Help wanted: the drivers and implications of labour shortages

Martin Groiss and David Sondermann

Applied Economics, 2025, vol. 57, issue 33, 4882-4896

Abstract: Labour shortages have become prevalent across advanced economies. Yet, little is known about which firms are more likely to face them or about the impact they have on the labour market. We create a firm-level dataset spanning 28 EU countries, 283 regions and 18 sectors, contributing to closing this gap. We find that structural factors play the dominant role. Firms in regions with limited labour supply as well as innovative and fast-growing firms are particularly prone to face labour shortages. Moreover, shortages tend to aggravate at business cycle peaks. In a second stage, we empirically determine the impact of labour shortages on wages and hiring. Firms with higher shortages pay a wage growth premium to keep and attract workers, increasingly so when they face excess demand. At the same time, these are the firms that hire less than the average.

Date: 2025
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DOI: 10.1080/00036846.2024.2364102

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