the importance of high skill jobs for european regions

The importance of high-skill jobs for European regions

By Marieke Vandeweyer.

High-skilled jobs as an important driver of overall employment growth in the EU

In 2011 about 10% of overall employment in the European Union (EU-27) was in high-skill jobs, defined as all jobs in Science, Technology, Engineering and Mathematics (STEM) occupations plus all non-STEM jobs in high-tech sectors. This share has been rising steadily over the last decade, as the employment growth in these high-skill jobs strongly outpaced overall employment growth. While total employment grew by 8% in the period 2000-2011, high-skill employment grew by almost 20% during the same period. As such, high-skill job creation has contributed significantly to overall job creation in the European economy.

Investing in high-skilled jobs is not only beneficial for highly-educated workers

Whereas high-skill jobs are generally filled by highly educated workers, the impact of high-skill job creation goes beyond the highly educated workforce. Indeed, a paper I co-authored with Maarten Goos and Joep Konings – “Employment growth in Europe: The roles of innovation, local job multipliers and institutions” – shows that each newly created high-skill job in a region leads to four additional jobs in non-high-skill occupations or sectors in the same region. This so-called regional multiplier exists because high-skilled workers will increase their demand for local services such as household services, healthcare, childcare, restaurants, schools, shops or sporting and cultural activities increases. Hence, while high-skill job creation directly benefits high-skilled workers, it indirectly benefits lower-skilled workers through increased demand for local services. This is consistent with the observed polarization of the labour market in developed countries in the past decades, with growing employment shares at the top and bottom of the skill distribution.

European regions are very unequal in terms of high-skill intensity, but they are converging slowly

The overall European Union high-skill job intensity of 10% masks big differences between the European countries and regions. The map in figure 1 shows that high-skill employment is lowest in the Eastern and Southern European countries, with the exception of a few high-skill “hubs” like Budapest (Hungary) and Bucharest (Romania). The share of high-skill jobs is high in most regions of Sweden, Denmark, Finland and Germany. While this map clearly illustrates the huge regional disparities within and between the European Union member states, the existence of the regional high-skill multiplier implies that regions are converging towards a common steady-state high-skill share (as each high-skill job leads to four additional non-high-skill jobs, the steady state high-skill job share equals 1/(1+4)=20%). This process of regional convergence was indeed confirmed by the paper “Employment growth in Europe: The roles of innovation, local job multipliers and institutions” for the period 2000-2011. This implies that high-skill employment growth has been strongest in regions with low high-skill job intensity. However, regional convergence is found to be very slow, and it would take more than 60 years to close half of the gap between the European regions.

Figure 1: High-skill job intensity per NUTS-2 region (in %, 2011)

Blog18.1Source: Goos, M., Konings, J. and Vandeweyer, M. (2015). “Employment growth in Europe: The roles of innovation, local job multipliers and institutions”, Tjalling C. Koopmans Research Institute Discussion Paper, No. 15-10.

Why is regional convergence so slow?

That fact that high-skill job intensity is converging at a glacial pace in the European Union can be linked to several regional or country-level characteristics. First, as high-skill jobs are highly concentrated in innovative activities, high-skill employment growth can be stimulated by investments in R&D. Indeed, countries in which governments spend a relatively larger share of GDP on R&D investments, have higher high-skill shares, see panel A of figure 1. Moreover, some countries appear to be spending their R&D budget less efficiently than others, as countries with the same R&D share have widely different high-skill shares.  Second, to have a large share of high-skill jobs, regions need to have a sufficiently large pool of educated workers. Panel B of Figure 2 confirms that high-skill employment and the share of tertiary educated workers are strongly correlated at the regional level. The correlation is even stronger when looking at the share of adults with high literacy levels from the PIAAC survey (at the country-level). Finally, high-skill jobs are more likely to be created in regions that foster entrepreneurship, as innovation and entrepreneurial activity are strongly linked. Panel C of figure 3 shows that the lower the practical barriers to entrepreneurship, measured as ease of access to finance, the higher the share of high-skill employment. Aside from practical aspects, entrepreneurship can also be low because of the absence or weakness of social networks. This positive relationship between networks, measured as active participation in voluntary organisations, and high-skill job intensity is illustrated for a selection of European Union member states in Panel D of figure 2. A similar relationship is found between high-skill intensity and trust in institutions, which is another important aspect of social capital.

As such, governments can help regions with lagging high-skill employment to catch up with the leading European regions by directly investing in R&D and skills, but also be supporting entrepreneurship through networking initiatives and easier access to financial market funds.

Figure 2: The link between high-skill job intensity and R&D, skills and entrepreneurship

Blog18.2Source: Goos, M., Konings, J. and Vandeweyer, M. (2015). “Employment growth in Europe: The roles of innovation, local job multipliers and institutions”, Tjalling C. Koopmans Research Institute Discussion Paper, No. 15-10.