Mervyn Dinnen  0:00  
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Mervyn Dinnen  0:09  
Welcome to the HR Means Business podcast, which is part of the HR Happy Hour Network. I'm your host, Mervyn Dinnen. The European labor market is going through one of the most complex and contradictory periods we've probably seen in years. On the one hand, we're hearing about hiring slowdowns, economic uncertainty and organizations tightening their budgets. On the other hand, skill shortages still persist, candidate expectations continue to shift, and the impact of AI and automation is starting to reshape both jobs and hiring strategies in real time. For HR and talent leaders, that creates a real challenge. How do you plan hire and retain talent in a market that feels both constrained yet unpredictable at the same time? To help us make sense of what's really happening out there, I'm delighted to be joined by Julius Probst, Senior Economist at Appcast, and today, we're going to be exploring the key labor market trends across Europe, what's driving them and what HR leaders really need to be thinking about right now. Julius, welcome to the HR Means Business podcast. Would you like to introduce yourself?

Julius Probst  1:15  
Yes, thank you, Mervyn. So, I'm Julius. I'm a senior economist working for Appcast. We are part of The Stepstone Group. Stepstone is one of the large and leading global job board businesses. Appcast itself is not a job board. We're actually doing programmatic recruitment, and so within my role, I do labor market analysis, and as of last week, actually, I'm also the Director of Research of Recruitonomics. What is recruitonomics? Recruitonomics is our labor market and insights hub where I analyze key labor market trends, write about current economic developments, AI, all of the things that affect talent demand, talent supply for the UK, but also continental Europe and the US.

Mervyn Dinnen  2:10  
Okay, I'm speaking to the right person, obviously. So I suppose my first question is, from your perspective, Julius, what would you say are the most important trends currently shaping the European labor market? 

Julius Probst  2:24  
So I think we can start with the one that is probably on everybody's mind, and that would be the current oil price, commodity price shock. I assume that most people have read, or are reading in the news about kind of like, what's going on in the Middle East; oil prices going up, the price of heating going up, gas prices going up. So why is that important, and how does that affect the economy and the labor market? So the first order effect, and main effect, is obviously that households have less spending power, right? When the price of oil and gas is going up, they need to pay more for the heating bills. They need to pay more for for driving. That has an immediate effect on consumption in one way, right? So households have less money, they will spend less on other things. What are these other things? They that could be going to the cinema, eating out, even going on vacation. So there's a lot of like, spending that is diverted. And with households just like spending less, and that hasn't quite immediate effect on the labor market. The second effect, and that's almost the bigger one right now, is that the oil price shock, we don't know how long it will last, but our suspicion is it will last quite a while, and the forecasts are that in the UK and in the euro zone, inflation might increase by one percentage point. So instead of having 2% inflation, we might have 3% inflation. Not fun, right? Doesn't sound like fun. And central banks, the Bank of England, they have an inflation target, and we just came out of the pandemic and had several years of excessive inflation. And what will central banks have to do? They will have to increase interest rates to bring inflation down, because that is their job. In the long run, everybody has an interest that inflation doesn't get too high, that we have more or less stable prices. We have 2% inflation targets in countries like the UK. And so when they increase interest rates, again, that has an effect on everybody. It has an effect on the housing market. House prices might decline a little bit. Mortgages get more expensive. Higher interest rates have an effect on consumption. People will spend less because their credit card interest is going up. Businesses will invest less. Because it gets more expensive to invest when you have a 5% interest rate compared to a 3% interest rate. Credit gets more expensive. Businesses invest less. Lower consumption, lower investment, all of this will be bad for the economy and for the labor market. And what does that mean? In the end, it means slightly lower growth and it means less job creation. So that is the immediate effect of of the oil shock.

Mervyn Dinnen  5:28  
I mean, would you see this as a slowdown, a reset, or is it something a bit more structural do you think?

