Part I - Situation and trends

2 Social Cohesion

2.1 Employment and unemployment

Unemployment and the labour market

Unemployment in the EU is declining at present, reflecting the continuing growth of the economy and labour market reforms, which seem to be associated with an increased rate of net job creation for a given growth in GDP. The rate has, therefore, fallen from 10.7% in 1997 to 8.3% in August 2000 and is set to fall below 8% in 2001, a level last seen before the recession of the early 1990s. Despite this encouraging trend, unemployment remains unacceptably high in many parts of the EU, though if economic growth can be sustained at its present rate, over the coming decade it could gradually cease to be the major economic problem facing the EU, which it has been for the past 20-25 years.

Since the early-1970s, unemployment has increased rapidly during recessions but fallen more slowly during periods of economic recovery, while regional disparities in levels have remained significant (See Graph A.1, in annex). However, over the period of recovery since 1994, when unemployment in the EU reached a peak of 11.2%, the process of job creation has increasingly gained strength. Nevertheless, it is too early to be sure whether the cycle of falling unemployment followed by a rebound to a higher level is at an end. This depends on both maintaining economic growth at around its present level, or preferably above, which in itself should result in a high rate of net job creation (see Graph 4 on growth of employment and GDP in the EU), and increasing the employment-intensity of growth above the long-term trend of the past 20 years.

Unemployment combined with growing skill shortages

At the same time as unemployment is falling, labour shortages are emerging as an increasingly important obstacle to growth right across the EU. This was reported explicitly in the National Action Plans for 2000 of Belgium, Denmark, Ireland, the Netherlands, Finland, Sweden and Italy, though in the last, predominantly in the north of the country. Moreover, recent surveys of employers in other Member States have in most cases pointed to the difficulty of recruiting staff with the requisite skills as a major problem hindering expansion.

The coincidence of relatively high levels of unemployment and labour shortages ought not to come as a surprise. It essentially reflects the highly differentiated nature of the labour market and the lack of coherence between the growth of demand for labour and the skills on offer among those looking for a job. Indeed, recruitment difficulties tend to be reported in particular sectors even in periods of recession. As recovery gathers pace and as unemployment falls - or, more accurately, as the excess supply of labour diminishes - it is only to be expected that labour shortages, or skill bottlenecks, will become more serious, the more so, naturally, in regions where unemployment is relatively low, but also in other areas where the skills of the unemployed do not match the demand of employers. If economic growth at present rates is sustained over the longer term, the problem of skills imbalance could well be compounded by the projected slowdown in labour force growth, or decline in some regions, over the next 10-15 years (see the section on demographic trends below).

Although recruitment difficulties are at present reported in some parts of the Union in all sectors, from information technology to agriculture and retailing, it is evident that there is a growing shortage of workers with IT skills in all Member States. According to the Commission report on job opportunities in the Information Society, up to 500,000 jobs are currently vacant because of the lack of people with the requisite skills to fill them. Studies suggest that the problem is likely to get worse in the future, as, indeed, is the case in other parts of the world, the US especially. In the longer term, therefore, this could come to exercise an increasing constraint on economic growth and employment creation in the EU. It is a problem which can be tackled both by expanding the number of people trained in IT skills and adapting education and training systems to accomplish this and by encouraging the inward migration of those with the necessary skills, or the education to acquire them, from other countries (an approach at present being followed by the US).

Wide disparities in employment remain between Member States…

As economic recovery continued in the EU, employment increased by over 2 million in 1999, or by 1.4%, slightly higher than in 1998 (1.3%) and the highest growth rate of the 1990s. The number employed in 1999 was, therefore, for the first time higher than in 1991 at the start of the recession. The employment rate, however - the proportion of those aged 15 to 64 in work - at 62.1% was still slightly lower than at the beginning of the decade.

Despite a general improvement in labour market conditions, large differences still exist between Member States. Between 1997 and 1999, employment growth varied from over 3% a year in Ireland and Spain to under 1% a year in Germany, Italy and Austria. In general, those Member States with above average GDP growth also recorded relatively high growth of employment.

