Communication from the Commission to the Council - Draft Joint Employment Report 2002 {SEC(2002) 1204}

INTRODUCTION

Title VIII of the Treaty establishing the European Community lays down the principles and procedures for developing a co-ordinated strategy for employment. Article 128 sets out the specific steps leading to the formulation of such a strategy including, on an annual basis, guidelines for employment, possible recommendations to the Member States and a joint report by the Council and the Commission to the European Council, which describes the employment situation in the Community and the implementation of the guidelines. Each Member State is to provide the Council and the Commission with an annual report on the principal measures taken to implement its employment policy in the light of the guidelines for employment. The European Employment Strategy which has been developed according to the above institutional framework is a major contribution to the wider EU political agenda defined at the Lisbon Summit and subsequent European Councils.

The present Joint Employment Report provides an overview of the employment situation and a political assessment of the progress made by Member States in the implementation of the Employment Guidelines in the year 2001 [1]. The remaining challenges for the Member States are also highlighted.

[1] Council Decision on Guidelines for Member States' employment policies for the year 2002 (2002/178/EC); OJECL 60/70 of 01.03.2002.

The Joint Report contains both an analysis of progress across the EU under the major agreed objectives and guidelines, and a brief country by country review. Key common indicators underpin the analysis and are summarised in the annexes.

A more detailed analysis of recent developments under each guideline and for each Member State is provided in a supporting document of the Commission services [2].

[2] SEC(2002) 1204

TABLE OF CONTENTS

INTRODUCTION

Executive Summary

1. The political and economic context

2. Implementation of the 2002 Employment Guidelines and Recommendations: Assessment of performances and policies across the European Union

2.1. The overall policy framework: reflecting the horizontal objectives of the 2002 Guidelines

2.2. Assessment of the progress made under the four Pillars of the 2001 Guidelines

2.2.1. Employability

2.2.2. Entrepreneurship

2.2.3. Adaptability

2.2.4. Equal opportunities

3. Implementation of the 2002 Employment Guidelines and Recommendations: Assessment of performances and policies per Member State

BELGIUM

DENMARK

GERMANY

GREECE

SPAIN

FRANCE

IRELAND

ITALY

LUXEMBOURG

THE NETHERLANDS

AUSTRIA

PORTUGAL

FINLAND

SWEDEN

UNITED KINGDOM

4. The way forward

Annex 1: Overview of the 2001 Performance and key indicators

Annex 2: Overview of the common agreed indicators on prevention and activation for 2000 and 2001

Annex 3: Indicators: sources and definitions

Executive Summary

After five years of implementation, the European Employment Strategy is at a crossroads. Launched in 1997, with the fight against unemployment as a priority, its focus has progressively shifted to support the wider Lisbon Strategy commitment towards more and better jobs in an inclusive society. Achieving the agreed employment targets and raising labour force participation has become a central concern. A major evaluation of this first period has been conducted at EU level, which has reported encouraging findings.

EU employment performances in 2001 must be seen in the context of a sharp deterioration in the economic climate, with GDP growth halved compared to 2000 and serious uncertainties about the future. In spite of these less favourable conditions, performances both in terms of employment (+0,6%) and unemployment (-0,6%) continued to improve, albeit more slowly. While the EES five year evaluation pointed to structural improvements in the EU labour market, serious weaknesses remain in terms of unemployment levels, participation and employment rates, gender gaps, quality of employment, productivity growth and regional disparities. These weaknesses need to be addressed as a matter of urgency to prepare the EU labour market for challenges ahead.

The overall clarity and coherence of the NAPs has improved. However, the use of national targets, reporting on the impact of measures on the labour market, budgetary information, evidence of the use of structural funds to support the EES and the involvement of key stakeholders all appear largely insufficient.

The response to the horizontal objectives has improved compared to last year, particularly as regards efforts to raise employment rates. While encouraging progress was made towards the Lisbon and Stockholm EU targets overall and for women, reaching the overall target for 2010 will require -particular efforts in those Member States which have not contributed enough so far to the overall improvement in employment. The wide gap between the current situation and the 50% employment rate target for older workers raises serious cause for concern and a stronger focus on the gender dimension of the ageing problem is crucial. The issue of quality in work is still dealt with in a piecemeal way, focussing largely on aspects such as job flexibility, health and safety and education and training while insufficient attention is given to other dimensions, such as the intrinsic quality of jobs and the quality of social dialogue. The development of lifelong learning strategies is progressing, all Member States have now laid the groundwork for comprehensive strategies, although full implementation will take time. Some progress, though at a slower pace, can be seen on making these strategies more coherent, in particular the transitions within and between education and training systems and the labour market are not addressed in a comprehensive manner. A growing number of Member States are setting targets for educational participation and attainment and the increase in expenditure on human resources visible in the majority of Member States testifies to their strengthened commitment, despite the continuing lack of national targets on investment. The widening gap in the take-up of education and training opportunities between those with low and high skills and between older and younger age groups gives cause for serious concern.

In a majority of Member States the social partners have played a stronger role in the NAPs this year, although little progress has generally been made -on the social partners' own process of implementing the European Employment Strategy. The social dialogue at European level has produced a number of important initiatives. These include the joint declaration of the European social partners to the European Council in Laeken underlining the need to further develop the autonomous social dialogue, the planned submission of a multi-annual social partner work programme and the social partners' framework for action on skills and competencies development, which was submitted to the Barcelona Summit. Despite this, the contribution of the social partners to the Strategy in a more coherent and visible way remains to be developed.

The NAPs reflect a better policy mix, with more emphasis given to the Equal Opportunities and the Entrepreneurship pillars compared to previous years. Regional disparities remain a serious issue. The use of indicators based on national sources is uneven, with particular weaknesses in relation to disadvantaged groups, employment transitions, care provision (quality at work indicators), labour market bottlenecks and mobility, and the effectiveness of activation policies.

Under the Employability Pillar, Member States have worked on consolidating and improving the quality and coverage of measures. Preventive approaches are now in place in the majority of the Member States, and are being better tailored to personal needs. Far-reaching reforms of Employment Services are continuing, with a clear trend towards a mixed public/private market for employment services. The target of 20% of the unemployed benefiting from active labour market measures has generally been far exceeded. There is evidence of a greater emphasis being placed on basic skills, especially adult literacy. The main e-learning targets are close to being met. More attention has been given to preventing and combating bottlenecks from a long-term perspective. More integrated inclusion policies are being put in place and greater synergy is being developed between the Employment and Social Inclusion NAPs.

On the other hand, only five Member States have so far successfully implemented the preventive approach, in the sense that they have substantially reduced flows into long-term unemployment. There is also a general need to improve information on the effectiveness of activation measures. The school drop-out rate is decreasing only very gradually and it is doubtful whether the common target of halving the rate by 2010 can by achieved. Only a few Member States are pursuing comprehensive, employment-friendly tax-benefit reforms and insufficient attention has been given to addressing the interaction between tax and benefit schemes. National active ageing strategies are largely lacking and working capacity and incentives for employers to recrute or to retain older workers in particular are inadequately addressed. With regard to social inclusion, demand-side measures, such as non-discrimination, are generally neglected and the number of Member States setting specific national targets continues to be very low. The failure of the majority of Member States to use the commonly agreed employment indicators in this area has hampered the analysis of the relevant policy measures.

Most NAPs have given a higher profile to actions under the Entrepreneurship Pillar than in previous years, although employment growth in small businesses, in services and in self-employment was adversely affected in 2001 by the general economic slowdown. Particular emphasis has been placed on measures to facilitate business registration, to encourage self-employment and to develop an entrepreneurial culture, notably amongst women. New initiatives were taken to create job opportunities in knowledge-based services and the environment sector. Most Member States have implemented or announced new initiatives to combat undeclared work. In spite of these positive developments, more targeted support is called for to make entrepreneurship a driver for growth and employment. More action would seem to be necessary with respect to promoting start-ups, notably through improved access to finance. The upward trend in the tax burden on labour has been reversed but labour taxes remain high, even for low-paid workers and insufficient attention has been given to the employment impact of social security contributions.

The development of the territorial dimension of the EES has entered a phase of consolidation. In addition to the NAPs, regional action plans are in place in four Member States. Territorial Employment Pacts remain important in a few Member States, but much could still be done to develop the partnership approach at local level.

Under the Adaptability Pillar, a more balanced approach between flexibility and security in employment relationships is being sought in a number of Member States. The trend towards increased flexibility of working time and work organisation is continuing and steps are being taken to ensure the equal treatment of workers under different working arrangements. Improvements are also reported in the field of health and safety at work. There are interesting initiatives in the field of work organisation which deserve wider dissemination. The social partners are playing an increasingly important role in promoting lifelong learning in the workplace, but a comparative lack of visibility of their actions remains, which might be partly due to the unstructured reporting. Some progress is being made towards meeting the objective of all workers achieving ICT literacy by the end of 2003. However, more information is needed on measures to promote workers' ICT literacy to assess progress more accurately.

Under the Equal Opportunities Pillar, clear progress has been made towards the employment rate targets for women, even though there are still a few countries lagging behind and greater efforts are needed to retain women longer on the labour market. The implementation of the gender mainstreaming approach has progressed but remains incomplete. Although initiatives have been introduced to reduce the gender pay gap by addressing the underlying factors, these still tend to be inadequate and insufficient commitment is demonstrated by the social partners in this respect. Gender segregation continues to be addressed, especially by those countries with high levels of segregation, but results are difficult to assess in the short-term. Efforts to reconcile work and family life have been intensified, but adequate, high quality and affordable childcare services are still not sufficiently accessible to reach the targets set by the Barcelona European Council. Leave arrangements have been expanded in many Member States, even though there are only a few countries specifically encouraging the take-up of parental leave by men.