Julius Probst  5:35  
No, it is not structural for now; it is a slowdown. So most economic estimates before the oil shock happened, before the conflict in the Middle East started to give you an idea, most economists were anticipating that the UK would grow roughly at a rate of 1% maybe 1.2% this year, 1.2% GDP growth. The new estimates. And there's a lot of uncertainty, right? Because economists, well, we can't really forecast what Trump will do in a couple of weeks from now. We cannot forecast how this event will unfold. So there's a lot of uncertainty. We don't know how long the war will last. We don't quite know how high oil prices will be and how long they will stay there. But currently, economists expect that maybe all of this will reduce growth by 0.5 percentage points. So we go from 1% to maybe 0.5% real GDP growth this year, that is a quite significant slowdown, and it would mean that it doesn't take us much more to tip us into stagnation or even a recession. We don't anticipate a big recession in the UK yet, but we are getting closer to lower growth and fewer jos being created.

Mervyn Dinnen  7:07  
Yeah, it's interesting. You say that because there are, you know, there are headlines every day about hiring slow downs, and there are also headlines every day about skill shortages, and what, how? How do you explain that tension, and also, how do you think it will play out over the next year or two?

Julius Probst  7:25  
Yes, so there is quite a bit of tension in the market right now. So on the one hand, as you rightly pointed out, we have had in the UK a rising unemployment rate coming out of the pandemic in 2022, 2023 the labor market was pretty good for people. The labor the unemployment rate was close to 4% workers were switching jobs because it was very easy to do so and they could get higher salaries. The economy coming out of the pandemic was actually booming for a year, one and a half years, and it was a good labor market. Now for two years, we've experienced a quite significant slow down. The unemployment rate in the UK is up to 5.2%, so quite a bit of an increase, more than a one percentage point increase. Hiring has slowed down quite substantially. It is significantly harder for people to switch jobs at the moment because companies are not hiring as much and there's fewer opportunities. So we have this weak labor market for quite a few people. But then there are areas where I and we see that there are actually some talent shortages. And why is that? I think while we are facing like these various shocks, the trade and war from Trump, the oil shock, etc, we are also seeing quite a bit of structural change right now, right so these shocks, shocks are temporary, but we are facing quite a bit of structural change due to AI. I think we need to talk a little bit about that. And so AI has come quite rapidly. It is being deployed in the economy by various companies. And so we are seeing, actually, the demand for AI talent surging. So that is one area where there are talent shortages. And the second area where we are seeing talent shortages is in certain blue collar occupations, people with manual skills. Think about people putting solar panels on your roof. I've had that done eight months ago. It took quite a lot of time because the companies were doing that. There's high demand. But these skilled workers are actually missing because we've sent a lot of people into university, pushed them into university degrees, and now with Brexet, we have a little bit of a shortage for this in terms of skilled manual labor, actually, and we see that. So these are the two main points, like skilled manual labor across certain occupations, engineering, blue collar, we can talk about that a little bit more. And AI, we see the demand for talent rising rapidly.

Mervyn Dinnen  10:23  
I mean, AI is obviously a hot topic, shall we say, and it's starting, as you say, to show up in labor market data. I mean, are we yet seeing, I suppose, real impact on jobs and skills and hiring, or is this going to unfold over a period of months or years?

Julius Probst  10:43  
Yes, I think it will definitely unfold over a period of months and years. It's not immediate. So I recently wrote an article about whether AI is the next general purpose technology. What is the general purpose technology? It's a technology that has a fundamental impact on the economy and labor market and leads to long run economic growth for years to come. Past examples are electricity, the deployment of electricity, the building of the electricity grid in the 1930s the automobile people buying cars and so on. Also 1920s 1930s post war period. The railways in the 19th century, the steamship like industrial revolution, all of that. Right? That led to long periods of economic growth, I think AI potentially might lead to higher growth in the years to come as well. We are seeing, we are seeing that it has an impact on the labor market data. But there's a little bit of a debate right now as well. Is it the macroeconomic slowdown, or is it AI? It's quite hard to disentangle the effect, but when you look at some studies, they are doing actually a pretty good job. And what are they showing? They are showing that AI is actually across certain occupations, routine white collar workers. We're seeing a little bit of displacement there, right? So if you think about jobs in like routine jobs in customer service call centers, even in the in banking, in the financial sector, we do see that AI being deployed is actually having an impact on jobs, and it's showing up particularly severely for younger workers right now. So companies have have reduced the hiring for graduates quite tremendously. So AI seems to be, at the moment, complementary to skilled workers who've already been in their jobs for many, many years. Have experience and and are using AI now as well. Whereas companies just for cost reduction purposes at the moment, they've reduced their their graduate hiring quite substantially.

