COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 01.10.1997 
COM(97)479 final 
REPORT FROM THE COMMISSION 
Employment in 
EUROPE 
1997 

An employment agenda for the year 2000: executive summary 
An employment agenda for the year 2000: executive summary 
The Employment in Europe report 1997 comes at a 
defining moment in the development of the Union. The 
new Treaty, agreed at Amsterdam, makes employment 
a matter of common concern and introduces employ­
ment as an explicit goal for the Union. This report 
contributes to the preparations for the extraordinary 
European Council on employment and unemployment 
and to the further development of the European employ­
ment strategy. It presents the latest trends in 
employment and the labour market and looks forward 
to the challenges of the 21st Century as the European 
Union prepares itself for this new phase in its develop­
ment with the completion of the Single Market, the 
third phase of EMU and the preparations for the new 
wave of enlargement. 
Recent developments in jobs 
and employability 
At 1.5%, economic growth was slow in 1996, the re­
covery not gathering momentum until the end of the 
year. Inflation, at 2V2% continued to be low and wage 
developments were moderate. 
• employment rose by some 600 000 in 1996, not 
enough to make significant inroads into making 
good the job losses of the recession or reducing un­
employment; 
• part-time jobs again accounted for all net job cre­
ation in 1996, as they have each year since 1990; 
• the rise, in job opportunities led to a renewed rise in 
labour force participation. Participation of women in­
creased further, from 56Y2% to 57% and withdrawal 
of men from the labour market slowed down; 
• unemployment remains stubbornly high at 10.8% 
in mid-1997, and over 5% of the labour force in the 
Union had been unemployed for a year or more in 
1996; • the unemployed had great difficulty in finding jobs: 
under a third of men, and a quarter of women who 
were unemployed in 1995 had found a job by 1996. 
• unemployment of women is still some 3% points 
higher than for men (12.7% compared with 9.4%) 
• while youth unemployment has improved slightly, 
due to demographic factors and a higher participa­
tion in education, the average rate in the Union 
remains at over 20%; 
• job losses over the last 10 years have been concen­
trated in sectors which account for less than a 
quarter of total employment in the Union; 
• 17% of the working age population is hampered by 
disabilities; nearly half of these are in the 50-64 age 
group. The average employment rate of disabled 
people is 44%, nearly 17% below the overall rate. 
The main questions for the 
employment agenda 
The challenges of the next decade raise serious ques­
tions about the ability of the European labour market 
to respond to them. The single market and EMU focus 
attention on mechanisms of economic adjustment and 
their effectiveness and on whether the European labour 
market is sufficiently flexible to secure a balanced and 
sustainable development of employment in the years to 
come. 
The main problem is job creation 
Whatever the relationship between employment and 
output growth, it is clear that the major problem re­
mains the creation of more jobs. The response in terms 
of increased labour market participation to the rela­
tively small improvement in job opportunities in the 
period 1994-96 shows that there is a labour reserve in 
Europe which can be mobilised, over and above those 
recorded as being unemployed. Compared with the em-
1-
An employment agenda for the year 2000: executive summary 
ployment rate in the US, this reserve amounts to over 
20 million people to be found jobs. A range of measures 
are needed to unlock this growth potential and to make 
growth sustainable. 
• While in the short term, net job creation depends 
mainly on the rate of output growth, in the longer 
term it also depends on institutional structures 
and societal choice on the priority given to employ­
ment and how possible conflicts, between this and 
maintaining productivity growth and competitive­
ness are reconciled. 
• Tax-benefit systems should continue to be made 
more employment-friendly to create an environ­
ment that stimulates enterprise and the creation of 
jobs. 
• investment, particularly in Europe-wide infra­
structure projects, can have a major impact on 
employment, adding to capacity and productive 
potential, with less inflationary risk than con­
sumption, and promoting competitiveness and 
sustainable growth. 
• Job creation depends to a high degree on creating 
the right economic environment. Product and ser­
vices markets need to function in a more effective 
way in order to create new opportunities which will 
generate additional demand for labour. Measures 
proposed under the action plan for the Single Mar­
ket should therefore be implemented without any 
delay at national and Community level. 
The skills gap — A major structural 
problem 
The ageing of the Union's labour force, allied with the 
increasing pace of new technology means that we are 
facing an ever-expanding skills gap. Societies must 
maintain their competitiveness with a shrinking num­
ber of young people with modern skills and a large 
proportion of older workers who have been trained for 
technologies no longer used or for jobs no longer needed. 
A triple-pronged strategy which aims to ensure that 
learning, training and updating skills and competence 
is an on-going process throughout life is therefore called 
for: first, to reorganise fundamentally initial education 
and training systems to bridge the gap between school 
and work and to enable young people to be adaptable in 
later working life by ensuring that they have the rele­
vant skills and competence. Second, to commit government and business to much more than the cur­
rent token efforts to upgrade and continuously train the 
whole of the adult labour force so that they have the 
ability to meet the challenges brought about by new 
technologies and third, to develop better programmes 
combining training, incentives and opportunities for 
unemployed and displaced workers to equip them with 
the skills and abilities to enable them to reintegrate into 
the mainstream of society. Bridging the skills gap is a 
key to a more flexible and dynamic labour market. 
At the same time, efforts to improve the skill levels of 
the work force must go hand in hand with continued 
efforts to ensure sufficient flexibility in labour markets 
and that labour costs are conducive to job creation so 
that employment opportunities are provided for those 
whose skill levels are likely to remain limited irrespec­
tive of the kind and extent of training received. This 
means that the overall cost of employment for the latter, 
including the non-wage element, is at an appropriate 
level in relation to productivity and that artificial bar­
riers inhibiting job creation are removed. Such 
measures will also help to increase confidence that 
policies for fostering labour demand will not simply lead 
to increased inflation. 
Flexibility in working patterns 
Flexibility in goods and services markets, in the form, 
for example, of the relaxation of restrictions on Sunday 
trading, is translated in the European labour market 
into non-standard patterns of work and employment 
contracts. Part-time working and fixed-term contracts 
have become the standard response to slow market 
growth and uncertainty. Such patterns can also result 
from high levels of regulation, which alter the way in 
which employers hire labour, as well as affecting the 
rate of net job creation. A new approach is therefore 
required which neither condemns them outright nor 
promotes them superficially. Carefully designed pro­
grammes of reform are required, preferably negotiated 
through social dialogue between governments and social 
partners. Such programmes should both end the dis­
crimination against permanent work contracts due to 
excessive regulation, and extend social protection, ac­
quired and transferable rights, to non-standard forms 
of work. 
Flexibility in wages and salaries 
Differences in wage levels across Europe tend to be 
wider than in the US, not only between Member States, 
which is to be expected, but also between regions within P 
An employment agenda for the year 2000: executive summary 
Q 
CO 
6 
S Member States. Average labour costs vary at the ex-
, tremes from ECU 5 per hour to over ECU 25 per hour. 
Such differences largely reflect variations in labour 
productivity and there is little sign of wages being 
excessive relative to the contribution of labour to value-
added. Analysis of labour cost differences between 
regions in Europe and the US suggests that regional 
problems of inadequate infrastructure, low local labour 
force skills and so on may be as important as wage 
flexibility in giving rise to unbalanced rates of economic 
development and employment growth. Policy, therefore, 
needs to be focused on correcting these problems, 
together with labour market rigidities which can deter 
job creation. 
Geographical mobility 
The scale of migration into the Union is relatively small: 
less than 0.5% of the working-age population in 1995. 
Inflows into the Union have slowed significantly since 
the early 1990s; only half of immigrants are from third 
countries and many of the rest are returning nationals. 
While the policies for labour migration must continue 
to give priority to absorbing the excess labour supply in 
the EU, it must also recognise the value of the contribu­
tion made by migrants to the economies of the Union 
and, in accordance with the Treaties in force, promote 
their rights and equal treatment commensurate with 
that contribution. 
Within the Union, movements of labour between Mem­
ber States are also small, much smaller than 
movements between different parts of the US. Less 
than 2% of the working age population in EU Member 
States are from other EU countries. However, move­
ments between regions within Member States are much 
larger than between countries and are comparable in 
size to those between States in the US. In 1993-94, an 
average of just under 1.5% of the population moved 
between NUTS 1 regions in Europe, which compares 
with just over 2.5% in the US. In most instances, these 
movements are linked to employment or education and 
training opportunities and are particularly important 
among younger age groups. Policy should aim to pro­
vide people with a real choice between staying in the 
place where they were brought up and moving elsewhere 
to live and work. 
The scale of regional migration was slightly lower in 
1994 than in 1990 both in Europe and in the US, 
perhaps because economic activity was lower in the 
later year. This suggests that the availability of jobs 
may be just as important in encouraging people to move as job shortages. It may also reflect the constraints 
which exist, in both Europe and the US, on someone who 
is unemployed moving from their home to another part 
of the country to look for work. Policy should aim at 
alleviating these constraints. 
