COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE EUROPEAN PARLIAMENT, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS - Progress in implementing the Joint Assessment Papers on employment policies in acceding countries

Executive Summary

The present Communication updates the assessment presented in the Commission Communication on "Progress in implementing the Joint Assessment Papers on employment policies in candidate countries" (COM (2003) 37 final) for the ten acceding countries. The analysis summarises the conclusions of the in-depth reviews that took place between the Commission and the acceding countries in Spring and Summer this year. These reviews concluded the JAP co-operation process and were aimed at assisting the future Member States to prepare for participation in the European Employment Strategy and to prepare their National Action Plans for employment in 2004.

The Communication underlines the strategic challenges for the labour markets of the acceding countries: increasing employment and labour supply, ensuring that the functioning of the labour market is supportive of the on-going restructuring of the economy and adapting labour force skills. It assesses progress in labour market reforms and concludes that important efforts and reforms are needed to develop policies, that will allow progress to be made towards the EU objectives and targets set by the new European Employment Strategy.

The Communication also reviews certain elements of governance and partnership. Substantial efforts are needed to move towards a more co-ordinated design and implementation of employment policies, to up-grade the administrative capacity for policy planning and delivery, and to promote the participation of the social partners. There are also concerns about the financial and administrative resources needed to ensure full use of the Structural Funds and of the ESF in particular.

I Introduction

Once they become members, the new Member States will start to participate in the European co-ordination of employment policies and present their first National Action Plans in October 2004. The new Employment Guidelines (EGLs), now part of a Guidelines Package together with the Broad Economic Policy Guidelines (BEPGs), provide the future Member States with a clear basis for the required labour market reforms (see Annex 1).

Acceding countries started participating as observers in the Employment Committee (EMCO) and its groups in April 2003. This has already enabled them to get acquainted with important aspects of the European Employment Strategy (EES) and to make an early input into policy development at the EU level.

The Commission Communication on "Progress in implementing the Joint Assessment Papers on employment policies in candidate countries" [1] (hereafter the "JAP Progress Report") summarised the co-operation in the field of employment based on Joint Assessment Papers of employment policy priorities (JAPs). A supporting Document [2] described country-specific developments.

[1] COM (2003) 37 final

[2] SEC (2003) 200

To conclude the JAP co-operation the Commission proposed in this Report to each acceding country to organise a seminar to review in depth the state of employment policies and the institutional setting and administrative capacities for implementing employment policy and ESF activities. These seminars were held between May and July 2003. The seminars reviewed the way the future Member States could relate their employment policies to the new EGLs and how they should prepare their first NAPs.

This document updates the findings of the "JAP Progress Report" on common policy issues and on institutional setting and administrative capacities on the basis of the in-depth reviews. The supporting document reports on country specific developments.

II Labour market trends and challenges

In the context of deep and rapid economic restructuring that characterises most candidate countries the "JAP Progress Report" had identified four key strategic labour market challenges that are largely confirmed:

* Increasing labour supply as a precondition for economic and social development

In mid-2002, when the "JAP Progress Report" was drafted there were some signs of a pick up in activity rates in some countries but there is currently no evidence that these changes have been sustained. In 2002 labour market participation continued to stagnate or decline as in previous years - in particular in the prime working age group - in all countries except Latvia.

* Increasing employment to support economic growth and the catching-up of income in the enlarged EU

Despite rather strong real economic growth of 2.4% in 2002 for the AC-10, against 1.3% in the EU-15, there was no noticeable change in the employment pattern of growth, which continues to be driven by strong increases in productivity while employment growth remains modest or stagnant.

The three Baltic countries are the only ones recording significant increases in their employment rates in 2002. Apart from Cyprus and in the Czech Republic, employment rates remain below the EU average (Chart 1).

Increasing employment of older workers remains a major challenge in most countries, notably in Hungary, Malta, Poland, Slovenia and Slovakia (Chart 3); employment of older women is also very low in these countries, and exceptionally low in Malta, Slovakia and Slovenia. Significant efforts are needed with a view to reaching the EU targets agreed in Stockholm and Barcelona i.e. an employment rate for older workers of 50 % and a progressive increase of about 5 years of the exit age from the labour market by 2010. Efforts to promote active ageing include limiting the use of early retirement schemes.

* Ensuring that labour market functioning is supportive of the on-going restructuring of the economy

Most new Member States will see a continuation of rapid restructuring and of employment shifts out of agriculture and old style industries into services. This takes place in societies and work cultures which in some respect are not yet fully adapted to market economies and to the single market. Skilled and adaptable people will benefit, while low skilled people with difficulties to respond to change and disadvantages may suffer. Potentially large pockets of unemployment, low activity and poverty will tend to emerge and persist.

The "JAP Progress Report" already noted that labour markets tend to be highly segmented with a split between capital cities and regions in which the modern and dynamic economy and the skilled labour force are concentrated on the one hand, and the rest of the regions on the other. The issue of segmentation is now more widely recognised. Indeed, labour shortages in the most developed regions coexist with high unemployment in other regions. Differentials in labour market outcomes between the high and the low skilled remain substantial. Unless this trend is reversed, most acceding countries run a high risk of marginalising important parts of the population and excluding them from regular employment. Encouraging regional and occupational mobility remains a key challenge.

Signs of increasing segmentation are also low activity (see above) and high long-term unemployment: long-term unemployment increased in the acceding countries from 6.5 in 1997 to 8.1% in 2002 with levels of over 10% in Poland and Slovakia.

A further sign of severe labour market distortions is the persistence of a widespread informal sector and undeclared work that reflects low productivity, in particular in agriculture but also policy failures in establishing a stable institutional and legal environment and in addressing socio-economic problems resulting from the transition.

* Increasing and adapting labour force skills in the context of restructuring and future pressures linked to the Single Market

Skill shortages and mismatches signal that adapting and upgrading skills remain a major challenge. The adjustment will be borne essentially by an ageing labour force which does not possess the skills and capacities for adaptation required in a rapidly changing environment. Therefore life-long learning is firmly on the agenda in all countries.

Adapting and upgrading skills is also an issue for the younger generations as shown by the persistence of high youth unemployment despite a relatively high level of education (as indicated by the share of young people aged 20-24 having completed at least upper-secondary education). This reflects amongst other things the still limited degree of responsiveness of vocational education and training to labour market needs.

III Progress in addressing key policy issues

Greater efforts are needed to ensure that wage developments and wage formation systems are employment-friendly...

The "JAP Progress Report" drew attention to the need for social partners and Governments to promote employment-friendly wage developments and to monitor the impact of wage increases and of minimum wages on employment.

Recent wage developments in the Czech Republic, Estonia, and Hungary confirm this concern as they exceeded productivity trends. While wage differentials by skills continue to encourage skill formation there is now more concern about wages differentials between regions. Coupled with high costs of housing and transport current wage levels seem to contribute little to attracting workers to regions with skill and labour shortages.

Regular increases of the minimum wage aim at encouraging job take-up by widening the gap with welfare benefit levels. This should also contribute to preventing informal activity and wage under-reporting. Care must be taken not to price low-skilled workers out of the labour market. Poland has introduced a lower minimum wage for the young and Slovakia is considering a regionally differentiated minimum wage.

...and that tax-benefit systems are supportive to employment

While recognising the complexity of the task, the "JAP Progress Report" stressed the need to address the high tax burden on labour, and on low paid labour in particular, in order to encourage job creation and take-up in the formal sector. Concerning benefit systems, the Report insisted on the importance of consistent links between activation and income protection to support work take-up.

Recent attempts to reduce the tax burden on labour focus on increasing the level of the non-taxable income but this has a limited impact on the tax-wedge which is for the low paid often almost exclusively composed of social security contributions. Only Hungary and Latvia have decreased social contributions and in most countries social contributions bear heavily on the overall tax burden on labour. Given the need to sustain fiscal consolidation efforts should concentrate on achieving a significant reduction of the tax burden on low paid workers as asked for in EGL 8.

Unemployment benefit reforms are progressing. Under present systems benefit levels are low but can still generate unemployment traps in particular for unemployed with children. Hungary has complemented the standard unemployment benefits with a premium for job search. Reforms of social assistance systems are on-going or envisaged in Cyprus, the Czech Republic, Estonia, Latvia, Lithuania, Poland and Slovakia with the aim of reducing dependency and encouraging work take-up.

Recent work on benefit systems in particular in Poland and Hungary has shown that other welfare schemes such as disability and other health related benefits for people of working age are often more important than unemployment benefits or social assistance and need to be examined and reformed. Unemployment insurance with a well established link to job search and activation is preferable to provide social protection rather than benefits which encourage labour market exit.

Gradual increases in retirement ages and reforms of early retirement schemes have so far had a limited impact on older people's participation and employment. More proactive and comprehensive strategies are needed to promote active ageing in line with EGL 5.

Ensuring the right balance between flexibility and security remains an important challenge

The in-depth reviews confirmed that developing more flexible work contracts and arrangements could make an important contribution to job creation and higher participation, in particular for women and older workers. As an illustration, the share of part-time (8% in AC-10) and fixed-term work (11% in AC-10) in total employment remains substantially lower than in the EU-15 where the availability of more diversity in work arrangements has contributed to a more intensive growth pattern [3]. It is crucial that further reforms of labour law, which are part of the translation of the acquis aim inter alia at facilitating more diversity in working time arrangements and labour contracts without compromising workers' security.