The assessment of national employment performance and policies in 2001 confirms the main outcomes of the evaluation for the period 1997-2001, and provides a strong basis to design the next generation of the European Employment Strategy. While structural labour market reforms have paid dividends so far, major weaknesses remain. Faced with the current economic slowdown Member States should intensify structural reforms including those of labour markets in order to support adaptation to change of workers as well as firms. There is already a broad consensus on a number of elements for an effective new EES, including the focus on the Lisbon objectives, a stable strategy over the medium term, a reduced number of guidelines more focussed on results to be achieved, and an improved co-ordination with other relevant processes, in particular the Broad Economic Policy Guidelines.

In the light of remaining weaknesses, the future generation of guidelines should explicitly address the three key priorities of raising employment and participation rates, improving quality and productivity at work and promoting an inclusive labour market. In all these areas much progress is still required if the overall goals of the Lisbon strategy are to be reached.

1. THE POLITICAL AND ECONOMIC CONTEXT

The EES at a crossroads after 5 years

Since its launch at the Luxembourg Jobs Summit in 1997, the European Employment Strategy (EES) has undergone a number of changes to take account of the evolving political and economic situation. Following the mid-term review of the first three years of implementation, the Employment Strategy was strengthened at the Lisbon European Council (2000) and integrated into a broader political agenda with the aim of making the European Union the most dynamic and competitive knowledge-based economy of the world, capable of sustainable economic growth while providing more and better jobs and greater social cohesion.

The Lisbon European Council agreed the objective of achieving an employment rate as close as possible to 70% overall, and exceeding 60% for women, on average in the EU, by 2010. A global strategy was defined, aiming at preparing the transition to a knowledge-based economy, modernising the European social model and sustaining favourable growth prospects.

The Nice European Council of December 2000 introduced the issue of quality as the guiding thread of the Social Policy Agenda, and in particular quality in work as an important objective of the EES. It stressed the multidimensional character of the quality issue, concerning both job characteristics and the wider labour market context, and stated that it should be promoted through actions across all the pillars.

Confirming the Union and the Member States' commitment to the goal of full employment, the Stockholm European Council in 2001 set intermediary employment targets of 67% overall and 57% for women by 2005, as well as a target of 50% employment for older workers (aged 55 to 64) by 2010. Responding to the Stockholm request, the Commission and Council jointly examined the conditions required to raise labour force participation in the EU, and submitted corresponding proposals to the European Council of Barcelona [3].

[3] Increasing labour force participation and promoting active ageing Council document N° 6707 of 8 March 2002, adopted on the basis of COM(2002)9 final, 24.01.2002.

The Göteborg European Council completed the political commitment with a sustainable development strategy and added the environmental dimension to the Lisbon strategy, recognising the link between environment, economic growth and employment.

The Barcelona European Council in March 2002 identified "Active policies towards full employment: more and better jobs" amongst the three areas requiring a specific impetus. It underlined that the goal full employment in the EU is at the core of the Lisbon strategy and constitutes the essential goal of economic and social policies. In light of the above, the European Council called for a reinforced Employment Strategy and provided directions for the future of the EES. It welcomed the Commission's Action Plan on skills and mobility which was followed up by a Council Resolution [4].

[4] 9614/02, 03 June 2002.

The present Joint Employment Report reviews progress made in 2001 - an important milestone since it marks the 5th year of implementation of the European Employment Strategy. An evaluation of the impact of the Strategy between 1997 and 2001 has been jointly carried out by the Commission services and the Member States [5] to prepare for the future development of the EES.

[5] COM(2002)416,17 July 2002.

Less favourable economic context in 2001: a test for the EES

In stark contrast to the positive climate in 2000 which saw the strongest employment growth for ten years, the first half of 2001 was characterised by economic uncertainties followed by a general slowdown after the events of September 11.

Between 2000 and 2001 GDP growth and labour productivity growth fell drastically from 3.3% to 1.6% and from 1.6% to 0.3% respectively. Between the first and the second halves of 2001 employment growth slowed down from 1.5% to 1%. The economic slowdown that was initially deemed to be short-lived has developed into a sluggish performance. Economic recovery has failed to gain momentum and is not expected before 2003, and there has been an increase in major lay-offs within the Euro zone. Public finances have improved further, with several Member States having achieved or sustained sound budgetary positions. However, in the current period of weak growth the budgetary framework is strained and credibility put into question, with some Member States having failed to fully meet the budgetary commitments under the Stability and Growth pact. Inflation increased from 2.1% in 2000 to 3.4% in May 2001 and subsequently declined to 2% by the end of the year and is expected to increase to 2.2% in 2002.

Slower pace of improvement in employment performances ...

Assessment of performances must be seen in the above context of the deterioration in the economic climate. Although the employment rate increased only marginally (from 63.3% in 2000 to 63.9% in 2001, adding 2.06 million people to total employment) it is still in reach of the EU target, although achievement will require specific and sustained efforts. The total unemployment rate fell by 0.6%, compared with the starting level in 2001 but the rate increased slightly over the first few months of 2002 (from 7.4% to 7.6%). Overall, youth and long-term unemployment rates decreased in 2001, with the highest decrease for women.

Since 1997 the employment gender gap has slowly declined by almost 2 percentage points reaching an employment rate of 54.9% for women, in sight of the EU target. The employment rate for older workers rose to 38.5% in 2001 (37.7% in 2000), but still falls far short of the EU target of 50% by 2010.

...in a context of structural changes in European labour markets

In recent years, the EU employment performance has visibly improved, with more than 10 million new jobs created since 1997 (6 million of which have been taken up by women) and 4 million less unemployed, while the active population continued to grow by 5 million people. The evaluation of the European Employment Strategy confirms the structural character of these improvements, through reductions in levels of structural unemployment, a more employment-intensive pattern of economic growth and a more rapid labour market response to economic and social changes [6]. The implementation of structural labour market reforms paved the way for these improvements. The overall good performance in the 90s suggests that the rise in employment rates and decreases in unemployment rates are sustainable and structural in nature. These positive outcomes are not explained by cyclical improvements alone. Since 1997 the decline in structural unemployment has accelerated and has been accompanied by intense job creation. The European Employment Strategy created the conditions for these improvements to be sustainable, by its commitment to fully utilise the potential labour supply with more and better jobs. The social partners also made an important contribution to the improved employment performance, in particular by pursuing employment-friendly wage agreements.

[6] 'Taking stock of five years of the European Employment Strategy', COM(2002) 416 - Employment in Europe 2002.

Remaining structural weaknesses need to be addressed

Although progress has been made, a number of key structural weaknesses persist:

- Stubbornly high levels of unemployment and long-term unemployment need to be further reduced in order to achieve an inclusive labour market; the inclusiveness of labour markets needs to be better developed; in spite of the progress made, the employment position of disadvantaged people remains weak. This calls for better tailored policies, comprehensive approaches involving both the supply and the demand side and a close link with the wider policies for social inclusion;

- Sustained commitment will be needed to achieve the EU employment rate targets, in particular the target for older workers. The Joint Report [7] on increasing labour force participation estimated the necessary increases in employment between 2002 and 2010 at 15,4 million, of which 9,6 for women and 7,4 for older workers;

[7] 'Increasing labour force participation and promoting active ageing' Council document N° 6707 of 8 March 2002, adopted on the basis of COM(2002) 9 final, 24.01.2002.

- Differences in productivity between the US and the EU are still continuing to widen, but are much more pronounced for labour productivity per person employed than for labour productivity per hour worked, for the latter even a slight decrease is forecast [8]. As stated in the recent Commission communication "Productivity: the key to Competitiveness of European Economies and Enterprises [9], productivity growth depends on the quality of physical capital, upgrading the skills of the labour force, technological advances and new ways of organising these inputs. The positive link between job quality and productivity should also be exploited to bridge this gap, but quality of employment has not yet received sufficient attention. Progress here can only be clearly identified with regard to participation in training and gender gaps in employment, whereas in other areas much remains to be done; and;

[8] Where as the labour productivity (GDP in PPS per person employed) of the US was 116.1 in 1997 (EU-15 = 100), it increased to 117.5 in 2000 (forecast 2001: 117.7); the respective figures for labour productivity in PPS per hour worked were 102.6 in 1997 and at 103.2 in 2000 (forecast 2001: 103.0).

[9] COM(2002)262 final.

- Regional differences, both in terms of employment and unemployment, remain a problem in several Member States.

It is vital that reforms to address these weaknesses are pursued vigorously in the coming period so that the EU labour market can absorb the medium-term challenges in terms of demographic trends, emerging bottlenecks, ongoing economic and social restructuring, globalisation and enlargement.

Graph 1: Overview of employment and unemployment performance in the European Union, 1997 and 2001.

>REFERENCE TO A GRAPHIC>

Section 3 presents the diamond per Member State.

