REPORT FROM THE COMMISSION - Employment in EUROPE - 1996
COMMISSION OF THE EUROPEAN COMMUNITIES Brussels, 09. 10. 1996 COM(96) 485 final REPORT FROM THE COMMISSION Employment in EUROPE 1996 Executive Summary — Meetin employment challenge Executive Summary — Meeting the employment challenge The Employment in Europe report 1996 presents the latest trends in employment and the labour market in the European Union. It analyses the current situation and outlines a series of policy issues which have to be addressed if the employment problem is to be tackled. Trends • Employment in 1995 was 348 million, 1. 1 million more than in 1994, but still 4 million fewer people employed than 4 years earlier. • the employment rate, at 60%, is lower than it was 20 years ago, and significantly down from its recent peak of 63% in 1991. • unemployment remains stubbornly high, at 10. 7% on average in mid-1996, only slightly below its peak of 11. 3% reached in April 1994. • youth unemployment is still twice as high as that of adults, at over 20% on average. • long-term unemployment increased in 1995 from 48% of the unemployed to over 50%. The proportion of those unemployed for more than two years rose from 27% to over 30%. • Women have accounted for the entire growth of the labour force in the last 20 years, and their activity rate now stands at 70% for the Union as a whole. • Unemployment of women, which stood at 12. 5% in July 1996, has been unaffected by the recovery and remains higher than that for men in all but two Member States. • The nature of working is changing. The number of people working at night and at weekends has in creased almost everywhere. Most new jobs created in the 1990s were part-time. Temporary working accounted for all of the increase in employment of men and just under half of the rise for women. • over the period 1988-95, on an annual average ba sis, job losses in large enterprises has largely been compensated by job creation in SMEs. Companies with fewer than than 100 employees have increased net employment at a rate of 259 000 a year, while companies with more than 100 employees have had net losses of 222 250 a year. • the services sector provided most of the net addition to jobs, while the decline in employment in agricul ture and industry continued. • the recovery in growth which began in 1994 came more or less to a halt at the end of 1995, mainly be cause of the effects of adverse developments in financial markets. Nevertheless, a resumption of growth is expected in the course of the year, accel erating throughout 1997. Areas of policy action Member States' margin of manoeuvre appears to be narrow in the struggle against unemployment and mar ginalisation, and the alternatives are few. Traditional demand management through public deficits have not proven effective in achieving a sustainable growth per formance and a solution to the structural problems in the European economies. Therefore, the pursuit of stability-oriented macroe- conomic policies which enhance confidence in financial markets and among consumers must be continued, without giving in to technology pessimism, fear of global trade liberalisation or beggar-thy-neighbour attitudes through uncoordinated, stand-alone action. An employment-friendly growth must be based on an offensive strategy to promote increased demand rather than a defensive strategy based on the sharing of exist ing jobs. This growth should be driven by efforts towards greater innovation to open up sources of job creation and consolidate existing jobs. This can be brought about by a four-pronged investment-led policy comprising: • investment in physical productive capacity, • investment in intellectual know-how and human re sources, • investment in an entrepreneurial environment and infrastructure. • investment in knowledge and skills j_ -5 Executive Summary — Meeting the employment challenge In addition, the reforms of the production and employ ment systems must contribute by addressing structural rigidities in product, service and labour markets to enable them to function efficiently. and to give them better access to jobs. A dispropor tionate share of the unemployed have no skills or outdated skills, and many older workers are leaving the labour force for the same reason. At the same time, it must be clear that the reforms must respect the principles of solidarity and social justice. Combining efficiency, adaptability and security must be considered as the strength of the European way of organising production and equal opportunity. Experi ence in several European countries has demonstrated that it is possible to combat poverty and marginalisa tion by providing safety nets for those who cannot respond to market forces, while encouraging an active search for work and workers, thereby promoting both flexibility and security. • Young people have a much greater chance of being unemployed than adults, although the numbers in volved are smaller than a decade ago because many more young people are staying on in education and training. A balanced policy for young people will in volve supply-side policies to prepare young people for the world of work, and demand-side policies to improve the functioning of the labour market for young people. Active labour market policies should concentrate on early, targeted measures of linked work experience and training. The different rate of job creation in the US and Europe is due to a complex of factors including different rates of output growth, differences in sectoral employment trends, greater wage dispersion in the US, and differ ences in the degree of regulation on product and service • Long-term unemployment is the intractable ele ment of the unemployment problem in Europe, increasing again in 1995 to over 50% of the unem ployed. Policy action must focus not only on the reintegration of the long-term unemployed but even I , i t jl l-. t;|f5 !'!(,« «-pH i l!MH »•' ' • ( ;' l < l ) " MM ' " " I" |l<l< ( < | t:ii|< «1 distortions in Europe ngninsl low v\ ;ige, low skill groups. This distortion must be redressed without trad ing off increased wage dispersion against increased poverty. • there is considerable evidence that European labour markets are becoming more flexible, in terms of work organisation, the regulatory framework and working time. Nevertheless, the employment poten tial of this increased flexibility is not being realised. The policy focus should aim to continue the trend towards greater flexibility, but with a new empha sis on security in relation to employment in the wider labour market to ensure a balance between flexibility and security. • The skill level of the European workforce is a criti cal element in the potential development of future jobs. The challenge posed by the march of new tech nology demands the an urgent upskilling of the workforce. A quantum leap in in vestment in education and training is required to raise the overall levels of educational attainment and skill levels. Continuous training programmes based on partnership between public authorities and enterprises are needed to deal with the de mands of continuous structural change. response to ® More emphasis must also be given to training for the unemployed to combat the process of deskilling ,. „!. „ •U '!' "HMII, l>3 olfet iiif, overvj"b seeker v. nrk exp"i ienee or training before they reach the threshold of long- term unemployment. • A major role in implementing this early action will be played by the public employment services. Mem ber States' Multi-annual programmes, as agreed by the European Councils should take account of this. Such early action should include appropriate moni toring of those most at risk, adequate counselling services, and access to an appropriate range of ac tive measures. incomplete. The • Women are accounting for an increasing proportion of the Union labour force, and for a considerable share of the new jobs being created. While some real progress in equality has been achieved, it re thrust of policy should mains remain the mainstreaming of equal opportunities for women and men while recognising the specific needs of women in reconciling work and family re sponsibilities. Policy action should focus on the removal of labour market segregation of women and the barriers which prevent them from improv ing their situation on the labour market. Women and men should be encouraged to seek non-conven tional career opportunities, thus breaking down occupational segregation. Executive Summary — Meeting tu. , employment challenge to transform • The employment strategy calls on the Member States to re-balance their labour market policies in favour of active measures. This requirement is two fold: labour market expenditure into active policies, and to strengthen preventive measures in the framework of active policies. Such a strategy is fully compatible with the objectives of budgetary consolidation and stable exchange rates. passive labour market policies • Evidence suggests that progress in shifting towards more active is being achieved. Further progress requires greater efforts in the focusing of labour market policies, a review of the incentive effect of the benefit system and the central role of the public employment service. The policy challenge: from uncertainty to confidence. A successful outcome to the employment strategy thus requires a concerted effort on the part of all Member States and the Union in three areas: • a re-balancing of macro-economic and structural policies • a balanced approach to efficiency and equity • a balanced approach to the participation of all those involved There is much which has already been achieved. There is still much to be done. Continuing the European employment strategy offers the most potential for real progress in providing more and better jobs and raising the standard of living of all European citizens. -7 Meeting the employment challenge — issues and pol ]c::e" Meeting the employment challenge — issues and policies in employment and the in Europe Report 1996 analyses the The Employment current trends and developments labour market in the Union in the light of the objectives and priorities defined in the employment strategy. Last year's report had put forward a note of cautious optimism, suggesting that the recovery in output which had begun to spread across the Union would lead to some increase in net job creation, but that the impact on unemployment would be small. This year's report confirms that view, but points out labour that the structural performance of the European market needs to be improved at the same time as other measures are taken to strengthen the recovery in output growth. The European employment strategy economics factors and structural features played a role in Europe's poor employment performance. To increase employment in the European Union is still the most fundamental challenge facing Member States. Although many of the building blocks are in place for sustainable, employment-creating growth, the edifice is far from com plete, and the commitment is far from total. There is uncertainty, and a lack of confidence, at the same time as macro-economic conditions are more stable than for many years. The fundamental challenge for both employment and macro-economic policy remains the same to combat the problem of low employment r a t es and high unemployment rates. From after the first oil shock to the monetary crises