[3] see "Employment in Europe 2002", chapter 2

Putting in place the legal framework is an important step but the new provisions need to be used and accepted by enterprises and workers, who often perceive new contractual or working arrangements as an additional bureaucratic burden or a threat to their security. Enabling social partners and enterprises to play their role in ensuring the right balance between flexibility and security is now a key task as required by EGL 3 in order to promote adaptability and mobility.

Tackling undeclared and informal work: a new policy focus

The "JAP Progress Report" drew attention to the role of tax and benefit levels in encouraging informal and undeclared work. The in-depth reviews showed that undeclared work is recognised as a matter of concern also in the acceding countries (see EGL 9). Efforts are being made to improve the control of businesses' registration and declaration, but there is a need to understand better the nature and size of the informal sector. Monitoring the impact of income support to the unemployed or the (formally) inactive, including pensioners, and of taxation on labour while developing appropriate control of benefit systems and support to job-search and take-up are essential for transforming undeclared work into regular employment.

Progress in human resource development needs to be consolidated

The "JAP Progress Report" supported the reforms of education and training systems in order to adjust them to the requirements of modern economies and societies. Similar to the ETF "Country Monographs" [4], the report highlighted the importance of improving the quality of education and training and called for making the concept of lifelong learning operational.

[4] European Training Foundation, "Country Monographs" on VET and employment services"; "Cross country summary of needs in the fields of employment/human resource development" (monographs synthesis report, April 2003); "Thirteen years of reform of vocational training systems in candidate countries - Lessons to be learned in relation with the Lisbon objectives" (Draft June 2003).

The implementation of reforms is well advanced regarding general education and is now moving towards making vocational education and training more responsive to labour market needs. Improving the quality of education for all remains an important issue. Steps have been taken in Estonia, Latvia and Lithuania to address drop-outs and this is a specific target in Hungary's recent amendment to the Education Act. Sustained efforts and careful monitoring of results will be needed to ensure progress towards the European target set in EGL 7 of no more than 10% of early school leavers by 2010.

The in-depth reviews documented some progress in developing credible strategies and operational frameworks for lifelong learning in particular in the Czech Republic, Poland and Lithuania. Systems to define and recognise skills and to certify adult training providers are being established.

Establishing incentives for business and individuals for training remains a crucial issue everywhere. Hungary has developed a set of fairly comprehensive financial incentives (benefits and tax credits) for participation in training addressed at workers, the unemployed and the inactive.

Systems are being progressively put in place but actual participation in training remains low (Chart 4) and achieving the EU average level of 12.5% of the adult working age population in lifelong learning targeted by EGL 4 will require considerable efforts.

Moreover, there is concern over the very low levels of participation in education and training of low-skilled adults [5] which is below 1% in the Czech Republic, Hungary and Poland. Ensuring access to lifelong learning for all and in particular for those with the lowest levels of education and skills is likely to be a considerable challenge for all countries.

[5] Defined as population aged 25-64 with less than upper secondary studies completed. LFS data only available for CZ, HU, POL and SK.

Serious efforts are needed for activation and prevention

Active labour market policies (ALMP) and preventative approaches play a critical role in supporting people's adjustment to structural changes. The "JAP Progress Report" asked for a shift towards measures enhancing people's employability and adaptability and for more focus on prevention, as well as for better targeted policy measures.

The need for activation and more preventative approaches is more widely recognised and has been translated into measures promoting individual action plans and programmes targeted at the long-term unemployed and the young. The picture is more mixed regarding the shift towards measures enhancing employability, in particular training, and in several countries programmes continue to be focused on temporary employment. Targeting and evaluation remain crucial to ensure a high efficiency of ALMP spending.

Recent progress should be a good basis for countries to move from pilot programmes towards a mainstream approach. Even in countries with relatively low levels of unemployment its duration increases. Considerable efforts will be needed in all countries to reach the targets set in EGL1 regarding prevention and activation.

Integrating people at a disadvantage and achieving inclusive labour markets remain major issues to increase labour supply and promote social cohesion

More inclusive labour markets support social cohesion and also contribute to increasing participation and employment. While recognising efforts made in the field of education, the "JAP progress Report" asked for more rigour in the implementation of integration strategies directed at the disadvantaged, ethnic minorities and the Roma in particular.

Recently, acceding countries put more emphasis on labour market integration of people with disabilities, who represent sizeable shares of the inactive people of working age in particular in Hungary, Poland, Estonia and the Czech Republic. Promoting effective labour market integration requires linking specific programmes with health policies and with reform of related benefit systems.

Facilitating access to mainstream initial education continues to be the focus for the integration of Roma. There is little news on the implementation of already adopted integration strategies in the Czech Republic and Hungary. The new priority given to the integration of Roma in Slovakia needs to be rapidly translated into concrete action. Setting appropriate conditions and providing adequate resources for access to active support and employment services, and more generally, enabling the Roma community to participate in mainstream society at all levels remain crucial tasks in most Central and Eastern European acceding countries.

The "JAP Progress Report" documented the higher unemployment risk of the non-native population in the Baltic countries, in particular in Latvia and Estonia. Little progress has been made in Latvia and therefore developing a policy response to promoting the integration of Non-Latvians into the labour market and addressing possible obstacles to their registration at the PES remain urgent tasks. Estonia needs to monitor the efficiency of employment programmes targeted at the disadvantaged regions in which the non-Estonian population are concentrated.

Substantial efforts are needed to achieve a significant reduction of unemployment gaps for people at disadvantage in relation with EGL 7.

Foreigners employed on a temporary basis represent a high share of the labour force in Cyprus and their contribution to the economy needs to be fully recognised and reflected in overall employment and social policy.

Little change regarding the promotion of gender equality

The "JAP Progress Report" recognised the rising awareness of gender equality policies and asked for the full implementation of the legal and strategy frameworks in relation to the acquis. As already noted in this report, women's employment rates are above the EU average except in Malta, Hungary, Poland and Slovakia (Table 1, Chart 2), but both female participation in the labour market and employment are on a declining or stagnating trend in most countries. Women continue to run high risks of long-term unemployment including in countries with a relatively low level of unemployment.

The in-depth reviews have focused attention on the low incidence of family-friendly working contracts and flexible working time arrangements as an obstacle to female participation but progress in this respect remains slow. There is now also more understanding of the need to promote affordable child-care facilities but important efforts will be needed to achieve the related targets set in EGL6.

IV Ensuring good governance for implementing the EES

The "JAP Progress Report" identified capacity building in a broad sense as a precondition for developing and implementing employment policies. It urged to improve policy planning and co-ordination as well as implementation capacities, including for ESF support. It underlined social partners' responsibilities in modernising the labour markets. All these are elements of the good governance and of the partnership approach emphasised in the new EGLs as important issues for the implementation of the EES.

Policy planning, guidance and supervision

All countries have for several years been developing employment strategies. The JAPs have contributed to identifying priorities for supporting a comprehensive approach to employment policies. Nevertheless, efforts are still necessary in many countries, particularly Latvia, to develop a strategic approach beyond a series of measures and programmes.

The agreed strategies have been prepared with the participation of the relevant Ministries and led to the setting-up of ad-hoc co-ordination structures. Evidence is mixed on the extent to which policy planing and guidance reflect regional and local situations. There is now a need to ensure policy co-ordination on a permanent basis so that it actually translates into policy guidance at all levels and is reflected in the first NAPs.

Countries' employment strategies often lack precise and realistic objectives and targets, which have been recognised in the evaluation of the EES as a crucial element in stimulating reforms. At the same time, deficiencies in monitoring and evaluation systems and a lack of organised feed-back to all relevant levels and partners affect the ability to measure progress effectively. A policy evaluation culture is still at its beginning and capacities need to be enhanced for this purpose both in the PES and the Ministries.

All acceding countries are gradually moving towards a more co-ordinated and integrated approach to employment and related policies. Nevertheless, the way various policies, in particular economic, regional, education and training and taxation policies, can promote employment needs to be further elaborated in the NAPs.

The NAPs must also reflect the synergies between employment and social policies. Improving the labour market situation of the disadvantaged for example, requires a sound application of the antidiscrimination acquis and employment policies. The implementation of the acquis in labour law, equal treatment between men and women, social dialogue, and health and safety should help in promoting employment. If policies are pursued in isolation impacts will be weak and targets will not be reached, while together they have the potential to make a real difference.

Efforts to improve policy planing are also directly related to planing for the purposes of Structural Funds financing, including the ESF. The JAPs formulate the substantive basis for the ESF programming documents. The key challenges identified in the JAPs must be clearly addressed in those programmes by elaborating corresponding strategies and concrete actions for ESF support. This exercise is crucial for the progressive adjustment of the acceding countries' policies and institutions to the implementation of the EES.

Social partnership

Social partners have a key role to play in ensuring good governance and are explicitly invited to play their part in the effective implementation of the new EGLs. As noted in the Commission JAP Progress Report, national tripartite structures exist in all acceding countries, but apart from Cyprus and Slovenia, where social partnership is well established, there is scope for a stronger and more active role of social partners at this level and for making tripartism effective also at regional and local levels.