Regional mobility is not confined to migration. Large-
scale commuting occurs in many parts of the Union and 
is potentially important in correcting labour market 
imbalances. Policies should aim at improving the trade­
off between such benefits and disadvantages which arise 
in other policy areas in relation to the provision of social 
services, traffic and environmental degradation. 
Occupational mobility 
Sectoral and occupational mobility are equally import­
ant aspects of labour market flexibility and there is 
evidence that this is relatively high in most Member 
States. In 1995, job turnover was around 16% for men 
and 19% for women. Making it easier for people to 
change jobs and ensuring access to the necessary retrain­
ing is important for combating emerging skill shortages, 
narrowing productivity gaps and thereby promoting 
growth and employment. 
Adjusting to the capacities of 
individuals 
Flexible labour markets mean that employers also, 
adapt to the needs and capacities of individuals and to 
capitalise on their potential so as to maximise the 
supply of skills. Evidence of a lack of such adjustment 
is the low rate of training of workers and the low 
employment rate of disabled people. While this varies 
between Member States, it tends to be higher in coun­
tries where the overall employment rate is also high. 
Disability is often the result of dangerous working con­
ditions and poor safety standards. 10 million people 
every year are stricken by occupational diseases, in­
juries or accidents. A decisive implementation of agreed 
health and safety standards would substantially im­
prove the safety situation, reduce public expenditures 
and increase the employability of the work force. 
Dynamics of the labour market 
An average of 30% of the unemployed find work within 
a year. This proportion tends to rise slightly in periods 
of strong growth. In 1996, some 57» million people had 
been unemployed for more than two years. In 1992, this 
figure was 3 million, suggesting that even the hard-core 
-3-
An employment agenda for the year 2000: executive summary 
long-term unemployed can be tackled with a period of 
sustained employment growth. Structural unemploy­
ment reflects the nature of the economy, not the 
individual. Policy needs to recognise that dealing with 
the unemployed is three-fold: bringing about a suffi­
cient, but sustainable rate of growth, tackling the 
employability of the unemployed by enabling them con­
tinually to update their skills in line with labour market 
needs and improving and simplifying the business envi­
ronment. 
The way forward: an employment 
agenda for the year 2000 
The Amsterdam Resolution called for the improvement 
of the functioning of European markets and enhanced 
coordination of economic policies. It also called for an 
immediate implementation of the relevant provisions in 
the Employment Title in the new Treaty. The key pro­
vision is the reference to employment as a common 
concern. That is why it provides for the appropriate 
coordination of employment policies at EU level and the 
development of a common employment strategy. The 
message of Amsterdam is that the completion of the 
single market, monetary discipline and job creation 
have to be pursued in parallel. This is the task for all 
those concerned. 
The Commission Communication "Agenda 2000" pres­
ents the economic, technological and social trends in 
European society in the years to come. This communi­
cation is the basis for the Commission's contribution to 
the further development of the European employment 
strategy. It indicates four directions for action in this 
respect: setting the conditions for sustainable, employ­
ment-intensive growth; putting knowledge and 
technology to the forefront; modernising employment 
systems; improving living conditions. Certain priority 
programmes, with a high value-added from Com­
munity-level action are highlighted. They include the 
trans-European networks, research, education and 
training, the introduction of environmentally-friendly 
technologies and measures to support SMEs. 
The European employment strategy is of fundamental 
importance in tackling the employment problem, and 
will be even more important when Economic and Mon­
etary Union is implemented. While high employment 
and well functioning labour markets are priority objec­
tives in their own right,-high employment is the best 
way to make EMU successful. The existing employment 
strategy, based on a combination of macroeconomic stability and structural reform to modernise labour 
markets, has been underway since December 1994. 
There are experiences of good progress and perfor­
mance both on a national scale and at local and regional 
level. 
The 1997 Demographic Report has focused on the 
underlying population changes which will affect labour 
force trends in the first decades of the new century. 
These changes must be taken into account in the devel­
opment of the Employment strategy for the year 2000. 
There is, however, a question of responsibility for action 
and how it should be shared. 
Member States continue to have responsibility for em­
ployment policy and the provision of sustainable growth 
and a favourable business environment. 
Employers, above all, must maintain the competitive­
ness and job creating capacity of their enterprises. 
Maintaining and developing the productive capacity 
and motivation of their work force depends on the 
provision of on-going and relevant training and by treat­
ing this as an investment rather than as a cost for the 
enterprise. Many job opportunities are lost when busi­
nesses face complex and difficult administrative 
requirements during their start up and early years, and 
when businesses are transferred. Simplifying the busi­
ness environment would help to overcome these 
difficulties faced by employers. 
Trade Unions have a major role to play in promoting 
equity in the labour market in encouraging responsible 
wage determination which increases investment, pro­
ductivity and welfare and which helps insiders to keep 
their jobs and outsiders to gain access to them. 
Local governments, within a coherent national 
strategy, must bring all relevant bodies together in 
partnerships for local development, to tap local capa­
cities and local markets to identify sources of jobs. They 
must also act as agents for change, promoting sustain­
able local restructuring. 
Individuals have a claim on opportunities offered to 
them. But they must also combine these opportunities 
with an individual responsibility: a willingness to 
adapt, to respond to incentives and to seek and master 
new capacities and skills. 
The European Institutions have an important contribu­
tion to make. In line with the conclusions of the 0* 
Q 
> 
4-
An employment agenda for the year 2000: executive summary 
Amsterdam European Council, the Commission will 
present a proposal for a Joint Employment Report and 
draft guidelines for Member States' employment policy 
to be submitted to the Jobs Summit to be held at the 
end of 1997. These will be designed to specify an agenda 
for employment for the year 2000 and beyond and 
provide the basis for operational action to provide for 
more and better jobs in the Union. 
An employment agenda for the year 2000: issues and policies 
An employment agenda for the year 
issues and policies 2000: 
The Employment in Europe Report for 1997 comes at a 
defining moment in the development of the Union. The 
adoption of an employment Title in the Treaty provides both 
the recognition that employment is an issue of common 
concern and the tools necessary to address this issue at 
European level. The Report examines the challenges of 
employment and labour market policy in the years to come 
and suggests where the main priorities for policy should lie. 
W 
en en 
•8 Employment is a 
common concern 
The inclusion of an employment 
Title in the Treaty marks a new 
departure for the recognition of em­
ployment as an explicit objective for 
the Union. The Treaty now states 
that "Member States... shall regard 
promoting employment as a matter 
of common concern and shall co-or­
dinate their action." This reflects 
the commitment of'Member States 
who have the main responsibility to 
implement the decisive action re­
quired to produce a substantive and 
sustainable improvement in em­
ployment performance. It also 
provides for action at Community 
level: "The objective of a high level 
of employment shall be taken into 
consideration in the formulation 
and implementation of Community 
policies and activities." The Treaty 
identifies the promotion of "a 
skilled, trained and adaptable work 
force and labour markets respon­
sive to economic change" as a key 
objective in developing a coordi­
nated strategy for employment. Furthermore, the revision of Article 
2 of the Treaty also confers on the 
Community the task of promoting 
equal opportunities for men and 
women. It is not only the culmina­
tion of a process which began with 
the White Paper on Growth, Com­
petitiveness, Employment in 1993, 
but also the recognition that the 
roots of the present situation go 
back 25 years, to the economic 
shocks of the 1970s, and the appar­
ent inability of the European 
economic system to recover suffi­
ciently from periods of economic 
downturn. The third, and most re­
cent of these shocks, aggravated by 
the failure of economic policy to 
maintain growth in the last decade, 
has brought us to the present situ­
ation. 
In the turmoil of the early 1990s, 
half of the new jobs created in the 
period of rapid growth of the late 
1980s were lost — 4.9 million 
between 1991 and 1994 (though as 
noted in last year's Employment 
Report, employment in SMEs in­
creased between 1988 and 1995, 
compensating in some degree for job losses in larger enterprises). Unem­
ployment soared to new peaks, 
exceeding 11% on average for the 
first time ever in 1994. Neither the 
production system by itself nor the 
macro-economic policies underpin­
ning it seemed capable of 
generating the growth of output 
needed to deal with the employ­
ment problem. In a^world of 
increasing globalisation} attention 
turned to improving the perfor­
mance of the European 
employment system within the con­
text of stability-oriented economic 
policies and structural reforms 
aimed at increasing the employ­
ment-content of growth. 
Meeting the challenge of insuffi­
cient growth and intolerable 
unemployment requires a profound 
modernisation of Europe's economy 
and its social system for the 21st 
Century without giving away the 
basic principles of solidarity which 
should remain the trademark of Eu­
rope. The completion of the Single 
Market and-the move to Economic 
and Monetary Union will bring the 
potential for greater prosperity, 
-6 -7-
An employment agenda for the year 2000: issues and policies 
stability and choice to citizens both 
as workers and consumers. This is 
being matched by the modernisa­
tion of the labour market and 
reform of social security systems to 
bring about a new balance between 
flexibility and security. 