of 1992-93, when unemployment tripled from 5 million to 15 million, both macro It is for that reason that since the Essen European Council in Decem ber 1994, the Member States of the Union have been committed to a European employment strategy based on inter-related measures to enhance employment-creating growth, social solidarity, equal treatment, and special efforts to promote access to jobs for the most vulnerable groups on the labour market. This strategy calls for an integrated approach, whereby all the relevant policies, including macro-econom ics and structural policies, have to contribute and support each other in the light against unemployment. The macro-economic component of the strategy is based on budgetary consolidation aiming at a balance in the medium-term, and wage devel - 7- J)/i- opments which take into account the objectives of monetary stability and investment profitability. Wage developments should also reflect productivity determined by skills, and to a certain extent regional and sectoral differences. This paves the way for lower interest rates and higher investment which will be fa- v o u r a b le and employment. growth to In its Communication of the 5 June, 1996, the Commission has called for a 'Confidence Pact' for employment, which brings the European employ ment strategy a step forward, i. e. by mobilising all those involved in the job creation process, particularly the social partners. The structural and labour market components of the European Em ployment Strategy call for a new effort to invest in human resources, notably through education and vo t he t r a i n i n g, c a t i o n al a nd Meeting the employment challenge — issues and policies promotion of employment in par ticular through more flexible work organisation, the promotion of in itiatives at regional and local level, including the territorial pacts re ferred to in the 'Confidence Pact', the reduction of non-wage labour costs on low-paid and low-skilled workers and a more effective labour m a r k et policy. Special efforts should be devoted to the integration of young people into working life, to the prevention of long-term unem ployment and to achieving equal opportunities for men and women in the world of work. is m a de of b o th In the following sections, an exami- n a t i on t he macro-economics and labour mar ket context within which the above strategy is being implemented, and issues are identified where further action is needed. This report, how ever, does not attempt to present an exhaustive analysis of all many and varied factors which may have an impact on employment in Europe. Three factors, in particular, which potentially have important effects on employment both now and in the future merit a more detailed analy sis in subsequent reports — the role of small and medium-sized enter prises (see Employment in Europe 1994), the impact of globalisation and trade liberalisation and the prospective enlargement of the Union. Macro-economics stability and confidence With the sharp recovery of 1994 and until mid-1995, there were hopes of positive developments in the Euro pean economy with forecasts of output growth of around 3% for the years 1995 and 1996, and with it, an improvement in the employment situation. In terms of pace and com position, such a recovery w as indeed j u st what the European economy needed. On the basis of the macro-economics strategy set out in the Broad Economic Policy Guide t h is c o u ld h a ve b e en l i n e s, transformed into the sustainable investment-led growth path which would have progressively created productive capacity and the associ ated jobs. This would then have formed the basis for a gradual re sorption of unemployment and an easier application of structural re forms on t he l a b o ur m a r k e t. Business surveys of investment plans at the end of 1994 effectively confirmed early and strong capital stock projects. Since then, however, there has been a m a r k ed slowdown in growth which has directly affected labour market developments, bringing the moderate employment growth reg istered since the middle of 1994 which had reached 0. 8% in 1995 more or less to a halt at the begin ning of 1996. These lower than expected perform ances are essentially explained by the lagged effects of two adverse developments in financial markets. Firstly, the marked rise in long- term interest rates on world and Community financial markets dur ing 1994. Secondly, a nd more importantly, the exchange rate tur moil in the Spring of 1995, with sizeable and abrupt movement be tween EC currencies. These two events are themselves linked and reflected credibility problems or a lack of timely application of the agreed convergence policy in sev eral Member States. Among the causes of the long-run interest rate rise, the lack of deter mined action for cutting structural budget deficits along with the recov ery (only -0. 2% of EU GDP in 1994 and -0. 3% in 1995) seems to have played a significant role. It was also more pronounced in c o u n t r i es whose public finances were not yet perceived as having been put on a sustainable downward path. The currency turbulence of early 1995 had a significant negative im p a ct on t he economies of t he appreciating currencies as well as the depreciating ones. In the first group a profit squeeze occurred in the export/import-competing sector which, combined with a still rela tively restrictive monetary policy, induced a downward revision of pri vate expenditure plans. In the depreciating currency countries the efforts to moderate the inflationary effects of depreciation also damp through ened the demand side h i g h er i n t e r e st r a t es ( a l r e a dy pushed upwards by the widening of the risk premium), and the erosion in purchasing power of consumers, while the export boom was to some extent offset by lower growth of their main export markets. Such a situation, combined with the expectation that immediate addi tional efforts are required to make up for the budget deficit slippage, has sapped economic confidence among consumers and investors alike. A resumption in growth is expected during the second part of the year gaining speed in 1997 and 1998. Indeed, leading indicators point in that direction, and developments are well on track with the Spring forecast of Commission services. A gradual acceleration from about 1. 5% in 1996 to around 2. 5% in 1997 is f o r e c a s t, w i th e m p l o y m e nt growth of 0. 2% in 1996 and 0. 6% in 1997. Meeting the employment challenge — issues and policies The need for action The disappointing effects on em ployment and unemployment of recent macro-economics develop ments show clearly the extent to which a higher and sustainable rate of growth is a priority for fighting unemployment. Attention has once again turned to the urgent need to restore a stronger growth path by achieving a credible re-balancing of the policy-mix. To achieve that, two kinds of conditions must be ful filled, according to the time horizon. In the short-run: demand, and with • given the good performance in terms of wages, prices and prof strong itability international EU growth of output and employ ment is limited by a lack of confidence restraining domestic demand. Taking into account the recent progress in policies the towards convergence and the policy- resulting shift mix, the conditions are met for a renewal of the domestic re covery. in • from a policy point of view, de mand should not come from budgetary or wage expansion but from restoring confidence the in a full application of Broad Economic Guidelines. This means continuing with fis cal consolidation, maintaining appropriate wage developments throughout the EU, speeding up the structural reforms and creating further room for easier monetary conditions. Budget ary consolidation will have positive effects on business and consumer confidence only if continued in a credible way, i. e. , allowing for lower interest rates to be sustained. • A major obstacle for growth in the short-run could be a re newed risk of exchange rate turbulence. Such a risk could mainly occur in two cases: • • a lack of credibility in the convergence pol nominal icies of some Member States for meeting the EMU condi tions. This would be merely a repetition of the 1995 cur rency crisis, with damaging effects on output and em ployment in all countries. It the would only occur agreed convergence objec tives were abandoned or insufficiently applied. if a lack of credible prospects for employment creation in other Member States. This would result from a funda the in mental weakness employment growth and in strategy and especially re the the quired growth path. Only recovery in an environment of macro- economic stability with a gradual return to employ ment creation would ensure the consistency of the whole strategy. consensus restoring social for In the medium-term: • and from result budget the expansion of productive ca pacity will an investment-led growth path if budgetary consolidation leads towards a bal progressively anced any stability conflict can be pre vented on the wage side as well as on the goods and services markets. To achieve a signifi cant of unemployment, the sustainable rate of growth has to be higher than in the past two decades absorption if 9- remains that part of (2. 2% average annual growth). If the 1974 96 trend in labour stable productivity — currently at around 2% per year only the growth in excess of 2% is job- creating. Taking into account a probable increase in the labour force of about 0. 6% per year, that means that the medium- term growth should be in the 3 to 3. 5% range for progressively reducing unemployment at a satisfactory pace (0. 5 to 1% per year) and raising the EU em ployment rate. Amongst other things, for dealing with the prospective fis cal problems caused by an ageing population. is important this of be the with any lower rate of growth, the only way to increase em ployment by would increasing the labour-content of growth. One way to do this is by reducing the substitution of capital for labour. This would result in a reduction in the rate of growth of labour productivity as measured by output per per son. The jobs creation through local initiatives, which are a means of meeting new needs, are a further way of in creasing employment content of growth. In this per in reduction a spective, non-wage labour costs at the bottom end of the scale, as sug gested the White Paper, could be linked to effective job creation. Linking reduc tions with net job creation by firms, where the employer only receives the fiscal advantage if a new job is created, can reduce dead-weight costs and prevent displacement effects (where a certain category of worker for whom the incentives are avail able the recruited expense of other categories). the are in at Meeting the employment challenge — issues and policies ME2 Annual change in employment in the Union, 633 1970 to 1995 Annual % change 2 r n 2 ME2 Employment rates in Member States, 1985 and 1995 641 % working-age population 100 10 countries in The European Union has to rise to the challenge of globalisation the integration of newly and industrialising as major players the world economic and trading system. On the one hand, this will in crease competition primarily in manufacturing but also in serv ices and requires supporting structural policies to enable in to dividuals and enterprises adapt to change. The integra tion emerging market economies, especially those in Central and Eastern Europe, will also create the need for structural adjustment both in entrepreneurial strategies and in labour markets, on the other hand, such structural adjust ment for European firms to reap the em ployment presented by access markets. opportunities to new is also necessary of The major conclusion of the macro economics analysis is that restoring a higher growth path as set out in the Broad Economic Policy Guide lines is both the first priority and the most favourable way, from a politi cal and social point of view, of achieving a durable solution to the employment in the EU. problem reforms in product and Structural labour markets can contribute to this, although most of the structural policies, which should be accompa macro-economics nying the endo strategy, aim to stimulate genous i. e. forces essentially acting through increases in the productivity of the EU econ the conduct of omy and facilitating a sustainable macro-economics pol icy. of growth the Meeting the employment challenge — issues and policies 1980s, though the situation varies m a r k e d ly b e t w e en c o u n t r i es (Graph ME2641). of young people to postpone entry on to a labour market where job oppor tunities are limited. Unemployment in the Union was lower in 1995 than in 1994, but hav ing fallen from its peak of 11. 