The autonomous bi-partite social dialogue is still not sufficiently established to enable social partners to play a meaningful role in wage formation, human resource development, the adaptability of firms and workers, the synergy between flexibility and security as well as health and safety at work.

While governments are generally favourable to a stronger involvement of social partners, it is not certain that the latter always grasp their role and responsibilities for employment policies to the fullest extent possible. While progress is being made in strengthening social partners' capacities there is still a long way to go until social dialogue becomes a reality at all levels.

Social partners' involvement must also be ensured in the ESF implementation process. Most of the acceding countries refer to the social partners under certain measures, but their overall involvement in the process is still not sufficiently guaranteed.

Delivery systems

The "JAP Progress Report" underlined the need to sufficiently resource employment policies in terms of staff and financial means. This includes the capacity to fully exploit the potential of the European Structural Funds and of the ESF in particular, from the moment of accession. More specifically, the Report stressed the crucial role of the Public Employment Services (PES) as the institution for policy delivery and often also for the implementation of ESF support.

Progress in the modernisation of the PES has recently been made in Lithuania and commitments have been re-stated in the Czech Republic and Hungary. The intention of the Polish authorities to re-establish nation-wide PES co-ordination would be an important step forward for the delivery system in this country. PES structures are progressively up-graded to respond to the increasing number of tasks and responsibilities given to PES, but there is still considerable scope for improvement in particular in Slovakia and Latvia but also in Slovenia.

Most countries are making an important effort to up-grade PES staff skills but quantitative bottlenecks remain. The allocation of staff to the local PES is far from optimal and there is still a long way to go to establish PES as a meaningful partner at regional and local levels.

Setting up structures appropriate for the ESF implementation and management requires further efforts. Delays in designating and establishing structures for the ESF implementation are of particular concern in Slovakia. Administrative capacity has been improved or is being upgraded in most of the other countries but stronger efforts in that respect are needed, in particular in the three Baltic countries, the Czech Republic and Hungary. Establishing or improving arrangements to ensure appropriate co-ordination is crucial for all countries. Without a major step forward in terms of delivery and resource allocation meaningful ESF implementation cannot be taken for granted. As the main resource of the acceding countries is their workforce, making the optimal use of ESF assistance is crucial to their economic and social development.

Financial resources

As highlighted in the new EGLs ensuring adequate financial resources is a crucial factor for an efficient delivery of employment policies. At the moment and despite the policy priority given to employment in most countries, uncertainty in the overall budgetary environment as well as in policy planning and supervision does not allow for a sustained and credible allocation of financial resources. Given the dire financial situation, it is all the more important to focus on the quality of spending and on the efficiency of measures.

Active expenditures have decreased or stagnated in several countries and the overall level of active spending (as a % of GDP) remains low given the level of unemployment particularly in the three Baltic countries, Poland and Slovakia.

Public spending on education remains relatively high in most countries but follows a decreasing or stagnating trend. Allocation is unbalanced towards general education and shifts in spending are necessary to respond to the need for higher quality. Funding mechanisms are lacking to back lifelong learning strategies through a consistent flow of resources.

Developing active labour market policies and modernising the PES, developing vocational education and training systems and promoting measures to ensure equal and fair access to the labour market regardless of gender, age or ethnicity are tasks which fall squarely within the scope of interventions supported by the ESF and the Fund is to be the preferred instrument for providing structural finance for these purposes. As recalled in the EGLS, the Structural Funds and ESF in particular can also play an important role in strengthening the institutional capacity for employment policies.

V Next steps

In Autumn 2003, Member States presented their 2003 NAPs based on the new EGLs. In mid-January 2004, the Commission will adopt the draft Joint Employment Report (JER), together with the draft BEPGs' implementation report. The Employment Committee (EMCO) will make its multilateral review of the NAPs and in the first and second quarters of 2004, it will discuss the draft JER proposed by the Commission and individual recommendations to the present Member States. The future Member States will be involved in the work through their participation in EMCO. These discussions will further familiarise them with the NAP exercise, the key policy issues and the employment co-ordination process with a view to the presentation of their first NAPs by October 2004.

* The acceding countries have joined the "Employment Incentive Measures" programme (EIM) in 2003 and have all signed the Memorandum of Understanding on the EIM. In the EIM Committee they will articulate their needs regarding the 2004 work programme supporting their participation in the EES. Through the EIM programme, acceding countries will also benefit from operational support in their preparation for implementation of the EES. They will in particular take part in the exchange of experiences and identification of good practice in employment policies via the peer review exercise carried-out within the framework of the EES. They will also be involved in the two expert networks (MISEP and SYSDEM) of the European Employment Observatory. Co-operation among the Public Employment Services will continue and include a set of EIM-financed training modules for acceding countries.

* ESF programming documents currently under discussion with the Commission will set the framework for human resource development priorities for future ESF funding. Establishing appropriate links between the JAP policy issues and ESF funding has been of particular concern for the Commission. The documents must therefore clearly demonstrate the coherence of human resource development strategies with the issues and priorities identified in the JAPs. In order to allow for ESF support to start as intended in 2004, the negotiations of the documents should be concluded by the end of 2003.

ANNEX

The new European Employment Strategy

In July 2003, the Council adopted a new set of Employment Guidelines [6]. The new Guidelines address three overarching objectives:

[6] Council Decision of 22 July 2003, (2003/578/EC), Official journal of the European Union, L1 97, 5. 8. 2003

- full employment, in particular meeting the Lisbon and Stockholm employment targets;

- the promotion of quality and productivity at work, reflecting in particular, the need for better jobs in a knowledge-based economy and the need to promote EU competitiveness; and

- the fostering of social cohesion and inclusive labour markets, including the reduction of regional employment disparities.

They also comprise ten specific guidelines:

* active and preventative measures for the unemployed and inactive;

* job creation and entrepreneurship;

* address change and promote adaptability and mobility in the labour market;

* promote development of human capital and lifelong learning;

* increase labour supply and promote active ageing;

* gender equality;

* promote the integration of and combat the discrimination against people at a disadvantage in the labour market;

* make work pay though incentives to enhance work attractiveness;

* transform undeclared work into regular employment;

* address regional employment disparities.

A special emphasis is also given to improving implementation and governance. This includes efforts to strengthen delivery mechanisms, the involvement of social partners and backing with adequate financial means.

ANNEX 2

Table 1

>REFERENCE TO A GRAPHIC>

Chart 1

>REFERENCE TO A GRAPHIC>

Source: Annual averages based on quarterly labour force survey, Eurostat. MT, Q4 2001.

Chart 2

>REFERENCE TO A GRAPHIC>

Source: Annual averages based on quarterly labour force survey, Eurostat. MT, Q4 2001.

Chart 3

>REFERENCE TO A GRAPHIC>

Source: Annual averages based on quarterly labour force survey, Eurostat. MT, Q4 2001.

Chart 4

>REFERENCE TO A GRAPHIC>

Source: Labour Force Survey (EU definitions), Spring results, Eurostat.

COMMISSION STAFF WORKING PAPER - Supporting document to the communication on "Progress in implementing the Joint Assessment Papers on employment policies in acceding countries" (COM (2003) 663 final)

Table of contents

INTRODUCTION

CYPRUS

CZECH REPUBLIC

ESTONIA

HUNGARY

LATVIA

LITHUANIA

MALTA

POLAND

SLOVAKIA

SLOVENIA

INTRODUCTION

Following membership in May 2004 the new Member States will start to participate in the European Employment Strategy and present their first National Action Plan in October 2004.

The Commission communication on "Progress in implementing the Joint Assessment Papers on employment policies in candidate countries" (COM (2003) 37 final) summarised the co-operation in the field of employment based on Joint Assessments Papers of employment policy priorities (JAPs). A supporting document (SEC (2003) 200) described country specific developments.

The Commission communication "Progress in implementing the Joint Assessment Papers on employment policies in acceding countries" (COM (2003) 663) updates the findings of the previous communication on common policy issues and on institutional setting and administrative capacities for employment policy and ESF activities for the ten acceding countries. The analysis summarises the conclusions of the in-depth reviews, that took place between the Commission and the acceding countries in Spring and Summer this year. These reviews concluded the JAP co-operation process and aimed at helping acceding countries to prepare for participation in the European Employment Strategy (EES) in 2004.

The present document is designed to provide an updated assessment of country specific developments to support the Communication. Drawing from the conclusions of the in-depth reviews and from the countries' progress reports on the implementation of the JAPs priorities delivered in Spring 2003, it presents for each country a brief description of recent economic and labour market developments [7], a general assessment of progress in key policy issues and in ensuring good governance. The conclusions focus on areas requiring enhanced efforts to progress towards the implementation of the new Employment Guidelines.

[7] Unless otherwise specified, data related to employment performances are those published in "Employment in Europe 2003". Data related to economic performance are those published in "Commission Economic Forecasts, Autumn 2003".

