Accessing Europe’s talent

Today, with migration already in the spotlight and a potential for even greater focus if far right parties succeed at the polls, attracting world-class talent could become more challenging. And despite all Europe’s cultural riches, accessible healthcare services and social protections, European wages cannot match those on offer in the U.S. Against this backdrop, the war for talent will be fierce in the years to come and play a critical role in Europe’s economic prospects.

Our survey showed that while recruitment and retention is a challenge for businesses regardless of location, those based in the EU were particularly feeling the heat. Almost three-quarters of our survey respondents from EU-based organisations (74%) said labour shortages were an enterprise-wide challenge, compared to just 45% of those in North America and Asia. One in three of our survey respondents did not view the EU favourably in relation to the availability of talent.

Our findings are borne out by official data showing the number of job vacancies in the EU is significantly higher than during the pre-pandemic period. And while the number of ICT specialists working in the EU has risen over the past decade, tech professionals represent just 4.6% of the total EU workforce.

Europe’s fast-changing employment landscape

Foreign businesses often struggle with Europe’s fast-changing, worker-friendly regulatory regime. Moves were under way during the 2019-2024 Parliament to reduce the reliance on flexible contracting models, including via the Directive on Transparent and Predictable Working Conditions and the Platform Work Directive. The former aims to make employment patterns more predictable, enhance cost-free mandatory training and limit the precarity of flexible non-standard forms of work, with the number of people working through one or more digital labour platforms expected to rise from 28 million in 2022 to 43 million in 2025.

The Platform Work Directive is designed to ensure the correct classification of employment status and introduces a presumption of an employment relationship (as opposed to self-employment), that is triggered when facts indicating control and direction are found. Those facts will be determined according to national law and collective agreements, while taking into account EU case law. On 11 March 2024, the Employment, Social Policy, Health and Consumer Affairs Council (EPSCO), which comprises the relevant ministers (or state secretaries) of the EU member states, agreed on the Directive, which now has to be formally adopted by the Council and the European Parliament. Once implemented into local law, the new rules are expected to have a material effect. According to the European Commission, almost 20% of platform workers ought to be reclassified from self-employed workers to employees.

The Pay Transparency Directive, which was approved in 2023 and is due to come into force in 2026, is designed to tackle pay discrimination and close the gender pay gap across the bloc. The new rules will require businesses with more than 250 employees to report annually their gender pay gap figures (beginning four years after the directive enters into force) and take action if the differential is above 5%, while those with between 100 and 249 employees will need to report every three years. Here, the obligation kicks in four years after the directive enters into force for employers with between 150 and 249 employees, and eight years for those with 100 to 149. Member states are also allowed to make reporting mandatory for companies with fewer employees.

Alongside these disclosure obligations, it will be compulsory for employers to be transparent with candidates about salaries, either in job adverts or in advance of an interview. Once on board, employees will be able to demand information on average pay, broken down by sex, for categories of people doing “similar work or work of similar value”. In addition, employers must make information available to their workers about the criteria used to determine pay, pay grade (the gross annual pay and the corresponding gross hourly pay), and the pay progression of workers.

Under the directive, workers will also be entitled to compensation if they suffer pay discrimination based their gender, while the burden of proof will be with the employer, which will have to prove it has not broken any rules on equal pay or pay transparency.

Surprising lack of focus among businesses on mitigating employment law risk

Improving employee satisfaction and delivering on their employer’s social impact strategy or corporate purpose were important strategic priorities for three in five of our survey respondents.

However, given the fact that the Pay Transparency Directive will provide employees with enhanced rights to challenge their employers on workplace discrimination or failures to disclose pay transparency, it’s perhaps surprising that almost half (49%) of our respondents from businesses with operations in the EU identified employment law as a business risk that they did not have systems in place to mitigate.

Furthermore, businesses looking to do deals into Europe must not underestimate the effort required to secure and retain talent. Of our respondents whose businesses had acquired another company in the past two years, over half (54%) said they found responding to cross-border employment laws a challenge through the process. 

Navigating the future

As our research shows, global businesses see both risks and opportunities in Europe. Many of the challenges are common around the world after a period of unprecedented turmoil: supply chain problems and energy supply issues; the interlinked headaches of inflationary pressure and labour shortages.

Others are unique to the European Union, whose regulatory environment provides stability and certainty but also the need for extensive risk management. Some businesses see an opportunity for innovation in Europe’s approach, while others – particularly those with extensive operations in emerging markets – admit they find it a struggle.

Looking to the future, the impact of Europe’s changing political landscape will inevitably be felt at the policy level. While it remains to be seen how many far right, nationalist and Eurosceptic parliamentarians enter the legislative body – and how effective or unified a force they will be – EU policy areas including sustainability, environment, trade and migration could be affected.

Navigating Europe’s complex regulatory landscape during a period of potential change requires careful judgement. Strategic decisions must weigh the impact of European law and the EU agencies’ enforcement priorities while appreciating where the EU’s jurisdiction ends and those of national authorities take over.

Doing business in Europe means navigating the different competencies of the EU bodies. Regulatory rules around antitrust, data protection and financial services are set by the EU institutions, but national governments retain competency over areas including employment and energy.

Global organisations looking to achieve their ambitions in Europe need to understand both the regulatory and political dynamic and adapt their approaches accordingly. The answers to business-critical questions will rarely lie at either EU or member state level, but rather a combination of both. Multinational businesses must stay ahead of Europe’s myriad developments in real time to proceed with confidence.