February 27, 2009
1. Introduction: the topic
• In the 1990s, many EU countries were faced with high and persistent unemployment. Due to the combined effect of strong GDP growth, eastward expansion of the EU and structural reforms in some Member States, the performance of European labour markets has improved considerably over the past few years. This was reflected in a rise in the EU employment rate while unemployment rates fell considerably.
• In 2007, the EU witnessed a total net increase of 3.5 million jobs. The overall employment rate – the share of employed persons in the working-age population – climbed to 65.4%. However, employment rates vary widely between Member States. In 2007, rates ranged from as low as 54.5% in Poland to almost 77.4 % in Denmark. Only three other countries (the Netherlands, Sweden and the UK) are meeting the 70% overall employment rate target. By and large, the European countries with high employment rates tend to have low unemployment rates as well.
• Between 1998 and 2007, the unemployment rate fell from 9.3% to 7.2%. More than 16 million people were looking for a job in 2007. Significant differences in unemployment levels persist. While the unemployment rate was 3.8% in Denmark, it stood at more than 11% in Slovakia in 2007. At 3.1 %, the long-term unemployment rate in the EU is substantially higher than in the USA (0.5%) or Japan (1.2%).
• Unemployment rates differ not only between countries. Within countries, unemployment affects different groups differently. Generally speaking, unemployment rates are highest among young people, women, immigrants and the low-skilled.
• Recent labour market improvements have grinded to a halt in most countries and will deteriorate as recession takes hold across the EU. The number of unemployed is forecast to increase by 2.7 million in the EU between 2008 and 2010 which will be reflected in a rise of the unemployment rate to 8.1%.
• A stable macroeconomic environment and a favourable business environment are essential preconditions for stimulating labour demand. By contrast, high non-wage labour costs (in particular for low-skilled workers) and complex legal and administrative rules regarding recruitment and/or dismissal are among the most frequently cited obstacles to job creation.
2. Main issues at European level
• In order to coordinate the labour market policies of Member States, the EU adopted in 1997 a European Employment Strategy which has three overarching objectives: full employment; quality and productivity at work; and social cohesion.
• In 2000, the Lisbon European Council set itself the strategic objective of becoming, by 2010, “the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion”. The following employment targets were identified: an overall employment rate of 70%; a female employment rate of 60; and an employment rate for older workers (aged 55-64) of 50%.
• Inspired by the successes achieved by countries such as Denmark and the Netherlands, flexicurity has become a central concept of the European Employment Strategy. The novelty of the flexicurity approach is that flexibility and security are no longer considered as a trade-off but are seen as mutually reinforcing.
• In 2007, the EU adopted a set of common principles and identified the identified the main policy components of flexicurity. The latter consist of: (1) flexible and reliable contractual arrangements; (2) comprehensive lifelong learning strategies; (3) effective active labour market policies; and (4) modern social security systems.
• Flexicurity policies aim to provide workers with “employment security” rather than “job security” by making it easier for companies to hire people while providing workers with adequate security through lifelong learning and employment-friendly social security systems.
• In doing so, flexicurity should help to increase the adaptability of companies and workers and attract more people to the labour market. In both areas, the EU compares performs worse than major international competitors, in particular the USA.
• In order to attract more people to the labour market, EU Member States should “make work pay”. Active labour market measures should minimise unemployment spells and ensure that people do not become detached from the labour markets.
• Several EU Member States have been trapped in a trade-off between more inclusive labour markets and declining or weak productivity growth. The EU should aim to boost at the same time employment rates and labour productivity growth.
3. Challenges in the short/medium and long term
• In the short-term, European labour markets will be tested by the economic downturn. Short-term measures will be needed to address the labour market impact of the economic crisis alongside continued structural reforms.
• In addition, European labour markets are confronted with structural challenges such as globalisation, technological change, population ageing and climate change adjustment policies.
• Globalisation means that Europe must become more competitive. Companies must be able to adjust their workforce and work organisation rapidly and smoothly in the face of increased international competition. For workers, “a job for life” is increasingly becoming a thing of the past. The average career will be characterised by more frequent job changes. Workers will have to continuously update their competences and skills to remain employable.
• Globalisation and the international division of labour imply that each country specialises in the sectors and activities in which it enjoys a comparative advantage. In the EU, specialisation increases demand for skilled labour while depressing that for low-skilled workers. This trend is reinforced by technological progress which demands ever greater and updated qualifications.
• Technological change and the transition towards a more service-driven economy are changing work relationships. That change must be better anticipated and absorbed. Moving faster towards a knowledge-based economy requires concentrating more on higher educational levels, more intensive training and a stronger link between qualifications and the evolution of technologies and business needs.
• The size of Europe’s working-age population will fall considerably as a result of population ageing. More people will be leaving the labour market than entering, creating labour shortages and undermining the financial sustainability of social systems. Productivity growth will have to compensate for the reduction in the size of the work force as the main source of economic growth.
• In addition to globalisation and demographic ageing, European labour markets will also have to deal with the potential consequences of climate change adjustment policies. Companies and workers in key economic sectors such as transport, steel, cement or construction will have to adapt.
4. Possible questions to be discussed during the session
Why is it that some EU Member States have been able to achieve dynamic labour markets with full employment while others are struggling with low employment rates and high structural unemployment?
Which legal measures should be taken as a matter of priority to stimulate job creation? Is there a role for the EU to play in this respect ?
Given the current economic crisis, should Member States postpone of push forward with labour market reforms ?
EU policy documents:
Towards Common Principles of Flexicurity: More and better jobs through flexibility and security
Jobs, Jobs, Jobs – Creating more employment in Europe, Report of the Employment Taskforce chaired by Wim Kok, November 2003
Council Decision on guidelines for the employment policies of the
BUSINESSEUROPE, UEAPME, CEEP and ETUC: Joint analysis of the key challenges facing European labour markets
OECD Employment Outlook 2006, Boosting Jobs and IncomesAuthor : EBS