3% in April 1994 to 10. 7% in July 1995, remained unchanged before starting to rise again in November 1995 to reach 10. 9% in the Spring and 10. 8% in July 1996. Only 5 of the 15 Mem ber S t a t es have experienced a continuing fall in unemployment since mid-1995, and in 8, unemploy ment has risen (Graph ME2625) particularly in Germany (to 8. 9%, up from 8. 1% 12 months previously). of r a te l a b o ur The rise in unemployment would have been even greater if the aver- a ge force participation had not continued to fall in 1995, following its decline of the previous four years. This fall is concentrated on two groups: young men and women under 25 years, and men of all ages. The decline in participation of young people is al- m o st e x a c t ly m a t c h ed by an increase in participation in educa tion and initial training, reflecting both the efforts of Member States to improve skill levels and the decision In addition, the decline in the number of young people coming onto the labour market is likely to be reinforced by the underlying demographic trends, thus leading to considerably fewer people in the la bour market with new skills, to compensate for the rising retire ment rates in the older age groups. The continuing trend towards early retirement has had a disproportion ate effect on the participation of men over 50 years. Despite the fact that the official retirement age is 65 in most Member States, under a third of men aged 60 to 64 in the Union are still economically active, and only just over two-thirds of those aged 55 to 59. Most disturbingly, there is an increasing withdrawal from the la bour market of men in the prime age group 25 -49. Output growth and employment The renewed growth in employment in 1995 reflects the growth of GDP. Low employment rates, high unemployment rates to 1994 Employment increased in 1995 in the Union as a whole for the first time since 1991 but there is still a long way to go to make good the job losses which occurred in the three ( G r a ph y e a rs 1 9 91 ME2633). Europe lost some 5 mil lion jobs during that period and there were some 4 million fewer people employed in 1995 than four years earlier (a decline of 2V6%). In Finland and Sweden the numbers in work were some 10% lower than four years before. Employment con tinued to fall in 1995 in some Member States such as Germany, Italy and Portugal. The employ ment rate in the Union, at only around 60%, is significantly lower than it was 20 years ago and consid erably below the level in the US and Japan, in both of which it has risen ( G r a ph s i n ce ME2624). Indeed the overall per formance of the Member States in providing work for those who want it is only slightly better than after the second oil price shock in the t he m i d - 1 9 7 0s ME2 Unemployment rates, 1973-95 626 12 % labour force ME2 Employment rates, 1973*86 624 gQ % population (15-64) Japan US EUR16 70 60 -, 80 70 60 ' • SO 50 1973 1975 1977 1979 1981 1983 1986 1987 1989 1991 1993 1995 i i i i i •• * * * • • • • • ' ' 0 I I In I I « I I II I. I I I I In I I I ,1 1 il ml i I |„ iln I I I g 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 11 Meeting the employment challenge — issues and policies Employment responds to changes in output only with a lag, which is why employment can be expected to increase slowly over the Union as a whole in 1996, despite the modest rate of GDP growth now forecast, though the increase is only likely to be small. GDP growth results from a combination of growth in produc tivity (value-added per employee) and the volume of work (total em ployment). In 1995 productivity grew by 1. 9% and employment by 0. 6%. Nevertheless, growth of GDP has led to a larger rise in employ ment in some countries than in others. In Germany and Italy, GDP growth in the two years 1993 95 was around the Union average, but em ployment fell. In other Member States experiencing a similar rate of growth (Belgium, Spain, France, the UK and particularly the Neth erlands) employment increased. The need to increase employment- c r e a t i ng growth is one of t he priority objectives of the European employment strategy, the aim be ing to e n s u re t h at the o u t p ut growth which is achieved is trans lated into more jobs. In other words, the objective of policy in the Union is not simply to secure GDP growth for its own sake, but as a means of generating employment creation to provide work both for those who are unemployed and those who are dis c o u r a g ed from s e e k i ng w o rk because of the lack of job opportuni ties. It is not designed to slow down the rate of productivity growth. On the contrary, high productivity growth is a prerequisite for im proved c o m p e t i t i v e n e ss of the economy and greater prosperity. Employment creation in SME is an example of this. In t he period 1993-95, a 10% increase in turn over in SME coincided with an increase in employment of over 5%, while the same rate of turnover growth in large companies only con tributed a 3% growth of employ ment. The recent growth of employment in the Union, even in those coun t r i es w h i ch h a ve b e en m o st successful in translating growth into more jobs, was significantly be low that in the US, where GDP increased by only slightly more be tween 1993 and 1995, but where the number employed went up by an average of over 2% a year as com pared with only a marginal rise in Europe as a whole. This partly re flects the fact that whereas the US has had sustained growth in output since 1991, the European economy is in the initial stages of recovery. Largely, however, it reflects the un derlying difference in the rate of net job creation for any given growth of GDP which has been much higher over the long-term in the US than in Europe. in Various analyses have been put for the ward for this difference employment-content of growth, though there is disagreement over the relative weight to be attached to various factors. Two important ele ments are, first, the significant job losses which have occurred over the long-term in agriculture and manu facturing in Europe, which are substantially greater than in the US and which have been associated with higher output growth in the US rather than lower productivity growth and greater competitive ness and dynamism. The second element is the higher rate of net job creation achieved in t he US in services, w h e re t he growth of output (or value-added) has not differed much from that in Europe. It is the high growth of employment relative to output in this sector which underlies the h i g h ly e m p l o y m e n t - c r e a t i ng growth in the US economy as a 12 whole. There are differences, how ever, both in the scale of service sector employment growth and in the extent to which services are pro vided privately or publicly (see below). This employment perform ance is also linked to low rates of average wage increase or low rises in labour costs overall and to a com plex of factors such as the widening of wage differentials at the lower end of the wage scale, particularly in the 1970s and the 1980s com bined w i th b e t t er functioning services markets. This flexibility of the wage scale combined with the low coverage and limitations of the unemployment insurance system which obliges many of the unem ployed to work at any wage rate, is one important factor explaining the creation of low productivity jobs in services in the US. The need for action There is, therefore, no room for any let up in the pursuit of the Euro pean employment strategy, nor for any complacency arising from the slight fall in unemployment which has occurred since 1994. There is a need to continue with the moderni sation of Europe, fully deploying the potential offered by the Union. • The establishment of the Single Market is leading to the crea tion of largest the world's economy in terms of GDP and purchasing power with 370 mil lion The consumers. harmonisation of legislation in different areas and the removal of barriers to trade and the free movement of productive factors in the fields of services, public procurement or financial mar an kets, have increase in intra-EU trade and is consequently a factor in the further modernisation of the European economy, growth and resulted in Meeting the employment challenge — issues and policies to the creation. its benefits employment This process has to be pursued, im fully proved and utilised. The insufficient co-op eration between Member States over taxation, especially indi rect taxation where decisions require appears unanimity, now to be one the biggest obsta cles compatibility between one market and 15 dif ones uncoordinated ferent, with different taxation systems. Europe's infrastructure must also be developed to match the Single Market, moving from a patchwork of national networks to truly Trans-European Net works in transport, energy and telecommunications. This com properly economy, mon exploited, for offers growth, for new employment, in a way that cannot be achieved by each individual country act ing alone. scope • European Monetary Union will ensure the conditions for sus reduced tained growth and unemployment. The require ment to maintain convergence will improve the conditions for a balanced policy mix. The sta ble macro-economic framework will stimulate investment and private consumption. Moreover, Monetary Union will allow the full potential of the internal market to be realised. The per manent of exchange rate distortions will increase price transparency, competition and efficiency. elimination • The modernisation of Europe's employment systems. The old, mass-production, mainly male, and single skill, employment system has gone. The modern economy is knowledge-based, where information and technol in ogy play a crucial role an creating re-shaping the organisation of work, economy based on the skills and versatil ity of people. Each year, at least 10% of all jobs disappear and are replaced by new ones, in new processes, in new enter prises, requiring