If Europe wants to grow without replaying the last inflation drama, it will need more hours, more matches, and fewer reasons for people to step out of the labour market entirely.
There’s a comforting story about Europe right now. Unemployment has edged down again. The employment rate has inched higher. Across the bloc, real wages are starting to claw back lost ground. You can feel the relief from Brussels to Bratislava: the worst of the inflation shock is behind us; the labour market has held.
Eurostat’s latest labour-market flow data—the nerdy plumbing behind the headline rates—doesn’t quite puncture that story. But it puts some gravel in the gears. Between spring and early summer, 3.1 million jobless Europeans found work. That’s 23.8% of the unemployed in the previous quarter. A brisk current, but not a flood. 6.8 million people—51.9%—stayed jobless. Another 3.2 million simply left the fray, exiting the labour force altogether.
Set that alongside the durability of employment. Nearly 97% of people in work stayed in work over the quarter. Only 1.2% tipped into unemployment. And yet 2.2%—more people—stepped out of the labour market entirely. It’s a quiet statistic with a loud implication: the EU doesn’t leak mainly into unemployment; it leaks into inactivity. Retirements, study, long-term health, childcare and eldercare burdens, or just the calculation that there’s no viable job at the going wage and hours—these are the exits you don’t see in the monthly unemployment tickers.
If you listen closely, the labour market is telling us two truths at once. First, the engine is still on. The EU employment rate for prime-age workers nudged up to 76.2% in Q2. Second, we’re not squeezing more out of it. “Labour-market slack”—Eurostat’s broader measure that counts the under-employed and the available-but-not-job-searching—stayed put at 10.9%. Tight, yes. Tighter, no.
The flows from outside the labour force sharpen the picture. Eurostat’s social posts reveal 4.3 million inactive people moved into jobs over the quarter, while 4.0 million slid into unemployment. That two-way movement—from the sofa to the shop floor, from childcare to job-search, and sometimes back again—suggests activation is working for some, failing for others. The reservoir is large; the channels are uneven.
So what’s jamming the match? Economists reach for the Beveridge curve, which plots job vacancies against unemployment. If vacancies stay high but unemployment refuses to fall further, something in the matching function is off—skills on offer don’t match skills in demand; jobs are created where people aren’t; or institutions slow the handshake. Eurostat’s micro flows don’t show vacancies directly, but they rhyme with that story: steady hiring from unemployment rather than a step-up; a persistent core who don’t cross into work quarter to quarter; and notable leakages into inactivity.
Then there’s job quality. When more people leave work for inactivity than for unemployment, it hints at something other than a simple cyclical wobble. Strained public services and under-built care infrastructure push people—particularly women—out of paid work. Compressed margins in low-wage services make it harder to offer the hours and predictability that caregivers need. For older workers, exit may be about health—and the difficulty of retraining to meet a labour market that keeps walking away from mid-skill roles. None of that shows up cleanly in an unemployment rate. It shows up in the flows.
What should policymakers do with this? Start with humility: Europe’s labour market is resilient. July’s unemployment rate dipped to 5.9% across the EU; the euro area’s sat at 6.2%. The doomsday talk from late 2023 looks over-spun. But the structure of churn matters now more than the level of unemployment. If we want the unemployed to become the employed at a faster clip, and for those at the margins to stay attached, the usual diet of vacancy fairs and hiring bonuses won’t cut it. We need the boring, expensive stuff:
- Childcare capacity and eldercare coverage to raise participation and reduce forced exits to inactivity;
- Serious adult-learning tied to real vacancy pipelines, not generic certificates;
- Transport links and housing policy so workers can actually reach the jobs on offer;
- Occupational health and rehabilitation to keep older and long-term-sick workers attached;
- Targeted retention (flexible scheduling, mid-career redesign) so employment-to-inactivity flows shrink.
This is consistent with the wider international picture: the OECD sees labour markets “resilient but easing,” with shortages abating and real wages finally turning up. That buys time. It doesn’t buy transformation.
The politics won’t make this easy. Investment in care infrastructure is slow and unflashy; adult-skills programmes can be captured by providers that measure completions, not placements. But if you’re looking at the Eurostat chart and wondering where the next gains come from, the answer is hiding in that 2.2% flow from work to inactivity—and in the two-way sluice between inactivity and unemployment. Reduce those leakages and stickiness, and the unemployment-to-employment flow rises almost automatically.
For now, the macro story will stay benign: unemployment low, employment high, slack flat. It’s the micro currents that deserve the front page. Because if Europe wants to grow without replaying the last inflation drama, it will need more hours, more matches, and fewer reasons for people to step out of the labour market entirely. Those are policy choices, not fate.