2. Implementation of the 2002 Employment Guidelines and Recommendations: Assessment of performances and policies across the European Union

Taking account both of the time needed to implement the substantial changes which were introduced into the Employment Guidelines for 2001, following the mid-term review and the Lisbon European Council, and of the fact that the Strategy was due to be revised for 2003 on the basis of the evaluation of the experience of the first five years, it was decided to maintain as much stability as possible in the Employment Guidelines for 2002. Only two main new elements were introduced concerning respectively the adaptation of the employment rate targets to take account of the objectives set at the Stockholm European Council, and the introduction of a new, cross-cutting objective on job quality following the intense political debate at European level on the various dimensions of quality in work culminating in the adoption of a list of indicators at the Laeken European Council in December 2001.

The 2002 NAPs

The 2002 National Action Plans for Employment (NAPs) continue the trends towards improved clarity and comprehensiveness in the presentation of Member States' employment policies. They also reveal a more balanced coverage of the policy-mix across the four pillars of the European Employment Strategy. Most Member States continue to be reluctant to take up the Guidelines' invitation to set national targets. Although Member States have developed many employment measures, assessment of their impact is generally lacking. The budgetary dimension of policies (especially the contributions of the Structural Funds) should also be made more transparent. In spite of an overall improvement in information provided, it is still not easy to identify the extent to which Member States have used the Structural Funds to support their activities under the four pillars. This difficulty exists not only with regard to quantitative aspects but also with regard to whether the Funds have been used strategically to provide added value (for example to explore new active labour market policies beyond traditional national policies and procedures). The new role for the Structural Funds to underpin the EES objectives introduced in the revision of the Regulations in 1999 needs to be taken up much more vigorously. As regards process, although the social partners are increasingly involved in the preparation of the NAPs, their role in implementation and follow-up is still often not visible. The integration of other potential stakeholders, such as the regional and local levels and representatives of civil society, has not improved.

In line with the Lisbon Strategy Knowledge based society issues have become a central element in all Pillars. In addition to the considerable efforts undertaken in the context of the Employability Pillar, more attention to ICT is evident in the 2002 NAPs within the Entrepreneurship Pillar.

Encouraging, although uneven, responses to Recommendations

The table below shows that the response to the 2002 policy Recommendations varies across countries.

Most Member States have introduced or announced policy initiatives in response to the Recommendations concerning prevention and activation, labour supply, lifelong learning, the tax burden on labour, regional imbalances and the policy mix.

Recommendations made on the issues of older workers and migrants have not generally elicited sufficient policy changes.

Reactions to the recommendations concerning equal opportunities differ greatly between Member States. In most cases political decisions have been taken, but remain to be implemented. No policy changes, or only marginal changes, have been introduced in Germany, Austria and Finland (on the pay gap); Greece, Spain and Italy (on gender mainstreaming); Luxembourg and Portugal (on gender segregation).

The response to recommendations concerning the social partners is also generally weak. Greece and Portugal, in particular, need to introduce and implement policy changes and Austria, Italy and Spain should strive to get the partnership with the social partners back on track.

Table 1: Response to the 2002 Recommendations by Member States, by theme

>TABLE>

blank = no recommendation; + = significant policy change +/- = policy change introduced, impact still to be demonstrated - = marginal or no policy change.

2.1. The overall policy framework: reflecting the horizontal objectives of the 2002 Guidelines

The horizontal objectives featured in the 2002 Guidelines set the overall policy framework for implementation of the European Employment Strategy, reflecting the Lisbon Summit's ambition of achieving full employment in a knowledge-based society.

Moving closer to the Lisbon and Stockholm targets

Horizontal Objective A calls on Member States to enhance job opportunities and provide adequate work incentives so as to raise employment rates in line with the Lisbon and Stockholm targets. The NAPS show that, despite the economic slowdown, progress is continuing. Member States' relative situations remain mixed but the EU overall rate is within just over three percentage points of the 2005 target of 67% and the women's employment rate is within just over 2 percentage points of the 2005 target of 57%. The rate for older workers has increased by nearly one percentage point since 2000, but nonetheless remains over 11 percentage points off the 2010 target of 50%.

The facts on employment rates (see table 2)

* Between 2000 and 2001 the overall employment rate in the EU increased to 63.9% (+0.6 percentage points), for women to 54.9% (+0.9pp) and for older workers to 38.5% (+0.8 pp).

* Significant differences exist between Member States in terms of the levels reached and the pace of improvement. The best performing countries, with employment rates above 70%, as in the previous year were: Denmark, the Netherlands, Sweden and the United Kingdom. Lowest rates are again registered for Greece, Italy and Spain.

* Employment rates have increased across all age groups in 2001 by 0.4 percentage points in the 15-24 age group and by 0.5 percentage points in the 25-54 age group.

* While differences across Member States are narrowing in the prime-age group, differences for the young and older workers persist or are increasing. The low employment rates for young people reflect an increase in the proportion of young people in further or higher education.

Based on current scenarios, the Lisbon target of 70% overall employment rate is only within reach if the recent structural improvements in the working of the European labour markets and if increases in female participation are sustained up to 2010 and, where necessary, strengthened. It is necessary for employment performance in those Member States with relatively weak contributions in the past to improve significantly before the end of the decade, in particular in Greece and Italy among the low employment level countries, Belgium and France in the middle group and Austria and Germany among those above average but below the 70% target.

Table 2: Employment rates

>TABLE>

Source: Eurostat, Labour Force Survey (QLFD).

Gaps in employment rates within Member States are gradually closing. However, important gender gaps remain, despite the fact that employment rates for women are increasing at a faster pace than the overall rate. When looking at changes over time (1997 - 2001), the main sources of growth differ, but women have contributed most to overall growth. The growth rate for women's employment has exceeded the overall growth rates in all Member States. However, the employment rate for older women is a cause of particular concern (28.9%, 9.6 percentage points lower than the overall rate for the age group).

Member States appear to be adopting a more strategic approach to the challenge of raising employment rates through the identification of labour reserves and subsequent targeting of actions on the groups with the most potential. The priority given to this issue is reflected in new institutional arrangements (for example the "Equal Studies Unit" within the "Equality Authority" in Ireland, an "Older Workers Task Force" in the Netherlands, the "Cellule de consolidation de l'emploi" in Belgium). Only a few Member States are pursuing comprehensive, employment-friendly tax-benefit reforms.

The NAPs show that all Member States consider older workers to be the most important source of labour potential, and efforts are being undertaken either to discourage early exit or to provide incentives for staying longer in the labour market, and sometimes to create a framework which facilitates a gradual phasing out from working life combining the two approaches. However, policies addressing the particularly low employment rate for women belonging to the critical age group have not been put in place and a gender dimension of active ageing policies remains to be developed. For older workers as a whole, the ability of the EU to reach the target set is seriously called into question by the combination of a low employment rate plus moderate employment rate growth, only slightly above the overall growth rate.

Table 3: Employment rate targets in NAPs 2002

>TABLE>

Quality in work not yet adequately prioritised

Horizontal Objective B seeks to ensure that Member States policies lead to an improvement in quality in work. In general, although progress has been made under a number of relevant aspects, quality in work still tends to be dealt with in a piecemeal way which does not reflect the multi-dimensional character of the concept set out in the European Commission Communication of June 2001 [10]. The ten dimensions of quality in work defined by the Commission, and used by the Council as a basis for the definition of appropriate indicators, are unevenly covered by Member States' policies. The response to this new objective focuses strongly on the relative merits of different contractual relationships, particularly regarding the balance between flexibility and security. Whilst health and safety, education and training and reconciliation of family and working life are also generally well covered, other dimensions, such as the intrinsic quality of jobs or the quality of social dialogue are not yet integrated into an overall approach to quality at work.

[10] Employment and social policies: A framework for investing in quality, Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions, COM(2001)313 final. European Council (2001), "Indicators of Quality in Work", Report by the Employment Committee to the Council, 14263/01.

As regards performance, trends which are unambiguously positive can only be identified for a few areas (increasing participation in education and training and decreasing gender gaps in employment). In other areas there is evidence of stability or stagnation, which is partly the result of changed circumstances, for example the recent low increase in labour productivity due to the cyclical downturn in 2001. Data do not yet permit an in-depth, comprehensive assessment of developments over time, particularly since for some of the indicators no time series is available.

Table 4: Main facts on quality in work

Quality in work: dimensions and indicators // Main facts (based on most recent available data)

Intrinsic job quality

Indicators: Transitions between non-employment and employment and within employment. // The transition from fixed-term to permanent contracts is not automatic: only 34% of those employed in fixed-term contracts in 1997 had a permanent contract in 1998 and 24% became unemployed while 92% of those with permanent contracts remained in permanent contracts. Only 11% of non-employed persons in 1997 became employed with a fixed-term or part-time contract in 1998. Compared to unemployment, a fixed term job reduces the probability of being in inactivity and unemployment after two years by about 2/3, and increases the probability of moving to a high quality job within two years by a factor of more than 3.

Skills, lifelong learning and career development

Indicator: % of adult population participating in education and training. // Significant increase in the participation rate for the 25-64 age group (from 5.8% in 1997 to 8.4% in 2001). It is higher for women (9%) than for men (8%) and very low for the 55-64 aged group (3%) and for those with a low educational or skill level (2%). Best rates in 2001: the United Kingdom, Sweden, Finland, Denmark and the Netherlands.

Gender equality

Indicators: ratio of women's hourly gross earnings to men's; gender employment and unemployment rates gaps. // Gender pay gap remains high: 16.2 percentage points in 1998 (23.7 p.p. in the private sector). Highest gaps: the United Kingdom, Austria, the Netherlands, Germany and Ireland.

