers (Filippucci, 2022). Unemployment and social assistance benefits ease financial burdens during job transitions and encourage jobseekers to engage with employment services and activation programmes (OECD, 2018). Other labour market institutions also support mobility. For example, employment protection regulations should be carefully balanced. On the one hand, broad-based regulation can prevent excessive turnover or large gaps in protection between permanent and temporary workers, which can discourage firm-specific skill investment and innovation (OECD, 2018). On the other hand, overly strict labour regulations reduce flexibility, increasing mismatches as firms struggle to adapt to changing skill demands.
Third, some policies create barriers to occupational mobility that should be reconsidered amid high shortages. Occupational licenses, which set minimum competence standards, raise recruitment costs and reduce applicant pools, limiting entry to certain professions. Revising licensing regulations – such as mutual recognition across jurisdictions or subsidising licensing costs for in-demand occupations – could improve mobility. Reducing labour market concentration and monopsony power, common in OECD countries, through measures like strengthened collective bargaining, can also help (Araki et al., 2022). Non-compete agreements may be reconsidered as well, since evidence shows they do little to promote innovation but restrict worker movement within sectors and regions (Belenzon and Schankerman, 2013).
In sectors with high public employment, such as health, long-term care, and education, better wages and working conditions are crucial to easing shortages. In 2018, only 39% of teachers in OECD countries were satisfied with their salaries, and just two-thirds with other contract terms. Feelings of being undervalued and heavy administrative workloads reduce the profession’s appeal (OECD, 2020).
Finally, improved access to housing supports labour mobility. Labour shortages vary regionally in the US and Europe (Fuller and Jefferson, 2023), but rising housing unaffordability limits moves to dynamic areas (Ganong and Shoag, 2017; Cavalleri, Luu and Causa, 2021). Relaxing restrictive land-use regulations can boost housing supply, while social housing and allowances assist lower-income families but may have downsides if supply remains tight. The post-COVID rise in remote work also expands job location options and mobility (Liu and Su, 2021), although access remains uneven and depends on digital infrastructure.
Sustain labour market participation
The impact of labour shortages can be eased by increasing labour force participation. Following the COVID-19 pandemic, labour market participation in OECD countries dropped, but has since then rebounded and the OECD average labour participation rate has risen to an all-time high in 2024. Most countries are now near peak participation, except for the United States, where participation has nevertheless roughly reached back pre-COVID levels. Still, some countries exhibit lower employment rates among older adults, youth, or women, indicating scope for expanding labour supply. In many cases, matching the employment rates of top-performing OECD countries across age and gender groups could more than offset the negative impact of ageing on the employment-to-population ratio over the coming decades (Figure 5.14). On average, the scope for raising female employment is broader than for men, with significant potential at both prime and older ages, especially in Latin America, Southern Europe, and Türkiye. For men, the main potential lies in older age groups, particularly in Southern Europe and Türkiye.
The rise in participation rates over recent decades has been largely driven by older workers. Among 55–64-year-olds, the average OECD participation rate has increased by nearly eighteen percentage points since its 1994 low, and by nine points since 2010. This reflects better health, higher education, the decline in physically demanding jobs, and stronger incentives to work longer due to pension and tax reforms. Sustaining this trend will require promoting healthy ageing (Kotschy and Bloom, 2023), tackling age discrimination, expanding lifelong learning to prevent skill erosion amid rapid technological change (OECD, 2019), improving age-friendly working conditions – such as flexible schedules and telework (André, Gal and Schief, 2024) – and strengthening financial incentives to remain employed (OECD, 2023a). Beyond pension reforms, governments should facilitate flexible work-retirement transitions, including options to combine pension income with earnings (OECD, 2023b). There is also room to boost participation among younger cohorts, particularly women. Supporting the integration of women and youth into the labour force can ease shortages and reduce inequality. In 2023, the OECD average gender employment gap remained close to fourteen percentage points, with considerable variation across countries. A mix of policies can support female employment and reduce gender gaps, including expanding access to quality, affordable childcare; encouraging more equal parental leave uptake (e.g. in Austria and Italy); supporting reskilling after leave; promoting gender equality in the workplace; offering targeted programmes for foreign-born women; fostering women’s entrepreneurship and financial inclusion; and reducing second-earner tax penalties. Women are also underrepresented in ICT roles, which are well-paid and often face labour shortages. Austria, Belgium, Poland, and Slovakia have introduced policies to increase women’s participation in ICT education and careers (Eurofound, 2023).
As of July 2024, the OECD youth unemployment rate stood above 11%, more than twice the overall rate of 5%, and exceeded 20% in ten countries. In 2022, over 12% of 15–29-year-olds were not in employment, education, or training (NEET), although this share has been gradually declining over the past decade. Therefore, increasing youth employment has the dual benefit of addressing immediate labour shortages and building a skilled, inclusive workforce. Improving education outcomes remains crucial. The school-to-work transition should be strengthened, including through second-chance programmes for early school leavers and high-quality apprenticeships and internships (OECD, 2018). For instance, France launched a programme in 2016 to help NEETs enter ICT professions (Eurofound, 2023).