Since 1994, there has only been a slight narrowing of disparities in employment rates across the Union, stemming partly from relatively large increases in employment in Ireland and Spain, where the proportion of working-age population in work is below average. This convergence is likely to continue if economic recovery is sustained, though above average employment growth needs to spread to Italy and Greece, in particular, if disparities are to be narrowed significantly. In 1999, the employment rate was below 60% in Spain and Belgium (if only slightly), while it exceeded 70%, the target set for the EU in 2010 by the Lisbon Summit, in Denmark, the Netherlands, Sweden and the UK.

…but are even wider between regions

Disparities in employment are even more substantial between regions than between countries within the EU. In 1999, the employment rate in the top 10% of regions in the EU (defined as those with the highest rates accounting for 10% of total population) averaged 77%, whereas the employment rate in the bottom 10% (defined in an equivalent way) averaged under 44%. As at the beginning of the decade, most of the regions in the top group are located in the UK, most of those at the bottom in Italy and Spain (see Map 2).

The extent of regional disparities varies significantly between Member States. While they are very narrow in some countries (the Netherlands, Austria and Sweden), they are extremely wide in others (particularly Italy, where the gap between high employment regions in the North and low employment regions in the South is over 25 percentage points, but also Spain and Portugal - around 15 points).

There is little sign of any marked reduction in disparities over the 1990s. While across the EU as a whole, they have narrowed since 1997, this followed a widening over the early 1990s (See Graph A.2, in annex). In Italy, Portugal and, to a lesser extent, Spain, the gap in regional employment rates appears to have widened over the period of recovery. Moreover, in Greece, employment rates fell in most regions over the 1990s.

Achieving a more balanced development in terms of employment remains one of the biggest challenges for the Union in the future and one which is likely to require continued policy intervention, in developing regions, to help strengthen their economic base, and in those undergoing restructuring, to help smooth the shift to growing sectors of activity.

The gender gap in employment remains pronounced despite gains made by women

The number of women in employment has risen strongly in the EU over the past ten years. As a result, the gap in employment rates between men and women narrowed significantly over the 1990s, by some 5 percentage points, though in 1999, it was still some 19 percentage points. Moreover, it should be noted that over 70% of net additional jobs going to women between 1994 and 1999 were part-time. In the latter year, around a third of all women in employment in the EU worked part-time as opposed to 6% of men.

The gender gap is even wider in many Member States and regions. In regions with a high rate of net job creation, both men and women tend to benefit by being able to find employment, while job shortages in low employment regions generally seem to hit women harder than men. The gender gap is, therefore, narrowest in the three Nordic countries and the UK and widest in Italy, Spain and Greece.

The small gap in many - but by no means all - parts of Northern Europe reflects, on the one hand, a longer tradition of gender equality, positive social attitudes towards women working and child-care provision. On the other hand, it also reflects a high proportion of part-time employment among women(See Map A.3)). Indeed, the relative number of women with full-time jobs in lagging regions is not very much lower than in the rest of the EU.

The growth of part-time working is closely related to the development of the service sector, in which firms tend to be more flexible over working hours but in which there is also a growing need to employ people at weekends and in the evenings. Women therefore have more possibility for combining paid employment and family responsibilities, so increasing their ability to pursue working careers.

Large-scale job losses in agriculture

Employment in agriculture in the EU has declined markedly, from 7.6% of the total employed in 1988 to 5.6% in 1993 and 4.4% in 1999. The largest decline between 1993 and 1999 occurred in Ireland (by 4.5 percentage points) and Greece (4.3 points).

The importance of multiple jobs has also remained much the same, 28.7% of farmers having a paid job outside agriculture in 1997. In Sweden, Finland and Germany, the figure was over 45%. In the southern Member States, where 26% of farmers had multiple jobs, almost 63% of the work force was employed part-time.

Services are key to employment growth

Over the past 25 years, all of the rise in employment in the EU has occurred in services while jobs in industry and agriculture have declined. Over the period of 1994 to 1999, the share of employment in services rose by some 2½ percentage points, continuing a long-term shift of both employment and output towards this sector, which is evident in all Member States.

