In recent months, there has been a reduction in total job openings in Luxembourg, coupled with an increase in total active job seekers and unemployment benefit claims. These factors, along with results from business surveys, suggest that a difficult job market in certain sectors may be looming. Photo: Shutterstock

In recent months, there has been a reduction in total job openings in Luxembourg, coupled with an increase in total active job seekers and unemployment benefit claims. These factors, along with results from business surveys, suggest that a difficult job market in certain sectors may be looming. Photo: Shutterstock

As of February 2023, there has been a 15% increase in registered job seekers at the employment bureau Adem, amounting to over 2,000 additional people, as compared to the end of June 2022. Meanwhile, job vacancies decreased by approximately 18%, which amounts to 2,000 fewer vacancies in the same period.

According to Statec’s monthly business opinion survey in retail trade, the employment outlook for the “next three months” has been negative for the past 11 months. Additionally, the Fedil business federation has in anticipated new hires within the Luxembourg industrial sector for the next two years.

The data on unemployment and job vacancies indicates that the ratio of available job vacancies in Luxembourg to the number of unemployed individuals is decreasing. Furthermore, the number of individuals who are receiving full unemployment benefits has increased from 7,526 in June 2022 to 8,789 in February 2023, which is a 17% rise. This represents an 8% increase compared to the same period in February 2022, indicating a loss of jobs for previously employed individuals.

“Indeed, the ratio between open job vacancies and available jobseekers has decreased in the past months, but is still significantly higher than historical averages,” , head of data, statistics and labour market studies at Adem, told Delano. “Employers in Luxembourg still experience strong talent shortages. It is important to note that, given that not all open job vacancies are reported to Adem (despite the legal requirement), the calculated ratio does not provide a full picture of the labour market situation.” Between June 2022 and February 2023, there was a 1% increase in domestic employment, which translates to 5,500 additional jobs in absolute numbers.

Interest rate hikes

Interestingly, this trend has occurred at the same time as the European Central Bank’s interest rate is increasing. The ECB’s key banking rates went up four times in a row in 2022 and twice already this year--that is a total of six rate hikes in just nine months’ time-- “to ensure the timely return of inflation to the 2% medium-term target”. Despite these efforts, core inflation remains stubbornly high, sparking concerns that the economy and job market could be at risk of coming under further stress.

Although the ECB’s rate hikes have led to higher borrowing costs for businesses, it is not the sole reason for the decline in job vacancies. The combination of supply chain constraints and two consecutive wage indexations, one that took place in February and another planned for April, is expected to add further strain to the balance sheets of most business economy companies. As a result, these companies may be more hesitant to make new hires.

From a macroeconomic perspective, during the period spanning from 2014 to June 2022, households increased their spending on consumables while also taking out mortgages and loans. This was mainly because the returns on their savings were either zero or close to zero. However, the situation has significantly changed since then, and loan repayments have become considerably more expensive. This shift in circumstances is likely to result in a reduction in consumer demand and, consequently, to have an adverse impact on overall employment.

More specifically, despite monthly improvements, the in February, which measures the level of optimism or pessimism among consumers about the economy, has remained significantly below its long-term average.

Reflecting on the recent drop in job vacancies in Luxembourg, , the director of Adem, stated on 20 February that although not all sectors are affected, the employment market tends to respond to changes in the economy with a delay of a few months. She further explained that employers in some sectors are , leading to the non-renewal of fixed-term contracts.

No clear link

Firm data is patchy, however. “Although interest rates and the labour market are certainly linked, there is to our knowledge no study measuring the impact of rising interest rates on unemployment levels for Luxembourg,” said Baer. “Our data… does not show a clear relationship. We can therefore not comment on the link between those two factors.”

“We are, however, aware that we need to keep monitoring closely the evolution of job vacancies and jobseekers, given the current economic context,” she cautioned.

Indeed, only time will tell, but the current trends indicate that certain economic sectors may face a tight job market in coming months.