The new Treaty provisions strike a 
new balance by making employ­
ment an explicit objective and by 
giving the Union a role in develo­
ping a common employment 
strategy. 
Economic and 
Monetary Union 
and employment 
Europe has now left behind a long 
period of monetary instability and 
high inflation. There is now a strong 
political will to maintain monetary 
stability, to be achieved through the 
third phase of Economic and Mon­
etary Union and the convergence 
programmes. EMU, as a fundamen­
tal change in the economic policy 
framework, will influence growth 
and employment performances 
through its impact on the policy-
mix in the Euro zone as a whole. 
Successful implementation of the 
employment strategy will be even 
more important under EMU. 
Efforts undertaken in the late 
1980s and 1990s to create a single 
market was a major supply-side 
stimulus for the European econ­
omy. The introduction of the single 
currency, together with the im­
plementation of the Action plan 
measures, will significantly im­
prove the functioning of the single 
market. This will provide the Euro­
pean economy with the solid 
economic basis which will help to 
ensure that EMU will work. The objective of Economic and Mon­
etary Union is to modernise the 
European economy, to bring about 
a more integrated system aimed at 
monetary stability, leading to an 
increase in long-term rates of econ­
omic growth and employment with 
living standards in the Member 
States rising in step. 
Under EMU, the suppression of ex­
change rate and currency 
disturbances between participating 
countries eliminates an important 
obstacle to growth. At the same 
time, the adoption of a common, 
price-stability oriented, monetary 
policy, the budgetary discipline re­
sulting from compliance with the 
convergence criteria and the Sta­
bility and Growth Pact will reduce 
considerably the risks of conflict be­
tween budgetary and monetary 
policies. In such a context, it is prob­
able that wage developments will 
also take into account the objective 
of price stability and the profita­
bility of employment-creating 
investment. Thus the risk of a sta­
bility conflict, which, in the past, 
repeatedly contributed to the un­
satisfactory growth and 
employment performance of the 
Community, could be avoided in the 
coming years. 
Although EMU as such is not an 
"employment policy", it provides 
the opportunity to achieve a macro-
economic policy mix favourable to a 
sustainable growth of output above 
the rate of growth of labour produc­
tivity, thus resulting in net 
employment creation. In this way, 
it would fulfil its role as set down in 
Article 2 of the Treaty to achieve a 
high level of employment and of so­
cial protection, the raising of the 
standard of living and quality of 
life, and economic and social cohe­
sion and solidarity among Member 
States'. The macroeconomic policy mix is 
determined by the interaction be­
tween the three main variables: 
money, public budgets and wages. 
A single monetary policy will 
strongly influence the macroecon­
omic policy-mix of the whole 
Euro-area. While the primary ob­
jective of this is price stability, a 
second objective is to support the 
general economic policies in the 
Community, including explicitly 
sustainable and non-inflationary 
growth and a high level of employ­
ment. The more the stability task of 
monetary policy is facilitated by ap­
propriate budgetary measures and 
wage developments, the more it will 
be favourable to growth and em­
ployment. 
Expenditure from national budgets 
amounts to about half of Com­
munity GDP and budgetary policies 
will remain under Member State 
responsibility. In addition to the 
provisions for achieving and près- N 
erving budgetary discipline, the Q 
Stability and Growth Pact will rein- t> 
force the implementation of the « 
required discipline, thus ensuring 
that no conflict wilL occur between 
budgetary and monetary policies. 
In addition, the implementation of 
this Pact will allow Member States 
to restore the room for manoeuvre 
that budgetary and fiscal auth­
orities need for an optimal 
management of their economies in 
a full EMU. 
Wage developments will continue to 
be determined largely through 
negotiations between the social 
partners, though with significant 
differences in the specific features 
of national systems across the 
Union. Wages, including social con­
tributions, account for about half of 
Community GDP. The macroecon­
omic policy mix will be favourable 
to growth and employment insofar w 
o 
An employment agenda for the year 2000: issues and policies 
w 
S a 
•T3 as wage developments do not con­
tribute to a stability conflict with 
the single monetary policy and 
preserve, or strengthen as appro­
priate, the profitability of 
employment-creating investment. 
Wage developments by country, re­
gion, qualification and sector will 
not be the same all over the Euro-
area. Differences in price and 
productivity trends and competi­
tiveness will play their normal role 
in the wage-setting process at all 
levels. 
Because of their role in determining 
wage developments, the Social 
Partners have an important respon­
sibility under EMU to facilitate the 
pursuit of a growth and employ­
ment-oriented policy, as recognised 
by the European Council at Amster­
dam. 
EMU in no way replaces the need to 
carry out the structural reforms re­
quired to improve the functioning of 
the labour market which have been 
defined by successive European 
Councils since Essen in December 
1994. These reforms are an integral 
part of the European employment 
strategy, with or without monetary 
union, and efforts to pursue them 
must continue as before, reinforced 
by the surveillance procedure pro­
vided for in the new employment 
Title. 
EMU focuses attention on mechan­
isms of economic adjustment and 
their effectiveness. Under EMU, a 
principal adjustment mechanism to 
respond to short-term fluctuations 
in economic activity in particular 
parts of the Union are the automat­
ic fiscal stabilisers rather than 
discretionary changes in monetary 
or budgetary policy. Adjustment of 
exchange rates is no longer an op­
tion with a single currency. Policy 
will therefore need to ensure that 
such stabilisers are allowed to func­tion as effectively as possible, so 
that regions suffering a decline in 
economic activity and increased un­
employment will benefit from the 
higher net fiscal transfers from na­
tional budgets (in the form of lower 
tax payments and higher social 
transfers) which are the automatic 
result of their operation. 
At the same time, there will need to 
be a greater focus on achieving bal­
anced regional development to 
prevent excessively large migration 
of labour in response to lack of jobs, 
which needs to be avoided in order 
to maintain economic cohesion 
within the Union. This will con­
tinue to be a major objective for the 
Structural Funds. 
Labour market adjustment is the 
other major element in these mech­
anisms. Is the European labour 
market sufficiently robust to face 
up to the challenge of helping to secure balanced development of em­
ployment across the Union at a rate 
high enough to ensure jobs for both 
the unemployed and newcomers on 
to the labour market? These issues 
are addressed below. 
Major trends in 1996 
More detailed analysis of the trends 
highlighted below is set out in the 
background analysis annexed to 
this report. 
Economic performance 
evens out 
Between 1991 and 1996 the EU 
economy registered its worst post­
war performance over a 5-year 
period in growth and employment. 
While this poor performance has 
often been attributed to globalisa­
tion or the introduction of new 
1 Annual change in employment in the Union, 1970-96 
Annual % change 1112;: 
Unemployment rate 
I Annual change in 
total employment 
1.2 million Jobs 
1975 • 2.8 million jobs: 
1980*4 
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 "1992 1994 1996 
9-
An employment agenda for the year 2000: issues and policies 
technologies, it was mainly caused 
by the deep recession of 1992/93, 
which resulted from a stability con­
flict: initial overheating in the 
production process was aggravated 
by a distorted policy-mix, amplified 
by the effects of German unifica­
tion. 
After a setback to economic growth 
in the second half of 1995 and in 
early 1996, a gradually strengthen­
ing upturn in economic activity 
seems to be underway, under­
pinned by a sound re-balancing of 
the macroeconomic policy-mix and 
progress towards convergence. 
Combined with low and declining 
inflation rates and prospects for 
moderate wage increases, these 
have paved the way for a significant 
easing in monetary conditions. 
Thus the stance of economic policies 
has become more conducive to sus­
tained expansion of output, 
investment and employment. 
For the Community as a whole GDP 
growth is expected to be 2.4% in 
1997 and 2.8% in 1998. This pro­
gressive acceleration in GDP 
growth above the upward trend in 
labour productivity is forecast to re­
sult in employment growth of 0.5% 
and 0.9% in 1997 and 1998, a cumu­lative increase of about 2 million 
jobs. However, the decline in unem­
ployment will remain somewhat 
limited (from 11% of the labour 
force in 1996 to 10.3% in 1998) since 
labour supply is still expected to 
rise by about 0.5% a year. 
The policy challenge 
These positive developments rely 
upon the continuation of a favour­
able policy mix, including credible 
budgetary policies and appropriate 
wage behaviour. Budgetary consoli­
dation combined with the political 
determination to start EMU as an­
nounced contribute to the 
improvement in the economic pros­
pects themselves. The inherent 
risks in these forecasts are about 
the credibility of pursuing such a 
strategy and the timely realisation 
of the third stage of EMU. Slippage 
from budgetary targets would put 
at risk the favourable trends in in­
terest and exchange rates and 
therefore would undermine the 
prospects not only for EMU but also 
for stronger economic growth and 
employment. Employment 
and unemployment 
rates stabilise 
1996 can be described as a year of 
"time-out" in terms of employment 
and unemployment. The situation 
did not get much worse, but neither 
did it improve significantly. The in­
crease in employment which began 
in 1995 faltered in 1996, rising by 
less than 600 000, half a& much as 
in 1995. The total number employed 
in the Union is now just over 148 
million, still over 3 million below 
the peak of 151.5 million reached in 
1991. There has been only slow pro­
gress in making up the 5 million job 
losses of the early 1990s, let alone 
in achieving the rate of expansion of 
jobs which is needed to provide em­
ployment for the increased 
numbers of people who would like 
to work (Graph 1). 