High gender employment gap (18 percentage points in 2001). It was highest in Greece, Spain, Italy, Luxembourg and Ireland.

Gender unemployment gap: 2.3 percentage points in 2001 with significant differences across countries (highest gap: Greece, Spain, Italy and France).

Health and safety at work

Indicator: number of accidents at work per 100.000 persons in employment. // High incidence rate: 4.87 million accidents resulting in more than 3 days' absence from work occurred in EU as a whole in 2001. It increased in recent years in some of the MS (Sweden, Denmark, the United Kingdom, the Netherlands, Belgium, Luxembourg, Portugal and Spain).

Flexibility and security

Indicator: % of employees working part-time and with fixed-term contracts. // Part-time employment: 17.9% in 2001 as EU average, of which around 80% is voluntary part-time. Highest rates: The Netherlands, the United Kingdom and Denmark. Lowest rates: Greece, Italy and Spain. Significant gender differences in part-time rates (one third of women against 6% of men).

13.4% of employees in 2001 worked under fixed-term contracts. Highest rates: Spain and Portugal.

Inclusion and access to the labour market

Indicator: transitions between employment, unemployment and inactivity. // Relatively poor performance on transitions from unemployment to employment: only 30% of unemployed in 1997 found a job in 1998. Better performances can be found in Denmark, Greece, Spain, Portugal, Austria and the United Kingdom.

Work organisation and work-life balance

Indicator: employment rates with or without any 0-6 aged children. // Negative effect of parenthood on women's employment rates. Positive effect of parenthood on men's employment rates. Average employment rate in 2001 for women with a child aged 0-6 was 12.4 percentage points below that of women without children. The corresponding figure for men was 9.5 percentage points higher rates with a child than without.

Social dialogue and worker involvement

Indicators: the number of days lost and % of employees covered by collective agreements. // Coverage by collective agreements: highest (more than 90%) in 2000 in Austria, Belgium, France and Finland and lowest in the United Kingdom. The highest rates in days lost by strikes in 2000 were found in Spain, France, Denmark and Finland and the lowest rates in Austria, the Netherlands, Luxembourg, Sweden and Germany.

Diversity and non-discrimination

Indicators: employment rate of 55-64 years. // Employment rate of 55-64 years olds: 38.5% in 2001. Lowest rates: Belgium, Luxembourg, Italy, Austria and France. Highest rates: Denmark, Portugal, the United Kingdom and Sweden.

Overall work performance

Indicator: Growth in labour productivity. // Decrease of average growth in labour productivity per hour worked: from 1.6% in 2000 to 0.3% in 2001. It was negative in Belgium, Finland, France.

Better developed lifelong learning strategies

Some promising progress has been made in the areas of education and lifelong learning covered by horizontal Objective C. Since 1997 there has been a gradual increase in the percentage of the adult population participating in education and training and all Member States are in the process of designing their education and training systems in a more integrated way to cover the whole life cycle. Lifelong learning is seen not only as a way to improve workers' employability and the adaptability of the labour force but also as a policy instrument to increase both labour supply and the participation of groups underrepresented in the labour market and to tackle social exclusion. However, lifelong learning is still far from being a reality for all and there are signs of a widening gap in the take-up of learning opportunities between those with low skills and the higher educated and between younger and older age groups. Measures to broaden access and increase participation levels therefore need to be vigorously pursued, with particular attention paid to those adults least inclined, or with the least opportunity to learn.

The Recommendations issued to the majority of Member States on the development of lifelong learning strategies for the past two years have resulted in an improvement in overall performance, with the most visible strides being made in some of the Member States which previously had the least developed comprehensive approaches (see table 5). Last year's assessment was that half of the Member States had comprehensive and coherent strategies whilst this year all have now laid the groundwork for comprehensive strategies covering the whole spectrum of learning - from compulsory education to workplace training, and steps towards better recognition and validation of non formal learning. Incremental progress on improving the coherence of lifelong learning strategies is also visible, although moving at a slower pace since it requires more far-reaching reforms of systems and practices. Institutional arrangements to improve co-operation between the various Ministries concerned are emerging in many Member States but the question of how best to facilitate transitions within and between education and training systems and the labour market is not yet addressed in a comprehensive manner. The quality and labour -market-relevance of lifelong learning provision also need to be further improved.

In spite of the fact that Member States again failed to set targets on investment in human capital, public expenditure on human resources has generally risen and there is also increasing evidence of shared responsibility for financing, including through a rise in businesses' expenditure on continuing training. However, an increase in the overall rates of public and private investment needs to be combined with a redistribution of resources across the learning spectrum and with the further development of fiscal and other incentives for learning. Moreover, investment in education and training needs to be accompanied by an evaluation of the efficiency of the education systems and training programmes and, where necessary, measures to improve it.

The pace of change taking place now and in the future will require more action from Governments, enterprises, individuals, social partners and the Commission to raise the both the quality and the levels of investment in human resources and to bring about a cultural change to promote ongoing investment in people over a lifetime.

Table 5: Member States' positions on developing lifelong learning strategies

>TABLE>

Notes:

A Adequate. 'Adequate' denotes that a particular criterion is given appropriate priority within both the Member State's strategy and concrete actions.

P Partial. 'Partial' indicates that some attention is given to the criterion in both the strategy and actions or that it given appropriate priority in one or the other.

I Insufficient. 'Insufficient' refers to when the particular criterion is absent from both the strategy and the actions or is given some attention in one or the other.

Letters in bold and grey cells indicate changes compared to last year.

+ indicates improvements compared to last year.

Stronger social partner role at both national and European level

Horizontal Objective D highlights the importance of comprehensive partnerships with the social partners. The 2002 NAPs show that in a majority of Member States the social partners are more strongly involved in the NAPs. The strongest degree of partnership is still to be found in Ireland, Belgium, Luxembourg, Portugal, Finland and, to a lesser extent, in the Netherlands, Greece and Germany. In other Member States like Denmark and Sweden the social partners themselves continue to play an important role in implementing the guidelines especially addressed to them. While tensions between the governments, and notably, the Trade Unions emerged in Italy, Austria and Spain, and created a context less favourable for co-operation in the NAP process, bilateral or trilateral agreements have nevertheless been concluded which deal with a number of important issues addressed in the Guidelines. However, in Spain relationships have improved recently. The contribution of the social partners was mainly on quality in work, lifelong learning, the increased labour market participation of older people and the promotion of gender equality. In the latter case, however, a higher policy priority needs to be given to this area and concrete action needs to be intensified.

The reinvigorated social dialogue at European level has led to several initiatives which have helped take forward the European Employment Strategy in a number of areas. For example, the report concerning the future of industrial relations in Europe, a joint declaration of the European social partners to the European Council in Laeken underlining the necessity to further develop the autonomous social dialogue, the planned submission, in Autumn 2002, of a multi-annual work programme drawn up by the social partners, the social partners' framework for action on skills and competencies development submitted to the Barcelona Summit and an agreement on telework signed by the European social partners.

A more balanced policy-mix but regional disparities remain a serious problem

Horizontal Objective E urges Member States to respect the integrated nature and equal value of the Guidelines across the four pillars and to give adequate attention to the regional dimension. Compared to previous years, more emphasis has been given to the Equal Opportunities and Entrepreneurship Pillar, redressing the balance somewhat, although the main focus continues to be on the Employability Pillar. The coverage of the Adaptability Pillar tends to under-report the efforts undertaken by the social partners. A rebalancing of the policy mix is particularly visible in Spain, Austria, Luxembourg and Ireland.

Belgium, Germany, Spain, Italy and Finland are the Member States most seriously affected by regional disparities. Disparities are, in general, more pronounced for unemployment (measured by the coefficient of variation [11]) than for employment. More Member States experienced deterioration (Germany, Greece, Italy, the Netherlands, Austria and the United Kingdom) in unemployment than in employment (Germany, Austria and Finland). Germany and Austria are the only Member States where disparities are widening for both employment and unemployment (although in Austria, it is still at a very low level). The priority given to this issue varies widely from one Member State to another. However, all continued to give increased attention to the territorial dimension of employment policies and the need to design policies and instruments in a way which facilitates flexible adaptation to specific needs at regional, and, in some cases, also local level.

[11] The Coefficient of Variation is obtained by dividing the Standard Deviation by the average-weighted mean value (weighted average of the employment/unemployment rate in a country).

Graph 2: Employment rates in NUTS2 regions in 2001 (% of population 15-64)

>REFERENCE TO A GRAPHIC>

Source: Labour Force Survey NUTS2 level, Eurostat. DK and IRL NUTS3 from national LFS [12].

[12] Data for Ireland: Central Statistics Office Ireland. Employment from Quarterly National Household Survey. Working-age population from 'Population and Migration Estimates April 2001'.

Improved monitoring, but more development needed on a number of national sources

Horizontal Objective F stresses the importance of strengthening indicators to evaluate progress under all four pillars. Significant improvements have been made in most Member States in developing and using common indicators to be provided in the NAPs, especially on prevention and activation.

The situation is unsatisfactory as regards several indicators based on national sources which are necessary to monitor progress in quality in work. Thus common indicators on disadvantaged groups (ethnic minorities, migrant workers and disabled people) are lacking, and only three Member States have provided indicators on transitions between non-employment and employment. More data have been submitted on childcare provision and some data on care facilities for other dependant persons, even though they are still lacking for many Member States and in most cases they only partially comply with the agreed indicators.

