We read Mario Draghi’s review of EU Competitiveness. We compiled the top takeaways for investors and founders.
This review is split into three sections:
The full document is linked here: https://commission.europa.eu/topics/strengthening-european-competitiveness/eu-competitiveness-looking-ahead_en
a. The Headline Data
As Europe’s economic landscape evolves, challenges are crystallising around skills development and labour market dynamics. The region is grappling with significant skills shortages, especially in high-tech sectors, while mismatches between education and job market needs are contributing to inefficiencies.
Demand for STEM and digital skills continues to rise, and employment projections highlight a growing need for highly skilled workers, particularly in science and engineering fields. Despite substantial investments in skills development, Europe continues to face demographic challenges, including a shrinking workforce and gender disparities in STEM. Furthermore, low participation in lifelong learning and limited labour mobility are impeding progress.
Below are some key data points that capture the scope of these challenges and the opportunities they present.
Let’s take a look at some of the key stats:
1. Skills Shortages:
54% of European companies report that skills shortages are one of their most pressing problems facing their business. This issue is prevalent across both large companies and SMEs.
42% of Europeans lack basic digital skills, including 37% of those in the workforce, which hinders progress in the digital transition.
Approximately 63% of EU companies attempting to hire ICT specialists report difficulties in filling these roles, signalling a persistent shortage in high-tech talent.
2. Mismatch in skills
OECD data shows that one-fifth of adult workers in the EU lack basic skills, contributing to significant mismatches in labour markets.
Around 21% of the EU’s working-age population (20-64 years old) is inactive, indicating a large pool of untapped talent, with 8 million young people not in employment, education, or training.
3. STEM and Digital Skills Demand:
The number of STEM graduates in the EU has increased, but the current supply of 22 graduates per 1,000 individuals aged 20-29 is still insufficient to meet growing demand, particularly in sectors such as ICT and clean technologies.
By 2030, the EU Digital Decade targets 80% of working-age Europeans to have basic digital skills, but current gaps in digital literacy remain a challenge.
4. Employment Growth Projections:
Highly skilled occupations are expected to grow by 12 million jobs by 2035, whereas lower-skilled jobs are projected to shrink by 3.5 million, emphasising the growing demand for advanced skills.
15 million science and engineering professionals currently work in the EU, but 8 million job openings are expected by 2035, with 6 million of those due to replacement needs and 2 million new jobs created by economic demand.
5. Funding Gaps:
The EU invests €64 billion in skills development during the 2021-2027 period, with €40.4 billion from the European Social Fund Plus (ESF+), €41.7 billion from the Recovery and Resilience Facility (RRF), and €16.2 billion from Erasmus+.
Despite these investments, only 37% of adults participated in training in 2016, and this figure has hardly increased since then. To meet the target of 60% participation by 2030, an additional 50 million workers need training annually.
6. Demographic Challenges:
The EU's working-age population will shrink by 41 million (over 15%) from 264 million in 2023 to 223 million by 2070, primarily due to aging populations and low replacement rates.
In contrast, the U.S. population is projected to continue growing during this period, posing a competitiveness challenge for Europe.
7. Gender Gap in STEM:
The gender gap in STEM fields remains significant, with almost twice as many male as female graduates. In ICT occupations, men outnumber women by a factor of four.
8. Labour Mobility:
Only 11.9% of adults across the EU participate in lifelong learning, and labour mobility within the EU remains low compared to the U.S. This lack of mobility exacerbates skills mismatches across Member States.
b. What does the current landscape mean for VCs?
As Europe's economy undergoes a significant transformation, the demand for skilled labour is increasing rapidly, particularly in ‘digital’ and green technologies. However, critical gaps in skills across multiple sectors and a mismatch between education and labour market needs present both challenges and opportunities.
For investors, this changing landscape offers numerous areas to explore, from companies addressing lifelong learning and reskilling needs to those that provide solutions for managerial and soft skills.
Additionally, there are growing opportunities for public-private partnerships and innovations in standardising skills certification, making it an exciting time for startups and businesses focused on education and workforce development.
Here are some key takeaways that highlight the potential for Edtech and related industries.
1. Significant Skills Gaps:
Europe faces critical skills shortages across multiple sectors, notably in digital and green technologies. These shortages are exacerbated by an aging workforce and misalignment between education and labour market needs. This presents opportunities for Edtech companies to provide scalable solutions for upskilling and reskilling, particularly in STEM, digital, and green skills. ‘Digital skills’ refers to roles in data management, cybersecurity, AI and ML, software development, digital marketing, e-commerce and robotisation.
2. Demand for Digital and Green Skills:
The transition to a green and digital economy is accelerating demand for digital literacy (AI, programming, cybersecurity) and green skills (related to sustainability and clean technologies). Edtech platforms that focus on these areas are likely to benefit from strong market demand, especially as the EU has set ambitious targets for workforce digital skills by 2030.
Brighteye explored sustainability and green skills within these recent reports: green skills in the built environment and a market map of sustainability skills.
3. Focus on Lifelong Learning and Adult Training:
The need for lifelong learning is becoming crucial as technological advancements outpace formal education. There are gaps in adult learning and vocational training systems, which present opportunities for Edtech solutions tailored to reskilling the workforce, particularly for industries undergoing rapid change.
4. Management and soft skills:
Beyond technical skills, the demand for transversal skills (e.g., creativity, problem-solving, adaptability) is growing. Edtech solutions offering training in soft skills and managerial capabilities could address a significant need, especially for SMEs, which face gaps in leadership and productivity linked to weak managerial skills.