The employment rate in the Union 
has therefore also remained vir­
tually unchanged since last year, at 
just over 60% of working-age popu­
lation. In both the US and Japan, by 
contrast, the employment rate 
reached a post-war .high in 1996, in 
line with the upward trend of the 
last 25 years (Graph 2). 
2 Employment rates in the Union, US and 
Japan, 1974-96' 
^% popular ,«4 
IM •Japan; ie-
50 l ' ' ' ' ' ' i « . < i . i i • i 5Q 
1974 W61878196019821984 ) 986198618901992 19941996 3 Unemployment rates in the Union, US 
and Japan, 1974-96 
.„ % labour force 12 r i « 
197419761978198019821984198619881990199219941996 Furthermore, in 1996 as in previous 
years, part-time employment ac­
counted for all of the net addition to 
jobs and the proportion of people 
working part-time went up again. 
Because of the low growth in em­
ployment, there was no reduction in 
unemployment. Unemployment 
even edged up at the beginning of 
1996 to reach 11% in March and 
since then it has hardly changed at 
all, but then stabilised and in July 
1997, the rate was still 10.6%. In 8 
of the 15 Member States, the rate of 
unemployment in July 1997 was 
higher than in 1994, in Germany H 
-10 
An employment agenda for the year 2000: issues and policies 
Q markedly so. Unemployment also 
rose m Japan for the fifth consecu­
tive year. In the US, on the other 
hand, unemployment continued to 
fall and in 1996 was only just above 
the lowest rate of the last 22 years 
(Graph 3). 
Young people — 
brighter signs 
For young people of both sexes 
under 25, though participation con­
tinued to decline (to 47%), it did so 
at only half the rate of the preceding 
four years. The long-term trend to­
wards a higher proportion of young 
people remaining longer in educa­
tion and training was still evident, 
but the rise was smaller as job op^ 
portunities increased. relative number of adult unem­
ployed is much higher. 
More jobs for women 
Almost two-thirds of the net addi­
tional jobs created in the Union as 
a whole in the two years 1994-96 
went to women, continuing the 
trend of the recent past. While part-
time work has enabled many 
women to enter the labour market 
it has not yet contributed to a 
greater equality of treatment be­
tween part-time and full-time 
workers. Employment of women 
had remained broadly unchanged 
during the recession years, while 
that of men had fallen markedly 
Youth unemployment has declined 
somewhat over the last 15 years 
Although it still remains at around 
twice the rate for adults (around 
20% as against under 10%), the 
composition of the unemployed has 
changed significantly over the last 
decade as the relative number of 
young unemployed has declined as 
a result of both demographic factors 
and falling participation, while the The average rate of unemployment 
of both men and women in the 
Union has remained virtually un­
changed for the past two years 
although the rate for women is still 
some 3 percentage points higher 
than for men at 12.7% compared 
with 9.4%. Unemployment of men 
tends to be more affected by fluctu­
ations in economic activity than 
that of women, both because of the 
greater concentration of men in cy­
clically sensitive sectors — 
manufacturing and construction, in 
particular — and because of the trend increase in the participation 
of women in the labour force as com­
pared with the trend decline in the 
case of men. (Graph 4). 
Long-term 
unemployment — an 
intractable problem 
Long-term unemployment rates 
have largely followed the trend in 
overall unemployment rates over 
the last 15 years, withalagof a year 
or more. Although total unemploy­
ment began to fall in 1985, the rate 
of long-term unemployment conti­
nt0 rise **<* only showed signs 
of falling in 1986, when total unem­
ployment was falling for the second 
year running. Both then continued 
to tall together until 1990. While 
unemployment then began to rise 
with the onset of recession, long-
term unemployment rates 
continued falling and only in­
creased in 1992, and have 
continued to do so since, reaching 
5% m 1996 (Graph 5). 
The evidence of the last 12 years 
suggests, therefore, that for long-
term unemployment, even more 
than for unemployment, to fall 
there needs to be both relatively 
W 
«J 4 Unemployment «*** by sex in the 
Union, 1963 .July 1997 
% labour fore* 
1963 1995 m 1991 1993 199$ 1097 8 Total and kng-tetm unemployment 
rate» in the Union, 1986 to 1996 
*tabour*xca 
•UmmploystUtyiar 
•UrwmployBQSiywf 
1«61M719M198918901»11W 1N31m m^mt 6 Change in employment and GDP in the 
Union, 1974-96 
fl Annual Î4 change 
—Emftoprm 
•••ÛDP togged 2 quaitas 
I*M i«* i«i i«o m im 1* IN, it» im im 1W* 
11-
An employment agenda for the year 2000: issues and policies 
strong and continuous growth in 
employment. A more detailed ana­
lysis of these three policy areas 
(youth employment, equal oppor­
tunities and long-term 
unemployment) will be published 
later in the year. 
Underlying factors 
— structural trends 
and adjustments 
The likely responses of the Euro­
pean economy to economic shocks 
and structural changes is a function 
of existing underlying economic 
trends and in the way in which the 
European economy, and in particu­
lar, the labour market, adjusts to 
these. The challenges facing the 
Union over the immediate future 
will raise serious questions about 
the strength and flexibility of those 
adjustment mechanisms and about 
whether Europe is ready to face up 
to them. The following sections pro­
vide an analysis of some of the 
reasons behind the overall trends 
described above. Deeper analysis of 
all these issues depends on the con-
tinued provision of timely, 
harmonised and consistent labour 
market statistics and, in particular, 
the need to move towards a con­
tinuous labour force survey 
providing at least quarterly results. 
Output growth and its 
employment content — 
two necessary elements 
The slowdown in employment 
growth in 1996 is a reflection of the 
slowdown in output growth in the 
Union — from 2V2% in 1995 to 1V2% 
in 1996. Indeed, the increase in em­
ployment which occurred in the two 
years 1994-96 was in line with the 
long-term trend relationship in the 
EU between GDP and employment growth which implies that growth 
of GDP of just under 2% a year is 
necessary in order to generate any 
rise in the number employed at all. 
This relationship has remained 
very stable over the past 20 years, 
though there are signs of a very 
small increase in the employment-
content of growth over the past 10 
years as compared with the pre­
vious 10 years (Graph 6). 
The policy challenge 
A central aim of policy across the 
European Union is to seek to ensure 
that the employment-content of 
growth is compatible with other 
economic objectives, such as the 
maintenance of competitiveness 
over the long-term. There are sub-
stantial differences between 
countries with comparable income 
levels in both the way in which GDP 
is generated and the number of jobs 
which it supports. This suggests 
that the number of people in work 
is far from being the mechanistic 
result of market forces operating in 
an institutional vacuum and that 
there is a significant element of 
choice over this (in a societal rather 
than an individual sense) and that, 
therefore, this provides an oppor­
tunity for policy action. 
• The disparities in GDP per head 
between European Union Mem­
ber States are partly associated 
with differences in levels of la­
bour productivity, partly with 
differences in rates of employ­
ment, in that the more 
prosperous countries tend to 
have both higher levels of pro­
ductivity per hour worked and a 
higher proportion of their popu­
lation in work. The association, 
however, is by no means syste­
matic and there are striking 
differences in both productivity 
and employment rates between countries with similar levels of 
prosperity. 
• While some countries succeed 
better than others in attaining 
high rates of employment, the 
additional jobs which result are 
not concentrated in particular 
sectors and differences in the 
pattern of jobs between high em­
ployment rate countries seems 
to reflect differences in com­
parative advantages. Tourism is 
an example of a sector which of­
fers good prospects for growth 
and employment. It already ac­
counts for some 5.5% of GDP and 
6% of total employment, ;and 
this is forecast to rise to 9% by 
the end of the next decade. Simi­
larly, the social economy, with 
5% of total employment and 6% 
of the enterprises in the private 
sector, could be an important 
potential source of new jobs if 
given the right support. 
Getting the unemployed 
into jobs 
A relatively small proportion of 
those who had beeiumemployed in 
1995 had succeeded in finding a job 
one year later. Over the Union as a 
whole, under a third of men unem­
ployed one year previously had 
found a job in 1996 (at the time 
when the LFS was conducted). Half 
were still unemployed — which is 
consistent with the figures for long-
term unemployment — while the 
remainder (17%) had left the labour 
force completely (in the sense that 
they were no longer actively looking 
for work). For women, the propor­
tion of those unemployed in 1995 
finding work in 1996 was even 
lower, at only just over a quarter, 
with half remaining unemployed 
and 23% becoming inactive. w 
o 
-12 
An employment agenda for the year 2000: issues and policies 
W 
O The figures for individual Member 
States are broadly similar to those 
for the Union as a whole. In Bel­
gium and Ireland, the proportion 
was under 20%, in both cases the 
low chances of the unemployed find­
ing work being reflected in the 
figures for long-term unemploy­
ment which are much higher than 
in the rest of the Union. In Ireland, 
therefore, the high rate of net job 
creation (of 372% in 1996) has not 
been of much benefit to the unem­
ployed, with most of the increase in 
employment being fed by a growing 
labour force (by emigrants return­
ing from abroad as well as by 
increased participation) rather 
than by people moving from unem­
ployment into jobs. 