new skills. But the rapid changes on the demand side of the labour mar ket have not been matched by adequate measures on the sup ply side to improve the skill development of the work force. This two-speed labour market is one of the root causes of la bour market in Europe. The long-run competi tiveness European economy therefore depends on a new, approach where investment in human re sources, and re-training, in the reintegration im of the unemployed, will prove both the quality of the skill supply and the flexibility of the labour market. co-ordinated problems training the of in This structural change would en sure sustained employment growth in the medium and long term. This effort should be supplemented by the appropriate labour cost develop ments. In addition, sufficient job prospects, especially in services, need to be provided for that section of the labour force which cannot be reasonably be expected to become high skilled. This, in particular, will enable the European economy to face the challenge and opportuni t i es p r e s e n t ed by i n c r e a s i ng globalisation and increasing compe tition from newly industrialising and emerging countries, including not only those in South-East Asia but also those in Central and East ern Europe. Access to new markets offers opportunities which should lead to employment creation. The challenge is to develop new areas of specialisation, and new areas of job 13 creation in Europe, in place of ac tivities in which low labour costs are the key element in competition from these countries and the increasing globalisation of production in low labour cost sectors in the Union could lead to even higher unemploy ment in the Union and growing pressure for protectionist measures in these sectors. Job creation and destruction The sectoral pattern of employment growth was much the same across the Union in 1995, with business services, health, education and rec reational and personal services and the environmental sector providing most of the net addition to jobs, and job losses occurring, as in the past, in agriculture and, in most Member States, in manufacturing (except in i n s t r u m e nt engineering, partly linked to the growth of environ mental protection). This continues a long-run trend which is equally evi dent in the US and Japan. In these two economies, the sectors of activ ity in which most job growth has taken place have been remarkably similar to those in Europe, as have the sectors where employment has declined or remained largely un changed. There are differences, however, in the scale of changes. Over the recent cycle, employment in SME s has held up well. From 1988-1990, while employment in in all size c l a s s e s, it c r e a s ed expanded more significantly in SMEs. From 1991, employment in very small enterprises (less than 10 employees) continued to increase. In small (10-^49) and medium-sized (50-249) enterprises, employment held up, while employment in large companies started to fall. Since the upturn, however, employment in Meeting the employment challenge — issues and policies large companies has recovered sub stantially. In Europe, 18 million additional jobs were gained in services in the 13 years 1980 to 1993, compared with 22 million in the US. In propor tional terms the scale of job growth was around a third higher in the US than in Europe. Communal services (health, social services and education), together with recrea t i o n al a nd l e i s u re a c t i v i t i e s, contributed almost 1% a year to em ployment in the US and about Vi% a year in Europe, as well as in Ja pan. The only other sectors which were a significant source of net job creation in Europe and the US were business services, distribution and hotels and restaurants. A bigger difference between Europe and the US, and even more between Europe and Japan, was in industry and agriculture. In Europe, employ ment in these two sectors combined fell by 13 million. In the US, they fell by under 2 million and in Japan, they increased slightly. These dif ferences are principally due to changes in employment in industry, as employment in agriculture fell in all three economies, — albeit to a different extent. In quantitative terms, the scale of job losses in these two sectors are a more important aspect of the poor employment per formance of Europe in relation to the US than the lower rate of job creation in services: applying the same speed of job creation in serv ices as in the US, the EU would have created 7 million additional jobs while manufacturing industry effectively destroyed 6 million more than in the US and agriculture and construction together lost some 4 million more. higher rate of output growth rather than a lower rate of productivity growth. Indeed, the latter has also been higher than in Europe over the past 15 years, so helping, with the considerable devaluation of the dol lar against other currencies, to boost the competitiveness of US producers in home and export mar kets and t h us to underpin the expansion of output. In services, on the other hand, out put growth seems to have been much the same in the US as in Europe, the greater expansion of jobs in this case reflecting a much lower growth of productivity in the former or, in other words, a more employment-intensive pattern of development. This, however, does not seem simply to be related to a lower rate of average wage increase in the US service since the growth of real wage costs in services (+3. 9% during the period 1984-94) has not been so much lower than in Europe (+4. 7%). It is could also be related to wider wage dispersion, especially at the bottom end of the earnings scale during the 1970s and 1980s when a significant proportion of the new jobs created in services in the US seem to have been for low-paid, low skilled workers. However, in the 1990s a reversal of the trend for the US seems to have occurred: the evidence on the sec toral location of new jobs in the US suggests that employment growth h as been concentrated in more highly skilled activities. Indeed, 68% of the net growth in full-time employment between 1994 and 1996 was found in job categories paying above-median wages. Fur t h e r m o r e, 52% of employment growth was found in the top 30% of job categories. This superior employment perform ance of the US in industry, unlike in services, entirely reflects a much This has been accompanied by a policy change in the US which now - 14 a m o ng emphasises much more the need to improve the quality of jobs, particu- l a r ly l o w - s k i l l ed occupations, hence the efforts of the US administration to improve and expand training and employability. This convergence in policy ap p r o a ch w as r e f l e c t ed t he conclusions of the G7 Jobs Summit in Lille. in Sectoral mobility and job turnover In Europe as in the US, the scale of job creation and loss each year is substantial, many times greater than the net changes in employ ment which are usually the focus of attention. An average of around 1 in 8 of those in employment in the Union at any time were either not working at all or were not working in the same sector a year before. Adding the number who change jobs within sectors produces a fig ure for job turnover each year of around 1 in 6 which seems to be on a par with that in the US and, in some Member S t a t e s, such as Spain, Denmark, the Netherlands or the UK, a figure higher than this. The scale of movement into and out of sectors of activity, however, bears little relationship to their rate of e m p l o y m e nt g r o w th or e v en whether they are expanding or de clining. More important seem to be the skill levels required of workers and by implication the amount of training needed to do the job. In agriculture, therefore, job turnover (in t e r ms of e m p l o y e es only) amounts to 20-25% a year, while in hotels and restaurants, it is almost 30%. By contrast, in banking and insurance and public administra t i o n, w h e re e d u c a t i o n al a nd training requirements are on aver age markedly higher, only some 9% of employees tend to be new to the Meeting the employment challenge — issues and policies sector each year. This reflects, in some degree, the difficulties of peo ple moving from one profession to another (rather than between simi lar jobs in different sectors) in a number of countries, which still seem to be one source of labour mar- k et It c an be questioned, however, whether the increasing existence of two-worker households is a factor limiting geo graphical mobility. i n f l e x i b i l i t y. The need for action The comparative experience of Europe and the US in terms of em ployment growth raises a number of policy questions which are not so easy to answer. the lessons • The US has succeeded in gener ating more jobs and achieving a more employment-creating pat tern of growth. The reasons for this and to be learned by European Union Member States remain open to debate and revolve around so cial, political and cultural as well as economic factors. Al though wage dispersion at the lower end of the wage scale in the US compared to Europe is one important factor, other fac- tors such as differences in the degree of mobility of labour (for a variety of reasons) and in the regulation of goods and services markets are also at play. While it is doubtful if the same kind of wage differentiation is compat ible with the European Social model, there is anyway a grow ing convergence of views on the approach to the problem as dem onstrated by the conclusions of the G7 Jobs Summit, which noted that there should not have to be a choice between worsen and unemployment ing widening inequality. income There is, however, no question that pragmatic reforms are nec possible essary disincentives to job search and achieve better functioning la bour markets. In this context, reducing non-wage labour costs — especially if targeted at the lower-end of the wage scale — would help to increase employ ment. But the impact is likely to be limited, so that it is all the more important to meet the con ditions for raising the rate of growth higher than the produc tivity trend and to address any other factors which may hinder the growth potential of the European economy. remove to ME Change in part-tine and full-time 262 employment, 1967-98 |in base year 1987 1968 1969 1990 1991 19S2 1993 1994 1995 Moreover, though the policy fo cus tends to be on the growth sectors per se and on measures for stimulating the development of new activities, a large part of Europe's failure to sustain high enough rates of employment growth is the result of the scale of job losses in declining sectors. These are predominantly due, not to technological advance and automation destroying jobs but to lower rates of output growth. This points for to improved levels of competitive the need 15 ness and more favourable mar ket conditions. the • The scale of job turnover does not suggest that labour mar kets are excessively inflexible, at least in terms of unduly lim iting flow of workers between sectors. The evidence does suggest, however, that low skilled workers account for a large part of these flows and that it is perhaps easier for them to move between different activities those with higher and usually more spe cific skills. than Flexibility and security t he n e ed The debate in recent years has in for c r e a s i n g ly cited increased flexibility on