It Is Western Europe’s Turn for a Brain Drain

Knowledge-sector jobs are heading to Eastern Europe, and the consequences could remake the EU.

A visitor uses a virtual reality headset during the “Laval Virtual” virtual reality, augmented reality, and 3D technology show in Laval, France, on April 6, 2018.
A visitor uses a virtual reality headset during the “Laval Virtual” virtual reality, augmented reality, and 3D technology show in Laval, France, on April 6, 2018. JEAN-FRANCOIS MONIER/AFP via Getty Images

European nations may be focusing on how to address the immediate economic trauma caused by the COVID-19 pandemic, but beneath the surface, even larger changes are reshaping the distribution of knowledge jobs in Europe.

In collaboration with Nordic Capital, a leading Nordic private equity firm, where one of us is the chief operating officer, the European Centre for Entrepreneurship and Policy Reform (ECEPR), where one of us is the director, has recently mapped the locations of knowledge-intensive jobs in Europe. The index examines jobs in four knowledge-intensive industries: the tech sector, information and communications technology, advanced services, and creative professions. In measuring what percentage of the working population in 31 European countries and 283 regions work in these “brain business jobs,” the study finds significant shifts in the geographical distribution of Europe’s knowledge industries.

Before the COVID-19 pandemic, knowledge-intensive jobs were growing steadily in Europe. As we pointed out in the Nordic Capital-ECEPR report, on average, between 2013 and 2019, 509,000 brain business jobs were added each year to the economies of European Union-member states plus the United Kingdom, Switzerland, Norway, and Iceland. In 2020, however, the total number of brain business jobs fell for the first time since the study began five years ago, by nearly 167,000. The exception was the Nordic region, which added 8,600 brain business jobs during 2020 despite the pandemic. A possible explanation is that Nordic firms have continued to have good access to growth capital.

Meanwhile, explains the Nordic Captial-ECEPR report, the geography of brain business jobs shifted. Although the highest concentration is in Switzerland, followed by Sweden, the Netherlands, Luxembourg, and Denmark, growth is stronger elsewhere. Since 2014, Cyprus has experienced an almost 50 percent increase of brain business jobs per capita, while Slovakia, Hungary, Poland, Latvia, Portugal, and Bulgaria have experienced an increase of a third or more. In Estonia, brain business jobs have increased by just under a third.

In turn, Estonia and Hungary currently have a higher share of their working-age population employed in knowledge-intensive businesses, the report notes, than several richer European nations, such as Norway, Belgium, Austria, and France. The European region with the highest concentration of brain business jobs, meanwhile, is the Slovakian capital region of Bratislava, where 22 percent of the working-age population is employed this way. All together, Bratislava and other regions seeing fast growth—Prague, Budapest, Warsaw, and Bucharest—host some 923,000 brain business jobs—about the same as London (a similar size by working-age population). Bratislava, Prague, and Budapest have higher concentration of brain business jobs per capita than London while Warsaw and Bucharest have slightly lower.

In part, this comes down to planning. Lower cost of labor and significant share of young people investing in higher education has led to a brain business surge in Central and Eastern European nations. Meanwhile, the sector is increasingly growing in the parts of Europe that combine lower wages with lower taxes and a free market economic touch. One example is Estonia, which has only 1.3 million inhabitants but holds the 10th highest concentration of brain business jobs per capita. Not long ago, Malta had a relatively underdeveloped economy, but a shift toward free market policies has made it a hub for industries like online gaming and blockchain.

Such developments in small countries, such as Estonia and Malta, might not matter much on the world stage. Yet, it is shaping the future of Europe. European nations like France and Belgium have had advanced industries for centuries but are falling behind perhaps because high taxes and bureaucratic regulatory systems discourage creative destruction of old industries. Compare their sluggish brain job growth with Nordic region, which has high taxes but more open competitive structures.

In turn, Eastern and Central European capital regions are increasingly part of the European innovation machine. Successful new businesses are increasingly either founded in Eastern and Central Europe or partner up with companies there. And it is increasingly common for Nordic and Western European companies to outsource part of their work to knowledge centers in Eastern and Central Europe to reduce costs. This is the start of a process in which Eastern and Central European countries are rising in economic and political significance.

To be sure, Europe overall still has an entrepreneurial gap compared to the United States, as is evident in the kinds of U.S. billionaires that make Forbes’s regular list. In 2020, the United States went from having 607 to 614 billionaires, mostly in tech and other knowledge-intensive sectors, while China boomed from 324 to 389. The five leading European countries—Germany, the United Kingdom, France, Italy, and Switzerland—saw declines.

Yet the future of European entrepreneurship and growth looks bright, as competition between EU countries ramps up. With brain job booms further east, France and Belgium will have to work to attract venture capital, which will mean embracing new industries. And from the beginning of European civilization to the Renaissance and the Industrial Revolution, it is competition between neighbor states seeking to attract business that has been the winning formula for Europe.

Nima Sanandaji is the director of the European Centre for Entrepreneurship and Policy Reform. He has written more than a hundred policy papers on subjects ranging from integration and women’s career progress to the changing geography of successful enterprise and the future of jobs.

Klas Tikkanen is the chief operating officer of Nordic Capital.

Trending Now Sponsored Links by Taboola

By Taboola

More from Foreign Policy

By Taboola