Most Member States have not submitted either the necessary information allowing an assessment about labour market bottlenecks or of the impact of active labour market measures in terms of effective integration into the labour market.

2.2. Assessment of the progress made under the four Pillars of the 2001 Guidelines

2.2.1. Employability

The recent increases in unemployment and widespread company restructuring, combined with emerging bottlenecks, highlight the relevance of the concept of employability. Whereas, at the launch of the EES, employability was mainly seen as a way of helping unemployed people back into work, it has progressively developed into a broader approach covering the whole life-cycle and is key to facilitating adaptation to change. Raising the employment rates to the ambitious levels set at Lisbon and Stockholm requires not only action to prevent and combat unemployment but also to mobilise untapped potential to increase participation in the labour market. In this context, preventing early school leaving, increasing access to an inclusive labour market, enhancing the capacity of workers to remain active, reforming tax and benefit systems to make them more employment friendly and promoting the continued updating of skills and tackling bottlenecks are particularly important.

Thus, Member States have often concentrated on the consolidation and improvement of the effectiveness of measures under this Pillar in 2001 through such a wider approach.

The facts on unemployment

* Unemployment decreased in 2001 both among young people and among adults. The overall rate of unemployment fell from 7.9% in 2000 to 7.4% in 2001 and that of women from 9.7% to 8.7%. The unemployment ratio for young people dropped from 7.4% to 7.1% [13]. However, in the first four months of 2002 the overall unemployment rate climbed back up to 7.6%.

[13] The unemployment ratio for young people is the total amount of unemployed young people (15 - 24 years) as a share of the total population in the same age bracket.

* The overall long-term unemployment rate decreased more than the total unemployment rate; from 3.7% in 2000 to 3.3% in 2001. For women it declined 0.5 percentage points, from 4.4% to 3.9%. There are wide variations between Member States, with rates of less than 1% in Austria, Denmark, Luxembourg and the Netherlands and more than 5% in Greece, Spain and Italy.

* The share of long-term unemployed amongst all unemployed dropped from 46% in 2000 to 42% in 2001.

* The inflow to long-term unemployment also varies considerably ranging from 2.1% in Sweden to 36.2% in Belgium concerning young people and from 0.6 % in Austria to 23% in the Netherlands concerning adult people. The rate of women's entry into long-term unemployment is higher than that of men in all Member States, except for Denmark, Finland, Sweden and the United Kingdom.

Shifting from passive to active labour market measures and from a curative to a preventive approach in the fight against unemployment were key guiding principles of the Employment Strategy from its inception. Two targets were set at the Luxembourg Summit: a) by 2002, to offer all unemployed people a new start before reaching 6 months of unemployment, in the case of young people, and 12 months for adults; and b) to achieve a minimum level of 20% of unemployed people benefiting from active measures. These aims have been met with only mixed success.

More active labour market policies ...

As regards activation the target of 20% had already been surpassed by all Member States in 2000 except for the UK, and the average of the three most advanced Member States reached 51% in 2001. Activation rates have continued to increase. This is the combined result of the declining number of registered unemployed and the increased number of persons benefiting from active measures. Moreover, the share of spending on active measures has increased in relation to total labour market policy expenditure, reflecting a continued emphasis on activation.

Training is the most common tool to integrate unemployed people into the labour market. More than half of the general increase in active measures is due to a rise in training initiatives. These initiatives aim to combat skill shortages and the tendency towards co-operation with employers in the design of measures has been consolidated so the measures are gradually becoming more demand led.

The facts on activation

* All Member States but the United-Kingdom exceed the 20% target. The three Member States with the highest activation rates are Sweden (60%), Belgium (50%) and Ireland (38%).

* Compared to 2000 the activation rate increased in Austria, Belgium, Denmark, Spain, Ireland, Italy, Luxembourg, Portugal and Sweden. The rate remained unchanged in Germany and decreased in Finland and in the Netherlands.

* The number of participants in all active measures compared to 2000 increased by 7%. In Austria, Belgium, Denmark, Germany, Spain, Ireland, Italy, Luxembourg, Portugal and Sweden the increase was 8%. There was a decrease in Finland and the Netherlands.

* Between 1999 and 2000 the share of spending on active measures out of total LMP expenditure increased in most Member States (except Denmark and Portugal). The highest shares are in Ireland, Sweden and Denmark, whereas the lowest shares are in the United Kingdom, Portugal and Austria. However, LMP expenditure on active measures in relation to GDP decreased slightly in 2000, averaging 0.9% in the EU. Three countries have shares above 1% (Denmark, Sweden and Belgium). Lowest expenditure is in the United Kingdom, Greece and Portugal.

* Training measures represent about half of the total measures undertaken and in general the number of participants in training measures rose by 4%. In Belgium, Denmark, Germany, Spain, Luxembourg, Austria and Portugal the rise was around 6%. In Ireland, Finland and Sweden there was a decrease.

* Of the seven Member States (Austria, Belgium, Denmark, Finland, Sweden, Spain, Germany) which provided activation rates by sex, in five (Austria, Belgium, Denmark, Finland, Sweden) the activation rate for women is higher than that of men.

... but further emphasis is needed on prevention ...

The situation with regard to achievement of the prevention target is less satisfactory. The agreed indicators to measure progress concern both the implementation of early intervention policies (the extent to which unemployed young people and adults are provided with individual action plans before reaching 6 and 12 months unemployment) and the achievement of results (the extent to which inflows into long-term unemployment are cut). Although the majority of Member States have put in place a preventive approach, it is not always effective as revealed by insufficient levels of coverage of those at risk of unemployment (see annex 2: indicator of effort), or by high levels for the indicator of non-compliance (see also annex 2). On this basis, only five Member States - Austria, Sweden, Finland, the United Kingdom and the Netherlands (for young unemployed) - can be considered as complying fully with the objective. The recent surge in unemployment makes it all the more important to improve performance on preventive policies.

The facts on prevention

* Austria, Sweden, Finland, the United Kingdom and the Netherlands (the latter for young people, but not for adults) have satisfactory results both as regards early intervention and reduction of inflows to long-term unemployment.

* Italy and Greece are still in the process of adapting their structures to be able to intervene in time and to systematically offer individual action plans.

* Denmark, Ireland, Spain and France have succeeded in slowing down flows into long-term unemployment (because their labour markets are sufficiently strong to enable the majority of unemployed people to find employment on their own initiative during their first months of unemployment), but a high proportion of unemployed people are still not benefiting from early intervention policies.

* Germany, Luxembourg, Portugal and Belgium have increased the numbers of unemployed people reached by preventive policies but without substantially slowing down the inflow into long-term unemployment.

... and on effectiveness

Generally not enough is known about the effectiveness of activation measures in terms of sustained integration into a regular job and in terms of their relative efficiency. More attention needs to be given to qualitative aspects, in particular monitoring sustained integration into a regular job. The same seven countries as last year (Austria, Denmark, Germany, Spain, Finland, Sweden and the United Kingdom) provide figures on either the rate of return to unemployment or the flow into employment after participation in an active measure. It appears that the rate of return to unemployment varies from 19% to 45% (after 3 months), and from 29% to 61% (after 6 months). The flow into employment after participation in a measure varies from 50% (after 6 months) to 67% (after one year). The available evaluation data [14] suggests that combining training with other measures such as work experience increases success. Experience has also shown that, although different contexts lead to differences in the effectiveness of the measures, individualised active policies are crucial. The activation requirements need to focus on results, rather than on numbers of beneficiaries in preferred types of measures, by taking into account both the characteristics of the individual and labour market conditions.

[14] In particular on the basis of the evaluation of the European Employment Strategy completed in 2002, see http://europa.eu.int/comm/employment_social/empl&esf/ees.

The current indicators on prevention do not capture differences in the quality of the approach used. The impact evaluation of the Employment Strategy has shown that the concept of a "new start" has been interpreted in very different ways between Member States, ranging from an interview to a specific ALMP, through individual action plans of varying depth and quality. Prevention is often seen as early activation of job seekers instead of early identification of needs to prevent a drift into long-term unemployment making it difficult to distinguish clearly between prevention and activation. Cross-country comparison is also problematic because of variations in the way breaks in unemployment spells to take part in an active measure are treated.

The strong focus on quantitative targets in the monitoring process for both activation and prevention, although effective in reorienting priorities in line with the Guidelines, may have unwittingly contributed to a relative neglect of the dimension of effectiveness and efficiency. The EES evaluation suggests that what is vital is making the right offer at the right time to the right person based on an early identification of needs.

Central role of Employment Services

Effectiveness depends strongly on the national and economic context, and in particular on the efficiency of Employment Services. The impact evaluation confirmed that the strategy of activation and prevention has triggered a comprehensive remodelling of Public Employment Services operations. The movement towards more of a partnership approach, with the PES increasingly a main integrating player in a wider private and public delivery system is continuing. In 2001 a clear trend is discernible within several Member States (Italy, Austria, Germany, Belgium, Denmark and the Netherlands) towards a mixed market of public and private employment services. Several Member States are further liberalising regulations on private employment agencies, including temporary work agencies (Italy, Austria, Germany, Belgium). Others (Germany, Denmark and the Netherlands) are introducing procedures whereby private employment services can participate in the delivery of public service programmes and some are increasingly investing in more and better services to enterprises (the United Kingdom, Finland, the Netherlands). Almost all Member States are using information and communication technologies to significantly expand electronic self-service facilities and many Member States are continuing developments to strengthen services at the regional or local level (France, Spain, Greece, Italy). However, reform of the institutional structures for implementing active labour market policy and redesigning the complex methodology of employment service delivery need to be pursued.