Employment growth in services, however, has been lower in the EU over the 1990s than in the US and this has been combined with more job losses in agriculture and industry. Indeed, in the EU, growth of employment in industry has been relatively small even over the period of economic recovery since 1994, though this is partly due to a significant reduction in Germany, where the pace of recovery has been modest.

The development of services has occurred at different rates across the Union. In 1999, the general pattern of employment (see Map 3)is for the highest employment regions - predominantly located in the UK, Netherlands and the three Nordic countries - to have a large share of jobs in services, and the lowest employment regions - largely located in the Mediterranean - to have a high concentration of jobs in agriculture. In between, there are regions with a high share of employment in industry - predominantly located in an arc covering eastern France, parts of Germany and northern Italy.

Overall, services account for a major part of disparities in employment rates across the EU. Most of the additional jobs which exist in high employment regions as compared with low employment ones are in services, though mostly in the more advanced sectors, education, health care, business and financial services, where skill and education requirements are relatively high. This underlines the importance of a well-educated work force for boosting employment as well as the development of the knowledge-based economy.

Regional disparities in unemployment remain pronounced

Unemployment varies substantially between regions in the EU (see Map 4). Despite economic recovery, unemployment rates were still over 20% in some parts of southern Europe in 1999. There were also, however, a number of areas in northern Europe undergoing restructuring, where rates were well over 15%.

Regional disparities in unemployment have widened over the 1990s, following the reduction which occurred in the high employment growth years of the late 1980s. While economic recovery has reduced disparities slightly since 1995, it has so far failed to offset the widening during the earlier period of recession. Accordingly, while unemployment in regions where rates were lowest (taking those accounting for 10% of total population) averaged 3% in 1999, much the same as in the early 1970s, it averaged 23% in those where rates were highest (excluding the French DOMs), much higher than 25 years ago.

The regions with the lowest unemployment in the EU were much the same in 1999 as 10 years before, as were those where rates were highest. Much the same is true in Member States, where regional differences are similarly wide (see Graph 5 on unemployment rates by country and regional extremes in 1999). As in the case of employment rates, differences between regions are greatest in Italy, where, in 1999, the rate in those with the highest levels (in the south) was almost 25 percentage points higher than in those with the lowest (in the north). On the other hand, in all regions of Austria, the Netherlands and Portugal, unemployment was below the EU average.

Long-term unemployment falling but still a serious problem

The fall in unemployment in recent years has been accompanied by a reduction in long-term unemployment. Between 1997 and 1999, the number of people who had been out of work for a year or more declined by more than overall unemployment, from 49% to 46% of the total unemployed, suggesting that active labour market measures combined with high rates of net job creation have improved access to employment for those most disadvantaged on the labour market.

The rate of long-term unemployment in the EU, however, is still higher than at the beginning of the 1990s. It is particularly high in southern Italy, in a number of Greek regions and in Belgium, where over 60% of those out of work were long-term unemployed in 1999. By contrast, the proportion was under 20% in a number of regions in Austria, the UK and Finland
(see Map 5).

Overall, long-term unemployment is much higher in regions with high overall unemployment and has declined hardly at all over the economic recovery in the lagging regions. This reflects the persistence of structural problems in these areas, such as mismatches between the jobs on offer and the skills available on the labour market, which are unlikely to be resolved simply by higher rates of economic growth at the national or EU level, which need to be combined with active measures to improve the employability of those affected and help them adapt to structural change.

Unemployment of young people declining in the EU...

Rates of unemployment in the EU remain much higher for young people under 25 than for older people and for women as opposed to men. Young people in the labour force are almost twice as likely to be unemployed as those of 25 and over. In Spain, Finland and Italy, youth unemployment was over 30% in 1999 and in some regions in southern Italy and Spain, over 50% (see Map 5).

Despite the fact that most of the net additional jobs created over the past 10 years have gone to women, job growth has only just kept pace with the rising number of women joining the labour market. Consequently, unemployment among women is still much higher than for men in most parts of the EU, with rates for women exceeding 35% in parts of Spain and Italy.