The policy challenge 
The inability of the unemployed to 
get back into work has long been a 
feature of the European labour 
market, even in periods of job 
growth, although this is certainly a 
necessary pre-requisite. 
• a large proportion of the unem­
ployed are not equipped for the 
labour market: in 1996, 35% of 
both unemployed men and 
women over 25 had no educa­
tional qualifications beyond 
basic schooling; 
• maintaining the employability 
of the unemployed, and particu­
larly the long-term unemployed 
is essential if this is to be im­
proved; 
• early identification and early ac­
tion are among the ways in 
which policy can better target 
the reintegration of the unem­
ployed and prevent them 
becoming long-term unem­
ployed. Labour force trends 
— participation 
and employment 
The increasing number of job oppor­
tunities has affected labour force 
trends. During the late 1980s, in­
creased participation combined 
with the growth of working-age 
population added almost 172 million 
people a year to the Union's labour 
force. In the four years 1990-94, 
falling participation reduced total 
labour force growth by 1 million a 
year, so that instead of expanding 
by 5 million or so over the whole 
period, it only increased by just over 
1 million. The decline in the availa­
bility of jobs was, therefore, 
accompanied by a fall in the propor­
tion of people of working age 
actively looking for work. This had 
a substantial effect in containing 
the rise in unemployment. 
Over the two years 1994-96, while 
the participation of men in the la­
bour force declined, this decline was 
much less marked than in the re­
cession years. With the exception of 
the under 25 year-olds, participa­
tion of women continued to 
increase, at an even greater rate. 
In 1996, with the renewed rise in 
participation some 850 000 people 
joined the labour force — almost as 
much as over the entire four years 
of recession. The increase in the 
number in employment in 1996 
was, therefore, accompanied by a 
rise rather than a fall in unemploy­
ment. 
The policy challenge 
The average age of the European 
population will increase signifi­
cantly in future years as a 
consequence of declining birth 
rates, increasing life expectancy 
and the ageing of the post-war baby-boom generation. The ageing of the 
population is set to have major con­
sequences both for the European 
labour force and social protection 
budgets in 10 to 15 years time as 
post-war generations reach retire­
ment age. Projections suggest that 
by 2015, the working-age popula­
tion in the Union will be declining 
in almost all Member States and 
well over half will be 40 years old or 
more. 
• The underlying demographic 
trends in the Union have clear 
implications for the productivity 
and adaptability of the labour 
force. The full impact on the la­
bour force of these demographic 
trends will depend on future 
changes in participation rates. 
The experience of the last decade 
shows clearly that changes in 
these are closely linked to 
changes in both economic activ­
ity and employment. 
• If current trends in participation 
continue, they could reduce the 
extent of the ageing of the 
Union's labour force over the 
next 10 years or so, but there­
after, they are~unlikely to offset 
the demographic trend towards 
ageing significantly. The press­
ing need will be to maintain the 
skills and capabilities of an 
ageing work force. This empha­
sises the importance of 
reversing the trend for men to 
withdraw from the work force at 
an ever younger age, though this 
itself requires a fundamental 
change both in attitudes towards 
older workers among employers 
and in the underlying labour 
market situation which for too 
long has been characterised by 
too many people looking for too 
few jobs. _ 
• This prospective decline in the 
Union's labour force should not 
13 
An employment agenda for the year 2000: issues and policies 
be seen as a solution to the un­
employment problem.. The low 
employment rate in the Union 
compared with similar de­
veloped economies 
demonstrates the extent of the 
labour reserve to be absorbed 
(over 20 million). A detailed ana­
lysis of these developments is 
presented in the main report. 
• The Union's employment prob­
lem will not go away as 
prospective demographic trends 
unfold. On the contrary, it could 
well become more acute as the 
population ages and as their 
need for income support grows 
Flexibility and 
employability — 
the skills gap 
There are some signs of a widening 
skills mismatch in the Union. Occu­
pational trends in the Union are 
reinforcing the two-speed labour 
market, with an increasing concen­
tration of employment, and new 
jobs, in the high-level occupations. 
Virtually all the net addition to em­
ployment in the two years 1994-96 
was accounted for by a growth in 
jobs with a relatively high skill con­
tent. While the number of 
managers, professionals and tech­
nicians increased considerably, by 
over 2% a year, the number of 
people in elementary occupations 
declined. The only less-skilled jobs 
which expanded significantly were 
those for sales and service workers, 
and around two-thirds of the net 
addition to these jobs went to 
women. 
There is some evidence to suggest-
that skill shortages may be a par­
ticular problem for small and 
medium-sized enterprises. Com­
paring surveys of enterprises carried out in 1989 and 1994, the 
shortage of adequately skilled ap­
plicants continued to be a greater 
problem for enterprises with less 
than 200 employees than for larger 
enterprises. In effect, in 1989, be­
tween 59% and 62% of large 
enterprises in all size classes above 
200 employees considered said this 
an important or very important ob­
stacle to employing more people. In 
1994, however, only for enterprises 
with fewer than 200 employees 
(41%) or 20O-499 employees(33%) 
was this still a major obstacle. The 
figures for larger enterprises of 
500-999 (26%) and of over 1000 em­
ployees (16%) had fallen 
considerably. It should be borne in 
mind, however, that economic con­
ditions were very different in these 
two years: 1989 was a year of high 
employment growth, while in 1994 
labour demand was «at its lowest 
level for many years. 
Although participation in education 
and vocational training beyond 
basic schooling has risen markedly 
in all Member States in recent 
years, it remains the case that a 
disproportionate number of the un-
employed have insufficient 
qualifications to be able to compete 
effectively for jobs. In 1996, over the 
Union as a whole, over half of all 
men aged 25 to 64 had no educa­
tional qualifications beyond basic 
schooling and just under half of 
women. By contrast, only just over 
a third of men who were in employ­
ment, and about the same 
proportion of women, were in a 
similar position. 
This difference is particularly signi­
ficant in many Northern Member 
States where a relatively high pro­
portion of economic activity is in 
comparatively advanced sectors, 
such as business and financial ser­
vices, where jobs typically have a 
high skill content, and a low propor­tion in sectors where low-skilled 
jobs predominate, such as agricul­
ture, basic manufacturing and 
distribution. 
For women, there is an even bigger 
difference in educational attain­
ment levels between those with jobs 
and those who are inactive than be-
tween the employed and the 
unemployed. Over the Union as a 
whole, 63% of women aged 25 to 59 
who were economically inactive had 
no educational qualifications be­
yond basic schooling as opposed to 
only 34% of those in employment. 
As noted in Employment in Europe, 
1996, the difference is significant in 
all Member States but is especially 
pronounced in countries where the 
participation of women in the work 
force is still comparatively low, such 
as* Spain (84% of inactive women 
having no qualifications as against 
51% of those with jobs) and Ireland 
(62% against 27%). This almost cer­
tainly reflects in part differences in 
attitudes towards working as be- „ 
tween well educated and less well p 
educated women in these countries, j> 
but it also reflects the relative lack « 
of job opportunities for those with 
only basic education. 
The policy challenge 
To meet the challenges of the next 
decade, we need a fundamental re­
form of our systems of education 
and training, based on the concept 
of lifelong learning, to raise skill 
levels throughout the labour force, 
beginning with our young people, 
and continuing through to those at 
the end of their working life, but 
whose usefulness we will need in 
the years to come. w 
Over a third of young people 
aged 20 to 24 join the labour 
force with no qualifications be­
yond basic schooling. Efforts 
should be made to bring average o 
14 
An employment agenda for the year 2000: issues and policies 
w 
o levels up to those of the best 
Member States. For those who 
find it difficult to benefit from 
formal education, a wider range 
of vocational training oppor­
tunities should be found, 
preferably with a work experi­
ence component to reinforce the 
possibilities of obtaining em­
ployment at the end of it. 
• Bridging the gap between school 
and work is a crucial stage, 
whatever the level of a person's 
qualifications. Apprenticeship is 
one of the most effective means 
of helping young people to de­
velop the skills and 
competencies which match la­
bour market needs, and thus 
make this transition. Different 
approaches to apprenticeship 
should be developed across the 
Union, accompanied by adequ­
ate provision of careers 
guidance. 
• At the same time, a policy of 
increasing skill levels must go 
hand in hand with continued ef­
forts to ensure that labour 
markets are sufficiently flexible 
and that labour costs are suffi­
ciently conducive to job creation 
to provide employment oppor­
tunities for those whose skill 
levels are likely to remain 
limited irrespective of the kind 
and extent of training received. 
