Brain Drain in Europe and Its Implications for Dividend Policy
A global “talent war” is raging, and multinational companies are making significant investments to attract and retain workers. Wages have become a hot topic in the corporate world, as a result. Rising wages and labour dynamics, on the whole, have the power to impact stock prices, bottom lines, and ultimately dividend pay-outs. An index by Goldman Sachs shows that US stocks most exposed to labour costs declined by 4% between May and October 2021, even as the broader stock market rose 7%. But the problem of accessing is talent is more apparent in Europe than anywhere else in the world.
EU’s Brain Drain Problem
This talent war is essential to maximise global economic competitiveness. But, it is triggering a phenomenon called “Brain Drain” in many countries, especially in Europe. Skilled graduates emigrating to look for better opportunities are no longer limited to developing countries. EU nations are battling this problem, which could lead to huge economic consequences in many regions, particularly the Balkans. Almost 50% of the Bosnia and Herzegovinian population emigrated in 2019. In Albania, it was 40%. More than one-third of university graduates in these countries, along with North Macedonia, were living abroad in 2017.
Companies need access to skilled workers who are also high performers to flourish. Demand for technology workers has been on the rise across the EU. Time to fill IT roles increased by 44% in 2022, and pay rates increased 12%. While the problem is a global one, in Europe an increasingly aging population adds to the concerns. Over one-fifth of the EU population was over 65 in 2021, and the share of people above 80 years will increase 2.5x between 2021 and 2100.
Forces Driving Emigration of Skilled Workers in the EU
Several reasons are driving highly skilled labour to emigrate to other countries, not the least of which are political turmoil, low employment rates and economic decline.
Authoritarian or Right-Wing Governments are Driving Forces
In many countries with authoritarian and right-wing governments, political disillusion is pushing young professionals to seek work elsewhere. Hungary’s nationalist Prime Minister, Viktor Orban, came to power for a 4th term in April 2022. Apart from the fact that the elections were largely considered rigged, PM Orban’s regime has been associated with economic turmoil.
As per OLAF, the EU fraud investigation agency, the country has huge records of fraudulent use of EU funds. The state media has been turned into a propaganda machine, with businesses favoured by the Fidesz party gaining advantages. The central bank of the country predicted economic growth at the slowest rate in any election year since Orban came to power in 2010, and inflation is at a 15-year high.
It’s no surprise, therefore, that many high-skilled urbanites are leaving the country. Since 2014, over 400,000 highly skilled and educated Hungarians have emigrated to countries like Germany, the UK and Austria, seeking better prospects. This has led to huge problems for companies and investors in Hungary. For example, in 2015, German technical services provider TUV Rheinland said that it took more than 2 years to fill a specialised auditing position for an engineer in Hungary. Companies like Deloitte Consulting and Audi devoted special campaigns to find and hone talent, the latter funded an entire department at a university in Gyor to train engineers.
In Poland, an ultra-right government pushed archaic anti-abortion laws in 2021. Female brain drain in Poland has been a subject of discussion for years. While Poland had the lowest gender pay gap in 2017-18, its poor reproductive rights and policies have been a cause of low female participation rates for years. Now, women are being driven abroad for pregnancy terminations, and this will push qualified workers and families out of the country too.
Brexit Creating Regional Imbalances in Labour
Apart from right-wing governments, Brexit has been a major contributor to labour migration. According to a 2020 study, compared to the pre-Brexit era, migration of skilled labour from the UK to the EU increased 30%. UK citizens who chose to obtain EU member state passports increased 2,000% in Germany.
Foreign applicants to UK universities declined 5% between 2020 and 2021. Research suggests that staff shortages in many key sectors in the UK, including hospitality and logistics, will remain for the long term. There was also a reduction of 6% in investment in the 2 years after the 2016 referendum.
Creation of Knowledge-Intensive Jobs
While there are plenty of “push factors,” some pull factors also contribute to brain drain, such as the creation of knowledge-intensive jobs. In Central and Eastern European nations, there has been a surge of brain businesses, attracting human capital. Between 2013 and 2019, 509,000 knowledge-intensive jobs were created each year in the EU, plus the UK, Norway, Switzerland and Iceland.
However, since the pandemic, the numbers have declined, except in the Nordic region, where 8,600 brain business jobs were added in 2020. Nordic firms had continuous access to growth capital. Countries like Estonia and Malta are overtaking advanced nations like France and Belgium in terms of innovations. Over 22% of the working-age population is employed in brain business jobs in the Slovakian capital of Bratislava, about the same as London.
The Impact on Company Dividends
The continued departure of skilled, educated people leaves countries with a massive fiscal burden. This hits their economic productivity and the development of important public services, such as education and healthcare. For instance, in the Balkan countries, the mass exodus of workers has stalled development in critical industries. A deficit of tens of thousands has been seen in healthcare during Covid-19. Between 2015 and 2019, 14,000 doctors and 28,000 nurses had left Romania for greener pastures abroad. Companies struggle to attract workers in these regions.
Countries with a rising aging population will struggle more to reverse the tide. Higher earnings from abroad sent back home might benefit the general population, but it doesn’t help domestic companies. They are reluctant to pay dividends.
There is also the prospect of sectoral brain drain. Workers migrate from public sector companies to the private sector in hopes of better wages and benefits, like employee stock options.
Companies and governments will probably offer more incentives for skilled workers to remain in the country. Poland, for example, reduced personal income tax for young employees earning below a certain threshold limit in 2019, intending to stop the demographic decline. This will have implications on company balance sheets and put a question mark on shareholder income. If companies can drive revenues, this cost will be justified.
Predicting Dividends the Woodseer Way
The free movement of labour is a fundamental cornerstone of the EU and its single market. This can’t be stopped. Governments are responsible for addressing the brain drain with policies aimed at improving employment, education and delivery of public services.
However, the corporate world has been reshaped by the pandemic. The era of the “Great Resignation” continues, with workers seeking flexible jobs and better work-life balance worldwide. This could again impact regional worker imbalances. Of course, all this differs across sectors. Not all workers can afford to leave their jobs and start working from home.
Woodseer Global, with its analyst+AI approach, helps investment managers with dividend data, in a world of fluctuating talent dynamics. Contact us to learn more.
With thanks to Matthew Riding