As stated in the recent Commission Communication on Europe 2020(1), Europe faces a moment of transformation. The recent economic crisis, which has no precedent in our generation, has wiped out much of the steady gain in economic growth and the reduction in levels of unemployment witnessed over the last decade – EU GDP fell by 4.2% in 2009, industrial production dropped back to the levels of the late 1990s and 23 million people(2) - or close to 10% of the economically active population - are now unemployed.
Signs of an economic downturn appeared already in the EU by the second quarter of 2008 but intensified in the third quarter with the worst financial turmoil since 1929, followed by an economic recession, and subsequent effects on the labour market. By February 2010 the EU unemployment rate had risen to the highest level in a decade (9.6 %), where it has subsequently remained. Males, the young, migrants, the low-skilled and those with a short-term contract have been most affected by the economic downturn and the increase of unemployment. As unemployment rose, the spotlight fell more and more on limiting the effect of the crisis on jobs and addressing the social impact.
The EU and its Member States reacted promptly to this worldwide financial and economic crisis: in the first place, by taking action to prevent a meltdown in the financial market in autumn 2008, and then, by agreeing, in December 2008, to put in place a European Economic Recovery Plan (EERP) - a €200 billion comprehensive, coherent and coordinated recovery package - to arrest the pace of the downturn and create the conditions for an upturn. At EU-level, structural reform measures which are a central part of the EERP include, inter alia, measures aimed at supporting the functioning of the labour market, and social policies aimed at supporting household purchasing power(3). Even though the ‘great recession’ which stalked the global economy has now bottomed out and growth has returned, and despite some positive signals in some countries’ labour markets, a lot of uncertainties remain.
Despite the measures taken to mitigate the impact of the crisis, EU labour markets have clearly suffered a major correction, although the picture varies across Member States, partly reflecting the different exposures to imbalances accumulated in the preceding boom period (such as that due to years of investment deviated to the construction sector because of the housing bubble in some countries). For many it has led to a substantial increase in unemployment, and potentially in long-term unemployment, although in a number job losses have been rather restrained to date. The latter reflects, in particular, strong recourse to increased internal flexibility (flexible working time arrangements including shorter hours or temporary partial unemployment, temporary closures, etc.) coupled with nominal wage concessions in return for employment stability in some sectors, all of which appears to have prevented, or at least delayed, more significant mass dismissals in certain Member States.
Although it has now been more than a year since the EU economy started to recover from deep recession, it may take some time yet before the fragile pick-up in economic activity triggers a clear upswing in the labour market. Nevertheless, according to the latest data, the labour market is now showing consistent signs of stabilisation, and even the first signs of recovery in some Member States. Unemployment in the EU is broadly stable, while in some Member States it has now started to fall. Demand for new workers, as indicated by the EU job vacancy rate, shows signs of finally picking up, and while companies still announce more job losses than gains, the losses are generally substantially fewer than in 2009. Furthermore, firms are becoming more optimistic about employment prospects and consumers’ unemployment expectations are easing.
According to the latest European Commission forecasts(4), although the EU economy is now recovering at a faster pace than previously envisaged, it will continue to face headwinds from several directions and, despite apparent signs of stabilisation, the labour-market situation will remain weak. In the previous spring forecast, employment growth was forecast at -0.9% for 2010 as a whole and to improve to only 0.3% in 2011, while the unemployment rate was set to average 9.8% in 2010 and to remain at 9.7% in 2011. However, the recent strong upward revision to economic growth for 2010 suggests that the labour market, while still remaining weak, may perform somewhat better this year than expected at the time of the spring forecast.
Even in these turbulent times, it is worthwhile to present the longer-term picture to highlight the progress that had been made in European labour markets between 2000 and the start of the global crisis in 2008, and to compare the annual results for 2009 with those of the preceding years (see section 5 below). In view of the rapidly changing situation, though, this year’s report focuses on the more up-to-date picture of the short-term developments in labour markets since the downturn began, namely from the second quarter of 2008 through to the second quarter of 2010, the last one for which data were available at the time of publication.
(1) | Europe 2020 - A strategy for smart, sustainable and inclusive growth (COM(2010) 2020). |
(2) | Seasonally adjusted figure (the non-seasonally adjusted figure is 22.4 million (July 2010)). |
(3) | See Chapter 2 for more details on these crisis-related labour market measures. |
(4) | Interim economic forecast of September 2010 (see http://ec.europa.eu/economy_finance/publications/european_economy/forecasts_en.htm). |