This means, in particular, that 
the overall cost of employment 
for the latter, including the non-
wage element, is at an 
appropriate level in relation to 
productivity, and that artificial 
barriers inhibiting job creation 
are removed 
• But this is merely to lay the 
foundations of the flexible and 
adaptable labour force of the fu­
ture. The speed of technological 
change is such that the labour force of the future will be in­
creasingly required to change 
and adapt to new skills and ca­
pacities, and to radically change 
jobs frequently over the lifetime 
of work. This means that train­
ing must not only be aimed at 
those at the beginning of their 
working life, but at everyone 
right up to the end of their work­
ing life. Such a strategy of 
skills-upgrading is the only way 
in which the Union will meet the 
challenges of adjusting to the 
new environment. 
• Unemployment in Europe is con­
centrated among the low-skilled, 
or those who have lost their 
skills. The seemingly intractable 
nature of long-term unemploy­
ment is partly a reflection of this. 
A major reduction in unemploy­
ment, and in long-term 
unemployment in particular, 
will not occur unless the skill 
levels of those affected can be 
raised through training. 
• Occupational segregation be­
tween women and men removes 
an element of flexibility in the 
labour market. Girls and boys 
should be encouraged to diver­
sify their occupational choices, 
thus contributing to greater 
desegregation on the labour 
market and greater chances for 
women to find jobs. 
• Since high-skilled jobs in the 
Union are disproportionately lo­
cated in the growth sectors, the 
problem of the skills gap is likely 
to become more acute over time, 
with an increasing proportion of 
those with only basic qualifica­
tions finding it ever more 
difficult to find employment. Up­
grading and broadening skills 
while in work could be the most 
significant and cost effective in­
vestment in preventing long-term unemployment and 
increasing employability. 
• The Union has no shortage of 
potential entrepreneurs, nor do 
our new businesses fare any 
worse on average than those of 
our competitors. It is neverthe­
less, important for our education 
systems to encourage the devel­
opment of entrepreneurial skills 
and an enterprise culture. 
• There should also be a new re­
form of social protection systems 
to make them more employ­
ment-friendly. Income 
maintenance programmes alone 
do nothing to promote the em­
ployability or the security of 
those temporarily excluded from 
the labour market. The sums 
spent on unemployment benefit 
and other passive labour market 
measures, which still make up 
some two-thirds of total labour 
market expenditure, should be 
redirected and mobilised for pro­
moting employability and 
re-integration into working life. 
Such a restructuring of public 
expenditure is important in the 
longer term in order to reduce 
dependency and social exclusion 
as well as to help people realise 
Change in part-time and foil-time 
employment, 1987*96 
2 % Iota) tnploymaoiJR base yaar 
199719M1999 1990 1991 1992 1993 19M 19» 1996 
-15 
An employment agenda for the year 2000: issues and policies 
their full potential — for the 
good of the economy as well as 
themselves. 
A triple-pronged strategy is there­
fore called for: improving the initial 
education and training of young 
people to help them into the labour 
force and to enable them to adapt to 
new challenges later in life; a posi­
tive approach to upgrading the 
skills of the existing work force 
throughout their working life and 
an active programme of training for 
the unemployed, particularly the 
long-term unemployed. The Euro­
pean Social Fund will underpin this 
strategy. 
Flexibility and 
work organisation 
The increasing flexibility in work­
ing patterns noted in last year's 
Employment in Europe report con­
tinued in 1996. 
Beyond the overall job turnover of 
10 million jobs or more created and 
destroyed every year in the Union, 
the prevalence of the standard 
working week, a standard contract 
or a standard career with a lifetime job is gradually declining. During 
the recession, all of the net addition 
to jobs was in part-time working, 
suggesting a flexible response to 
difficult labour market conditions. 
While there was some net addition 
to full-time jobs in 1996, the long-
term trend towards more part-time 
working is continuing (Graph 7). 
17% of all employees now work 
part-time. The long-term rise in 
part-time working among men has 
been common to all Member States. 
In the 6 years 1990-96, the propor­
tion of men employed part-time has 
increased from under 4% to 5V2% in 
the Union as a whole and there has 
so far been little sign of this trend 
abating as total employment has 
increased. 
The trend rise in part-time working 
women also continued in 1996, with 
over 31V2% of all women in employ­
ment working part-time. Part-time 
jobs for women accounted for 
around 60% of the rise in the num­
ber of women employed during the 
year. 
While 12% of the Union's labour 
force have fixed term contracts 
there is wide variation between Member States in their use which 
reflects the legislation and regula­
tions in force. These affect the 
operation of the labour market, as 
well as the behaviour of both em­
ployers and workers, leading them 
to choose different forms of flexi­
bility. What is much less evident is 
whether these different forms of 
flexibility affect employment per­
formance, growth of output, or 
standards of living. Comparisons 
based on the OECD index of regula-
tion, a relatively subjective 
measure, show at best only a weak 
correlation between these vari­
ables. 
The policy challenge 
The European employment 
strategy which has been pursued 
since 1994 has rightly placed a 
strong emphasis on increasing flex­
ibility in labour markets. The type 
of flexibility which will be required 
of the European economy in a con­
text of a fully-functioning Single 
Market and Economic and Mon­
etary Union will be much more 
complex than simply deregulating 
labour markets. 
40 
35 
30 
25 
20 
15 
10 
05. 
0 4 Hourly labour costs and value added per hour 
worked in NUTS 1 regions, 1992 
Value added per hour (ECU) 
•: •'•• • • 
mm 
10 15 20 
Cost |*r hour (ECU) 25 40 
• 35 
• 30 
• 25 
- 20 
15 
10 
5 
0 
30 Non-national population by citizenship in 
Member States, 1995 
% population 
fi ÛK C OR iitlNIi: imf::S!?:;5:tlKii;€t5t o 
3 
a 
o 
16-
An employment agenda for the year 2000: issues and policies 
• The new kind of flexibility 
should be a parallel process of 
continuing the structural re­
forms in both markets for goods 
and services, and in labour mar­
kets. Deregulation and greater 
competition in goods and ser­
vices markets should be seen as 
a way of improving productivity 
and job creation on a lasting 
basis. This is particularly true in 
services, where there is still 
enormous potential for job cre­
ation in a whole range of 
activities. 
• Flexibility in product markets 
means flexibility at the level of 
the firm. Such flexibility will re­
quire an increasing focus on new 
types of work organisation, 
which may lead to more flexible 
patterns of working time. The 
'flexible firm' should become the 
norm, not the exception. In in­
troducing new patterns of 
working, a certain number of 
principles should be respected: 
they should be specific to the in­
dividual plant or office, and they 
should be negotiated between 
the employers and the workers. 
The new agreement on part-time 
working negotiated by the Social 
Partners at European level in 
the context of the Social Protocol 
should be seen as a first step in 
the search for such preferred 
strategies. 
• Flexibility and security need not 
be mutually exclusive. To a 
growing number of people, job 
security will probably no longer 
mean a job for life, but the de­
mands of new technology and 
the new flexibility mean that a 
new partnership should be de­
veloped between workers 
employers and governments to 
guarantee employability throug­
hout the working life. This 
means, first and foremost, measures to maintain and up­
grade skills. 
• The Commission will intensify 
efforts to simplify and improve 
the business environment, in­
cluding the setting up of th 
eBusiness Environment Task 
Force in response to the invita­
tion from the Amsterdam 
European Council. 
Flexibility and 
labour cost dispersion 
Labour costs vary considerably 
across the Union, ranging from 
around 5 ECU per hour in industry 
in Portugal in 1992 to around 23 
ECU per hour in most German re­
gions, and ECU 27 in Hamburg. 
These differences largely reflect 
variations in labour productivity 
(Graph 8). In terms of unit labour 
costs, there is relatively little vari-
ation across the Union and, 
certainly, no tendency for unit costs 
to be lower in places where the aver­
age cost of employment is also low. 
Productivity differences tend to 
compensate for labour cost dif­
ferences and there is, therefore, 
little incentive in this regard for 
firms to shift production from one 
Member State to another — at least 
at the aggregate level. 
Differences in labour costs between 
regions are much less pronounced 
in the US, and there is compara­
tively little variation in the unit 
costs of producing in one part of the 
US than another. This is only to be 
expected, however, since the US has 
effectively been a single economy 
for a long time, has a single cur­
rency and enjoys a higher degree of 
economic integration between the 
individual states than is yet the 
case in Europe. In terms of labour 
market adjustment, a more rele­
vant comparison is between the extent of labour cost differences 
within Member States in Europe 
and within different parts, or broad 
regions, of the US. 
Average labour costs in the two hig­
hest-cost regions were around 30% 
higher than in the two lowest in four 
of the five largest European coun­
tries in 1992. In the fifth country, 
Germany, the difference was 18%, 
if the new Lander are excluded. In 
the US broad regions, the difference 
was between 20 and 30% in each 
case. Using a more sophisticated 
statistical measure of disparity (the 
variance or standard deviation) and 
weighting regions according to the 
numbers employed, all of the nine 
US regions except two have a smal­
ler variation in average labour costs 
than is the case in European coun­
tries. 
