Luxembourg Employment Up 2% in 2020; Well-Positioned in Europe

The national statistical institute, STATEC, has published a report on the evolution of employment in Luxembourg and across Europe in 2020.

Unlike almost all other European countries, employment increased in Luxembourg last year (up 2% compared to 2019). According to STATEC, many factors contributed to this good performance, particularly a better resistance of activity and a high recourse to teleworking. 

The labour market was strongly affected in 2020 by the COVID-19 pandemic and related measures. At the same time, it benefited from equally exceptional support measures. Despite the global impact of the pandemic, employment has not been hit in the same way in all countries. At the level of the European Union (EU), employment experienced a contraction of 1.5%, while it increased by 2% in Luxembourg.

Decrease in hours worked in connection with activity

Given the employment support measures in 2020, including in particular short-time work, the evolution of employment did not reflect the real extent of the disruption caused by COVID-19. According to STATEC, the impact of the pandemic on the labour market is more closely traced by the evolution of hours worked, which are less influenced by support measures.

The number of hours worked fell in all EU countries, including Luxembourg, in 2020, with large differences between countries: from - 0.7% in Poland to - 11.2% in Greece. With a decrease of 3.3%, Luxembourg was among the first-third of countries where hours decreased the least. Mediterranean countries posted the most significant declines, having been hit hard by the pandemic, both in terms of health and economics.

Hours worked are linked to the evolution of economic activity, which can be expressed by gross value added (GVA). In Luxembourg, GVA fell by 0.7%, making it the second best EU country, and showed a much smaller reduction in activity than the EU (down 6.1%). While the evolution of hours and GVA is very similar in the majority of European countries, GVA in Luxembourg has fallen less than hours.

According to the report, the main reason for this divergence is exceptional growth in the information and communication branch (annual growth of 17%) and, to a lesser extent, differences in the weight of certain branches in the total hours respectively of the GVA (e.g. trade, transport and hospitality represents 15% of GVA but 23% of hours worked). Luxembourg is also distinguished by the fact that, unlike the rest of the EU, there are branches that contribute positively to the growth of hours worked and of GVA, in particular public administration, education, health and social action.

Activity favoured by less strict restrictions?

The restrictions put in place to reduce the spread of the virus had a strong negative impact on business. A "stringency index" developed by the University of Oxford measures the severity of restrictions in a comparable way across countries. At the start of the pandemic, this indicator showed a strong negative correlation with the GVA, but which weakened during 2020, probably due to a better adaptation to measures by businesses and households as well as more targeted measures. The effect of restrictions on activity varied depending on the branch, with a high elasticity of the GVA to the restriction index for the trade, transport and hospitality branch and that of arts and other services, but almost zero for the financial sector. Activity and hours worked in Luxembourg have benefited from less stringent measures than in other European countries (in the euro zone, only Finland and the Baltic countries had a lower annual average on the stringency index).

Positive employment trend in Luxembourg 

In 2020, Luxembourg was one of only three European countries with a positive annual change in employment. This does not mean, however, that Luxembourg employment was unaffected by the crisis. In the second quarter, employment fell  by 0.5% (over one quarter, seasonally adjusted), although it resumed an upward trajectory thereafter. Among the countries for which seasonally adjusted employment data are available, Luxembourg is the only one to have exceeded the employment level of the first quarter of 2020 in the third quarter.

Luxembourg's employment growth did not come from a single isolated branch, but is registered as a phenomenon relatively generalised to the whole of the economy. In only two out of ten branches, the annual change in employment was negative in Luxembourg (agriculture and industry). In the EU as a whole, employment fell in seven branches. The largest increases in Luxembourg concerned the public administration, education, health and social action branch, real estate activities and construction. In these branches, as in most others, Luxembourg was among the countries with the highest increases in the whole of the EU.

Differences with the EU become even more visible when one considers contributions to employment growth. The biggest differences appear in public administration, education, health and social work on the one hand and trade, transport and hospitality on the other.

Already before the pandemic, the Luxembourg labour market was one of the most dynamic in Europe, with an average annual growth of 3.4% between 2016 and 2019, compared to 1.3% at the European level. Considering the difference in employment development in 2020 with previous years, Luxembourg still fared well, in second place overall alongside Belgium, and behind Poland.

Disconnect between hours worked and employment in 2020

Employment and hours worked fell in the majority of European countries in 2020, with hours falling (much) more pronounced than that of employment. While in some countries the variations remained quite similar (for example, in Finland the hours worked decreased by 2% and employment by 1.5%), in others there are considerable differences (for example, in France with hours worked down 8.2% and employment down 1.1%). Consequently, the countries with the largest decreases in hours worked were not necessarily those with the largest employment reductions, potentially indicating diverging employment support.

Teleworking

Beyond the probably divergent need for short-time work, various structural factors can have an impact on its use and, in turn, on employment. Faced with social distancing measures and mandatory workplace closures, teleworking was strongly encouraged in 2020. Last year, the proportion of residents teleworking increased in all EU countries, but levels varied widely between countries. The proportion of residents who never teleworked ranged from 97% in Bulgaria to 52% in Luxembourg, with a proportion of 79% in Germany, 71% in France and 66% in Belgium. Luxembourg thus had the highest proportion of residents sometimes or normally working remotely in 2020.

Temporary contracts more exposed to job losses

Another factor was the proportion of people with temporary contracts. In Luxembourg, the number of residents on fixed-term contracts was 3.9% higher in the fourth quarter of 2020 than a year earlier, while the number of residents on fixed-term contracts over the same period fell by 5.3%. According to STATEC, this is due in particular to the fact that temporary contracts are generally more widespread in sectors severely affected by the pandemic, for example in commerce, transport and hospitality. Other reasons include the fact that in many countries people with temporary contracts were not entitled to short-time work. In addition, fixed-term contracts ending during the pandemic risked not being renewed. As a result, a higher proportion of people on temporary contracts would potentially lead to fewer people on short-time work, and therefore likely lead to more job losses. All in all, as well as in the branches most concerned, the proportion of residents with temporary contracts was lower in Luxembourg than in neighbouring countries (particularly in the hotel and catering industry), which contributed to reducing the number of vulnerable jobs in Luxembourg.

A favourable structure of the economy

Countries with a high share of employment in industries such as commerce, transport and hospitality, which were severely affected by the restrictions and had few teleworking opportunities, were likely to be more strongly impacted. The Luxembourg economic structure, with a relatively high share of employment in information and communication, financial and insurance activities or construction, thus contributed to a better resilience of the workforce. At the same time, the structure of the economy partly determines the possibilities for teleworking and influences the share of people on short-time work. At the level of each branch, the development of employment in Luxembourg has also been more favourable than in the EU.

Conclusions

The report concluded that many factors contributed to the more favourable development of employment in Luxembourg than in other European countries in 2020, namely: activity held up better, benefiting in particular from less strict health restrictions; a traditionally more dynamic labour market (with stronger employment growth); fewer vulnerable jobs, owing to a high potential for teleworking and fewer temporary contracts; an economic structure that favours the aforementioned factors and the growth of total employment. STATEC added that support measures such as short-time work helped to keep people in employment, but the varying extent of this support was insufficient to explain the differences in employment development between Luxembourg and other European countries.