CYPRUS

I recent economic and labour market developments

Cyprus has experienced a satisfactory though decelerating rate of economic growth (2 % in 2002), accompanied by a relatively low inflation rate and a manageable current account. Employment growth slowed down to 1.2% but continued to be absorbed by the buoyant private services sector. The unemployment rate remained low, at 3.8% in 2002 whereas the employment rate increased by half a percentage point to 68.6% in 2002. Foreign workers employed on a temporary basis reached a level of 10.2% of the employed workforce, an increase of 19.4% in 2002.

II key policy issues

Wages and tax-benefit systems. A major tax reform approved in June 2002 aimed at significantly reducing the tax burden on labour, while retaining the positive features of the existing system. Social contributions are relatively low at an overall rate of 16.6%. As to benefits, the number of persons receiving Public Assistance is steadily growing. A new scheme has been introduced, aiming at reducing this dependency and encouraging individuals to take-up work.

Human resource development. The reform of upper secondary education to render the educational system more responsive to labour market needs (broader range of subjects, use of new technologies) has seen some delays but is entering its final stage. New vocational training schemes have been developed by the Human Resources Development Authority (HRDA), which address the specific needs of new secondary education graduates, selected groups of unemployed and women. They include the adoption of e-learning methods and a special provision for funding ICT-based learning. The ongoing reform of the apprenticeship scheme aims at transforming it into a real alternative vocational path. by linking curricula to those of technical and vocational education, and by making use of new technologies as a learning tool. The development of a competence based structure of vocational qualifications standards - part of a coherent system of lifelong learning - remains a strategic issue.

Activation and Prevention. The Government recognises the importance of giving the PES a stronger role in implementing an active and preventive policy approach. This should include a stronger focus of active support on individual needs to increase ALMP efficiency. Indicative activities include a) extending existing district labour offices to local job centres, b) providing self-service facilities over the internet, c) active partnership with other service providers and d) customer oriented services. Additional staff resources and appropriate staff training would be required.

Integrating people at disadvantage. Only 25.2% of persons with permanent disabilities aged 15 and above are in employment, three quarters of them being male. Low educational levels appear to be one of the main obstacles for their employment [8]. Some 15 laws have been introduced for the protection of the employment and social rights of disabled persons. A self-employment scheme, a scheme for educational and vocational training, the creation of a service for disabled persons within the Ministry of Labour and of the Pan Cyprian Council for persons with disabilities have been introduced, with the participation of social partners. Financial support to employers for making the workplace disability-friendly is provided.

[8] 17.4% of disabled persons never attended school, 27.6% have only completed primary education and only 2% completed higher education

Foreign workers, employed mainly on a temporary basis, represented 10.2% of the employed labour force in 2002. An in-depth analysis and comprehensive data on foreign workers are lacking. The likelihood of the continued presence of a significant number of foreign workers will inevitably raise the issue of the place of foreign labour in the overall employment policy.

Gender equality. Policy measures initially focused on developing the legislative and institutional framework to fully align with the acquis. An action plan to narrow the pay gap has been envisaged. A financial assistance scheme for the development of care facilities (day and home care for children, older and disabled persons) has been introduced for NGOs and local communities .

III Ensuring appropriate governance for implementing the EES

The overall strategy and main employment policy objectives are stated in the Strategic Development Plan prepared by the Planning Bureau with participation of all relevant ministries and in consultation with other actors including social partners.

Regarding preparation for the ESF management, the detailed description of the role of each government authority and the administrative structures in relation to Managing and Paying Authorities are presented in the SPD for Objective 3. Strengthening and modernising the PES is a main measure under the policy axis on promoting employability and vocational training of the Objective 3 SPD. Co-ordination amongst Ministries and bodies involved in policy planning, supervision and guidance was established around the JAP process. This resulted in a first internal NAP document and the establishment of a committee with core representation from the Ministry of Labour and Social Insurance (Intermediary Body for ESF), and the Planning Bureau (Managing Authority) and the participation of other competent Ministries/bodies.

IV Conclusions

Ensuring that the level and skills of the labour force can meet the growing demand with adequate adaptability remains a key challenge. This includes increasing women's participation and reducing the gender employment gap.

While Cyprus seems to be advanced in its preparation for the EES, efforts are still needed to address some of the priorities identified in the Joint Assessment Paper (JAP). Developing a comprehensive strategy for life long learning with improved links between initial and continuing education and training is an urgent task. A competence-based structure of standards of vocational qualifications remains a strategic issue in this respect.

Speeding-up the implementation of gender equality measures and of the acquis in relation to both equal pay and equal opportunities remains a priority to support a stronger activity of women as is promoting participation in training and retraining actions.

Efficient implementation of ALMP will require improving access and focusing more on individual needs and on prevention.

Foreign workers who come to Cyprus on a temporary basis constitute a large share of the working population, creating a case for a strategic review of policies in relation both to their contribution to labour market flexibility and to their rights.

As far as governance and policy implementation are concerned, developing a policy evaluation framework including the definition of targets, in the different fields, is an urgent task and would contribute to tackling inefficiencies in monitoring results and impact of policies and measures.

CZECH REPUBLIC

I recent economic and labour market developments

Employment outcomes in 2002 were well above those in most other acceding countries (AC-10). Traditionally high activity (70.7%) and employment (65.5%) rates were maintained over 2002 while unemployment declined below 8% for the first time since 1998, landing at 7.3%. Unemployment reflects geographical locations with the North-West (11.3%) and Moravia-Silesia (13.3%) regions hardest hit, while some groups (low-skilled and older workers, notably older female workers) are withdrawing from the labour market.

The Czech Republic continues to face far-reaching structural reform and important challenges with regard to the functioning of its labour market. The GDP trend growth is low (on average only 1.2% growth rate over 1997-2002, compared to the AC-10 average of 3.4%) and a significant factor behind this is the low productivity rate of employed resources. Expected further adjustments in the low productivity sector create risks of additional shocks to growth and employment, resulting in increased pressure on the social benefit and welfare systems.

II key policy issues

Wages and tax-benefit systems. Wage increases over 2002 have exceeded labour productivity increases by a large margin: against low inflation (1.4%), real wages have increased by 6% in the private sector and by 10.5% in the public sector. Relatively high labour taxation has remained unchanged, with social security charges standing at 35% of payroll taxes and the tax rate on employed labour at 47%. To widen the income gap between gainful employment and welfare dependency the policy has been - rather than lowering taxation on labour - to increase the minimum wage and to freeze the nominal subsistence level which determines basic welfare benefits. New pension-benefit rules reducing the financial attractiveness of early retirement made the inflow into early retirement as a proportion of old age pensions fall from 58.2% in 2001 to approximately 33% in 2002.

Undeclared and informal work. If demand for low-skilled labour continues to be hampered by high social-security contributions, evasions of such statutory provisions are leading to undeclared work. There is a correlation between low-skilled work and undeclared work to the extent that undeclared work mainly involves low-paid jobs. It is estimated to concern 100,000 workers or about 2% of the labour force. The authorities have announced new employment regulations aimed at curbing undeclared work (and illegal immigration) by extending the powers of labour controllers and shifting the burden of proof (of declared work) onto employers.

Human resource development. Current reforms of education and vocational training are wide-ranging (revisions of the system and curricula) and coincide with institutional reform (transfer of educational authority to the Higher Territorial Self-Governing Units (regions)). Outcomes of the primary education system are good, although no longer appearing superior as in earlier investigations measuring traditional skills. Many labour-market relevant skills of secondary and post-secondary school graduates are reported to be unsatisfactory.

A strategic document on a medium-term Strategy for Human Resources Development was adopted in Spring 2003 and a newly established Government Council is to improve co-ordination of the various actors involved in education and vocational training. The objectives of the strategy relate to adapting human resources to a competitive, information and knowledge-based economy, to enhancing the employability of the Czech labour force and its attractiveness for investors, to introducing life-long learning as a common practice, and to mobilising resources for human resources development.

Activation and prevention. Active and preventative strategies remain essential to support further structural change and mitigate its employment impact. Since 1999, active measures had gradually obtained more weight with an aim of accompanying economic reform and catching up with EU practice under the employment guidelines. However, if passive employment expenditure is considered a mandatory expenditure, expenditure for active labour market measures is not. A reduced budget allocated to employment in 2002 instigated a shift away from active labour market measures. Already just under a fifth of average EU expenditure (i.e. less than 0.2% of GDP compared to approximately 1% of GDP in the EU), budget expenditure for ALMP was cut by 20% on the 2001 level. Whether two active labour market pilot programmes, the "First Opportunity Programme" for job-seekers under 25 years of age and the "New Start Programme" for other job-seekers are to be extended to all local labour offices will depend on the availability of such budget expenditure. Some (re)training ground is being covered by the integration of training grants into foreign direct investment incentive schemes aimed at (re)training displaced workers.

Integrating people at disadvantage. As in certain other AC-10, low socio-educational and economic status is strongly correlated with ethnic minorities. The Roma minority in the Czech Republic shows low labour force participation and remains disproportionally hit by unemployment. Continued targeted affirmative educational programmes remain necessary to offer the Roma better chances of integration into the labour market.