Tax reductions and improving the interaction of tax and benefits

In 2001 most Member States further reduced taxes on labour income (personal income taxes plus employee's social security contributions) particularly for those at the lower end of the wage scale although tax cuts have not always been targeted strictly on low paid labour. Others have undertaken tax reforms by introducing modest general tax reductions. A small, though growing, number of Member States (Belgium, France, the Netherlands, the United Kingdom, Denmark) are addressing the interaction between tax and benefit schemes. The rapid withdrawal of benefits as people earn income from taking up work is now widely recognised as a major disincentive to seek employment and Member States implemented a variety of measures to address this issue. However, concerning the unemployment benefits a more effective enforcement of eligibility criteria is needed, as well as a better interaction with active labour market policies and giving more attention to the way benefit systems are administered. This would reduce work disincentives while preserving an adequate degree of social protection for the unemployed.

Incentives to take up work have been improved by making increasing use of employment-conditional benefits. Several Member States (the United Kingdom, Ireland, Finland France, Belgium, Italy and the Netherlands) are extending the use of In-work Tax Credit schemes. Some Member States have implemented targeted measures which are related to changes in minimum wages and child benefits structure (the United Kingdom, Ireland, Austria, Sweden) or combine benefits with part-time work and training (Sweden, Denmark, Portugal, Austria). Member States do not, however, address the possible gender effects of tax-benefit reforms.

Active ageing: comprehensive approach needed

In addition to the target agreed in Stockholm to raise the employment rate for older workers to 50% by 2010, the Barcelona European Council called for a progressive increase of about five years in the effective average exit age from the labour market by 2010.

The facts on older workers

* The employment rate for the 55-64 age group was 38.5% in 2001 compared to 74.7% for the 45-54 year olds, 77.1% for the 25-54 age group and 40.7% for the 15-24 year olds.

* The statutory retirement age has been increased in Finland, Denmark and Sweden and the age threshold for women has been brought into line with that of men in Belgium, Germany, the United Kingdom and Portugal. However the average effective exit age from the labour in the EU remains low, except in a few countries where it has increased, such as Finland.

* The participation rate of 55-64 year olds in education and training was 3% in 2001 compared to 8.4% for the adult working age population. Sweden, the United Kingdom, Denmark and Finland are the best performers with an average older worker participation rate of 10.9%.

All Member States have given increased attention to promoting the issue of older workers in 2001 and are implementing a wide variety of policies.

Few Member States (Finland, Denmark, the United Kingdom and Sweden) have developed fully-fledged national active ageing strategies. Most promote some training and reskilling for older employed and/or unemployed people. Several Member States are promoting more flexible working arrangements and an improved working environments, including workplace health initiatives. Some are implementing awareness-raising campaigns for employers to encourage more positive attitudes to the potential of older workers, but changes of this type require sustained action over a long period of time.

Efforts are being made to discourage early exit or to provide financial and other incentives for staying longer in the labour market, although little attention is given on promoting flexible forms of work combining gradual retirement with part-time work. Overall, Member States concentrate on reforming the regulatory framework for benefits, and give less attention to improving working conditions or providing effective incentives for employers to retain or to recruit older workers. The tendency is to cover a broader age group than those aged 55-64 and to focus on older workers in employment rather than the unemployed (with the exception of the United Kingdom, Denmark, Greece, Austria, and Belgium).

The continuing low employment rate for older workers coupled with the tendency to continue to use early retirement schemes, which is visible in some Member States, are causes for real concern. There is also a risk of substitution effects between different sections of the social security systems, such as retirement and invalidity.

Based on current employment scenarios, the EU employment rate target for older workers will remain out of reach unless Member States design and implement comprehensive strategies for active ageing. The Commission report on "Increasing labour force participation and promoting active ageing" [15] outlined the elements of such a comprehensive approach, based on a life cycle approach. In the framework of four objectives (more jobs and better quality in work; making work pay; providing higher and adaptable skills at work; and making work a real option for all) five priority actions were identified: retain workers longer in employment; review tax/benefit systems; tackle gender gaps in pay and labour market access; promote the participation of persons with care responsibilities; reduce school drop-out rates. When developing and implementing respective policies, the gender dimension of active ageing also needs to be addressed better. The active support and contribution of the Social Partners is crucial to success.

[15] COM(2002)9 final, 24 January 2002.

Encouraging progress in Life long learning policies

The facts on lifelong learning

* There has been a slowdown in educational attainment, the adult population (25-64) with at least upper secondary level education rose by only 0.2% in 2001 to 63.8% compared to a rise of 1.2% in 2000. The rate for women has generally increased at a faster pace than that of men and the gender gap has been reduced to just over 5 percentage points.

* The participation rate for the adult population in education and training continues to be low and has stayed stable at 8.4%. Rates vary widely between the different age groups and attainment levels. Those aged 25-34 are nearly five times more likely to take part in education and training than those aged between 55-64 and those with low skills are over 6 times less likely to participate than those with high skills. Women participate more than men (9% compared to 7.9%).

* The early school leaving rate [16] (those aged 18-24 leaving the education system prematurely, with lower secondary education or less) fell only marginally from 19.7% in 2000 to 19.4% in 2001.The rate remains persistently high especially in Portugal (over 45%) and in Spain and Italy (over 25%). The EU average male rate is considerably higher than for females (21.9% compared to 16.8%).

[16] The EU average excludes the United Kingdom due to the lack of comparable data. For Ireland after 1997 the results of that year are used. Data for Sweden lacks comparability between 2000 and 2001 due to changes in the survey sample design. For France the information is collected only if education or training is under way on the date of the survey.

* E-learning: The EU average rate of access to the Internet for all educational levels was 93% in 2002 compared to 89% in 2001. Over the same period the rate for secondary schools rose from 96% to 98% and from 84% to 90% for primary schools. The ratio of students to on-line computers decreased from 15 in 2000 to 10 in 2002. While, in 2002, 74% of primary and 65% of secondary teachers of non-computer subjects use computers regularly in the class room, 40% of primary and 47% of secondary teachers have not received any ICT related training.

The emergence of bottlenecks and skills gaps has underlined the importance of competence development throughout the whole life cycle and has encouraged Member States to reinforce their lifelong learning policies. Increasing attention is being given to basic skills and improvement in adult literacy has emerged as a particular priority area in some Member States. The social partners are playing an ever more important and wide-ranging role in lifelong learning in all the Member States. Many actions have been taken to promote a better match between education and training supply and labour market demand, including through steps to make initial education more vocationally relevant, to expand and reform apprenticeship systems and, in a few Member States, through mechanisms to better anticipate skill needs. However, overall, provision remains supply-led and the responsiveness of systems needs to be further enhanced and more account taken of mobility issues.

A stronger regional dimension in lifelong learning policy is apparent in a majority of Member States (promoted through regional development strategies, learning partnerships and, in some cases, through increased budgets for regional authorities) and many have expanded local learning centres to bring opportunities closer to people. Most Member States have reinforced information, advice and guidance services and are developing financial incentives aimed at both enterprises and individuals to encourage take-up of learning provision. However, the continuing low participation rate in education and training and the slowdown in the upskilling of the population highlights the necessity for sustained action. Two thirds of Member States have now set national targets on participation and attainment. However, there is a tendency to focus more on the younger age-groups and, whilst this is important, attention also needs to be given to how to better reach older age groups, the low-skilled, vulnerable groups, SME employees and those on atypical contracts. Equally, more attention needs to be given to promoting a broader culture which values learning.

Although tangible progress has been made in the development of national lifelong learning strategies, further emphasis needs to be given to workplace and other non-formal learning, disadvantaged groups, monitoring systems and better co-ordinated guidance services.

The school drop out rate has gradually decreased but the pace of progress calls into question the feasibility of meeting the common target of cutting the rate in half by 2010. In addition to intensifying support more individually tailored approaches and intervention at an earlier stage are called for. The problem is particularly difficult to tackle amongst males and a thorough analysis of the situation and evaluation of the effectiveness of measures is needed.

Member States have intensified efforts to promote the development of ICT skills, in general, and e-learning, in particular. Specific efforts are being made to equip members of priority groups, including older workers and unemployed people, with basic ICT skills to prevent the development of a digital divide. The important role of ICTs in supporting learning and teaching is reinforced. E-learning is used not only to improve access to learning but also to improve the quality of the learning process. On the common e-learning targets the majority of Member States are close to achieving an internet access rate of 100% although progress in primary schools is lagging behind a little. The ratio of students to on-line computers is steadily improving but there is cause for concern regarding ICT training of teachers since nearly half of all secondary school teachers have still not received any training even though the use of computers by teachers is steadily rising. In general, there is little attention on the gender dimension of lifelong learning, and especially on e-learning.

Stronger focus on the prevention of bottlenecks

The facts on occupational mobility

* Between 1997 and 2001 in the EU as a whole the change in the occupational structure (used as a proxy for occupational mobility) went up from 1.9% to 2.9% [17]. The change was higher in Denmark, Greece, Italy, Austria, Sweden and the United Kingdom.

