Figures show that more than a quarter (27.7%) of the EU working-age population are economically inactive, 10.4% of the labour force is unemployed and 5.8% is underemployed. The IPPR stresses that this, and other indicators of economic underperformance such as low productivity, will become entrenched unless governments act.

IPPR chief economist Catherine Colebrook said: “Europe has struggled to exit recession in the wake of the global financial crisis and this is reflected in its labour market performance in recent years. European economies need to create more high-productivity, well-paid jobs and to ensure that its workforce has the skills employers will be demanding in future.”

Its report, European Jobs and skills: A comprehensive review 2015, has been prepared in conjunction with banking and financial services firm JP Morgan Chase and the Chartered Institute of Personnel and Development.

Globalisation and rapid technological change were changing the nature of the skills required and threatened to erode existing skills or make them redundant. Any gap between the skills employers need and those possessed by would-be workers could turn cyclical unemployment into a structural, permanent issue.

While southern European countries are most at risk, even in economies like the UK, where employment is strong and real wages are rising, productivity remains 17% lower than it would have been had the pre-crisis trend in productivity growth continued.

The report said this could be due to decreases in in-work training – which has fallen by 4% ‒ and cuts to further education and adult skills.

It calls on all European policymakers to prevent the long-term erosion of skills by ensuring better in-work training and lifelong learning, investments towards a high-skilled workforce and more effective utilisation of its skills and a range of other productivity boosting measures.

This will allow workers to progress and boost firms’ productivity and profits, paving the way for successful, high-productivity and high-pay economies, the report said.

It suggests European countries look to emulate Germany, whose economy is characterised by high-productivity rates thanks to considerable investments in research and development (2.9% of GDP in 2013 ‒ almost a whole percentage point above the EU average of 2%).

The report highlights three recommendations that should be a priority for governments looking to achieve similar gains in productivity:

• Tackle youth unemployment by supporting young people in their transitions from education to work through better careers advice, more integrated work experience opportunities and greater employer involvement in the education system.
• Upgrade skills and boost productivity with better in-work training and lifelong learning.
• Match training to skills needed by ensuring existing workers have the support to continually upgrade their skills, employers have strong incentives to invest in their workforces and those whose skills have become obsolete have opportunities for retraining and reskilling.

Chauncy Lennon, head of workforce initiatives at JP Morgan Chase, said: “Too often people are unable to compete for work because their qualifications and skills do not match what’s required for available jobs.”

Finding solutions that equip people with training and the skills that employers need will “boost skill levels, progression and consequently wages to ensure the economic recovery is widely shared,” he said.