Currently, much of the focus in Europe is on regaining the jobs that were lost during the COVID-19 recession. However, we argue that it is equally important to stimulate the growth of new knowledge-intensive jobs and encourage foreign investment in knowledge-intensive industries.
Europe not only needs to recover from the crisis but also shift to the value-creating jobs of the future. We see clearly that the regions which lack knowledge intensive jobs have higher levels of unemployment.
Between 2013 and 2019, on average 509,000 so-called ‘brain business jobs’ were added every year, to the economies of the EU member states plus the UK, Switzerland, Norway and Iceland. In 2020, however, the number of knowledge-intensive jobs fell for the first time, by nearly 167,000.
The exception is the Nordic region, which added 8,600 brain business jobs during 2020, despite the global crisis. The reason is that Nordic countries, even during the crisis, attracted significant foreign capital to companies in the fields of technology, IT, advanced services and creative professions.
Knowledge-intensive jobs play a key role in long-term societal development. For example, many tech companies are engaged in finding technological solutions for enabling a transformation to a green economy so that economic activity can continue without bringing on environmental damage to the planet.
Regions such as London and Paris have a high number of knowledge-intensive jobs now, but this number is not growing particularly fast. Growth is instead occurring in lower-cost regions that have a good talent supply.
Regions with strength in knowledge-intensive jobs can be less sensitive to economic shocks
Much of the growth is happening in the capital regions of the eastern European countries which combine an ample supply of talents in fields such as IT and technology, with lower employment costs and correspondingly lower taxes and lower cost of living.
We believe that it is essential to learn from the Nordic countries, which manage to attract growth capital. A key reason is smart tax policy. Sweden, for example, has neither wealth nor inheritance tax; its system allows proceeds from a successful investment in one company to be invested in new companies through a holding company, without triggering any tax payment. Taxation only applies when the gains are extracted from the holding company to the individual owners.
Taxes always matter, particularly so for high-risk investments. But with a smart tax design, even high-tax countries can attract innovation capital. Another important lesson from the Nordic region is the importance of encouraging innovation not only in the capital regions but also in the whole country. If the formation of new jobs is concentrated mainly to the capital regions, which is the case for many European countries, significant regional disparities in prosperity and employment will arise.
Those European regions that have a low concentration of brain business jobs also tend to have higher unemployment. In these regions, more than a quarter of unemployment can be explained by the lack of brain business jobs. When automatisation and the introduction of robots are destroying some jobs, knowledge-intensive companies contribute to the creation of new jobs.
The Nordic region combines a relatively equal distribution of incomes with high concentrations of knowledge-intensive jobs since not only the capital regions but also more remote areas have many firms in areas such as technology, IT, advanced services and creative professions. This, in turn, is made possible by public investments in higher education and research not being directed only to the capital cities, but instead spread out regionally.
Looking at Malta specifically, it lost 1,000 knowledge-intensive jobs during 2020. However, the long-term trend is still positive, as it added 8,400 of these jobs between 2012 and 2020.
A lesson from the recent recession is that regions with strength in knowledge-intensive jobs can be less sensitive to economic shocks. Policies to encourage regional growth of knowledge-intensive jobs are important for ensuring that not only some, but all, regions can achieve growth and resilience to future economic downturns.