EU labour market sticks

International Journal of Productivity and Performance Management

ISSN: 1741-0401

Article publication date: 1 October 2004



(2004), "EU labour market sticks", International Journal of Productivity and Performance Management, Vol. 53 No. 7.



Emerald Group Publishing Limited

Copyright © 2004, Emerald Group Publishing Limited

EU labour market sticks

The European Union is at risk of missing some of the goals it set itself at the Lisbon summit in 2000.

Progress towards the target of 70 per cent overall employment rate by 2010 has slowed – to a virtual standstill – with a current figure of 64.3 per cent, and the EU will almost certainly not achieve the intermediate employment rate target for 2005 of 67 per cent.

These are some of the conclusions of the last Joint Council and Commission Employment Report. The report provides the first assessment of the progress made by member states in implementing the new employment guidelines agreed, under the revised European employment strategy, for the period of 2003 to 2006.

The report comes at a crucial moment in the recovery of EU labour markets, which initially showed strong resilience to the economic downturn, thanks in part to rising female participation and increasing skills levels. But after years of strong job creation, employment rates have slowed substantially. Unemployment has gradually risen from a low of 7.3 per cent in 2001 to 8 per cent in 2003. Forecasts show only small increases in employment in 2004 and 2005.

Of particular concern is the decline in labour productivity over the past decade. This is due to a large extent to an overall drop in investment and the fact that the contribution of information and communication technology is too low. Since the mid-1990s, the growth rate in productivity per employed person has been going down in Europe and now fluctuates between 0.5 per cent and 1 per cent, compared with 2 per cent in the USA. On the other hand, the hourly productivity rate – or output per hour of work – has remained fairly stable, still representing almost 90 per cent of that in the USA.

Recent labour market reforms allow for increased adaptability in the workplace. There is a definite trend towards more flexibility through changes in working time patterns and the working environment. in most member states, for example, new options for career breaks are being created to enable a better balance between work and private life. Some countries have also launched comprehensive reviews of labour law, including employment protection legislation.

The majority of member states are doing more to simplify the often cumbersome administrative procedures that relate to business start-ups. Several countries have set up task forces on the simplification and improvement of regulation. Some are looking into making bankruptcy laws less complex and strengthening existing measures for access to funding for start-ups and new and existing SMEs.

Consistent improvements have been seen in terms of education and skills, gender gaps (except the pay gap), and safety and the reduction of accidents in the workplace.

The key to productivity is a well-educated, skilled and adaptable workforce, and the Joint Employment Report stresses that investment in human capital should not be allowed to decline – in fact it must increase. A number of policies exist in the member states to encourage employers, and in particular SMEs, to invest in their workforce. In Spain, for example, social security contributions are reduced for employers who train their staff. Other approaches include aid for employers to meet the costs of giving staff paid time off and contractual agreements on training.

Some member states now require employers to spend a specific amount on training or pay a levy. In France, for instance, companies with more that 10 employees must spend at least 1.5 per cent of their wage bill on training.

To help close the gender gap, many member states are trying to facilitate access to childcare. But despite progress, there is still a shortage of adequate facilities for childcare and care for other dependants, and this is a continuing constraint to increased female participation.

Another major issue is that Europeans as a group are getting older. By 2030 there will 110 million people over the age of 65 in the enlarged EU, up from 71 million in 2000. The number of working age people is also likely to reduce to 280 million, compared to 303 million today. And the employment rate for older people, which increased to just over 40 per cent in 2002, is still far from the target of 50 per cent agreed at Stockholm in 2001.

A growing number of member states such as Sweden, the UK, Denmark and Finland, are implementing national ageing strategies, while some – France, Finland and Portugal – have set national targets to raise the average exit age.

An essential element in the ongoing effort to increase labour force participation is the continued modernisation of social protection systems in order to make work more attractive. At the core of such policies are both financial and non-financial incentives.

More and more EU countries are looking at the combined impact of taxes and benefits. Reforms largely focus on reducing taxes and social contributions and introducing in-work benefit schemes, or employment related premiums – for example in Belgium, France, The Netherlands, Ireland and the UK. For non-financial incentives, the report stresses the need to focus on measures that have already proven effective. These include the provision of affordable and high-quality facilities for the care of children and other dependents, and improving the quality of work through flexible working hours, for instance, and training opportunities and job security.

The Joint Employment Report stresses that the reforms undertaken over the past few years have gone a long way to strengthening Europe’s labour market. But further measures are needed to get employment rates moving upwards again and avoid seeing the numbers of jobless people swell even more. The report stresses the need for strengthened reforms in key areas such as the adaptability of workers and businesses, labour supply and lifelong learning, which also formed the main thrust of the European Employment Taskforce.

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