III Ensuring good governance for implementing the EES

Policy development of employment strategies lies with the Ministry of Labour and Social Affairs. With the establishment, in 2000, of the Higher Territorial Self-Governing Units (regions), 14 Labour Offices became entrusted with the co-ordination and implementation of national employment policy at the regional level. In a further amendment to the Employment act, due to enter into force in 2004, the Labour Offices will be entrusted with extended competencies as regards regional employment concepts and strategies. Focussed reform and further modernisation (cf. new technologies) of the Public Employment Services - especially at the regional level - remain urgent.

The Czech Government has, since 1999, engaged in a yearly exercise of adopting a National Employment Action Plan, which has "shadowed" the guidelines of the European Employment Strategy and Member States' National Action Plans. But a strengthened co-ordination of Czech employment policy is becoming essential in view of both the streamlining of the policy process at EU level and Czech institutional shifts of authority to a sub-national level. It will also become instrumental in order to systematically engage all actors, and notably to help instigate social dialogue.

Challenges with regard to the ESF are focus and co-ordination in terms of policy strategy and management. ESF funding should also become concentrated on key priorities within a coherent, inclusive strategy to promote effective implementation of the EES from 2004 on.The Ministry of Labour and Social Affairs will generally act as Managing Authority for the ESF and delegate many of its tasks to Intermediary Bodies, which will develop closer relationships with ESF beneficiaries and facilitate the application, selection, approval and payment of projects.

IV Conclusions

High participation and employment rates could become a source of growth, but only if sufficient resources can be switched into higher productivity activities.

While progress has been made in addressing the priorities highlighted in the Joint Assessment Paper (JAP), the in-depth review confirmed the need to accelerate policy efforts in view of preparation for the EES. Wage developments need to be in line with productivity developments while the high tax wedge on employment cost/income continues to risk pricing low-skilled labour out of the market and into welfare benefits. Given the high regional labour market imbalances, the tax-benefit system should provide more incentives for regional mobility. Coherent reform of the welfare benefit system would further discourage welfare dependency. At the same time, there are indications that evasions of high statutory provisions are leading to undeclared work. Apart from pension reform, a coherent policy with regard to active ageing of the Czech workforce remains essential.

Regarding educational reform, the absence of a clear legal framework and consequent ambiguities over responsibilities of the different actors with regard to continuous vocational training, may - if not resolved - become pre-occupying.

One year before participation in the EES and half a year before participation in ESF, co-ordination and involvement of actors in the preparation and implementation of employment policy remains to be strengthened. Uncertainties about budget expenditure impact negatively on both ALMP and required administrative capacity-building with the ESF managing authority and intermediate bodies.

ESTONIA

I recent economic and labour market developments

In 2002 GDP growth remained strong at some 6% after 6.5% in 2001. After several years of stability, participation fell from 70.0% in 2001 to 69.3% in 2002. Otherwise, the labour market displayed positive developments. The employment rate rose from 61% in 2001 to 62% in 2002; it increased for both men and women. The employment rate for the age group 55-64, already relatively high, further increased to 51.6% in 2002. The unemployment rate strongly decreased from 11.8% in 2001 to 9.1% in 2002 but structural elements remain such as high youth unemployment and a long-term unemployment rate of almost 5%. Belonging to an ethnic minority and lack of national language skills seem to be risk factors for unemployment.

The sectoral structure of the Estonian economy has become more similar to that of EU Member States with employment in industry decreasing to 31.2% in 2002 and employment in agriculture stable at 6.9%. Services have gradually gained ground but at 62% of total employment in 2002 there is still scope for development.

II Key policy issues

Wages and tax-benefit systems. Real wage growth has tended to exceed labour productivity growth. The overall tax wedge is high especially for middle and low wage earners. The government plans both to decrease the income tax rate from 26% at present to 20% in 2006 and to double the non-taxable minimum income. Social contributions (33% paid by employer) will remain at the same level.

The first unemployment insurance payments were made in the beginning of 2003 and still concern only a limited share of the unemployed. There seems to be no evidence that more generous benefits decrease jobseeking efforts. A review of the social assistance system is planned in 2003 in order to encourage a more active approach and to clarify the links between social assistance and unemployment benefits. The pension age is being increased to 63 years for both sexes (it used to be 55 years for women and 60 years for men). Early retirement schemes exist but generally are not very attractive.

Undeclared and informal work. The share of undeclared work is estimated to be around 10% of GDP but is expected to decrease because of strengthened control systems and of a change in cultural attitude.

Human resource development. Improving the skills of the labour force to better match the needs of the labour market is an immediate task through the training system. Tax incentives are in place for employers who organise their employee's work-related training according to job descriptions. A lifelong learning strategy is expected to be presented to the Government in Autumn 2003.

Activation and prevention. Positive developments include the introduction of individual action plans for the long-term unemployed and young people after three months of unemployment, training for Public Employment Service staff, and preparations for EURES. Programmes for different risk groups have been a labour market policy priority since 2000.

Labour market training is the most important active measure with approximately 10, 000 participants per year in 2002 (around 9% of the persons registered as unemployed). Vocational guidance was introduced in 2000 and preparation of individual action plans started in 2002. Participation in labour market training increases by 7% the probability of finding a job. The financing of ALMP is still very low at 0.08% of the GDP.

Gender equality. The Government is considering how awareness of gender mainstreaming could be raised and how gender equality issues should be regulated in legislation. Initiatives have been taken to encourage female entrepreneurship and labour market participation. Regarding childcare services there seem not to be major problems with meeting the Employment guideline targets.

III Ensuring good governance for implementing the EES

The main responsibility for preparing and implementing the EES lies with the Ministry of Social Affairs. Structures are being put in place to guarantee better co-ordination between all relevant actors. Since April 2003 the social dialogue has been relaunched at all levels. The link with the local/regional level and the social partners needs to be improved concerning the preparation as well as the implementation of the National Action Plan (NAP). Financial resources continue to be constraint. It is planned to set up a monitoring system in order to get regular feedback of progress in the NAP implementation. The system for statistical data is in place but the PES statistics system would need to be improved.

The law defining the precise roles and responsibilities of different organisations involved in the implementation of Structural Funds will be presented to the Parliament in Autumn 2003. Training is being organised for future European Social Fund (ESF) administrators. Efforts to increase administrative capacity for implementation of EES and ESF assistance should be continued.

IV Conclusions

Strengths are high growth and relatively positive employment and unemployment trends. However, several weaknesses remain e.g. an employment rate still below EU average, high unemployment and inactivity rates and a participation rate on a declining trend. Skills mismatches co-exist with high unemployment and low mobility of labour.

The in-depth review confirmed some progress in addressing the JAP priorities and the need for further policy efforts in view of the preparation for the EES. Reforming the tax-benefit system so as to reduce the tax wedge in particular on lower wage earners and to create incentives to increase work participation, also for older workers, remains an important task. Wage setting mechanisms that promote mobility would be beneficial. Efforts to measure the extent of and to curb undeclared work are welcome and should be continued.

While the reform of education and training systems is progressing, it is necessary to pay more attention to adults' training and to improving access to continuous training for employees. Establishing a system of lifelong learning has to be put firmly on the agenda.

Given the lack of human resources and insufficient budget for active labour market services the capacity to implement active and preventive measures for the unemployed and inactive on a wider scale is a matter of concern. Risk groups, inter alia the ethnic minorities, need special attention. Adopting the legislation regulating gender equality issues would be a significant step to improve gender policy.

One year before participation in the EES and half a year before participation in ESF, efforts are still necessary to ensure good governance and implementation. Elaborating a more strategic approach to employment linking all relevant policy areas would be an important step in this respect. The plan to set up a monitoring system for regular feedback on progress in policy implementation is welcome but needs to be accompanied by a strengthening of administrative, management and control capacity and stronger interministerial co-operation. The NAP should involve all key actors and be backed up by adequate finance. Both tripartite and bilateral social dialogue would deserve to be encouraged so that social partners can play their role not only in the preparation but also in the implementation and follow-up of the NAP and of the ESF assistance.

HUNGARY

I recent economic and labour market developments

The slow-down in economic growth continued in 2002, but the growth rate remained above 3%. Despite this, the situation on the labour market did not improve significantly. The employment rate remained virtually stagnant at a low level of 56.6% (63.5% for men and 50% for women). The activity rate remained very low (60.1%) and insufficient to support labour demand. The working age population counts nearly 2.75 million inactive, mostly from middle-aged or older groups. Low activity is closely linked to the poor health condition of the population and to the prevalence of informal activities. Unemployment remained low at 5.6% in 2002 but is chiefly hitting the young age groups, while the long-term unemployed are mostly middle-aged and older people.

Major labour market imbalances persist between the central and western regions where the 'modern economy' is concentrated, and the rest of the country. Regional and sectoral mobility is low (housing and transport are key impediments) and emerging skills bottlenecks reflect both a lack of skilled labour and the insufficient responsiveness of education and training systems to labour market needs.

II key policy issues

Wages and tax-benefit systems. The government has recognised the importance of tax incentives and taken a number of measures to boost employment in a 'Make work pay' approach.

The amendment of the Act on Employment introducing the 'Job search allowance' as a new unemployment benefit, goes in the right direction as do attempts to reduce the tax burden on low paid labour through the new income tax regulations. The introduction of the new personal income tax benefit regulations (including expenditures for training and computer equipment) and development-oriented provisions in corporate taxation (in particular towards SMEs and micro enterprises) also aim to help boosting the competitiveness of labour.