European labour m a r k e ts as a necessary structural condition for competi tiveness and employment growth. Much less consensus exists on what this flexibility means, how it should come about and whether it is a suf ficient condition of growth. At the same time, there is comprehensive evidence that the European labour markets are becoming more flexible in terms of work organisation, the regulatory framework and working time arrangements. The number of people working at night and at weekends has in creased in most parts of the Union in the past few years — although many people remain reluctant to do so (a recent survey of employers in five countries suggest that firms have difficulty in finding staff to work on Saturdays) — signifying some move towards more flexible working arrangements. At the same time, the average length of the working week for those working full-time has hardly changed at all Meeting the employment challenge — issues and policies over the last 10 years and actually increased between 1990 and 1995. The reduction in average working time that has occurred over the past decade or so across the Union has been partly a result of the shift in employment between sectors (in particular, the loss of jobs in agri culture where long hours tend to be worked) but mainly as a result of increased part-time working. Indeed, the majority of the net ad ditional jobs created during the early 1990s were part-time, both for women and men, and this trend continued in 1995 (Graph ME2626). Some 71% of the net additional jobs for men were part-time, and around 85% of those for women. This re flects a move towards a more flexible labour market, including the fact that employment rights of part-time workers are often weaker than those of full-timers. In addi tion, the relatively small growth in full-time jobs for men has probably contributed in large part to their withdrawal from the labour mar ket. The big rise in p a r t - t i me working among men has occurred in the prime-age group where it is up by 50% over the period 1990 95, and a significant proportion of these have taken a part-time job because they could not find a full-time one. T e m p o r a ry Similarly, a high proportion of the jobs created in 1995 were tempo r a r y. w o r k i ng accounted for all of the increase in the employment of men in the Un ion and just under half of the rise in the employment of women. While temporary working accounts for a relatively small proportion of total employment in the Union (around 12%), over 50% of the unemployed who found jobs in 1995 took tempo rary positions. A slightly larger proportion of the under-25 year- olds took temporary jobs (51% compared with 45% of those aged 25—49). While some these jobs in volved a period of training, this is not a reason for accepting a tempo- r a ry j o b. T he s h a re of t h o se unemployed who benefited from such on-the-job training was actu ally less than the share of those already employed. Thus, for most of these people, temporary jobs were the only ones available. The relationship between tempo rary employment and educational attainment level is not uniform across the Union and it cannot gen erally be said that temporary jobs and low skills go together. While it is true that in the South of the Un ion a relatively high proportion of those with a low educational attain ment level tend to be in temporary jobs, in the North, there is a greater chance that someone with a high educational level will be in tempo rary employment t h an someone with a lower level. Most Member States regard the ex- p a n s i on of f l e x i b le w o r k i ng arrangements as a key element in the changing pattern of employ ment, particularly through the relaxation of regulations on part- time work and temporary contracts, but also through the re-regulation of rules on working time. Other regulations, notably on recruitment and dismissal may affect employ ment creation and the speed with which firms adjust their labour force in response to change. In sev eral Member States a specific link between more flexible conditions of work and job creation has been put in place. The need for action While the above evidence suggests that there is more flexibility in the European economy than 10 years ago, the impact of this so far on employment creation is not appar 16 ent. This may suggest that some barriers to job growth still exist. This raises the question why the employment potential of more flex i b le w o rk a nd w o r k i ng t i me arrangements does not materialise. The explanation seems to be related to the way enterprises go about the reorganisation of production and working arrangements. Such meas ures are often confined to changes at the margin of the workforce through expanding the use of out sourcing, temporary contracts and atypical work arrangements. In or der to exploit fully the employment potential of new forms of work or ganisation a positive and broader approach is warranted, involving the workers actively in the process. • Any policy of work redistribu tion depends on lowering the barriers between internal and external labour markets so that people without jobs can move into employment and those with part-time and temporary jobs can move into more secure full-time ones. The introduction of policies to promote flexibility, such as making it easier to em time workers or ploy part people on fixed term contracts, raises issues of the role of the social safety net and equality between women and. men. • A reduction of working reorganisation time which is accompanied by an in telligent of working time can provide gains for both employers and employ ees. Encouraging the diffusion of innovative working organisa tion and working time changes and good practice in managing organisational change should be developed, especially for small and medium sized enter prises. Experiments bringing together reductions in working time and tax or social security advantages, which until now have been fairly limited and the mainly firm or local level, should also be developed. implemented at • The continuing existence of ri gidities on goods and services markets is preventing the full potential of increased flexibility on labour markets from being realised. Such rigidities must be identified and action taken to overcome them. • The 'learning company* must emerge as a vital component of flexibility. This will require new forms of partnership be tween other business, organisations, and educators, to ensure that the necessary new and changing skills are made available. Upgrading skills dur ing existing working time can make a more important contri bution to increased flexibility than in working time itself. reductions • The capacity of enterprises to adapt to changes in technology and the market depends on the in effectiveness of the way which they are organised to ex- ME Population aged 25-59 by education 202 level, 1095 % total •ThWtewl « Upper «oomtery lave! 2M 30-4 4<M 4M «M 55-9 Meeting the employment challenge — issues and policies • Greater flexibility in a context of employability and security will depend on the existence of an adequate level of social pro tection. Experience in certain countries demonstrates that a flexible economy can be main tained by combining an efficient active labour market policy with high levels of social protec tion. High levels of output and production can provide for a system based on consensus about the respective role and obligations of labour market policy, employers and workers to enable markets to be flexible. Recent trends in Danish labour market policy provide an exam ple of consensus approach. The Danish experi ence demonstrates, however, that such a system needs to be supplemented with tight control and enforcement rules in order to contain its budgetary costs and prevent la bour supply disincentives. such also a There is a need for a radical rethink of all relevant labour market sys tems — employment protection, working time, social protection and health and safety — to adapt them to a world of work which will be organised differently, in which the concept of security for workers has to be reformulated, focusing more on security based on employability in the labour market rather security based on the individual's work place. The focus should move away from a simplistic debate about regu lation-deregulation towards a new balance between flexibility and em ployability security, with tangible benefits for both workers and em ployers. A widespread feeling of insecurity not just among the unem ployed but also among those in employment has contributed to a low level of consumer confidence innovation ploit non-material resources, in particular, research and de and velopment, lifelong training. To meet this challenge, and, at the same time, to maintain the balance between flexibility and secu enterprises must be rity, organised in such a way as to offer all workers permanent ac and cess to information strengthen to adapt and their employability. their capacity knowledge order in to • The employability of the work force must be continuously reinforced training. through Otherwise, as firms develop more flexible employment con tracts, with lower levels of job security, so as to rapidly adjust to changes in labour demand, the rationale for investment in the training of a principal la bour force may weaken. Large Japanese firms invest in train ing in the context of life-long employment systems so that the returns on training are kept within the firm. In Europe flexibility must not be defined in terms of increased job inse of curity. enterprises to adjust to market and technological change de pends on the existence and co-operation of a skilled, core labour force. capacity The relation • A European concept of security to employment in should focus on the employabil ity of workers in the labour market rather than on their se curity in their existing job, thus promoting both flexibility and the acceptance of change, as part of the process of improving productivity and employment creation. 