The Shortage of Professionals/Skilled Workers: Its Impact on the Inflation Rate in the Eurozone

Abstract

The shortness of professionals and/or skilled workers is a widespread phenomenon in industrialized countries, and so it is in the Eurozone. The vacancy ratio, which is defined and explained in its three (respectively four) alternative definitions, may serve both as a measure of labour market tightness and as a proxy for the shortness of professionals and/or skilled workers. We derive, in two variants, a theoretical model which is based on the Phillips and the Beveridge curve. A combination of these two concepts yields a so-called “modified output gap” suitable for explaining the inflation rate of Eurozone member countries, driven, among other things, by the vacancy ratio. This model is successfully tested for about 70% of the Eurozone member countries (2006-2021). We conclude our exposition with suggestions for economic policy on how to sensibly reduce the vacancy ratio, a summary of findings, and a scope for future research.