[17] The percentage results from adding up all the absolute values of changes in the occupational structure in the Member States, eg 3% more office clerks, 2% less elementary occupations etc...For Sweden the data is only available for the period 1998 - 2000 and for Finland only for the period 1998 - 2001.

The facts on geographical mobility

* In 2001 15.2% of the population who changed residence within the EU (including within the same city) did so for occupational reasons [18]. Above average are Austria (18.3%), Germany (19.3%), France (21.1%) and Greece (17.1%). Substantially below average are Belgium (9.3%), Ireland (10.9%), the Netherlands (8.5%) and Portugal (8.9%).

[18] Based on the outcomes of the Eurobarometer 54.2, February 2001.

* The percentage of people changing residence between regions (in the same or another Member State) between 1997 and 2001 in the EU as a whole increased from 1.2% to 1.4%. The highest increase was in France and Austria. The greatest downward trend can be observed in Italy (1.1% to 0.6%) and Belgium (1.2% to 0.1%). The increase for males (0.2%) was somewhat higher than for females (0.1%).

Despite the fact that changes in the economic context have resulted in a lessening of short term tensions on the labour market, Member States have given greater attention to combating bottlenecks than in the past. Aware that economic growth will increasingly become dependent on a more active management of labour supply, and prompted by demographic changes, most Member States have stressed the development of monitoring systems to better identify and analyse labour market developments in order to prevent future bottlenecks. They also stress the need for intensified active labour market policies (especially for disadvantaged groups) and education policies.

In all Member States vocational education and training of the employed and the unemployed are important components of the policy to reduce bottlenecks in specific sectors (especially ICT, health, care and education) and occupations (higher technical staff). Member States which foresee continued, or even worsening, bottlenecks in the years to come are seeking to develop pro-active education and training programmes, in many cases linked with the development of a comprehensive system for life-long learning. There is also recognition that resolving bottlenecks involves more than recruitment and training operations: packages of measures to enhance the attractiveness of the public sector and action to reduce absenteeism are being implemented. However, only one country (Denmark) sees the reduction of gender segregation as a way to help solving the problem of bottlenecks.

Geographical mobility policies are also given a higher profile this year. Some of these policies concern inter-regional mobility within the national labour market, which Member States encourage through various incentives (for example in Germany, France, Spain, Italy or Belgium). Several Member States present labour immigration as part of the solution to labour shortages, thus recognising the importance of a better-integrated European labour market. Many Member States have taken steps to improve the job-matching capacities of their employment services. Most are developing electronic databases of vacancies and CVs, connected through EURES.

More integrated inclusion policies but reinforcement of demand-side measures needed

As in previous years a majority of Member States considers integration into the labour market as the best way to promote social inclusion. However, there is increasing recognition that this is not an immediate option for all disadvantaged people and there is therefore an emphasis on a broader range of complementary policies contributing to social inclusion (housing, health, urban and rural regeneration policies). The influence of the Inclusion Process is evident in the development of this more global approach and half of the Member States make an explicit reference to their national action plans on social inclusion in this context.

The gap between the overall employment and unemployment rates and those of specific groups with an over-representation of disadvantaged persons such as the disabled, ethnic minorities or immigrants continues to be high, despite the fact that most Member States have intensified active labour market measures. This underlines the fact that, in addition to raising employability and addressing broader social inclusion needs, the demand side of the market has to be tackled to combat discrimination against disadvantaged persons. Steps are being taken in this direction as some Member States report initiatives which combine employability measures for disadvantaged persons with an increased emphasis on encouraging recruitment (awareness raising and anti-discrimination in general). These actions need to be expanded and continued. The transposition of the Article 13 anti-discrimination directives into national legislation underpins these efforts.

Evaluation of the effectiveness of measures to integrate disadvantaged persons into the labour market and to prevent discrimination is severely hampered by differences in the definition of the groups and a lack of statistical data.

2.2.2. Entrepreneurship

Improving conditions for entrepreneurship is essential in promoting sustainable growth and job creation. The Entrepreneurship Pillar is about providing conditions which favour the creation of new jobs. It aims at facilitating the development of an environment favourable to start-ups and to business growth and at exploiting effectively the employment potential of the knowledge society and of the services sector. It places an emphasis on employment friendly taxation which, together with better access to finance for start ups and early development phases, is crucial in promoting a favourable entrepreneurial environment. Its objective is also to stimulate action for employment at regional and local level.

More targeted action is needed in making entrepreneurship a key driver for growth and employment

Efforts to reduce administrative burdens for business are not sufficiently developed. Policy attention is being focused on the complexity and delays of business registration procedures. There is a focus on the simplification of registration procedures, mainly by using ICT, and some Member States have set quantitative targets [19], such as reducing by half the time and costs of setting up a company (Spain, Portugal), or reducing the overall administrative burden by 25% by the end of the current legislative term (Belgium and Portugal). Assessment of the respective impact of legislation on business is only made with regard to existing legislation and an ex-ante evaluation of new legislation is not considered in most Member States (except in the United Kingdom, Sweden, Luxembourg and Denmark). Apart from the growing number of one-stop shops across the EU is complemented by the progress in legislative actions to facilitate start-ups, though there is scope for improvement in some MS. Access to finance - a crucial factor for entrepreneurial performance - especially in stimulating the supply of risk capital for the start up and early stage of the lifecycle of businesses has not received much attention.

[19] Cf. COM(2002)610.

The importance of self employment in job creation is recognised by all Member States. Sweden has even set a specific target concerning the number of self-employed people. However, more targeted support is needed to exploit the potential for self employment by encouraging existing employees or unemployed to become self-employed. The share of self-employment on total employment decreased from 14.9% in 1997 to 14% in 2001, the decline being stronger for men than for women. This development might simply be the result of a gradual structural change, i.e. traditional sectors in which self-employment is relatively strong make room for new sectors where self-employment is a less characteristic feature. Cultural reasons and relatively large actual and perceived difficulties in setting up a business seem to deter people from becoming entrepreneurs in several Member States. Tax levels on self-employment and small businesses appear to be decreasing and steps have been taken towards removing tax burdens from potential self-employed, and several Member States are making concerted and sustained efforts to promote female entrepreneurship.

The positive developments in education for entrepreneurship need to be strengthened. The education of potential and existing entrepreneurs sees a wide number of initiatives by most Member States. Promoting entrepreneurship within the education system is an important development towards overcoming the cultural and attitudinal blocks against self-employment but efforts need to be intensified and structured, and emphasis placed on training of teachers. Member States offer a diverse spectrum of training opportunities for entrepreneurs and potential entrepreneurs outside and, to varying degrees, inside the education system. Such opportunities have been created by various institutions, business support organisations and professional organisations, but need to be better targeted to the needs of users, particularly with regard to sources of financial support while paying more attention to training opportunities for women and young people.

Despite the slowdown in the employment growth of the services sector, its full potential needs to be exploited with particular emphasis on knowledge-based services. The employment of the services sector continued to increase in 2001 but at a lower pace, 1% at EU average, which is below the overall employment growth (1.2%). The growth rate was higher for women than for men in most Member States. The employment rate in services increased throughout the period 1997-2001 by almost 4 percentage points to 44.4% in 2001. This rate is slightly higher for women (45.6%) than for men (43%). Only few Member States have detailed their efforts in the removal of barriers to the provision of services (Denmark, Germany), but most of them are concentrating on investment in knowledge-based services. This concerns not only support in the start-up phase, but also support to existing enterprises with a view to developing their activities, to boost innovation and to create new job opportunities. A range of new initiatives promoted in several Member States aim at creating job opportunities in knowledge-based services and in the environmental domain. Some Member States have intensified their efforts to increase employment in the environmental sector (Austria, Belgium, Denmark, Germany).

Some progress has been made in combating undeclared work but efforts need to be strengthened and the monitoring and reporting of implementation improved. Member States are addressing undeclared work through general labour market reforms. Their efforts concentrate on: simplifying procedures for the declaration of new jobs, increased inspection and control campaigns; combining job incentives with sanctions, including measures to combat tax and social insurance fraud; reduction of the VAT rate in labour-intensive services enabling more equal competition with the same services provided through the informal economy; and developing legislation to control the undeclared or illegal work of immigrants. Most Member States have implemented or announced new initiatives in these areas (the United Kingdom, Portugal, Italy, Germany, France, Austria, Belgium, Spain, the Netherlands and Greece). More needs to be done by pursuing co-ordinated efforts involving all services concerned in close co-operation with the social partners.

Despite reductions the tax burden on labour remains high

Key facts on taxation in the EU

* The overall tax burden in the EU, measured by the ratio of total tax revenues to GDP, increased from 41.5% in 1996 to 41.9% in 1999, with a tendency to decline in 2001 just below its 1996 level (41.3%).

* The adjusted implicit tax rate [20] on labour which relates to the evolution in the overall tax burden on wages in the EU, after reaching its peak of nearly 37.8% in 1998 was subsequently reduced by 1 percentage point to about 36.8% in 2001.

[20] The adjusted implicit tax rate is defined as the total of direct- and indirect taxes on labour income (personal labour income tax plus payroll taxes)plus employees' and employers' SSC as a percentage of total labour costs, including pay roll taxes. It is a backward looking empirical measure of the actual tax burden on labour income and therefore relies on the observed aggregate data on tax revenues and incomes.

