Europe is Increasingly One Connected Knowledge Economy

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Currently, Europe is going through difficult times, with the outbreak of war, inflation, and the latest global pandemic. However, we also see important changes in economic development within Europe, which allows a better understanding of how the economic map will evolve during the next phase of global growth. Knowledge jobs are growing rapidly in the South and East, two regions that used to lag far behind the North and West. Places such as Stockholm and London are still leading knowledge centers, yet they are now the three capital regions of Eastern Europe with the highest concentration of knowledge workers. English as a common language of work, and digital communication, is growing more in Europe (EU countries, UK, Switzerland, Iceland, and Norway) in the integrated economy.

Over the past six years, we have tracked how the share of working-age people across Europe employed in knowledge-intensive industries has emerged – in 31 European countries and 280 regions. While in 2020 the number of information-intensive jobs decreased, due to the global pandemic and economic recession, in 2021 the growth started again.

Geographical equality is a key European trend. An analysis of how the rate of brain activity has changed over time finds that nine European countries have increased by more than 33 percent, since 2014. The highest increase was 55 percent in Cyprus followed by 48 percent in Latvia. All of the top nine climbers are found in Southern and Eastern Europe. At the same time, countries that used to have a lot of people in brain industry activities, have experienced a slow development.

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Important changes are taking place, as brainstorming activities are growing in European areas that combine sufficient talent, with low costs of hiring talent. Between 2014 and 2021, the share of adults employed in intellectual business activities has increased from 4.3 to 5.3 percent in Southern Europe, from 4.4 to 5.9 percent in Eastern Europe, from 7.8 to 8.2 percent in Northern Europe, and 7.4 to 8.4 percent in Western Europe.

The rate of change in brain activity concentration (working age population per capita) 2014 to 2021
Cypress 55% in Czechia 22%
Latvia 48% Netherlands 15%
Lithuania 42% Italy 14%
Hungary 62.2% United Kingdom 12%
Poland 39% Luxembourg 8%
Portugal 39% Sweden 4%
Estonia 72.0% Norway 3%
Slovenia 60.8% France 3%
Slovakia 34% Austria 2%
Bulgaria 31% Switzerland 0%
Malta 30% Denmark -1%
Romania 30% Iceland -4%
Spain 28% Greece -11%
Croatia 27%
Belgium 25%
Finland 25%

The density of information-intensive jobs is highest in Switzerland, where 10.1 percent of the total population is employed in brain industry jobs. Ireland has the same high share of knowledge-based company employment, followed by Sweden where 9.3 percent of the population is employed in intellectual business activities. Ireland moves up to second place in the brainpower index, overtaking Sweden, because the country has attracted many US technology companies and has policies that encourage local business.

At the regional level, Slovakia’s capital of Bratislava remains the European area with the highest concentration of brain business activities. More than 22 percent of working-age people in the region are employed in knowledge-intensive firms. Budapest and Prague are ranked second and third, followed by Stockholm, Oberbayern, Paris, Copenhagen, the Oxford region, Warsaw, and London. A total of four of the top 10 regions are found in Eastern Europe, three in Western Europe, one in Southern Europe and the remaining two in the Nordics.

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European regions with the highest brain activity (percentage of adults employed in technology, ICT, advanced services, and creative arts, capital regions highlighted in blue)
1 Bratislava 22.4%
2 Budapest 19.9%
3 in Prague 19.9%
4 in Stockholm 17.8%
5 Oberbayern 17.6%
6 In Paris 16.7%
7 Copenhagen 15.9%
8 Berkshire, Buckinghamshire and Oxfordshire 15.9%
9 in Warsaw 15.8%
10 in London 15.4%

Paris has more than 1.2 million jobs in the brain industry and remains the only region in Europe with more than one million workers in knowledge intensive industries. In total, the capital regions of Southern Europe (Paris, Madrid, Rome, Lisbon, Athens, Cyprus, and Malta) have more than 2.3 million jobs in the brain industry. This can be compared with 1.7 million jobs in knowledge-intensive firms in the capital cities of Western Europe (London, Berlin, Amsterdam, Vienna, Brussels, Luxembourg). In total, there are about 1.5 million entrepreneurial jobs in the capital cities of Eastern European countries (Warsaw, Budapest, Bucharest, Prague, Sofia, Bratislava, Zagreb, Latvia, Ljubljana, Vilnius, and Estonia). The Nordic nations have a strong performance in creating knowledge-intensive jobs, but less people. There are generally about 700 000 brain business jobs in the Nordic capital regions (Stockholm, Copenhagen, Helsinki, Oslo, and Iceland).

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Southern and Eastern Europe is often seen as lagging behind in economic development compared to Western and Northern Europe – but it is now catching up. At the regional level, the capital regions of Eastern Europe have the highest information activities, while Paris and other capital regions of Southern Europe lead in terms of absolute numbers. Every year, the brain activity map of Europe changes. Knowledge jobs are becoming more evenly distributed in Europe and are growing mainly in regions that combine sufficient talent with low labor costs.

We believe that this gradual geographical balancing will drive institutional competition, as European countries will try to introduce policies to promote business growth, investment attraction, and talent creation through the education system. A significant change is that remote work, between nations, is becoming more common. European information businesses headquartered in places like Stockholm and London are increasingly working with information businesses in Southern and Eastern Europe. Increased cooperation and institutional competition in terms of growth-promoting policies, could allow European information services to compete more closely with those of the US and China. Indeed, institutional competition, accompanied by cooperation across regional and national borders, has historically been a hallmark of European success – and we believe that the new shift towards digital remote work will further increase cooperation and competition in Europe.


Authors:
Nima Sanandaji, Director of the European Center for Business and Policy Reform
Klas Tikkanen, Chief Operating Officer Nordic Capital

Lead image: world map via Wikimedia under CC 3.0 License.

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