Wage developments in 2002 were mainly influenced by the further increase of the minimum wage and its spill-over effects, as well as by the measures taken to close the gap between earnings in the budgetary and private sectors. Net real earnings increased by 13.6%. The impact of these recent wage trends on job creation is not yet clear.

Undeclared and informal work. Despite recent reforms in the tax system, Hungary remains a country with one of the highest tax burden on labour in the OECD, a factor likely to contribute to undeclared work and low levels of labour market participation. A high proportion of the working age population receive different types of disability and sickness benefits while part of them are engaged in informal activity.

Human resource development. The paramount importance of human resources development, training and lifelong learning is fully recognised by the Hungarian authorities. The amendments of the legal framework of education (Act on Public Education) and the elaboration of a 'Trade School Development Programme' (to be implemented between 2003-2006) aim to ensure a better match between the education-training system and labour market needs, as well as providing an opportunity for disadvantaged students to catch up. A separate programme targets schools with the highest drop-out rates, with a special focus on Roma students. A review of the National Register of Qualifications is being carried out, involving the Chambers of Commerce to ensure labour market relevance. Training institutions have been accredited and an institution system devised to monitor Adult Education has been established.

Progress is slow in developing a lifelong learning strategy. A 'Concept' of the strategy recently presented to the government introduces financial incentives to workers, the unemployed and the inactive, and proposes a wide range of further practical measures at all levels and forms of education and training. The question remains, whether the system is sufficiently geared towards encouraging the participation of those with least access, i.e. the young unskilled, older people, those in the weak regions and the Roma.

Activation and prevention. Although the size and proportion of spending on active measures has been growing, progress is mixed in developing activation and prevention. The willingness to re-think the traditional 'fire-fighter approach' of labour market policies in order to progress towards a more anticipatory and preventive approach would require a strengthening of the PES.

Integrating people at disadvantage. There is a commitment to improve the position of the Roma population, notably through promoting equal access to mainstream education, as well as other disadvantaged groups. More effective programming and delivery structures, backed up by sound monitoring, evaluation and control will however be needed to strengthen the effectiveness of the integration strategy being developed for the Roma population.

III Ensuring appropriate governance for implementing the EES

Policy co-ordination needs to be strengthened in many respects (employment and health, social assistance, education, tax) as would the authorities' awareness of the links between promoting employment and policies to combat discrimination, in particular with respect to the Roma population. Synergies between implementing the health and safety acquis and employment could be promoted more actively. Furthermore, inter-ministerial co-operation remains a key concern to ensure that Hungary develops the capacity, not only to absorb Structural Funds, including ESF assistance, but to manage and implement the programmes effectively, while respecting Community policies and rules.

Social partners were actively involved in the elaboration of the NDP and their further contribution is required, in particular on wage developments and on conditions for more flexible work arrangements, including part-time work and contract flexibility. Though the 'main elements' of the administrative structure and processes to implement the European Employment Strategy and the ESF priorities are in place, these structures need to be further strengthened. Weaknesses remain, including the delegated arrangements between the OP Managing Authorities and their related Intermediate Bodies.

IV Conclusions

The key challenge remains to increase the overall employment rate and the level of activity, particularly amongst the older age cohorts, women, the unskilled and the disadvantaged, including the Roma population. The extent to which economic growth will depend on labour market requirements being met from outside the country, mainly neighbouring countries, may also need to be studied.

While progress has been made in addressing the JAP priorities, the in-depth review confirmed that policy efforts are still needed in view of the preparation for the EES both on the demand and the supply side (increasing job creation capacity, mobilising the supply potential of the inactive and tackling the East/West divide).

Given the slowdown in economic growth, loss of competitiveness and falling productivity growth, a more 'cautious' wage policy would be important to promote employment. Further efforts could also be made to engage the social partners in the development of more flexible and family-friendly work arrangements. Attention needs also to be paid to enhancing incentives to regional mobility within the tax-benefit system.

Continued efforts to transform the informal economy into mainstream economic activity are welcome; in this context, further progress could be made by reviewing the benefits for the working age population (including disability and sickness) to establish a closer link to the labour market.

There is scope for better adapting education and training systems to labour market needs and ensuring that the lifelong learning system encourages participation of those at the margins of the labour market.. Such an 'opening' of the system is also a condition for the full absorption of ESF support.

In relation with the implementation and governance of the EES it was recognised that the structures for the implementation of both the European Employment Strategy and the ESF need further development. The next step would be to strengthen inter-ministerial co-ordination and the operational agreements between the relevant authorities (Managing Authorities and Intermediate Bodies).

LATVIA

I recent economic and labour market developments

Economic growth remained very strong (at 6.1% in 2002 - the highest rate among AC-10, compared with 7.9% in 2001). A strong increase in employment was registered during the last two years. The employment rate rose to 60.4% in 2002 (for men 64.3%, for women 56.8%). The activity rate also shows an upward trend (67.7% in 2001 and 68.8% in 2002). After years of decline, men's participation in particular increased by 1.5 percentage points. Unemployment remained high, at 12.8% in 2002 (13.7% for men, 11.8% for women) as long-term unemployment (5.8%), and youth unemployment (24.6%). Wide regional variations persist and the urban/rural divide is increasing. Belonging to an ethnic minority and lack of Latvian language skills appear as risk factors for unemployment: the unemployment rate for Latvians was 9.9% and for non-ethnic Latvians 15.2% in 2002.

In spite of significant structural change, agriculture still represents around 15% of total employment. Employment continues to decline in industry while gradually increasing in services, representing 59.1% of employment in 2002 [9]. Self-employment is low and there is a lack of entrepreneurship. The informal economy is substantial, 15% of GDP according to the Statistical Office, as is undeclared work, another 10-15%.

[9] Source: Labour Force Survey, Principal Results 2002 for Acceding Countries, Eurostat.

II key policy issues

Wages and tax-benefit systems. The social security contribution rate for employers has been reduced by 2% but taxation and social contributions remain among the highest in EU 25, particularly at moderate earning levels. Wage development has been broadly in line with productivity growth but pressure on wages resulting from a tighter labour market might occur, at least in Riga and its region. Weak labour relations mean that wages are much influenced by the minimum wage level. This increased in 2003 to 70 LVL monthly (in 2001 60 LVL) as agreed by the National Tripartite Co-operation Council. The government policy is to involve social partners in promoting an employment-friendly environment.

As to the ongoing benefit reform, the law on Social Services and Social Assistance (2003) introduced a means-tested social assistance system with local governments responsible for financing the Guaranteed Minimum Income (GMI), presently 15 LV per person and month. Problems are the lack of adequate financing, weak professional social work and a need to develop social assistance focused on client's needs. The coverage of the unemployed by unemployment benefits has slowly improved, and benefits increased but social benefits are still markedly low by any standards. Yet many of the unemployed, especially low skilled and other risk groups, do not register and therefore cannot be addressed by any supportive measure.

Human resource development. The Latvian workforce is highly educated, but their vocational skills and qualifications often poorly match the requirements of the labour market. The low skilled are to a large extent excluded from the labour market; at 33.3% in 2002, their employment rate is less than half of that of the high skilled. Drop-out rates are substantial and training of the employed is very low. A major concern is that Latvia spends 6.8% of GDP on education, but only 0.8% on VET, and the share is declining. The Concept Paper for Education Development 2002-2005 is the first effort to ensure opportunities for lifelong learning, but there is little further progress.

Activation and prevention. Active labour market measures have been targeted to unemployed youngsters, the long-term unemployed, older workers, the disabled, persons released from prison and persons after maternity leave. The effectiveness of training and retraining programmes appears high with around 80% of participants being placed into a job. Nevertheless active measures could contribute more strongly to integration into the open labour market. ALMP expenditure remains below 10 % of labour market funding, and is declining. Careful monitoring, a strengthened link to job search and a more systematic identification of individual need would be called for to enhance ALMP efficiency.

III Ensuring good governance for implementing the EES

Following the Concept Paper on Promotion of Employability (1999) the third edition of the National Employment Plan (NEP) was adopted in 2002. It puts emphasis on employability and entrepreneurship, and the 2003 NEP sets a target for reducing long-term unemployment. The Ministry of Economy ensured a co-ordinated approach by drafting the NEP through a working group with representatives from the relevant Ministries and the social partners. A similar approach was used in drafting the SPD for the Structural Funds.

The State Employment Service (SES) is to be modernised with co-financing from Phare programmes 2002 and 2003 and by direct contributions from the Swedish and Danish PESs. The Draft SPD also contains capacity building actions. Although policy co-ordination seems to work, serious concerns remain as to the administrative capacity of the institutions involved in policy planning and implementation.

The Ministry of Finance is both the Managing and the Paying Authority for the Structural Funds. The SES and the Agency for Vocational Education Development Programmes have been designed as the ESF intermediate bodies. Staffing is progressing but recruiting quality staff and administrative capacity building are still major concerns. Co-ordination and monitoring of the ESF is still to be defined.

IV Conclusions

Despite some positive labour market developments, low participation, high unemployment and widening regional gaps remain important challenges. One related task is to ensure a more equitable and inclusive labour market for the young, unskilled people, and those with different ethnic backgrounds and lack of language skills.

