ECB study links labour hoarding to firms' future cost expectations
A new study from the European Central Bank (ECB) links firms' labour hoarding decisions to their expectations about future business conditions. The research, published in the Economic Bulletin, finds that labour hoarding in the euro area remains above pre-pandemic levels.
Labour hoarding persists above pre-pandemic levels
Labour hoarding occurs when firms retain their workforce despite weakening business conditions, such as lower demand or reduced profitability.
The ECB's indicator, based on the Survey on the Access to Finance of Enterprises (SAFE), measures the share of firms that have not reduced employment despite recent worsening conditions.
While easing from its peak of almost 30 percent in the third quarter of 2022, labour hoarding stood at 17 percent in the third quarter of 2025.
This figure remains higher than the pre-pandemic average of 13 percent.
The recent decline is primarily linked to a normalisation of economic conditions, with fewer firms reporting a deterioration in their specific business situation.
However, the share of firms facing adverse shocks still exceeds pre-pandemic levels.
Expectations shape employment decisions
Firms' decisions to hoard labour reflect their expectations about future business conditions.
Those retaining staff despite adverse shocks tend to be less pessimistic about near-term sales and investment compared to firms that are shedding employees.
Furthermore, firms hoarding labour anticipate higher total labour cost growth than those reducing staff.
This difference is mainly driven by varying employment growth expectations, as firms in all groups expect a similar moderation in nominal wage growth per worker.
This pattern suggests that collective bargaining and centralised wage-setting mechanisms could play an important role in wage developments across firms.
A delicate balance for firms
The study reveals a critical dilemma for firms: weaker pricing power, coupled with persistent wage growth, threatens profit margins.
This pressure could force companies to explore alternative channels for reducing labour costs.
Understanding these dynamics is crucial for assessing the cyclical recovery in labour productivity that often follows periods of significant labour hoarding.