Overview:

This annual report examines labour market developments in 2006 from a macroeconomic perspective, shedding light on the interaction of employment trends with other macroeconomic developments such as GDP and productivity growth. It comprehensively presents the main findings on recent trends and prospects on both the quantity side (employment, participation, unemployment) and the labour cost side (wage and labour cost developments). 


The report includes:

- An overview of general labour market developments with a detailed breakdown of employment and unemployment trends by gender, age and country. This overview also presents the remaining path toward the Lisbon targets. 
- An analysis of the responsiveness of employment to economic growth. 
- A description of recent trends in wages and labour cost developments in the euro area and their impact on the internal and external macroeconomic objectives, namely aggregate price stability and sustainable competitive positions at individual country level. 
- The driving force behind development in real consumption wages. 
- A shift-share analysis to interpret movements in the labour share. 
- A special focus on the developments in the relative unit labour costs of euro-area countries and a preliminary analysis of the sources of the fluctuations of relative unit labour costs. 
- A statistical annex with detailed information on labour markets in each EU Member State. 


Some of the key insights:

- Significant increase in employment in 2006 with contributions coming from all age groups.
- Job-intensity of growth reverted back to the average of the 1996-2000 expansionary cycle in almost all countries, after a long period of good employment performance with only moderate economic growth.
- Brightening economic conditions have not translated into accelerating wage growth so far and unit labour costs have remained consistent with price stability since the launch of the euro. However, overall benign wage developments are largely due to wage moderation in Germany.
- Although in the short term wage pressure are rising in the euro area, in the medium term several factors could put a lid on labour cost pressures .
- Difficulties in aligning wage behaviour with trend productivity dynamics seem to be the main driver of the deterioration in competitiveness in some euro-area countries.
- Widespread wage moderation across all sectors in the economy is just one explanatory factor of changes in the labour share. The effect of structural factors, i.e., the sectoral and the employment structure of the economy is not negligible. The relative unit labour costs at the industry level of euro-area countries fluctuate more in response to idiosyncratic industry shocks than by aggregate country specific shocks.
- There is evidence of an increase in the cyclical response of relative unit labour costs, although it remains rather low, and a decline in their persistence since the launch of the monetary union