CoPS/IMPACT Working Paper Number G-259

Title: The Europe 2020 Strategy and Skill Mismatch

Authors: G.A. Meagher, R.A. Wilson and Hector Pollitt


In a recent study, the European Centre for the Development of Vocational Training (Cedefop) investigated the expected effect on European labour markets of the transition to a high-employment, low-carbon economy. The study extended its previous initiatives in skills forecasting to determine employment under different policy scenarios derived from the Europe 2020 Strategy. This strategy includes the so-called 20-20-20 climate and energy targets, namely,
* a reduction in EU greenhouse gas emissions of at least 20% below 1990 levels;
* a requirement that renewable sources represent 20% of EU final energy consumption;
* a reduction in energy consumption of 20% from projected 2020 levels by improving energy efficiency.
It also includes an employment target whereby 75% of the population aged 20-64 will be employed by 2020.
In its quantitative analysis it employs the E3ME macro-econometric model to determine the effects of transition on the demand for labour by industry. The industry projections are then converted into demand for labour by skill (as represented by occupation and qualification) using employment shares taken from the earlier forecasts.
The implementation of a demand-side policy package like the 2020 Strategy introduces structural pressures into the markets for labour in the sense that it creates tendencies towards excess demands for, or supplies of, skills. If the pressures are not accommodated by supply-side policies (such as training programs), they will tend to emerge as changes in relative wage rates and/or unemployment rates. One purpose of Cedefop's analysis is to reveal the nature of the structural pressures the Strategy releases, and hence kind of training programs that are required. However, its scope is limited because it abstracts from constraints imposed by the available supplies of labour.
In this paper a CGE-style labour market extension MLME to the E3ME model is used to investigate how labour supply considerations affect the skill requirements of the Strategy. Specifically, it investigates the proclivity of the Strategy to produce mismatches between the demand for, and supply of, labour differentiated by occupation. Results are reported and compared for 26 EU countries.

JEL classification: C53, C58, D58, E27, J23, O41

Keywords: Forecasting, CGE models, hybrid models, labour markets, structural imbalances

Working Paper Number G-259 can be downloaded in PDF format. To print this you will need the Adobe Acrobat Reader.

Go to working papers page