* The reduction in the tax burden on low-paid labour appears to be more significant. An EU average tax reduction of 3 percentage points over the period 1997-2001, to 37.8% in 2001, being observed for all Member States although to varying degrees.

The general tax environment should favour enterprise and encourage risk taking. The overall tax burden increased over the period 1996-1999. Thereafter the trend was reversed for many Member States. Nevertheless, in several of them (Sweden, Denmark, Belgium, Finland, France and Austria) the tax rate remains high, exceeding 45% of GDP.

Positive developments in reducing the tax burden on labour are observed in all Member States. Most Member States are committed to the objective of reducing the tax burden on labour, failing though to set national targets. The tax burden on labour, as measured by the adjusted implicit tax rate on labour, was reduced [21] in the EU by 1 percentage point between 1996-2001, to 36.8% in 2001, mainly through reductions in social security contributions (SSC). The reduction in labour taxes is most visible for the low-paid (about 3 percentage points), as measured by the tax wedge on labour for the single worker earning 67% of the average production worker (APW) wage.

[21] The figures for the implicit tax rate are based on National Accounts and additional estimates provided by the Member States (source: Commission services, DG TAXUD). The "tax wedge" on labour measures the difference between the wage costs incurred by the employer and the net pay received by the employee for a single worker earning 67% of the average production worker's wage (source: OECD in co-operation with Member States). The data is based on tax indices that are constructed for hypothetical households.

Graph 3: Adjusted implicit tax rate on employed labour

>REFERENCE TO A GRAPHIC>

Source: Eurostat, the structure of the taxation systems in the EU', updated by the Commission Services, DG TAXUD.

The picture by Member State is very uneven with substantial shifts in the composition of the tax wedge on labour in recent years. Ireland and Italy recorded the highest cuts in the total tax wedge followed by the United Kingdom, Finland and France. Over the period 1997-2001, most Member States have reduced the tax wedge on low- and/or average wage earners.

Most Member States report significant reductions in personal income tax and social security contributions in 2001-2002, as part of their tax reforms to reduce the tax burden on labour (France, the Netherlands, Ireland, Denmark, Finland, Sweden, Germany, the United Kingdom, Luxembourg and Belgium). Reductions in the statutory income tax rates have been an important device. Several Member States have at the same time raised the minimum exemption thresholds. Most Member States give priority to reductions for the low-paid, e.g. special tax liability credits or tax base deductions on labour were introduced in many Member States (Belgium, France, Finland, Sweden, Ireland, the United Kingdom and the Netherlands [22]). These instruments operate in the sense that the tax reductions normally phase in for low-income workers, and subsequently phase out for higher incomes. Targeted reductions in SSC (mainly employers' contributions) have also been introduced particularly for the low-paid, for hiring new staff and for the long-term unemployed, for keeping older workers on the payroll, school leavers (Belgium, Greece, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Sweden, Denmark and Portugal).

[22] The Netherlands is the exception to the rule that the tax credit phases out for higher incomes.

Graph 4: Tax rate for a single person on 67% of the APW

>REFERENCE TO A GRAPHIC>

Source: OECD, "Taxing wages-taxes on wages and salaries, social security contributions for employees and their employers, child benefits", calculations by the Commission Services based on OECD database 1996-2001.

Given the fact that the tax burden on labour has been continuously increasing since the early 1970s in most Member States, the recent reversal of the trend in the tax burden on labour in most Member States is a significant result. However, despite this positive development labour taxes still remain high in a number of Member States, particularly in comparison to labour taxes in the USA and Japan. This underlines the need to step up efforts on reducing the tax burden for the low-paid and on striking a balance in the mix of the various tax measures, taking account of the labour market specificities.

The tax incentives for raising investment in human resources need to be strengthened. The tax reforms undertaken by Member States are intended not only to promote jobs but also to eliminate financial barriers to training for both the enterprise and the individual. An increasing number of Member States are promoting investment in human capital through tax incentives to enterprises encouraging training (Spain, Austria, the Netherlands, Sweden, the United Kingdom). Some Member States promote non tax-related measures to encourage training for the individual or the enterprise, re-allocation of green tax revenues to individual's skills development or innovative funding mechanisms focused on individuals such as skills bonus linked to skills savings accounts (Sweden) and tax credits (the United Kingdom). However, as the geographical mobility of workers and their tendency to change employer more often increases, enterprises are discouraged from undertaking training initiatives.

Little progress is made in shifting taxes from labour income to alternative sources. Some Member States (Denmark, Germany, Netherlands, Sweden and the United Kingdom) have introduced or raised green taxes, particularly energy taxes, to meet primarily environmental objectives rather than counterbalancing labour tax reductions. Several Member States continue to implement tax measures contributing to shifting the (indirect) tax burden away from labour intensive services through reduced VAT rates on such services (Belgium, Spain, France, Italy, Luxembourg, the Netherlands, Portugal and the United Kingdom). This provision initiated in 2000 for a 3-year period is to be extended for one more year, up to 2003, to allow the Commission to evaluate its effectiveness on the basis of national reports and allow a decision to be made for its extension to other Member States or its abolition.

The development of a territorial dimension of the EES has entered a phase of consolidation

Local employment strategies must be framed in accordance with the specific circumstances prevailing in the local situation. Member States have continued to implement measures and policy changes initiated earlier and only few have introduced new measures on local and regional actions for employment. There is a growing tendency towards decentralisation of employment policies, in many cases influenced by the European Employment Strategy and the Structural Funds. The need for a more strategic approach in developing employment at local level seems to be widely accepted, and this is increasingly reflected in the NAPs. Such an approach calls for increased coherence and more rigorous design and evaluation of territorial employment policies.

The regional action plans have been further developed and are in place in four Member States (Belgium, Portugal, Spain and the United Kingdom). In Finland, from 2002 onwards regional plans will be integrated into the NAPs, with ministries and their respective regional bodies negotiating annual targets and resources for the regions. The Territorial Employment Pacts remain important instruments for the implementation of employment policies at local/ regional level in some Member States (Italy, Portugal, Austria).

The partnership approach needs to be strengthened. Participation of local and regional authorities in the NAP process is, in most Member States, limited to the implementation phase. The NAPs are prepared primarily by the central government in consultation, but rarely in partnership with other actors. There is a growing interest in Member States in the role of territorially-based, integrated strategies, and in partnerships as instruments of active labour market policy; strategic partnerships at the local level are often mentioned, but are rarely described in detail, and often the partnerships mentioned are linked with Structural Funds programmes. The ongoing processes of decentralisation of Public Employment Services imply increased flexibility at local level and autonomy in as much as they can increasingly select measures or instruments, decided at national or regional levels, to match local needs. The role of social partners in employment creation at local level is not discussed in detail and other potential actors are mentioned even more briefly, mainly in the context of the social economy.

2.2.3. Adaptability

Actions under this pillar of the European Employment Strategy focus on the joint efforts of governments and social partners, through a partnership approach, to improve the level and quality of employment via an adaptation of work organisation and the implementation of lifelong learning strategies at enterprise level. These actions aim at increasing the capacity of the labour market and its actors to adapt to structural change, notably by making enterprises adaptable, reducing barriers to employment and providing the appropriate balance of flexibility and security. In addition to broadening of the scope of the Employment Guidelines in 2001, notably in respect of health and safety at work and in terms of a target for information society literacy to be achieved by 2003, the Guidelines in 2002 specifically insist on a contribution to improvements in quality in work in the context of the modernisation of work organisation.

Steps towards an improved balance between flexibility and security

Flexibility and security: building on synergies

As the notions of flexibility and security themselves evolve to reflect changes in our societies, the concept of a balance between both - which is essential to the adaptability pillar - needs to be better explored.

* Flexibility, or the capacity for firms to adjust to market demand, can take many forms in relation to employment. External flexibility in terms of the capacity to "hire and fire" (including the use of temporary or fixed term contracts) constitutes an immediate reaction and allows firms to adapt to unforeseen circumstances and changing trends such as changing demands or skill requirements and allows firms to adjust their production quickly. Internal flexibility, implying re-organisation of the existing workforce (working time, working methods, training, mobility) constitutes a longer term approach to managing change and to the development of skills and competencies, with clear advantages in terms of productivity and capacity to adjust. These forms of flexibility are complementary and each has its specific advantages and costs for individuals, firms and society.

* Security, under a static approach, is focussed on the stability of the working relationship and the availability of a safety net in case of job loss. In a more dynamic perspective, security encompasses non-discrimination between forms of working contracts and arrangements, and the acquisition and preservation of employability, so as to facilitate adaptation to change and mobility within and between jobs. In this light, access to training and career development are essential aspects of job security.

Flexibility and security can be designed in a mutually re-inforcing way. A proper balance fosters the acceptance of innovation and change, as well as diversity on the labour market. It is an important component of quality at work. It serves the interests both of employers and workers.

Along with the moderate increase in part-time work and fixed-term contracts (see box below), the long-standing trend towards the increased flexibility of working time arrangements continued in 2001. In Germany, Greece, Austria, Italy, Luxembourg and Belgium working time corridors and extended periods to calculate average working time have been implemented in a large number of collective agreements. Legal and collective actions to reduce overtime are being undertaken in Luxembourg, Belgium, Germany, Greece and Austria. The reduction in working hours initiated in France and Belgium has be