Mervyn Dinnen  13:11  
So would you say it's it's a bit of a mix of displacement, redesign and augmentation? 

Julius Probst  13:17  
Oh definetly. And we've seen this with past technologies as well, right? That there is displacement of labor, that that always happens, but at the same time, a new technology always leads to the creation of new sectors, new jobs, new occupations at grand scale. And I I'm less concerned about, I'm not that concerned about technological mass unemployment. I very much doubt that it will happen. But that being said, we will see that that certain jobs that are in the economy right now, that they might struggle in the years to come, and that what that means for younger people, especially who have a harder time entering the labor market, probably, well, it's a good time to get familiar with AI, learn AI skills, and the government should, should help, to some extent as well, to reskill workers. And then then we can, we can help the job market that way.

Mervyn Dinnen  14:26  
Looking at job seekers, job candidates, what kind of changes are you seeing in kind of, job search activity, expectations, mobility. Are they responding to these trends? Or is there still a bit of inertia?

Julius Probst  14:43  
No, I do think, I do think people are responding to these trends already. So, as I said, for the, one of the actually ironic things about what we're seeing right now, AI, etc, well, the talent, the demand for AI talent is surging, but the demand for talent in some of these blue collar occupations, manual skills has actually been going up as well. And for the first time in many years, we are actually seeing significant wage pressure, not so much across white collar occupations. They are losing out a little bit, but for some of these blue collar jobs, right? And that is leading to more people thinking, Well, does it actually make sense to go to university now and do a marketing degree, or should we just move into these blue collar occupations? Because if you are very skilled plumber, you have your own business, like, the wages stay with like, like, just as an example, the wages and some of these occupations have risen, and they are actually good as well. And so I do think that people respond already a little bit to to the rising wages, and that that happens relatively quickly, and at the same time, the demand for AI talent is surging. If you are a software developer for some of these AI companies, you have, like a hair, you can have a very high wage. So we see that some of these AI companies, tech companies, they are paying very well for AI skills right now.

Mervyn Dinnen  16:24  
Yeah, it's interesting hearing you talk about, I suppose, the different angles, particularly with blue collar works. That's very much a dinner party conversation, certainly in the UK and Western Europe, about kind of people leaving university, leaving school, leaving college, and what should they be studying next? So on the candidate side, do you see them becoming more cautious, more selective, or is there a bit of a kind of, still a rush into the marketplace to take something?

Julius Probst  16:56  
Well, on the candidate side, we are seeing a little bit of caution right now, because, as we said, generally speaking, the last two years have been one where the way labor market has actually weakened and the unemployment rate has been rising and hiring is down. So what that means as a candidate is that it's at the moment, actually, it's, it's been getting a little bit trickier to change jobs. If you want to change your company, change your occupation, hiring is down and and there is more caution from the candidate side, and whenever you do actually apply for a job, that it also means higher competition, right? So a few years ago, companies really had to compete very, very hard for talent, whereas right now, if you are posting a job, could be anything, let's say project manager in London, in a certain sector, you will see you will get a lot, a lot of applications, because the market is weaker, but also, actually, AI hasn't, hasn't helped here, so to speak. It makes it easier to churn out and apply to lots of different jobs in a very in an in a more rapid way than was possible a few years ago, right? So that's also something to consider that and that particular area, the job search. Well, now it is pretty easy to just with a with a few prompts you like, change your CV quickly, things like that. You just churn out many applications, and we're seeing actually quite, quite a lot of volume.

Mervyn Dinnen  18:41  
What about, I suppose, wage trends. So I suppose the the more commercial angle that I'm sure businesses listening in will want to know about, kind of what, what are you seeing, again, in the UK, but also Western Europe, probably about wage trends. I mean inflation, cost, cost pressures, is this, is this playing into hiring and retention decisions and forecasts?