There also tends to be less variation 
in unit labour costs between US 
States than European regions 
within countries, especially in 
Spain and the UK This suggests 
that economies are more flexible in 
the US than in some parts of Eu­
rope, or that there are fewer 
obstacles to mobjjity of both pro­
ducers and workers, in the sense 
that there is more of a tendency for 
market forces to eliminate any unit 
labour cost differences which 
emerge (through, for example, en­
couraging shifts in economic 
activity between States). A more de­
tailed analysis is presented in the 
main report. 
The policy challenge 
The Amsterdam European Council 
stressed the need to make tax and 
social security systems more em­
ployment-friendly, and to create a 
tax environment that stimulates 
enterprise and the creation of jobs. 
In particular, the prevailing struc­
ture of the tax system in Member 
17 
An employment agenda for the year 2000: issues and policies 
States, and the scale of the tax 
wedge (between the cost of labour to 
employers and employees' take-
home pay) need to be re-examined 
in the light of the effect on employ-
ment growth, especially of 
less-skilled, lower-paid workers. 
• Member States should have flex­
ibility in choosing the method of 
reducing taxes on labour and the 
means of financing those reduc­
tions. However, there are great 
benefits to be gained from ex­
changing information and 
experience regarding these 
issues as well as from coordinat­
ing tax measures as part of a 
Community-wide effort to re­
duce unemployment. 
Migration 
and mobility 
Mobility of the labour force is one of 
the ways in which the labour mar­
ket brings about adjustment to 
long-term divergence in economic 
and employment opportunities be­
tween countries and regions — 
divergences which structural 
policies seek to minimise. As time 
goes on, however, the need for an 
adjustment to long-term diver­
gences should decline as a more 
balanced economic development is 
achieved and there is greater econ­
omic and social cohesion between 
countries and regions 
Some 5% of people resident in 
Union Member States who are of 
working-age are non-nationals 
(Graph 9). Of these, around a third 
come froin other EU countries. 
Although most Member States in 
the Union have experienced net im­
migration since the late 1980s, 
which has added to their population 
of working age, the scale has been 
relatively small. Only in Germany, Greece and Austria has net immi­
gration consistently amounted to 
much more than 0.3% of population 
over this whole period, and this has 
now declined. The peak period of 
net immigration, which was around 
the turn of the decade when it 
reached 1% of population in Ger­
many and Austria and just over Va% 
in Greece, mainly because of in­
flows from Central and Eastern 
Europe, now seems to have passed. 
Some 30% of immigrants into Mem­
ber States are returning nationals 
and another 17% citizens of another 
Member State. Immigration into 
the Union from outside amounted 
to under V2% of the Union's popula­
tion of working age in 1995. This is 
only slightly lower than the inflow 
into the US. Moreover, in the EU, 
about half of the inflow of migrants 
was offset by people emigrating 
from the Union (more than the very 
low outflow from the US). Since this 
is around twice the increase in the 
natural growth of population, the 
inflow of migrants is making a sig­
nificant contribution to the growth 
of working-age population and to 
the Union's potential labour force. 
The inflow is particularly import­
ant in Member States such as 
Germany where population is natu­
rally falling. 
The scale of labour movement in the 
US is greater than in Europe, but 
not significantly so. In practice, 
while movements over long dis­
tances, from one part of the country 
to another, are more frequent than 
between different parts of Europe, 
the scale of migration between re­
gions or states within these 'parts' 
or broad regions (within, say, the 
Mid-West or the North-East) is only 
slightly higher than between re­
gions in Union Member States. In 
1993-94,an average of just over 
2V2% of the resident population 
moved between either state or broad region in the US, which com­
pares with a figure of just under 
1V2% who moved between either 
NUTS 1 regions or Member States 
in Europe at about the same time. 
Migration between regions in Mem­
ber States is not so different from 
movement between states in the 
US. In 1993-94, an average of just 
under 1V2% of people (14 in 1000) in 
each of the 9 broad regions of the US 
moved from one state to another 
within that region. 
Across the Union, significant num­
bers of people regularly travel quite 
long distances from their homes to 
their places of work, and in some 
cases even cross national borders. 
Such commuting serves to enlarge 
what might normally be defined as 
a pineal labour market and is a far 
•more common occurrence than 
people moving house to take up em­
ployment. 
In 1995, just under 372% of em­
ployees lived in one NUTS 1 region 
and worked in another. In Belgium, 
the figure was substantially above 
the Union average at almost 13%, 
and in Austria, it .was over 10%, 
mostly consisting of those travel­
ling to Brussels and Vienna 
respectively. 
Around V2% of employees (600 000 
people) in the Union in 1995 lived in 
one country and worked in another. 
Half of these worked in another 
Member State, the other half in a 
country outside the Union, (mainly 
Switzerland). Not all of these 
necessarily commute on a daily 
basis, but may work in another 
country for a lengthy period of time 
without changing their place of 
residence. The great majority, how­
ever, almost certainly commute 
regularly. w 
-18 
An employment agenda for the year 2000: issues and policies 
(N 
l-H 
P 
> 
&_ 
5 
03 
o The policy challenge 
There are various obstacles to mi­
gration between European 
countries, such as cultural and lin­
guistic difficulties, rigidities in 
regulations, the spillover effect of 
restrictions on third country mi­
grants, and racist attitudes. These 
are difficult to overcome through 
economic and labour market incen­
tives to migration. 
• The adjustments required in» a 
more integrated European la­
bour market do not, however, 
call for large increases in migra­
tion or geographical mobility. 
The development of EMU should 
make wage and price compari­
sons more transparent, but 
other factors play a possibly 
greater part in the employment-
wage decision. The need is to 
provide a situation where poten­
tial migrants have a real choice 
— between the opportunity to 
stay and the security to move, 
through adequate rates of job 
creation where they live, and the 
dismantling of artificial barriers 
to their ability to work else­
where. 
• Promoting job opportunities in 
potential migration areas — 
both those which send and re­
ceive migrants — will decrease 
barriers and improve integra­
tion. In particular, such policies 
will address the problem of dis­
crimination in local labour 
markets based on fears of jobs 
being taken by those coming 
from elsewhere. 
• Beyond this, policy should aim 
at facilitating freedom of move­
ment through removing 
remaining restrictions on labour 
mobility (many of which are not 
actually linked to the labour 
market, such as pensions and housing), improving information 
on job opportunities, and extend­
ing mechanisms such as EURES 
which help those wishing to 
move. While barriers to cross-
border commuting have been 
reduced considerably in recent 
years, there are still significant 
obstacles, to people working in 
another Member State. 
Facilitating mobility adjustments 
will make a positive contribution to 
combating emerging skill short­
ages, correcting productivity 
differences and thereby promoting 
growth and employment. 
Sectoral and 
occupational mobility 
The extent of mobility between sec­
tors is relatively high across the 
Union. In 1995, job turnover for 
men was around 16% a year and for 
women around 19%. These figures, 
however, conceal substantial dif­
ferences both between sectors and 
between Member States. 
In general, the rate of new entry 
tends to be higher in sectors which 
are expanding more than others, 
although the link with employment 
growth is not systematic. In par­
ticular, the scale of sectoral 
mobility is much higher in sectors 
like hotels and restaurants (around 
25% of all employees in the sector 
not having worked there the year 
before), where a high proportion of 
new entrants tend to be school-
leavers, than in sectors like 
banking and insurance, education 
or health, where higher education 
attainment and skill levels required 
of the work force both limit the 
number of suitable applicants and 
make employers reluctant to lose 
people once they have been re­
cruited and trained. High rates of 
labour turnover, in other words, are not necessarily synonymous with a 
high degree of competitiveness. 
The policy challenge 
Differences in the extent of turn­
over, however, do not seem to be 
systematically related to the degree 
of labour market regulation, or 
more specifically, to the severity or 
laxity of protection against dismiss­
al, which is generally held to affect 
the willingness of employers to take 
on new people. Spain, for example, 
has one of the strongest systems of 
job protection (as assessed by the 
OECD) but also one of the highest 
rates of labour turnover, while Fin­
land also has a high rate of turnover 
coupled with an above average de­
gree of worker protection and 
Belgium with the lowest turnover 
rate in the Union is judged to have 
below average restrictions on dis­
missal. 
• Rather than deterring em­
ployers from hiring new people, 
tight restrictions on dismissal 
may alter the way they do so", in 
particular, by encouraging them 
to take them on under fixed-
term contracts. This, 
paradoxically, would tend to in­
crease the rate of labour 
turnover rather than reduce it, 
and the evidence suggests that 
this is indeed the case. 