17 Meeting the employment challenge — issues and policies and dampened prospects for recov ery. Skills for the future Technological developments and competition between enterprises are stimulating the speed of struc tural change. Ten years from now, 80% of the technology we operate today will be obsolete, and replaced with new, more advanced technolo gies. By t h at time, 80% of the workforce will be working on the basis of formal education and train ing more than 10 years old. The trend towards the upskilling of the labour force is inexorable. Be tween 1983 and 1991, the numbers of people classified as managerial, professional and technical workers expanded by over 25% a year, while total employment growth was only some 1% a year. The shift of employ m e nt t o w a r ds h i g h e r - s k i l l ed occupations in the Union continued in 1995. Increased employment of people in these occupations ac counted for most of the increase in e m p l o y m e nt of b o th m en a nd women which occurred in the year. But a high level of educational at tainment is not a guarantee of employment. In all Member States there is a growing proportion of peo ple with higher levels of educational attainment who are unemployed. Various factors have created this apparent paradox. The rising over all level of educational attainment is likely to mean that the proportion of more highly qualified people among the unemployed will in c r e a s e. A l t h o u gh l e v e ls of educational attainment are rising, the education and training being provided in many cases does not match the skills required, in terms of both the wider range of skills and greater flexibility. The pattern of sectoral employment change has important implications for the skills and education attain ment levels required of the work force. The sectors where jobs are expanding most rapidly are, in gen eral, though not invariably, ones in which workers are relatively highly educated and trained, while those in which employment is declining tend to be ones where education and low. skill levels are relatively Whereas in declining sectors, some 45% of those employed in the Union had not progressed beyond basic schooling and only 13% had univer sity degrees or the equivalent, in the high growth sectors, only 27% had only basic schooling and 35% though university degrees, even this group of sectors includes hotels and restaurants which have a work force with among the lowest educa tion levels. Moreover, a significantly higher proportion of those with low educa tion levels are prone to lose their jobs than in the case of those with h i g h er s k i l l s, i r r e s p e c t i ve of whether they work in growing or declining sectors. The clear implica tion is that sectoral trends are reinforcing the occupational trends within sectors and reducing the de mand for low skilled workers while raising that for those with higher education levels. In recent years, Member States have taken many steps to improve the structure, quality, and suitabil ity of vocational education and training, both for employees and the unemployed (Graph ME2627). A wide variety of instruments have been used to promote investment in training for those i n work, including training levies (IRL), compulsory training investment (F), tax relief or reductions in social contributions (F, NL). A widespread measure is - 18 the promotion of training leave (B, DK, D, F, P, FIN, SV). All Member States also have a wide range of training programmes for the unemployed; in most of them, the promotion of participation is a cornerstone of the activation of la bour market policies (see below). Despite this, however, there are in dications that the proportion of the unemployed aged 25 59 in training has fallen slightly over the last 3 years from 7. 1% to 6. 9%. Despite the above improvements, it is doubtful whether the current rate of human resources development and the institutional arrangements in place are sufficient for Europe to meet the global challenges of the 21st century. The need for action The challenge for policy is therefore twofold: first, to make a quantum leap in investment in human re sources to raise overall skill levels to meet the trend towards more skilled jobs. This implies both bet t er quality and m a r k e t - d r i v en education and training, and a sub s t a n t i al t he i m p r o v e m e nt efficiency and appropriateness of current schemes. Secondly, to pre pare an acceptable workforce able to meet the needs of continuous structural change. This entails two types of action: for the unemployed and new entrants to the labour mar- a l r e a dy k e t; a nd employed, who make up the major ity of the labour force. t h o se for in • needs, In a labour market with ever- increasing too skill many unemployed people are insufficiently qualified. People inadequate with outdated or training find it difficult to re enter the workforce. Rising overall skill levels imply that those with lower educational attainment will be left even fur ther behind and at greater risk of social exclusion. A particular effort is needed to raise their skill levels to enable them to compete more effectively in an labour ever more competitive market. for important • But the even bigger challenge lies in retraining those already employed to adapt to the new requirements. This is particu lower larly * skilled workers, where upgrad ing and broadening of skills while in work could be the most significant and cost effective in vestment to be made to prevent long term unemployment and promote employability. Most training and retraining is or ganised (see below), not for people already in the workplace, or for those who have been working for 10, 20 or 30 years and have lost their jobs. the young for • life. in order Improved training design and provision should be based on a partnership between industry to and government, link both to the needs of work ing must recognise its role in the provi sion of training to its workforce, and public provision of training must respond to the needs of industry and the desires of em ployees. Industry • Upskilling the labour force will involve a substantial overhaul of education and training that can match the ICT revolution and keep pace with the contin ued ICT development the years to come. This implies a interplay between work new and training, instead of the old interplay between work and in Meeting the employment challenge — issues and policies to non-work. The education sys tem must be transformed from teaching learning. Enter prises must offer more learning by doing. The unemployed must be offered retraining instead of long-term unemployment and de-skilling. • Stopping the decline in the par ticipation of older workers, particularly men, in the labour market is a major challenge. Many of those taking early re tirement are low-skilled, the often after an extensive period of long-term unemployment. It seems as if society neither knew nor cared what to do with them. The future competitive ness of the European economy and workforce depends on the continued participation of these people in work. Efforts to im prove upgrading and upskilling should concentrate more heav ily on this group. Europe needs to develop a new ar chitecture of life-long education and training, with particular regard to gender, but also aimed more effec tively at older people and those with disabilities. This effort is now being initiated by the 1996 European Year of Lifelong Learning and the Com mission's White Paper on Teaching and Learning. But the urgent need is to arrest the growing skill obsoles cence working the adult population both those who are still employed and those who have re treated from working life. of Structural goals for employment policy The Essen re-employment strategy underlined the priority to be given to certain disadvantaged groups on ME2Youth unemployment in Member States, 1990 and 629 1995 45 40 35 30 25 20 15 L 10 5 H 11990 11995 45 40 35 30 25 H 20 15 10 B OK o an e F ira. i u ML o P Sf s U R EU 8 OK D OR 6 F iw, i i NL o P SF s UKEIS % Labour Force % Population 19- Meeting the employment challenge — issues and policies the labour market: young people, the long term unemployed, and un employed women. Subsequently, in the Single Report to the Madrid Summit and the In to t he F l o r e n ce t e r im R e p o rt Summit the strategy has been de veloped and translated into three structural goals for employment policy. • Integration of young people into working life: all young people should be provided with the level of education, training and work experience needed to make them employable • Prevention of long term un employment: all unemployed people should have the opportu nity and reaching reintegration before the point of long term unem ployment retraining of for policies • Mainstreaming of all employ ment equal opportunities: An active policy of de-segregation of the labour market should be pursued us ing a renewed approach to part time working as a transitional measure and the reconciliation ME Long-term unemployment in the 262 Union, 1966-95 % of unemployed B unemployed > 1 year • Unemployed > 2 years 1986196719661960199019911992199319941995 of family and working life for men and women. The purpose of these structural goals is not to limit the policies to certain groups. On the contrary: the purpose is to develop a comprehen sive policy to get the whole labour market to work better. The integration of young people into the labour market Youth unemployment is still twice as high as that of adults, at over 20% on average. The gap between youth unemployment and adult un e m p l o y m e nt w h i ch n a r r o w ed appreciably during the second half of the 1980s when unemployment fell widened again in the recession of the early 1990s. But it remains smaller than a decade ago and the numbers affected are much smaller, because of the decline in participa tion coupled with the fall in the population of young people (Graph ME2629). The number of young people enter ing the labour force in 1995 in the Union would have fallen naturally even without any fall in participa tion because the size of this age group is declining in most Member States. This demographic effect alone reduced the size of the youth labour force by around 1% in 1995, and when the participation effect is added, the decline was some 3% in this one year alone. Unlike in other age groups, these trends are almost equally shared between men and women. to i m p r o ve Much of the action taken by Mem t he b er S t a t es employment prospects of young people, aims at providing the oppor tunities to acquire the right skills and qualifications for the job mar ket and avoid unemployment. In particular, action has focused on re ducing the number of young people leaving the educational and/or training system prematurely and with few or no qualifications. Some Member States guarantee a training place to young people who want one when they leave compul sory schooling (NL, UK). Other Member States ensure that a mini mum n u m b er of places will be provided in upper-secondary school to ensure that anyone who wishes to stay on will be able to do so (FIN, SV). Various Member States have set targets to increase participation rates at various levels (F, IT, ES, UK). Even in Member States with long traditions of apprenticeship schemes, steps are being taken to strengthen them or improve their image with employers and young people. Other Member States are developing or widening their voca tional training systems in order to make them more attractive. The need for action Since the employment and unem ployment rates of young people are highly responsive to overall labour market trends, a successful youth strategy will involve a combination of: supply-side policies to equip young people adequately for the la bour m a r k e t, and demand-side policies to improve the functioning of the labour market and attack the root causes of high and persistent youth unemployment. • On the supply-side, early inter vention is the key to preventing young people from becoming unemployed and subsequently drifting into long-term unem suggests ployment. Evidence that those without qualifica tions are four times more likely those to be unemployed than 20 with Policy qualifications. should focus on reducing illiter acy and school failure and increasing levels of educational attainment. Some countries have set quantitative and time- improving bound standards. Where they exist, they should be supported by adequate resources. targets for For unemployed young people active policy measures should be triggered much sooner than is usually the case at present. Over-emphasis on legal rules linked to qualification for bene fit can push young people into long waiting periods and