The in-depth review confirmed the need for enhanced policy efforts to address the JAP priorities in view of the preparation for the EES. More decisive action is called for, in particular in education, training and lifelong learning (both in terms of quantity and promoting equal access), on making work pay (taxes and benefits) and on activation and prevention as well as on promoting entrepreneurship and tackling the issue of ethnic minorities.

While regional imbalances remain a key challenge, the tax-benefit system does not provide sufficient incentives to regional mobility. When addressing the rural/urban divide, the persistently high level of agricultural employment will require targeted measures.

A strengthening of the job creation capacity of the economy in particular in services is needed. Transforming rural and informal activities into mainstream employment would contribute to increasing overall productivity and expanding services (e.g. health, education, business services and banking). Low level of self-employment and lack of entrepreneurship seem to be key obstacles. Informal activities and undeclared work are a serious problem for public finances and social security leading to one of the highest tax-burdens in EU 25. This also blocks the development of businesses and of employees and thereby of competitiveness and productivity.

One year before participation in the EES and half a year before participation in ESF governance and implementation capacities remain a matter of concern. Elaborating a strategic and more co-ordinated approach to employment, linking several policy areas (tax, benefits, economic policy, education and training, gender equality, anti-discrimination with social and labour policies) would be an urgent task. Up-grading administrative capacity for policy planning and delivery as well as building adequate management and control capacity and efficient administrative structures for the management of the ESF stand out as another need.

LITHUANIA

I recent economic and labour market developments

At 6.7% GDP growth remained strong in 2002 . The situation on the labour market clearly improved in 2002. The average unemployment rate went down from 16% to 13%, and long-term unemployment also fell. The unemployment rate of men and women is now approaching parity but there is still an employment gap between men and women, at 62.7% and 57.2% respectively in 2002. The activity rate has remained stable in the last two years at around 70%, and the employment rate has risen by 1.5 percentage point.

Nevertheless challenges remain. There is a need for a better qualified labour force. Rural areas have more unemployed than urban areas, whereas employment in agriculture is still high (18.6%) [10] with low productivity being a big problem, as is the lack of geographical and sectoral mobility. Employment in industry is stable, and the numbers employed in services are rising.

[10] Source: Labour Force Survey, Principal Results 2002 for Acceding Countries, Eurostat

II key policy issues

Wages and tax-benefit systems. A new law on the social benefit system is due to come into force at the beginning of 2004. It aims, firstly, to remove the welfare dependency trend, and secondly, to see to it that those who refuse to look and/or train for work can be sanctioned, while still providing for a minimum subsistence level.

Human resource development. Under the education reform the network of training institutions has been rationalised, forming multifunctional regional VET centres. The setting up of non-university higher institutions will be completed in 2003. There is a national programme for the computerisation of schools. Links between VET and business are being further developed, through the creation of standards relevant to modern needs, and involvement of employers in formal assessments of students, though training still lacks practical experience. To improve access to education, there is to be one year of pre-primary education. As to developing a life-long learning strategy, the laws on Education and on VET are being revised and a concept on life-long learning is in consultation. There is a national programme for distance education, and the first assessments have been carried out on informal learning, with the aim of certification.

Activation and prevention. Expenditure on ALMP has increased and more people are on active measures than passive. The effectiveness of training provided by the Labour Market Training Authority has increased, 63% of those who receive training are employed within 90 days. All registered unemployed have to have an employment plan one month after registration. The worst affected regions are being targeted, and mini-labour exchanges are being set up in large businesses where workers are threatened with redundancy. Self-service terminals have been developed, and a Talent Bank has been set up on the internet. In 2002 the Labour Exchange set up three youth centres and two more will be set up in 2003. At the other end of the scale, the programme "55 Plus" was instituted to help older workers.

Integrating people at disadvantage. The Poverty Reduction Strategy has been followed by an Implementation Programme 2002-2004 to help the most disadvantaged, by strengthening activation, improving the economic situation and reforming the social services sector.

Gender equality. While the legislative framework necessary to ensure gender equality is in place, efforts are still needed to bring about implementation. An Action Programme has been drawn up to this end.

III Ensuring good governance for implementing the EES

Management and monitoring of employment policy starts with the Employment Enhancement programme 2002-2004, broadly based on the former European Employment Strategy. Overall goals were set for the Labour Exchange, for the Labour Market Training Authority and for employers. There is a need to improve communication between the Ministry, the Labour Exchanges and the LMTA, to decentralise management appropriately to the regions, to make it easier to transfer funds from one budget to another, and to have more human resources. The social partner structure is inadequate for the role they will be invited to play when the EES is introduced. While the central tripartite structure works fairly well, the trades unions only represent 13% of employees. Work needs to be done to develop social partner activities, particularly at local level and to help them take responsibility for relevant actions.

The Labour Exchange has set up a system of management by objectives and done considerable development work to provide electronic services of various kinds including EURES. Work is fairly far advanced in preparation for decentralisation though there are problems with administrative capacity at municipal level. Both the MSSL and the MES are to be intermediate bodies for ESF implementation and have received some strengthening in terms of staff. They will both operate through the HRD Programme Support Foundation which is gaining experience of managing ESF projects through grant schemes under PHARE 2001 (VET) and 2002 (Social inclusion), and which will also be allocated more human resources. How exactly the two ministries are going to co-ordinate their activities is being worked out.

IV Conclusions

Increasing labour supply, enhancing labour force skills, supporting labour re-allocation from agriculture and declining sectors and an inclusive labour market remain major challenges.

The in-depth review confirmed the progress made recently in addressing the JAP priorities and the need for further policy efforts in view of the preparation for the EES. Although work has been done to alleviate the tax burden on the low paid, Lithuania is still a high-tax country, and will be one of the most highly taxed Member States after accession if nothing is changed. Attention needs to be paid to ensuring that it is financially attractive to take up a job and that employers create jobs in the open rather than in the black economy and to providing sufficient incentives to regional mobility. Benefit reform has made progress mainly in the field of social assistance - success will strongly depend on whether the proposed close links to job search and the PES are established and will work. When addressing the rural/urban divide, the persistently high level of agricultural employment will require targeted measures.

Around 70% of low-skilled people in the country are not employed. There is a danger of marginalisation and thus a threat to social cohesion. The high drop-out rate despite a comparatively good education system remains an important challenge. The EU has set a target that drop-outs should reduce to 10% of school-leavers, which would mean a halving of the Lithuanian figure. Lithuania could also consider setting a target for reducing the disparities between the disadvantaged groups and the main stratum of society.

Good first steps have been taken on life-long learning, but participation in training remains low, in particular training in enterprises. Serious efforts are needed to put the concepts into practice, and to ensure access to training for all, but especially the low-skilled. The fact that training of the unemployed is so low is of particular concern. It could be considered whether the incentives are right for businesses and individuals to engage in life-long learning.

The new Labour Code has set down an important framework for the responsibilities of the social partners, but they need to be carried out on the ground. More flexible work organisation and contracts may help to exploit the employment potential, in particular in services.

There does not seem to be major gaps between women and men, except the gender gap in earnings which may have a serious impact on female activity and employment in the longer term. Care will have to be taken to ensure that the reasonably positive situation for women does not deteriorate.

As regards implementation of both the European Employment Strategy and the ESF, structures are being put in place. One year before participation in the EES and half a year before participation in ESF these structures are untested as yet, and need further development in some areas including the institutions for life-long learning. Co-ordination between Ministries is particularly important, and guidelines on how this is to be achieved would be urgently needed. The PES has impressive objectives and targets which are a good basis for future work.

Additional efforts are needed to better integrate policies and measures into a single strategy taking account of the new Guidelines as a support for reaching the national employment objectives; this would then be reflected in the first NAP to be submitted in 2004. Such an integrated strategy would facilitate the setting of priorities for the development of planning and implementation capacities and appropriate resourcing necessary for drawing up a meaningful SPD.

MALTA

I recent economic and labour market developments

After a contraction in 2001, real GDP grew by 1.2% in 2002 was and employment also grew by 1.9%. The employment rate increased by one percentage point to 55.2% [11], mainly due to the female employment rate increasing from 31.6% to 34.0% but still very low (compared to 76.2% for males). Activity rates show the same trend, with the overall rate increasing by one point (but still quite low at 59%), and a more marked increase in the case of women (now at 36.5%). As for unemployment, the overall rate is 7.4%, up from 6.7% in 2001. If the increase was marginal in the case of men (+0.3%), the rate for women rose by almost two points, to 9.8%.

[11] Sources: for employment related indicators, Labour Force Survey, December 2002

Job creation by sectors shows that manufacturing has declined, the agricultural (and fishing) sector remained stable, while most growth occurred in the market services within the private sector, especially in retailing. Low levels of education among the workforce as well as illiteracy remain a matter of concern.

II key policy issues

Wages and tax-benefit systems. Reform is deemed a priority, as the gap between minimum wage and benefit level is recognised as too small to provide sufficient incentives to take up work. A study of the interaction of the tax and benefit systems and of their impact upon the motivation to work is being prepared in the framework of the Community Action Plan to Fight Exclusion. The final version of the study will include recommendations and an econometric model for simulations. The availability of reliable scenarios is expected to speed up the reform process.