Julius Probst  19:04  
Yeah. So the wage trends here in the UK have been, have been quite, quite interesting in recent years. The UK coming out of the pandemic has actually been one where wage growth one economy where wage growth has remained relatively high until recently, right? So we we had, until a year ago, we had roughly 5% nominal wage growth, five to 6% nominal wage growth. That's an average across all sectors. Just just to be clear, we can talk about different occupations in a bit, but we had five to 6% nominal wage growth, 3% three to 4% inflation, and it has been one of the main reasons why the Bank of England has kept interest rates high, because that wage growth was too high for the inflation target. They couldn't allow it to remain there for such a long time. They. Tried to slow down the labor market a little bit, because they just couldn't live with too high wage growth, too high inflation for such a long time. Now, wage growth has come down. We are closer to 4% that's better, but there's quite a bit of divergence. And as I said, the three big trends that we are seeing as one routine white collar jobs, wage growth has actually slowed down quite significantly. Not a lot of wage gains there. Blue collar jobs, we are seeing higher wage growth also, some of this is driven by minimum wage policies and so on, but blue collar workers are doing better. And then AI skilled, AI talent, also very high wage growth. So it's, in a way, it's kind of like almost a three a labor market segmented into three tire tiers, three segments. Blue Collar, pretty decent. AI talent, very good. White Collar routine. White Collar struggling a little bit more.

Mervyn Dinnen  21:08  
So is this creating a bit of a shift now in negotiating power?

Julius Probst  21:13  
Yeah, I would, I would say so it is, if you think back to 2022, 2023 when the labor market was very hot, every company was hiring, it was much easier for people to switch jobs. Whenever you have better outside options, right? Whenever, if you are unhappy for whatever reason in your current job with your current company, if you can switch easily. That creates bargaining power, power if there are no other jobs available then, and the chance of you being stuck as significantly higher then, then. That reduces the bargaining power of workers, and that has reduced wage growth as well the that the decline in in vacancies, the decline in hiring so So compared to a couple of years ago, workers have have slightly lower bargaining power, and that translates to slightly lower wage growth as well.

Mervyn Dinnen  22:15  
Okay, given everything that you're seeing, and you're you're obviously sharing with us around the data and the trends. What would you advise HR and talent leaders to be doing differently in 2026? Is it a mix of strategy planning, you know, employer branding? Is it all those things that we normally talk about to try and I suppose, attract people? Is this beginning to change?

Julius Probst  22:42  
Yeah, I mean, I do think, what would I advise, I mean, there's a couple of things. I mean, first of all, we are living in a period where economic uncertainty and volatility has been significantly higher than before, the pandemic, right? It feels we've experienced like various economic shocks. First it was the pandemic. Then we had one energy price shock due to the war in Ukraine. Then that was finally over. Now we have another conflict in the Middle East, and we have like, various things that trade war, other things that the US administration has been implementing that has just been in one way or the other, affecting Europe as well. So So you need to be aware of what's going on. And you just need to be aware that volatility at the moment has been higher, and that means probably companies are changing their strategies in a way, more more often more quickly, because they need to respond to what's going on right like now, suddenly interest rates are surging again. It will have an impact on how many people we might hire this year and so on. So, HR leaders just, just need to be aware that, like with higher economic volatility, that they need to be in a way, more flexible, more responsive. Probably things will not be stable, as stable throughout the year as it was in 2017, 2018. Those were relatively calm periods compared to now. The second thing workforce planning, like long run workforce planning, I do think it's important. Just thinking back on what we discussed, we have a very weak labor market for young people right now, companies are not hiring young people at the moment, not as much as they used to, but eventually, this should create, and will create a problem. I do think, right, because we have people, given our demographics, aging populations, there are a lot of people, a lot of workers, who will retire in the next, let's say, three to five years. If you don't hire any young people at all anymore for the next two or three years, eventually you will run into a problem. So maybe companies should think about that.

Mervyn Dinnen  25:13  
Yeah, what's I suppose, the one looking ahead to where things might be heading, what's, I suppose, the one signal, or the one thing that we need to be looking out for, and what kind of shifts that within our organization, shall we say, we might not be picking up on, which might be kind of indicating where things might go over the next 18 months or so?