While unemployment of young people has declined by more than for those of 25 and over during the period of recovery, the rate for women has fallen by less than for men. Unlike in the case of the long-term unemployed, however, both young people and women have experienced a fall in unemployment in the most lagging regions.

Labour market developments in the candidate countries

In recent years, the data available on employment and related developments in the candidate countries have improved significantly with the introduction of labour force surveys in most of them, on the same basis and adopting the same conventions as the EU Labour Force Survey conducted by Eurostat. However care should be taken in interpreting the figures which result from these surveys because, even though the conventions are the same, they reflect a different underlying reality.

In the candidate countries of Central Europe (CECs), employment has fallen significantly since the beginning of the transition as a result of a large fall in output as well as restructuring. In the CECs as a whole, the number employed is estimated to have fallen by 15-20% between 1989 and 1997, with the largest fall occurring in the early years of transition (1989 to 1993). By 1994-95, conditions had stabilised and in a number of countries, employment began to rise, though by not nearly enough to compensate for the earlier job losses. In 1998 and 1999, economic growth slowed down again and employment began to fall in most countries, most especially in the Czech Republic, Slovakia and Estonia. In Hungary, however, partly because of the earlier implementation of economic and labour market reforms than in other countries, GDP continued to grow and employment increased by around 3% a year between 1997 and 1999.

In 1999, the overall employment rate of the candidate countries averaged just under 61% of working-age population, only slightly lower than in the EU. Disparities in employment rates, however, widened between countries over the 1990s as employment fell, the scale of decline reflecting, on the one hand, the success of the transition and, on the other, the extent to which jobs remained protected against market forces, as well as the extent of employment in subsistence agriculture. In 1999, the employment rate ranged from some 54% in Bulgaria to 66% in the Czech Republic.

Regional disparities in employment in the candidate countries are narrower than in the EU, but still substantial. In the top 10% of regions (defined, as above, as those with the highest rates accounting for 10% of their total working-age population), the employment rate averaged almost 70%, in the bottom 10%, it was under 52%. Disparities are also wide in a number of countries, reflecting the difference between the capital city region and the others (in Slovakia, the gap between the top and bottom 10% of regions was 17 percentage points).

Employment of women in the CECs has, in many cases, declined by less than that of men over the transition period, partly because of the concentration of jobs losses in industry, partly because of the growth of service activities. Although the employment rate of men exceeds that of women in all candidate countries, the gender gap has remained smaller than in most EU Member States. Moreover, many fewer women work part-time in the former than in the latter and the difference between men and women is much less pronounced. (Overall, some 8% of all those in employment work part-time in the candidate countries as opposed to 18% in the EU and women account for only 58% of all part-timers as against 80% in the EU.)

The changing sectoral pattern of employment in candidate countries

Economic transition in the CECs implies a marked shift in the sectoral pattern of employment, though comparison of the present structure with that in the EU suggests that there is still a long way to go. There remain significant differences between regions both in the structure of employment and in unemployment.

(see Box: Four types of regional labour market developments in the CECs)

Employment in industry is estimated to have fallen by between 25-50% in the CECs over the 1990s, but despite this, the proportion of workers employed in declining industries in many regions remains high.

Many regions with high employment in agriculture have also suffered a disproportionate loss of jobs, though agricultural employment in most candidate countries remains far above the level in the EU. In 1999, taking the countries together, it accounted for almost 22% of the total as against only 4.5% in the EU, indicating that the process of modernisation has still to be undertaken and that potentially severe social as well as economic problems remain to be tackled in the future.

Employment in services has risen significantly in all candidate countries, though by not nearly enough to compensate for the job losses in industry and agriculture. Services account for only around 46% of the total in work in the region as a whole compared with 66% in the EU, which indicates the scale of the change which lies ahead.

Overall, many regions in the CECs have a less diversified employment structure than their counterparts in the EU and, at the same time, have to contend with problems of high unemployment, poor infrastructure, low investment and lack of enterprise. The objectives of future regional policy in the CECs are, therefore, to diversify the sectoral pattern of economic activity, to strengthen infrastructure and support facilities, to identify locational advantages and development potential and to remove obstacles to growth.

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