Eastern Europe's Thriving Talent Market

Modern economies are increasingly driven by talent supply, and talent is often associated with the level of formal education degrees. Yet, across the Atlantic there are large differences in the unemployment rates of highly educated people. Understanding these patterns is relevant, because it shows which countries are likely to thrive as the talent magnets of the future.

Having a higher education degree is often associated with a lower risk of unemployment, but the risk is not zero. Those with higher education can still face unemployment due to lack of job creation, because their education is not of good quality or not suited to the needs of the labor market, or because they are between jobs. It could also be that the unemployment pay is so good relative to the after tax income, that incentives are small to get a job quickly after losing the former position.

In the USA for example merely 2.4 percent of those with an advanced education are unemployed. Compared to Europe in general, this is a good outcome. The variation in Europe is, however, significant. While in Poland merely 1.3 percent of those with a higher education degree are unemployed, the same rate is 8.2 percent in Greece.

The lowest unemployment rates of talents are found in Poland, Romania, Hungary, Slovakia and Slovenia. These countries have unemployment levels of 2 percent or less amongst the highly educated. A low unemployment of talents signals that the education model is functioning well, providing relevant knowledge of high quality. It also signals that the economic system is functioning well, providing dynamic job creation.

It is not a surprise that five Eastern European nations are at the top. Much of the growth of brain business jobs is happening in the capital regions of the Eastern European nations. These countries are characterized by growing talent pools, relatively low taxes and business friendly policies.

Malta, the EU member state that keeps having the strongest growth rate due to low taxes and business friendly policies, has just over 2 percent unemployment rate for those with advanced degrees. Germany, Norway, Iceland and the USA are also amongst the group of nations where the unemployment rate is below 2.5 percent.

The UK and the Netherlands, with moderate taxes and relatively business friendly policies, have an unemployment rate of nearly 3 percent. Ireland, Switzerland, Latvia and Estonia have promising free market based economic models, and relatively low taxes, yet despite this an unemployment level amongst the highly educated of around 3 percent or more.

Denmark and Sweden have just under 4 percent unemployment rate, these knowledge economies of Europe stagnate though due to high taxes and generous welfare states. High taxes not only crowd out talents, investments, entrepreneurs and businesses, but also lead to lower incentives for pupils, parents and teachers to pursue high standards in education. Why work with grit in the school system if high taxes remove much of the incentives. This attitude leads to less grit in the school system, which translates to lack of grit as young adults, and a correspondingly higher risk of unemployment. Grit in education is the key to why Estonia has surpassed Sweden in education results according to the international PISA test, as well as in share of the young population who are engineers or researchers.

Finland and Canada have around 4 percent unemployment rate among those with a higher education. These high rates represent a significant mismatch in the economy, lack of entrepreneurial activity and investments. Individuals who have higher degrees expect typically to be able to avoid unemployment, and those countries where this group struggles to find jobs can experience significant talent migration abroad. They may also experience difficulty attracting foreign talents.

Spain and Greece have the worst situation, with unemployment levels of around 8 percent for those with advanced degrees. Cyprus, despite otherwise being a successful entrepreneurial country, has 5.5 percent unemployment rate. Portugal with a 4.6 percent rate does better, but not good. In the Mediterranean region, Malta is unique in having low unemployment amongst those with advanced degrees. Thanks to low taxes and business friendly policies, Malta is the EU growth leader.

Economic dynamism is a key driving force for job creation, because it is often young firms that create new job opportunities. The more vital economy a country has, the more likely are talents to be able to find new jobs.

Since 2001, some countries have experienced a rise in unemployment of those with advanced degrees, while other nations have improved ability in the labor market for talent absorption. The countries characterized by the strongest reductions of unemployment rates are Croatia, Estonia, Poland, Lithuania, Slovakia, Latvia, followed by Romania.

While Eastern European nations top the league of improving their talent markets, also Germany Italy, Canada and Malta are moving in the right direction. In the USA, the unemployment rate of the highly educated has been reduced marginally by 0.2 percentage points since 2001.

Slight increases of the unemployment rates have occurred in France, Greece, Hungary, Denmark and the UK. The Netherlands, Ireland, Switzerland, Sweden and Austria have experienced more profound increases in unemployment rate of those with higher education. Cyprus, Luxembourg and Portugal have had significant increases in the risk of unemployment for those with higher degrees.

Overall, we can see that the USA has a better talent market than most of Europe, yet Europe has considerable variation. Numerous European economies, particularly in Eastern Europe, are doing better in terms of outcome as well as long-term trends. Canada is not doing as well as the USA, signaling that it is not quite as strong of a talent magnet.

Talents are likely to become increasingly mobile across the borders, and those countries with low unemployment levels amongst the highly educated are likely to continue growing with talents. Therefore, the unemployment levels of those with advanced degrees, as well as the long-term direction of change of this metric, can provide important insights into future economic progress.

As it stands, those with higher education degrees often will find higher wages, as well as lower risk of unemployment, in the USA. Yet, it is important to continue pushing for improving the situation instead of becoming compliant. Even the USA can learn from the Eastern European countries, many of which have significantly reduced the unemployment level of the highly educated since the beginning of the millennium.

Institutional competition suggests that the variation in Europe might decrease over time, as the countries which are struggling learn from those who are doing better. Those countries which have high or rising unemployment rates amongst talents risk becoming the losers in the talent war. The corresponding brain drain creates strong incentives for economic reform. The talent job market is also in this regard an important predictor of the future.

Nima Sanandaji, Director, European Centre for Entrepreneurship and Policy Reform (ECEPR)

Photo: Warsaw downtown, in Public Domain.