Note: Potential employment gains refer to the contribution to the change in the employment-to-population ratio from the gains that can be achieved by raising age and gender-specific employment rates to the levels observed in the best performing countries. Specifically, the “employment frontier” at any given age is defined as the average of the employment rates at that age in the five best performing countries. The gains from raising a country’s employment rate at each age to the employment frontier is subsequently computed (unless the employment rates are already at or above the frontier).
Source: André, Gal and Schief (2024) calculations using data on age age-specific employment rates from the OECD and population projections from the 2022 revision of the UN World Population Prospects.
Migration can help alleviate labour shortages
Net migration has been a major driver of population growth in most OECD countries over the past decade. Migration inflows were especially high in Luxembourg, Australia, New Zealand, Canada, and Sweden. In contrast, Latvia, Greece, and Lithuania experienced net population outflows, although Lithuania has recently seen a reversal of this trend (Figure 5.15). Permanent immigration to OECD countries reached a record high of 6.5 million in 2023 (excluding Ukrainian refugees), 28% higher than in 2019 and 54% higher than in 2013 (OECD, 2024c). While immigration alone is unlikely to fully offset population ageing, it can meaningfully ease labour shortages in the short to medium term, if migrants' skills are well aligned with labour market needs through effective immigration and integration policies. Since 2014, work-related immigration to OECD countries has more than doubled and accounted for one-fifth of all permanent-type migration in 2023 (OECD, 2024c). However, a potential downside is that the emigration of skilled workers can deprive origin countries of critical human resources (Jensen et al., 2019).
Net migration, annual average 2010-23
Source: World Bank.
Policies must effectively support migrants’ participation in the labour market. On average, the OECD employment rate for foreign-born men is higher than that of native-born men, though with considerable variation across countries. In contrast, foreign-born women have lower employment rates than native-born women in most OECD countries (Figure 5.16). The "child penalty" is particularly pronounced for foreign-born mothers. Across the OECD, only about half of migrant mothers with young children (under age four) are employed – 20 percentage points below their native-born counterparts. This gap exceeds 30 percentage points in Belgium, France, Germany, and Slovenia, while it is below 10 points in Hungary, Czechia, Chile, and Costa Rica. Several factors contribute to this disparity, including less time in the labour market prior to childbirth and a concentration in elementary occupations that offer limited financial or institutional support for returning to work. However, limited use of formal childcare appears to be a key driver (OECD, 2023c). Expanding access to affordable, high-quality childcare could significantly boost maternal employment, while also benefiting children – especially those from lower socio-economic backgrounds – through improved early development outcomes.
Employment rate, 15-64
Note: The OECD average is unweighted.
Source: OECD Migration database.
On average, immigrants to OECD countries still have lower educational attainment than native-born individuals, but international competition for talent is rising, with potential detrimental effects on equity and efficiency. Governments are increasingly adopting selective labour migration policies targeting specific skills, occupations, and sectors (OECD, 2023c). For instance, Australia’s Skilled Migration Programme is designed to fill vacancies that cannot be met by local workers. In recent years, Austria and the Flanders region of Belgium have expanded their shortage-occupation lists, while Switzerland has eased immigration requirements for skilled workers (OECD, 2023c). Encouraging migration of high-skilled workers, such as foreign doctors and nurses, can also help address shortages in these sectors most affected by ageing population, though these risks worsening shortages in origin countries (Lafortune and Levy, 2023).
To improve labour market outcomes, policies must support migrants in securing jobs that match their qualifications. Many migrants remain overqualified for the roles they occupy, even after several years in the host country. This challenge can be addressed through better recognition of foreign qualifications, increased access to language learning, and stronger efforts to combat discrimination. Targeted measures can also help integrate migrants into sectors facing acute labour shortages. For example, Austria, Korea, Spain, and Switzerland have introduced vocational language training tailored to high-demand sectors (OECD, 2023d). In 2015, Germany launched free digital training for migrants, asylum seekers, refugees, and others without access to formal digital education or professional networks (Eurofound, 2023).
The evidence produced by the GFP suggests that labour shortages have both structural and cyclical dimensions. For example, after peaking in 2022–23, labour markets began to cool by the end of 2024. Nevertheless, shortages remained particularly elevated in high-skilled occupations and appear to be driven by long-term structural trends. These trends affect labour demand, such as the green and digital transitions requiring specialised skills, and labour supply, such as an ageing workforce reducing the number of new labour market entrants. Both demand and supply factors have contributed over recent decades, though demand has played a more prominent role, with structural supply-side pressures like ageing affecting shortages only over the medium term. Wages (adjusted for compensating differentials in jobs with poor working conditions) and skill or occupational mismatch serve as key transmission channels through which these drivers translate into actual labour shortages.
Policies have a key role to play in alleviating labour shortages. Strengthening education and training systems would provide firms with the human resources they need for their development and workers with better job opportunities. In low-pay and strenuous occupations, improving job quality, in terms of wages, working conditions and safety, flexibility and job security, will be necessary to tackle shortages Labour market policies that can facilitate mobility and matching are also essential. There is scope to improve labour participation in all age groups, notably by improving work-life balance. Immigration can further help mitigate labour shortages, provided effective integration policies are in place. Even in a period of rapid technological progress, better mobilising human resources and skills will remain crucial for reducing labour shortages and strengthening economic growth and societal well-being.
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