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- Employment in Europe 2010
The unprecedented crisis in global financial markets which gathered pace in autumn 2008 led to the most severe recession since the Second World War, affecting the wider EU economy and strongly impacting on its labour markets. Indeed, the crisis has wiped out much of the steady gain in economic growth and reduction in 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 - or close to 10% of the economically active population - are now unemployed.
The EU and its Member States reacted promptly to the worldwide financial and economic crisis, taking action to prevent a meltdown in the financial market in autumn 2008, and then 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 a recovery. At EU-level, structural reform measures (which are a central part of the EERP) have included, inter alia, measures aimed at supporting the functioning of the labour market and social policies aimed at supporting household purchasing power.
Despite the measures taken to mitigate the impact of the crisis, EU labour markets have suffered a strong correction, although the picture varies across Member States. For many it has led to a substantial increase in unemployment, and potentially in long-term unemployment, although in a number of countries job losses have been rather restrained to date, especially compared to certain of the EU’s global competitors. The latter reflects, in particular, the 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 appear to have prevented, or at least delayed, more significant mass dismissals in certain Member States. Overall, the more moderate increase in the unemployment rate in the EU compared to the US reflects a greater willingness in several Member States to adjust to falls in demand by reducing hours worked rather than the number of workers in employment, most notably in Germany. The more muted fall in employment has, however, been secured at the expense of productivity, although this has now started to recover.
The negative impact on employment became more manifest in 2009, with particularly marked employment losses over the first half of the year. By February 2010 the EU unemployment rate had risen to its highest level in a decade (9.6 %). Within the EU, Member States such as the Baltic States, Ireland, and Spain have undergone wrenching adjustments in their labour markets, in part linked to the collapse of construction booms or property bubbles.
Males, the young, migrants, the low-skilled and those with short-term contracts have been most affected by the economic downturn, and have experienced the greatest increases in unemployment. With the exception of men, these are traditionally the most disadvantaged groups in the labour market, and the current downturn has made their relative situation even worse. This underlines the need to further address the issue of segmentation in the EU labour market, notably with respect to young people.
Economic growth has now resumed in the EU, with positive GDP growth being recorded in the final quarters of 2009 and early 2010, although the recovery remains fragile. Although it has now been 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 begins to reverse labour market trends. However, the labour market situation in the EU is now showing more consistent signs of stabilising, as evidenced by recent data indicating that unemployment in the EU is levelling off or even starting to fall. Demand for new workers, as indicated by the EU job vacancy rate, finally shows signs of picking up (although remaining well down on pre-crisis levels), and while companies still announce more job losses than gains, the losses are substantially fewer than in previous months. Furthermore, firms are becoming more optimistic about employment prospects and consumers’ unemployment fears are easing.
Even though the ‘great recession’ which had stalked the global economy has now bottomed out and growth has returned, and despite positive signals in several countries’ labour markets, a lot of uncertainties remain. According to the latest European Commission forecasts, the EU economy is still fragile, although recovering at a faster pace than envisaged in early 2010, and the labour-market situation will remain weak.
Furthermore, job creation for the EU as a whole is likely to be subdued during the recovery, as adjustments to a rise in economic activity are likely to come initially through a reversal of the widespread reductions in working hours, as witnessed already in many Member States. Indeed, signs point to substantial labour hoarding during the crisis, given that most of the adjustment initially came through reductions in productivity rather than employment losses, which led to significant increases in real unit labour costs, although these have recently eased off. The European Commission spring forecasts expected employment growth at -0.9% for 2010 and to improve to only 0.3% in 2011, while the unemployment rate was foreseen to average 9.8% in 2010 and to remain at 9.7% in 2011, only marginally down on 2010. The latest interim forecast released in September, however, reports that stronger than expected economic recovery in the EU in 2010 could lead to the labour market performing somewhat better this year than expected at the time of the spring forecast.
Given these forecasts, there is still a need to support the labour market and short-term aggregate demand until the recovery has taken a firmer hold. Key challenges for the EU and its Member States are linked to the balance and sequence of crisis exit strategies, such as the timing of withdrawal of major policy measures. This will be crucial to supporting further economic growth and employment. Moreover, minimising the persistence of difficult labour market conditions during the recovery and beyond should be made a priority; this increases the need for labour market policies aimed at preventing long-term unemployment and helping people to remain in the labour force and find a job.
Finally, even in these turbulent times, it is still worthwhile to recall the longer-term picture and highlight the progress that has been made in European labour markets over the last decade. Despite the recent setback brought about by the crisis, employment in 2009 was still up almost 12.5 million, or 6%, on the level in 2000.
Nevertheless, it is now clear that the Lisbon and Stockholm employment rate targets set at the beginning of the decade will be missed. In 2009 the overall EU employment rate averaged 64.6%, down from 65.9% a year earlier and hence increasing the shortfall in relation to the Lisbon target of 70% to 5.4 percentage points. At the same time, the employment rate for women declined to 58.6%, some 1.4 percentage points short of the target of 60%, but in contrast that for older people increased slightly to 46%, although still 4 percentage points short of the target of 50%. However, on the positive side, these employment rate figures represent underlying increases of 2.4, 4.9 and 9.1 percentage points respectively in the overall, female and older workers’ rates of 2000, a not insignificant achievement.
In this context, the recently launched EU strategy for the next decade, the Europe 2020 Strategy, which aims to support recovery from the crisis and provides a vision of Europe’s social market economy for the 21st century, will have the objective of further raising employment as a key element of its overall aim of achieving smart, sustainable and inclusive growth. In this regard a headline target has been set of achieving a 75% employment rate for the population aged 20-64 by 2020.
In order to raise employment so as to reach the 75% target, Europe needs, first and foremost, to improve the functioning of its labour market, based on the flexicurity approach. Key objectives will be to lower the risk of structural unemployment, reduce the persistent levels of labour market segmentation and increase the low levels of voluntary transitions, including low geographical mobility. But this is not enough. Europe has also to count upon a skilled, engaged and healthy workforce, capable of adjusting to technological change and new patterns of work organization. In this regard, investment in anticipation of skills needs, matching and guidance services, and education and training systems is a basic foundation to raise productivity and competitiveness, ultimately leading to employment growth.
To reach the 75% target, it will be especially important to raise the employment rates of women and older workers, which offer marked room for improvement. Gender equality policies including closing the pay gap and active ageing strategies making it easier and more attractive for older people to work are key to this. Efforts to raise the quantity and quality of labour supply need nonetheless to be combined with policies supporting job creation and labour demand. It is not enough to ensure that people remain active and acquire the right skills to get a job. Efforts need to be stepped-up to ensure that recovery is based on job-creating growth. Hence, there is a need to set the right framework conditions to create more jobs, namely in companies operating with high skills and R&D intensive business models, and to promote entrepreneurship and self-employment. Last but not least, stronger efforts need to be made to raise quality in work. Rather than a trade-off between quality and quantity of employment, evidence shows that overall high levels of job quality tend to be associated with high levels of labour productivity and participation in employment.
An “Agenda for new skills and jobs” will be the EU flagship initiative to help Europe reach full employment. As such it announces a number of EU actions addressing challenges related not only to the labour market functioning but also to labour supply and demand, to be enacted through a mix of policy instruments available at European level.