• Restrictions on dismissal tend to 
increase the number of people 
employed on temporary con­
tracts and, accordingly, the rate 
of labour turnover. This could 
lead to the development of a dual 
labour market with established 
employees enjoying a high de­
gree of protection against losing 
their jobs and others having 
little or none. This is not necess­
arily the _most desirable or 
efficient way of increasing la­
bour market flexibility. 
19-
An employment agenda for the year 2000: issues and policies 
• There is a need for a radical re­
think of all relevant labour 
market systems — employment 
protection, working time, social 
protection and health and safety 
— to adapt them to a world of 
work which will be organised dif­
ferently, in which the concept of 
security for workers has to be 
reformulated, focusing more on 
security based on employability 
in the labour market rather than 
security in a specific job. 
• The focus should move away 
from a simplistic debate about 
regulation and deregulation to­
wards a new balance between 
flexibility and employability se­
curity, with tangible benefits for 
both workers and employers. 
Workers will be better able to 
combine professional and family 
life, while employers will be 
given the opportunity to adapt 
faster to the increasing changes 
of the market. 
Integrating disabled 
people into the 
labour market 
If past trends continue, as the 
Union's population ages, there will 
be an increasing proportion of 
people with disabilities among 
those of working age. This poses 
multiple policy dilemmas on a sen­
sitive issue which has polarised 
debate in the past and which the 
Employment in Europe Report this 
year addresses in a special section. 
Approximately 17% of the Union's 
working-age population is ham­
pered by disabilities. Nearly half of 
these are in the 50-64 age group. 
The average employment rate of 
hampered people in the Union at 
44% is nearly 17 percentage points 
below the overall rate, though this varies markedly between Member 
States. Rates tend to be higher in 
countries where the overall employ­
ment rate is also high. A significant 
proportion of those who are in em­
ployment, moreover, tend to be 
people who have become disabled 
while working and who have re­
mained with the same employer, if 
not necessarily in the same job. In­
deed, around 10 million people a 
year are affected by occupational 
diseases or accidents and injuries at 
the workplace. Contrary to conven-
tional wisdom, rates of 
unemployment for disabled people 
are not much higher in most coun­
tries than for the rest of the work 
force. In the Union as a whole, the 
average rate is under 2 percentage 
points higher than for the total la­
bour force. 
The proportion who are inactive is, 
however, considerably higher than 
for other groups. This is especially 
so in countries like Greece, Spain, 
Ireland and Italy, where family 
support is still strong. These are 
also the countries, together with 
Portugal, where the educational at­
tainment of disabled people is lower 
than for the rest of the population 
and where disproportionate num­
bers are employed in agriculture 
and in elementary occupations 
generally, whereas in other coun­
tries where disabled people have a 
similar educational attainment 
level to the rest of the population 
there are not significant differences 
in the sectors and occupations in 
which they work. 
The policy challenge 
In the past, there has been a strong 
socio-economic bias in many Mem­
ber States towards granting 
disability benefits to those who 
have difficulty in finding employ­
ment. As a result, expenditure on 
such benefits has become the third largest item in the Union's social 
protection budget after pensions 
and sickness benefits, amounting to 
1072% of the total budget in 1993. 
This is larger than the amount 
spent on unemployment benefits 
(7% in 1993). 
Two of the main obstacles faced by 
disabled people in terms of access to 
employment are prejudice and bias. 
As a result, there has been an exten­
sive movement among disabled 
people for the introduction of anti-
discrimination legislation to protect 
their civil rights and for 'reasonable 
accommodation' so that they can 
exercise their right to employment. 
In economic terms, this is an invest­
ment in human capital which, as 
well as the social benefits, promises 
positive financial returns for State 
budgets, insofar as additional em­
ployment generates more tax 
revenue in place of the expenditure 
required to support the income of 
those who are inactive. 
• Anti-discrimination legislation 
should be complemented by 
measures aimed at improving 
the employability of disabled 
people, as in^ Sweden, for 
example, so strengthening the 
competitiveness of the Union's 
work force as well as improving 
the job prospects of disadvant­
aged individuals. 
• Quota-levy systems should be 
completely re-oriented to 
respond to new working environ­
ments where employees are 
encouraged to learn and to 
change the work process as they 
learn, so becoming part of a com­
pany's capital. In such adaptable 
and employment-friendly envi­
ronments, those with 
disabilities are much more likely 
to stay on and develop their per­
sonal skills. The employment 
prospects for disabled people, w 
o 
-20 
An employment agenda for the year 2000: issues and policies 
Q however, cannot be divorced 
from general labour market con­
ditions. Disabled people are 
usually the first to lose their jobs 
and among the last to get hired: 
the imposition of quotas is self 
defeating if the employment-
base to which they are applied is 
shrinking. 
Environment and 
employment 
The environment has become an 
area of significance for employ­
ment. Environment related jobs 
include a wide range of activities, 
with the core ones such as waste­
water treatment, waste disposal, 
air pollution control, soil remedia­
tion and noise abatement providing 
the bulk of jobs and accounting for 
at least 1.5 million jobs or 1% of all 
employment in the European 
Union. 
Other jobs are linked to the provi­
sion of environmental goods and 
services which are not for environ­
mental purposes only and so are 
less easily identifiable. These in­
clude: recycling, the use of 
renewable energy, nature and land­
scape protection and the renovation 
of urban areas. Preliminary esti­
mates suggest that these activities 
may account for further 1.5 million 
jobs in the Union, so increasing em­
ployment in the environmental 
sector broadly defined, to around 
2% of the Union total. The environ­
mental sector is a sector with 
positive forecasts for job growth. 
Of course, environmental policies 
may also have adverse effects on 
employment in other sectors as con­
trols on pollution and measures to 
reduce ecological damage are intro­
duced. Despite the problems that 
this may cause for particular sec­
tors or regions, especially in the short-term, there is no convincing 
evidence that environmental 
policies are liable to have an ad­
verse effect on employment or 
competitiveness overall and in the 
longer term are likely to strengthen 
both. Recent analysis suggests that 
pursuing environmental objectives 
has, on the whole, a positive, albeit 
limited employment effect. 
Much more important for the sus-
tainability of growth in the 
long-term than "green industry* is 
the problem of the prevailing pat-
tern of consumption and 
investment. Major investment is 
likely to be needed in the coming 
years to renew the current capital 
stock by putting in place more envi­
ronmentally-friendly technologies 
and production methods, especially 
in manufacturing, agriculture, en­
ergy and transport. 
The way forward 
The 1997 Employment in Europe 
Report highlights a number of the 
major factors which are likely to 
make the long-term environment of 
the European labour market signi­
ficantly different in the next two 
decades than in the last 25 years of 
the 20th Century. 
The European employment 
strategy, built on the concept of em­
ployment as a common concern, set 
out in the Amsterdam Treaty, will 
play an important part in securing 
a high rate of net job creation which 
is essential for ensuring the success 
of EMU. This strategy, initiated at 
the Essen Summit, combines mac­
roeconomic stability and structural 
reforms to modernise the function­
ing of the labour market. 
In the coming decade, it must put 
even more emphasis on the develop­
ment of a knowledge infrastructure which will ensure sustainable 
growth in a competitive world econ­
omy and will enhance human 
resources, so that everyone in the 
labour force can maintain and in­
crease their skills and 
employability. Flexibility must be 
built on the confidence of workers in 
their adaptability and em­
ployability and on constructing an 
effective partnership between the 
work force and employers. 
At the level of the Union, a number 
of political decisions have been 
taken, new commitments made, 
and new institutional arrangement 
put in place to focus the employ­
ment policy actions of the Union 
and the Member States: 
• the inclusion of the employment 
Title in the revision of the Treaty 
will provide the Union with the 
tools necessary to develop a coor­
dinated employment strategy 
adapted to the needs of the 21st 
Century, while at the same time 
taking account of the different 
situations in the Member States; 
• the creation of an Employment 
Committee provides a forum for 
promoting coordination between 
Member States on employment 
and labour market policies. This 
Committee will monitor employ­
ment policies in the Member 
States and the Community, and 
advise the Council and the Com­
mission on such issues; 
• the Commission will draw up 
employment policy guidelines 
which will be discussed and ap­
proved by the European Council 
after extensive prior consult­
ations. They will be consistent 
with the Broad Economic Gui­
delines; 
• there will be monitoring and sur­
veillance of Member States 
-21-
An employment agenda for the year 2000: issues and policies 
employment policies in the light 
of these guidelines; 
• employment will be taken into 
account in all Community 
policies and actions, accompa­
nied by an examination of all 
relevant existing Community 
policies to ensure that they are 
geared towards job creation; 
Employment policy must respond to 
global challenges. In the last ana­
lysis, everything depends on our 
ability to provide decent and accept­
ably paid jobs for all of our citizens 
who want to work. Europe must re­
spond to that challenge. 
o 
22 
ISSN 0254-1475 
COM(97) 479 final 
DOCUMENTS 
EN 04 17 05 
Catalogue number : CB-CO-97-509-EN-C 
ISBN 92-78-25594-7 
Office for Official Publications of the European Communities 
L-2985 Luxembourg