Employment and labour markets

EU labour markets resilient despite energy-cost related restructuring

Eurofound’s European Restructuring Monitor database reveals the impact of the energy crisis on employment in the EU.

Following Russia’s invasion of Ukraine in February 2022, energy prices have hit record highs. The European Commission imposed sanctions and limitations on the import of oil and gas from Russia, which has reacted by reneging on supply commitments to many Member States. Compared to other countries, market disruption has been especially acute in the EU, given the bloc’s overdependence on Russian energy supply. In May 2022, the Commission launched the REPowerEU Plan, a plan to phase out the EU’s dependence on Russian fossil fuels and to diversify energy suppliers while promoting energy-saving measures and speeding up the green transition. Before the war, Russian gas accounted for 40% of European gas imports; this figure has since dropped to 9%, according to European Commission President von der Leyen in her 2022 State of the Union Address.

Retail electricity prices have increased by almost 50% year-on-year from July 2021 in the EU. This has not only affected households but businesses as well, raising costs and threatening production and employment levels. Many companies have decided to temporarily suspend production while keeping their workforce employed, but many others have had to implement restructuring plans. The impact of the energy crisis on employment in the EU is apparent from several cases recorded recently by Eurofound’s European Restructuring Monitor (ERM) database.

Job cuts widespread in energy-intensive manufacturing

Many companies in the basic metals manufacturing sector have announced job cuts. Aluminium production, which is highly energy-intensive, was among the first subsectors to record large-scale restructurings.

Alum Tulcea, a factory in Romania that produces calcined alumina, announced in June the shutdown of production in Tulcea from August 2022, with the loss of 441 out of 700 jobs. Increasing electricity and gas prices have made it cheaper to import alumina than to produce it.

This was followed in July by an announcement from Slovalco, the only aluminium producer in Slovakia, that it would dismiss 300 of its 450 employees based in Žiar nad Hronom, due to rising electricity prices, which have made production unprofitable. Subsequently in October, the company announced it was delaying the announced layoffs until the end of 2022 to ensure the safe decommissioning of furnaces and cleaning of the premises.

The Dutch aluminium producer Aldel plans to let go nearly all of its 200 employees in its Delfzijl plant, near Groningen, by the end of 2022. The company said that it was operating a controlled shutdown, retaining only 13 employees. It indicated its intention to restart usual production in the future, but it would need either substantial support from the government or substantial declines in gas prices to do so. Since October 2021, the company has produced only one-third of what it would have usually produced.

In Finland, the steel and chrome manufacturer Outokumpu announced in October the dismissal of 14% of its workforce working in its ferrochrome operations, because high energy prices prevented the company from restarting one of its three ferrochrome furnaces after a maintenance break.

The energy crisis is also hitting hard plastic, rubber and other non-metallic mineral products manufacturing. In Belgium, the rubber producer Arlanxeo in June announced plans to make 70 of its 345 employees at Zwijndrecht, near Antwerp, redundant.

In Czechia, the plastics company Plastic Parts & Technology, after two years of financial instability, went bankrupt in September, again mainly due to the dramatic increase in energy prices. All of its 110 employees are to lose their jobs. In Poland, the ceramic tiles manufacturer Cerrad announced in September that it would dismiss around 350 employees because it had to shut down three out of seven production lines. Management reported energy cost rises of 1,500% since January 2021. Another ceramic tiles producer, the Spanish company Halcón, announced in October a redundancy plan for 185 permanent employees in the province of Castellón; 550 temporary positions will also be cut.

Employment in manufacture of chemicals and chemical products is suffering too. Fortischem, one of the largest chemical companies in Slovakia, announced in September that it would dismiss 362 employees. In Romania, Chimcomplex, a chemicals producer, announced it would cut 396 jobs by the end of 2022 in order to optimise operational costs and the use of human and financial resources.

Hotel closures in Estonia and Italy

Energy-intensive manufacturing is not the only sector suffering as a result of increased energy costs. In the services sector, the accommodation subsector has also been hit. In Estonia, Noorus SPA Hotel, located in the resort town of Narva-Jõesuu, announced its closure in July and the dismissal of all its 183 employees due to unsustainable increases in the cost of heating the building. For similar reasons, Caroli Hotels in Italy announced in October the closure of two hotels in Puglia; 275 people are to lose their jobs.

Labour market resilience

These are just a few examples of the disruption the energy crisis is inflicting in several sectors across the EU. With no sign of an end to the war in Ukraine, there will be further cases of large-scale restructuring during the winter.

The broader labour market context remains more positive, however, and underlines the resilience of the Union’s productive model even when confronted with the unanticipated shock of a war on its border. The aggregate EU unemployment rate has edged lower since the onset of the war in February 2022 and is currently at its lowest in over three decades (6% in October 2022). This is reflected in ERM restructuring cases throughout 2022 where, despite the war, total job gains in cases of job creation have outnumbered job losses in cases of job destruction, across all broad sectors.

Figure: Total number of large-scale restructuring announcements from the start of the war in Ukraine to November 2022

Source: ERM

For those sectors that are nonetheless suffering, EU and national policymakers have responded to the energy crisis with packages to compensate households and businesses for increasing energy costs. One potential source of relief is the agreement reached by the European Council in October 2022 on containing energy prices in the EU. Council President Charles Michel reported that the joint effort of the EU leaders was designed to achieve several goals: to bring energy prices for households and businesses down across the EU (which could translate into a temporary EU framework to cap the price of gas in electricity generation), to guarantee the safety of supply and to continue the introduction of measures for energy saving. [1]

We will see in the coming months whether the agreements reached by the Council will cushion the negative consequences of the energy crisis on industry and stem the flow of large-scale restructurings in the most energy-intensive sectors.

Image © galitsin/Adobe Stock

Part of the series

  • European Restructuring Monitor

    The European Restructuring Monitor (ERM) has reported on the employment impact of large-scale business restructuring since 2002. This publication series include the ERM reports, as well as blogs, articles and working papers on restructuring-related events in the EU27 and Norway.

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