Julius Probst  25:40  
Yeah. Oh, Mervyn, that's a tough question, because I think it very like, probably it very much depends on the sector you're in and kind of like the workers you need to hire. I think, I think, I think it will be very different if you are a tech company or a financial company compared to if you are working in retail or transportation, or for an airline, things like that, right? Again, you like, with a current oil price shock, we don't know exactly what inflation will do. We don't know exactly where the oil price is headed, but this is creating an immediate kind of like negative economic impact for companies that are doing transportation because their costs are just exploding they need to pass that on to their customers, creates an immediate problem for airlines who need to hike their prices, creates an immediate problem for smaller businesses and hospitality, or restaurants, or restaurant chains, or pubs or a pub chain; your energy builds are soaring. What do you do? You already have very thin profit margins. So there's, there are some sectors that are being affected even more than others, so they need to, kind of like, have a strategy in place, or at least kind of like monitor in the next six to 12 months, like, where is this going? Where's the energy where are energy prices going? What does that mean for us? What does that mean for our workforce? If you are, like a tech company with not that many employers, you have a smaller office, or maybe a lot of your people are even remote then, then this has way less of an impact on you at the moment.

Mervyn Dinnen  27:32  
Final question, it's been extremely interesting and fascinating. Obviously, you and I have recently taken part together in a couple of webinars where we've been talking, particularly around things like pay and benefits and things so what you know we're talking about what HR leaders need to look for, kind of in terms of emerging trends, in terms of technology, and in terms of pay, in terms of benefits, what would you advise leaders to be looking at trying to implement or bring in or do, to try and keep people, I suppose, on sides, try and keep them engaged?

Julius Probst  28:08  
In terms of benefits, I would say I have a very big one on my mind, because it's personal experience as well. I would say either hybrid work or remote work is a big benefit for employees, and it's also good strategy for companies to retain talent. Why do I say that? Until recently, my wife and I, we lived in London, as you well know, very expensive. Everything is expensive in London. House prices are extremely expensive. Rent is absolutely crazy. My company allowed me to move out of London. I now live in a very nice town called Solihull in the Midlands, two hours from London, because I work with people in Boston to set off, I only have to go to the office, let's say, once or twice a week, and it has really improved our lifestyle and, and, and it is a massive benefit for me, and it also helps my company, because may potentially, they would have to offer me a significantly higher salary if I had stayed In London, right? So, so if you're a small company, then you can think about things like that. It might reduce also the cost pressure you're facing, competing with, with fine, with banks and other other sectors, on the workforce in hotspots like London or New York or San Francisco, right? So I do think that's a big one. It's a big benefit where where even smaller companies can compete. But yeah, what do you think about that?

Mervyn Dinnen  29:49  
No, I think it is important. Obviously, we were talking earlier about maybe people moving into more blue collar work with trades and stuff. Stuff. And obviously that is, that's an area where it can't be remote. You know, you, you, you can't, you can't fix the plumbing from home. But I always say, as you and I were discussing, obviously, on a webinar not that long ago, it's flexibility is what's important.

Julius Probst  30:18  
That is so true. So obviously, that is a very good point, a very big caveat. There are still a lot of jobs in our economy, and that is not going to change that are, as you said, and I said, as well, location specific, right? You need to be there to do the job. That is for many blue collar roles. That is the case. But we've also seen that. So you can do the remote work, but you can offer flexibility in terms of when give these workers flexibility of, like, shifting their working hours around, or having, like, a pattern that fits them well, fits into their lifestyle, and like, what, what they need to do to have a family or a child or so on. So flexibility is a really big one, and in the webinar we had, we discussed how that has helped as well draw women into the workforce. It is particularly important for women and for women who have children. 

Mervyn Dinnen  31:18  
Julius, it's been a pleasure to talk to you today. Thank you for all the insights and the research. And I look forward to obviously meeting up and hearing from you again. If anybody is interested in contacting you or seeing kind of what you write about and stuff, what's what's the best way to connect with you?

Julius Probst  31:38  
Yeah, definitely connect with me on LinkedIn, I post a lot of my insights there, and then check out recruitgenomics.com which is our labor market and recruiting insights hub.

Mervyn Dinnen  31:55  
Julius, thank you very much.

Unknown Speaker  31:57  
Thank you so much for having me, Mervyn, thanks.

Transcribed by https://otter.ai