raises the risk of active labour market policy becoming remedial and subservient to the benefit sys tem rather than pro-actively seeking to get these young peo ple into work. to develop Once young people enter the la bour market, they should have access to an integrated package of advice and guidance and the opportunity the skills and experience required. Modernising the apprenticeship model where it exists, and de veloping programmes which reflect the essence of the dual system is one way to achieve this. For those who already have vocational qualifications, access to jobs to enable them to gain relevant work experience is the most important. Coun tries which make a guarantee of an offer of work experience or training at a certain point of unemployment have been suc cessful in significantly reducing youth unemployment. On the demand-side the provi sion of work-experience and entry-level jobs are essential. The social partners have a key Meeting the employment challenge — issues and policies and role to play in making that hap pen developing in innovative forms of work organ isation (career breaks, gradual retirement etc. ) and flexible working time to create addi tional openings to help young people into the labour market. and Preventing and combating unem ployment p a r t i c u l a r ly long-term unemployment among Europe's young people requires tar geted, early, active labour market measures of linked work experience and training opportunities for the 3 million young people who have al ready been out of work for at least six months. They should be de signed to maximise the life-time employment chances of this group, reducing the risk of unemployment later in life. The prevention of long-term unemployment Long-term unemployment in the Union increased during 1995 from 48% of those unemployed to over 50% (EUR12). The proportion of the unemployed without jobs for two years or more rose by even more, from 27% to over 30% (Graph ME2628). Long-term unemploy ment has risen continuously since 1992 when the proportion was down to a 10-year low of 41%. A much higher proportion of those currently unemployed will have ex perienced a previous spell of unemployment (often a spell of long- term unemployment) than those currently employed. The proportion of the workforce experiencing a spell of unemployment, neverthe- BRU Participation of women aged 25-49 in Member 1415 States, 1987 and 1095 100 r i 100 B DK D GR E F IRL I L NL A P SF S UK E15 E15 includes new Lander (D 87: estimation); SF, S: 1985; S: 25-44 - 2 1- Meeting the employment challenge — issues and policies less, seems to have increased over time. Around 45% of young people under 25 in the Union have experi enced a spell of unemployment either before or after starting their first job. Long-term unemployment is the re sult of the outflows and inflows into u n e m p l o y m e n t. Evidence from some Member States suggests that some 20% of those who become ur employed are likely to become long-term unemployed. Long term unemployment also leads to de-skilling. Individuals not only lose confidence and self-esteem during long periods of unemploy ment, they also lose employability. This process has profound conse quences for individuals and for the economy as a whole. The scale of long term unemploy ment is an indicator of deficiencies in economic and employment poli cies. T he overall e m p l o y m e nt situation explains part of the prob- lem, b ut t he different l a b o ur market policy strategies are as im portant. Member States with a proactive policy have been more successful in preventing long term unemployment (Luxembourg, Den mark, Austria, Sweden). Most Member States have had a benefit-oriented strategy with a small element of active policies, and active measures are often focused on curing, not on preventing, long term unemployment. Curing meas ures are necessary and important, but if labour market policy is con fined to such measures, there is a risk of giving wrong signals to job- seekers, enterprises and to the employment service, delaying ac tion and thereby maintaining, or even creating, long term unemploy ment. The need for action from Policy action needs to approach the problem of long-term unemploy m e nt d i r e c t i o n s: two reintegrating the long-term unem p l o y ed b a ck i n to w o r k, a nd preventing the unemployed from becoming long-term unemployed. This approach is motivated by two considerations. Firstly, proactive measures aim to stop the inflow into long term unemployment, acting on the number of long term unem ployed, the length of unemployment spells and total unemployment. Secondly, measures are likely to be more cost effective if actions are taken when people still have confi dence and employability. • Reintegration should start long before people become long term unemployed and discouraged. Member States must give a clear expression in their Multi- this annual programmes that preventive approach agreed will be the implemented daily work of the employment service. in • Early action requires system atic monitoring of people who risk becoming long term unem ployed. The local employment service must be capable of de livering a high quality guidance and counselling service. • Successful reintegration often includes training for the new more skilled jobs; greater tar geting of the skill needs of local enterprises and of the economy the pros improves pects for the unemployed. • Combined measures of training and work experience may help to overcome resistance to train ing, motivating the long-term unemployed by pointing to pos 22- sible labour market opportuni is ties. On-the-job experience more appreciated by employers than pure training. and joint • Employment creation schemes should be based on active part nership funding involving all actors in the local labour market. Particular em phasis should be put on the active participation of the social partners. Smaller job creation programmes, targeted disadvantaged at groups and communities often offer a greater potential and than are more cost-effective scale large some schemes. the most scale the of tackling and for • More generally, successful pre vention re-integration long- strategies term unemployment and social exclusion depend on the devel institutions opment of wider (full- and support structures time part-time work, self-employment, education and training, reconciliation of fam ily and work). and • The effectiveness and value of active labour market policies to prevent and combat long-term be unemployment judged not only in terms of short-term placements, but also in terms of long-term employ- ability. should • The concept of transitional la bour markets , with short term jobs that help to maintain or re gain employability, should be developed as an important ele ment proactive, an in preventive strategy. Early action is the crucial element in the fight against long-term un employment, both for prevention Meeting the employment challenge — issues and policies and reintegration. The nature of long-term unemployment implies a differentiated approach to match the diverse needs of this group, in- c l u d i ng a p p r o p r i a te s u p p o rt structures, combined training and work experience and the active in v o l v e m e nt p u b l ic of employment service. t he The promotion of equal opportunities for women and men m a r k et Equality of opportunity for women and men is a key objective of the European employment strategy. Partly this is due to the increased participation of women in the la b o ur t h e ir ever-increasing role in the Euro pean economy. To a certain extent, therefore, women are already expe riencing real, though incomplete, progress in equality of access, as well as in opportunity, conditions and remuneration. a nd Women, for the past 20 years or more, have accounted for the entire growth of the Union's workforce, and are likely to continue to do so in the future. Rates of women's par ticipation, taking for example the 25 49 age group, show a rise, during the short period between 1987 and 1995, from 63% to just over 70% of the population across the 15 Mem ber States (Graph BRU 1415). It has risen, during that period, in all of them except Denmark, Finland and Sweden, where it is still high at over 80%, and the increase has been es pecially pronounced in countries where the level was low at the start of this period, such as Spain and Ireland, where it rose from around 40% to around 58-59%. Neverthe less, participation of women in this age group remains less than in the US, where it is nearer to 80% — an - effective difference in the number of women employed (i. e. allowing for the difference in the size of the population) of around 6 million. While the employment and partici pation rates of women have tended to increase over time, those of men have tended to decline. Just over 62% of the net additional jobs cre ated in the Union in 1995, as in all of the recent past, went to women rather than men. To a certain ex t e nt t h is reflects t he sectoral pattern of changes in employment with job growth being concentrated in services, and agriculture and manufacturing jobs, which are pre d o m i n a n t ly by m e n, filled continuing to decline. The sectors of activity which are growing most rapidly in terms of employment are those in which women account for a disproportion ate share of the work force. Over 60% of the jobs in these sectors are filled by women in the Union and a similar share of any additional jobs being created go to women rather than men. By contrast, men account for over 70% of employment in the declining industrial sectors. A sig nificant proportion of the women in the growing service sectors are highly educated with university de grees or the equivalent. Indeed, some 70% of women with such qualifications worked in these sec tors in 1995 as opposed to only 46% of men with similar education lev els. More significantly perhaps, just over 40% of women with only a basic level of education also worked in the growing sectors of activity as com pared with only 14% of men. However, unemployment of women has hardly been affected at all by the recovery and remains higher than that for men in all Member States except in the UK and Swe den. The average rate over the - 23 Union as a whole declined by less than that of men between 1994 and 1995. But between mid-1995 and Spring 1996, the rate for both men and women edged up to much the same extent before stabilising. Ger t h at m a ny is an exception in unemployment of men has risen much faster than that of women, though this largely reflects the sig nificant withdrawal of women from the labour force in the former East Germany where their participation had been particularly high. The need for action • The continued participation of women in the labour market is an essential element in the future development of employ ment in Europe, particularly in view of the future demographic trends. High levels of female participation are linked to high levels of employment growth, of income and overall economic development. should therefore be directed at ensur ing and facilitating the access of women to adequate and appro priate job opportunities. Policy tend affected are more • Despite the fact that a higher proportion of the jobs being cre to be for women ated than men, it remains rather true that women across the Un ion by unemployment than men. It is important