Undeclared and informal work. Reliable data on the size of undeclared work are not available. An ongoing Leonardo Project is expected to provide a better understanding of the reasons for the existence of informal work in Malta The taxation regime reportedly discourages the active pursuing of declared work by women, which compounds the problem of low female activity and employment rates.

Human resource development. The Government's main response to the challenges in the field of education has been the establishment in 2000 of the Malta College for Arts, Science and Technology, designed to provide an umbrella for technical education in Malta, assimilating functions previously catered for by a variety of different institutions. Late 2002 it reported having already more than 2,000 full-time students. Illiteracy, that according to the 1995 census affects about 9% of the workforce, is being confronted through a three-pronged effort: in the case of children the Ministry of Education is targeting the parents as well, while in the case of adults the Malta College of Art, Science and Technology is providing literacy courses, but a specific role has also been assigned to the PES ("Literacy for Employment" programmes). Literacy courses are offered in English as well as in Maltese, recognising that an improved command of English significantly enhances one's employment prospects. Illiterate persons are in fact over-represented among the unemployed, of whom they constitute 19%.

Activation and prevention. As for ALMP, the two main schemes are apprenticeships and trainee-ships. The former provides each year about 450 people with both tuition and on-the-job training, primarily in the private sector. Trainee-ships are shorter, more content-based and more flexible being conducted in consultation with employers. In 2002, 233 trainees and 60 employers were enrolled in the scheme. There are also shorter courses, aimed at reintegrating job-seekers into the labour market. Here as well the programmes are labour market-led. As for IT, developments are encouraging. An initiative targeting young people is the Basic Employment Passport providing for basic skills to be acquired over the summer. Special courses (literacy, carpentry and basic IT) are also offered for the (relatively few) inmates. Unemployed 40+ years old are targeted through a special one-year scheme offering training and financial incentives for employers willing to hire a participant. During 2002, 55.8% of all registered unemployed participated in the different employment and training schemes offered by the PES, a considerable increase over 2001.

Efforts are being made to further improve the share of unemployed receiving an individual employment plan, which already increased to 9.7% (from 5.8% in 2001), while the ratio of placements made by the PES per registered unemployed is 40%..

Gender equality. The Act to Promote Equality for Men and Women was approved in 2003. Malta has now for the first time a clear definition of what constitutes discrimination on the ground of gender, and sexual harassment has been defined as a criminal act. A National Commission has been established to monitor the implementation of the new legislation. Malta's Public Employment Service, the Employment and Training Corporation (ETC), has also drawn up an Action Plan for Gender Equality, which includes awareness-raising initiatives, manuals for teachers, and a study on women working in science and technology fields.

The revised Conditions of Employment Regulations Act, which guarantees part- and fixed-time workers rights comparable to those enjoyed by whole-time workers appears as a positive step towards encouraging female participation and employment.

III Ensuring good governance for implementing the EES

As part of the National Development Plan, the Human Resources Development chapter will be a three-year strategic plan dovetailing also with the Single Programming Document. The present institutional set-up will be bolstered with the creation of a National Vocational Guidance Agency and of a Human Resource Development Council, where the Social Partners will be present, that will act as a watchdog on the implementation of the strategy. A key actor will be the Ministry for Social Policy, directly through its departments or through the various agencies that fall under its umbrella: the Industrial Relations Department, the Employment Relations Boards, the Department of Women in Society, the Social Security Department (that administers the benefits granted under the Social Security Act), and the Occupational Health and Safety Authority.

In general, the consultation process might benefit from streamlining, since social partners' involvement (mainly through the Council for Economic and Social Development and the Civil Society Committee of that Council) seems to be conducted without a well-defined regulatory framework.

Active measures will continue to be provided by the ETC, that now falls under the remit of the Ministry of Education. Beside its PES function, the ETC also co-ordinates labour market policies, and carries out studies and analyses. The ratio of registered unemployed per PES full-time staff is 46 to 1 and the ratio of advisers to unemployed is 1 to 500.

As for the ESF, the Regional Policy Directorate within the Office of the Prime Minister is both the authority responsible for the co-ordination of programming and the Managing Authority for the SPD. The Paying Authority for all the Structural Funds is the International Relations Directorate within the Ministry of Finance. The Ministry for Social Policy has been designated as the Intermediate Body for the ESF.

IV Conclusions

Increasing the overall employment rate, in particular of women and incentives to inactive and unemployed to actively look for work while upgrading labour force skills remain major challenges. The in-depth review confirmed the need for further policy efforts to address the JAP priorities in view of the preparation for the EES. This is notably the case for tax and benefit systems and an adequate follow up of the study in this field will be required. Reform in this area should also contribute to transform undeclared work into regular employment. Given the high employment gender gap, special attention should be paid to developing childcare provision. As for the development of human capital and lifelong learning, a special effort will be required to progress towards the targets set in the new Employment Guidelines.

It was recognised that the structures for the implementation of both the European Employment Strategy and the ESF are in place. The ETC will play a pivotal role. To strengthen the political profile of the NAP exercise, care should be taken to ensure the appropriate involvement of all relevant actors, in particular the social partners, and an adequate level of funding.

POLAND

I recent economic and labour market developments

Growth remained low at 1.4% in 2002 after a sharp slow- down to 1% in 2001. The situation on the labour market has deteriorated during the last four years. At 19.9% in 2002, the unemployment rate was at its highest level since the start of the economic transition and one of the highest in the OECD. Unemployment is particularly high for young people (41.7%) and persons with low levels of qualifications as is long-term unemployment (10.9% of the labour force in 2002). The employment rate further declined to 51.5% in 2002, with particularly low rates for women (46.2%), older workers (26.1%) and low skilled (25.0%). The number of persons in working age threatened by social exclusion is rising. Gender gaps in unemployment and wages are also significant. There are also persistent regional disparities in the level of unemployment, reaching rates of 40% in some regions. Further job losses are expected in agriculture which still accounts for 19.6% of all employed and in the coal, steel and railways sectors as a result of restructuring of state-owned enterprises.

II key policy issues

Wages and tax-benefit systems.The impact of minimum wages on labour supply and demand has been a controversial issue for several years. New legislation that entered into force on 1 January 2003 foresees that the minimum wage will be determined by negotiations within the Tripartite Commission for Social and Economic Affairs. As an incentive to employ young workers, the act allows until 2005 to pay less those whose working experience does not exceed two years. The Government promotes autonomous wage determination in the private sector by the social partners.

Poland has a high tax burden on labour leading to a substantial tax wedge in particular on low earnings. In 2002, amendments were introduced in the field of income tax to reduce formalities for running SMEs and to render the tax system less complicated including the introduction of a tax credit for small start-up enterprises. The Government has proposed the introduction in 2005 of tax on farming income, which will correlate with a comprehensive reform of the farmers' social insurance system currently being debated. When addressing the rural/urban divide, the persistently high level of agricultural employment will require targeted measures.

Work continues on the social insurance reform, particularly, on the system of disability benefits. Since 2000, there has been a visible drop in the number of newly awarded pensions to those unable to work.

Undeclared and informal work. The Polish statistical office estimated that in 1998, some 1.4 million persons remained in unregistered employment (9-10% of officially employed persons). No recent figures are available, but considering the worsening of the labour market situation it can be assumed that the level has increased since then.

Human resource development. The education reform continues with the aim of providing equal education opportunities for children, raising the level of secondary and higher education, improving its quality and adapting the education system to labour market needs. The second phase of the reform initiated in September 2002 focuses on vocational and post-secondary education. In 2002 as compared to 2000, the share of young people entering general education secondary schools (lyceums) increased by 8% while the share of students applying to basic vocational schools dropped by 9%. Vocational counselling and career guidance will be introduced more systematically in schools from 2004.

A strengthening of the legal basis and resources for continuous education and training and the introduction of a system of accreditation of non-school training establishments is under-way. In July 2003, the Government adopted the "Strategy for the development of continuing training by 2010". It focuses in particular on improving access to and quality of education, both compulsory and adult education. The setting up of a National Training Fund is under discussion and the involvement of social partners in continuous education and training is evolving.

Activation and Prevention. The share of expenditures for passive measures increased to 89% in 2002 (from 85% in 2001) and the share for active measures decreased to 9% (from 12% in 2001). For 2003, a reversal of these trends is expected due to changes in the structure of the Labour Fund expenditure and an increased allocation. To support the announced shift to activation and prevention, the public employment services need to be modernised and strengthened as well as having sufficient resources in terms of funding, staff numbers, training and equipment. A new law on promoting employment is envisaged, which is due to entail the introduction of a co-ordination function of the PES, the shifting of the social security tasks of the PES to other institutions and qualification standards for PES staff (job broker, vocational counsellor and EURES adviser). The draft law also envisages a strengthening of financial incentives for activation and more mobility on the labour market as well as a modification of passive measures. The timetable for its adoption is still uncertain. The latest amendment to the Act on employment and combating unemployment (in effect since early 2003) introduced a number of other changes, regulating in particular mandates and tasks of the voivodship self-governments in a number of important areas, but also allowing entities other than labour offices to run job placement agencies.

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