5. Investment in Education is Lagging:
Although the EU is investing in education, training, and skills through funds like the European Social Fund Plus and Erasmus+, the report highlights inefficiencies in the allocation and impact of these funds. There is room for innovation and private-sector involvement to improve the effectiveness of education initiatives, which could drive demand for Edtech platforms offering more targeted, high-quality training programs.
6. Talent Mobility and Certification Standardisation:
There is a need to improve labour mobility and standardise skills certification across the EU. Edtech companies could capitalise on this by developing platforms that offer micro-credentials or digital badges for skills, making it easier for workers to transition across jobs and countries within the EU.
7. Public-Private Partnerships:
The report suggests that collaboration between governments, educational institutions, and private companies is essential to address skills gaps. This opens up opportunities for Edtech firms to form strategic partnerships with government initiatives or corporations to offer scalable learning solutions that align with the needs of the digital and green transitions.
c. What does the current landscape mean for founders?
As Europe's economy transforms, new founders have a range of exciting opportunities to explore, especially in addressing critical skills shortages and capitalising on the ongoing digital and green transitions.
With increasing demand for upskilling, reskilling, and lifelong learning, startups focused on management training, and workforce development are well-positioned to thrive. Furthermore, shifts in the labour market, public-private collaboration opportunities, and the push for a more inclusive and diverse workforce create additional pathways for innovation.
By aligning with EU priorities and tapping into funding streams, founders can develop scalable solutions that address Europe's growing needs in digital literacy, sustainability, and workforce mobility.
Here are some key takeaways to consider.
1. Skills Gaps as Opportunities:
The report identifies major skills shortages in key sectors, particularly in digital technologies, STEM, and green technologies. This presents an opportunity for startups offering solutions for upskilling, reskilling, and Edtech focused on these areas.
Companies are struggling to find employees with the right skills, especially in ICT and emerging technologies. Founders can tap into this by creating platforms or tools that provide training, certifications, or recruitment solutions in high-demand fields like AI, cybersecurity, and sustainable technologies.
2. Digital and Green Transition:
Europe is focused on digital and green transitions, driving demand for innovation in sectors such as clean energy, sustainability, automation, and digital transformation. Startups that cater to these industries, either through technology development or support services (e.g., training or software), are likely to benefit from strong policy support and funding.
The report points to a significant need for green skills across industries, which opens up opportunities for startups focusing on sustainability, circular economy solutions, or green tech training.
3. Lifelong Learning and Adult Training:
As the pace of technological change accelerates, the need for lifelong learning becomes critical. Founders can develop businesses that focus on continuous education and adult training, especially for employees needing to upskill for the evolving digital economy.
The report also highlights that only 37% of adults participated in training programs as of 2016, with a target to reach 60% by 2030. This presents a substantial market gap for businesses offering accessible, flexible learning platforms.
4. Managerial and Soft Skills Gaps:
There is a notable shortage of managerial skills in Europe, particularly among SMEs. Founders can leverage this by offering management training or leadership development tools that target SMEs or startups looking to improve productivity and innovation adoption.
There’s also an increased demand for transversal skills (soft skills) like creativity, problem-solving, and leadership. Startups offering training in these areas could address a critical gap in the market, especially with tools that scale across industries.
5. Labour Market Shifts and New Business Models:
The rise of automation and the digital economy is reshaping the labour market. Founders should consider creating businesses that help people adapt to automated workplaces or that offer solutions in human-machine collaboration.
There is a growing need for platforms that bridge the gap between education and employment. Businesses that help match individuals with the right skills to emerging job opportunities, or that facilitate labour mobility across Europe, have great potential.
6. Opportunities for Public-Private Collaboration:
The report highlights the need for stronger collaboration between governments, educational institutions, and the private sector. New founders could explore partnerships with public institutions or corporations to create tailored educational programs or workforce development initiatives, particularly in areas like green tech and digital skills.
The EU is also investing heavily in education and skills development programs. Startups that align with EU priorities (e.g., green transition, digital skills) may have access to funding, grants, or partnership opportunities.
7. Diverse and Inclusive Workforce:
Europe's labour force faces challenges related to gender gaps, social background disparities, and mobility. Founders who focus on creating inclusive platforms that promote education and career development for underrepresented groups (e.g., women in STEM, disadvantaged communities) could differentiate themselves and appeal to a broad market.
8. Funding and Market Access:
The EU is investing €64 billion in education, skills, and workforce development through various funds (ESF+, Erasmus+, etc.), but the report mentions challenges in reaching SMEs and in effective project implementation. New startups can develop solutions that help optimise funding allocation or streamline access to skills development programs.
9. Certification and Standardisation Opportunities:
The need for standardised certification of skills across Europe offers a niche for startups that provide digital credentials, micro-certifications, or platforms for skills verification. Solutions that make it easier for workers to transfer skills and qualifications across borders will be critical in creating a more mobile workforce.
10. Demographic Trends and an Aging Population:
Europe's aging population and shrinking workforce present challenges but also opportunities for businesses offering solutions for older workers to stay active in the labour market, as well as innovations in healthcare, automation, and personalised learning for lifelong careers.
There are significant opportunities in addressing Europe’s skills gaps, leveraging the digital and green transitions, creating solutions for lifelong learning, and aligning with public sector priorities. Focus on sectors that address managerial and transversal skills, STEM education, and workforce mobility to tap into a growing market.
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