to implement suit able policy action to ensure that women are fairly and equitably treated in the work place and have every opportunity to com caring bine responsibilities without suffer ing career disadvantages. work with • A crucial element is a higher and more effective provision of facilities to support household members to reconcile work and Meeting the employment challenge — issues and policies family responsibilities (includ ing both childcare and care of the elderly). This implies a re vision of all those regulations which directly or indirectly pe nalise when women for child- interrupting work bearing caring responsibilities. or to long-term this unemployment • There is a pressing need not to neglect the many men whose skills are no longer required on the labour market and who are condemned idle is called ness, whether long-term or early retirement. So far, no ef fective measures have been devised to assist them back into work and policy remains fo cused on passive measures of income support in a variety of guises (unemployment benefits, disability benefits, early retire ment social assistance). pensions or • Mainstreaming equal opportu nities policy into labour market policy impact implies gender assessment to see if govern ment policies have unintended, important ef unforeseen but fects relations gender on although they are assumed to apply equally to both women and men and affect them in the same way. Policy efforts should be directed to removing labour market segrega tion and all existing barriers which prevent women improving their situation on the labour market. Women's employment is charac t e r i s ed by too m u ch low pay, atypical work, insecure job condi t i o ns c a r e er too possibilities. Policy should concen t r a te on m a i n s t r e a m i ng equal opportunities for women and men. a nd few s y s t e ms b e n e f it to strengthen incentives to active job search. in o r d er The role of the Public Employment Services (PES) is recognised in all Member States as a key instrument in the fight against unemployment and the achievement of a high de gree of flexibility in the labour market. In response to criticisms stressing the perceived ineffective ness of PES in the light of the changing needs of the labour mar ket, most Member States have recently reformed their employ ment services. This often involves a decentralisation of the PES, de r e g u l a t i on p r o g r e s s i ve a nd extension of private services in placement activities, the provision of more targeted counselling to job- seekers, and the effort to increase levels of customer orientation. In 1995, the 15 EU Member States spent approximately 180 billion ECU in labour market policies, of which ECU 63 billion was spent on active measures. Only slightly more than one third of total expenditure was spent on measures specifically designed to promote the reintegra tion of the unemployed, rather than to support their income. Increasing awareness of the rela tive modesty of active policies in total spending by most Member States as well as of the alarmingly high level of long-term unemploy ment, has led many to undertake efforts to shift expenditure from passive income support of the un employed to active labour market measures to help them find work. This is difficult to achieve, espe cially during a recession when the numbers of the unemployed in c r e a se a nd e x e rt p r e s s u re on resources. The recent trends in ex penditure illustrate the tendency From passive to active measures to promote participation and job access a nd u n e m p l o y e d, A number of factors, particularly macro-economics developments, played a role in the emergence of mass unemployment. But struc tural factors also had an impact. Rising unemployment is the result of two factors: more people becom- t he i ng l e n g t h e n i ng of u n e m p l o y m e nt spells. Imbalances in labour market policies may have aggravated struc t u r al unemployment by merely offering income support to the ma jority of the unemployed, instead of the means of acquiring new skills for a re-start in the new, more skill- based labour market. This may have promoted the emergence of long-term unemployment and so cial exclusion. Multi-Annual Employment Pro grammes confirm a widespread belief t h at public e x p e n d i t u re should be re-balanced from passive to active policies. It makes more sense to finance employment crea tion or training than merely to support the income of the unem ployed and to shift outlays from consumption to investment. How ever, the ways of obtaining this outcome are diverse. In some cases, priority has been given to a direct substitution of passive outlays by active ones, such as training and job offers, and new measures tend to focus more on opportunities to take up a new job. In others, an improved complementarity between these two categories of expenditure has been sought, by connecting income m a i n t e n a n ce a nd a c t i ve pro grammes more efficiently through a r e s t r u c t u r i ng of unemployment - 2 4- for passive policies to crowd out ac tive ones in recession periods. Between 1990 and 1994, the aver age share of active policies in total spending in the Union declined from 36% to 33% before increasing to 35% in 1995. to activate The increase in 1995 can be attrib uted in part to a slight reduction in unemployment, partly to identifi labour able efforts market policy. This strategy is not limited to a substitution of passive by active expenditure. An impor tant part of that strategy has been an overhaul of the unemployment benefit system, to ensure that the level and duration of unemploy ment and related welfare benefits do not act as a disincentive to job search and to integrate income sup port more fully into the delivery of active programmes. The need for action • A successful outcome to such a policy change will depend on action both to re-examine the objectives and interaction of both active and passive meas ures, and an examination and strengthening of instru ments used. the • from passive It should be accompanied by a review of the incentive function of benefit provisions. This should aim at two effects. First to change individual prefer income ences support to active job search and participation. Secondly, making tailor-made programmes avail able to help the unemployed to find a durable solution to their problems. Such a move from passive to active measures is crucial not only to reintegrating those already unemployed but also to engaging the productive potential of the whole labour Meeting the employment challenge — issues and policies training and mation function, providing in formation to job seekers and employers about programmes and measures, and the third is the guidance function, provid ing advice and counselling to job seekers about job opportuni ties, retraining, and schemes. The fourth is the delivery function, managing ac tive close programmes in the other co-ordination with functions and the income sup port system. The latter three will demand a much more pro active role to be played by the employment services, but po tentially greatest scope. offer the The policy challenge: from uncertainty to confidence With the Single Market, Europe is taking a leap forward in the mod ernisation of the economy. It offers the framework and the potential for growth and employment-oriented macro-economic policies, allowing Member States to make better use of the multiplier effect, as empha sised in the Commission's Action for Employment in Europe — A Confi dence Pact. Together with the continued support for employment from the activities of the Commu nity Structural Funds, in particular the European Social Fund, which play a significant role in promoting economic and social cohesion be tween and within Member States, it highlights the potential of the inte gration process. This potential has not yet been used to optimum effect. Sustained co-ordinated action gives more value added than the sum of individual, disparate measures in each Member State. This approach involves replacing the zero-sum game of beggar-thy-neighbour poli- force. But it is only achievable if there is a clear and mutual understanding of reciprocal re sponsibility the unemployed and the public in stitutions which are there to help them to return into em ployment. between Member States use a wide range of measures to increase benefit incentives, in particular to hire employees with low skills and to make them accept a new job rather than remain inactive. Such measures need to strike a difficult balance be tween their direct and indirect effects. They may increase pressure on the unemployed to accept employment, but dis courage their spouses. They may reduce marginal tax rates at the lower end, but increase the median or average wage. This may reduce total labour costs for lower skilled jobs, but with a substantial fiscal im of review pact. is required and programmes the most efficient solutions need to be identified. Careful the this A crucial instrument for achiev is ing public employment service. A wide range of measures are being used by Member States to de velop and reform the services. The aim so far has focused on decentralisation, regulation, and more targeting of special needs groups. Further reforms should aim at strengthening the four major functions of the public employment service in order that they can play a full role in the activation of labour market policies. The first of is the conventional job these brokerage function, bringing to gether job offers. The second is the infor seekers and job 25 Meeting the employment challenge — issues and policies cies with a plus-sum game of co-or dinated growth policy, creating confidence among consumers and investors. Community offers the best chance of overcoming the climate of uncer tainty and moving ahead with confidence in the future. This report has pointed out the ar eas of action which still need to be addressed if the European employ ment strategy is to be pursued successfully. The framework exists, now the task is to make it work. The key to success lies in the reconcilia tion of often conflicting objectives: • a decisive approach balancing macro-economic and structural policy to improve the perform ance of the European labour market in parallel to measures to promote the recovery in the economy • a decisive approach balancing and equity, pro efficiency moting of creation the productive employment, while pursuing the structural goals of and integration, prevention mainstreaming the to meet needs of the most disadvan taged groups — young people and unemployed — at the same time as ensuring equality of opportunity long-term • the active involvement of all those concerned in the deci sions that concern them. An efficient and equitable economy and society can only function if both employers and employees have a mutual and balanced perception of their role and function in that society. Europe has the means to solve its employment problem. The path to that solution lies in the resolution of a number of serious and difficult policy choices. The co-operative path which is the hallmark and the watchword of European construc tion since the founding of the 2 6- BSN 0254-1475 COM(96) 485 final DOCUMENTS EN 04 05 Catalogue number : CB-CO-96-5O0-EN-C ISBN 92-78-09904-X fer Official Publications of the European Communities L-38S Luxembourg *>