EUROPEAN COMMISSION Brussels,22.11.2017 COM(2017) 674 final DRAFT JOINT EMPLOYMENT REPORT

FROM THE COMMISSION AND THE COUNCIL

accompanying the Communication from the Commission on the

Annual Growth Survey 2018



TABLE OF CONTENTS FOREWORD KEY MESSAGES 1. OVERVIEW OF LABOUR MARKET AND SOCIAL TRENDS AND CHALLENGES IN THE EUROPEAN UNION 1.1 Labour market trends 1.2 Social trends 2. SNAPSHOTS FROM THE SOCIAL SCOREBOARD 2.1 The scoreboard explained 2.2 Evidence from the social scoreboard 3. EMPLOYMENT AND SOCIAL REFORMS – MEMBER STATES PERFORMANCE AND ACTION 3.1 Guideline 5: Boosting demand for labour 3.1.1 Key indicators 3.1.2 Policy response 3.2 Guideline 6: Enhancing labour supply, skills and competences 3.2.1 Key indicators 3.2.2 Policy response 3.3 Guideline 7: Enhancing the functioning of labour markets 3.3.1 Key indicators

3.3.2 Policy response 3.4 Fostering social inclusion, combatting poverty and promoting equal opportunities 3.4.1 Key indicators 3.4.2 Policy response ANNEXES



FOREWORD The Joint Employment Report (JER) is mandated by Article 148 of the Treaty on the Functioning of the European Union (TFEU). It is part of the Autumn package, which includes the Annual Growth Survey launching the European Semester cycle. The Joint Employment Report provides an annual overview of key employment and social developments in Europe as well as Member States' reform actions, in line with the Guidelines for the Employment Policies of the Member States. The reporting on these reforms follows the structure of the Guidelines: boosting demand for labour (Guideline 5), enhancing labour supply, skills and competences (Guideline 6), enhancing the functioning of labour markets (Guideline 7), and fostering social inclusion, combatting poverty and promoting equal opportunities (Guideline 8). In addition, the Joint Employment Report 2018 monitors Member States' performance in relation to the European Pillar of Social Rights. The Pillar, signed as an inter-institutional Proclamation by the European Parliament, the Council and the Commission on 17 November 2017, identifies principles and rights in three areas: i) equal opportunities and access to the labour market, ii) fair working conditions, and iii) social protection and inclusion. Monitoring of progress in these areas is underpinned, in particular, by a detailed analysis of the Social Scoreboard accompanying the Pillar. The Joint Employment Report is structured as follows: an introductory chapter (Chapter 1) reports on main labour market and social trends in the European Union to set the scene. Chapter 2 presents the main results from the analysis of the social scoreboard associated to the European Pillar of Social Rights. Chapter 3 provides a detailed cross-country description of key indicators (including from the social scoreboard) and policies implemented by Member States to address the Guidelines for Employment Policies.



KEY MESSAGES The following key messages emerge from the analysis in the Report: The economic expansion, which now has reached all Member States, is accompanied by steady improvements in the labour market and social situation. On average for the EU, 11 out of the 14 social scoreboard indicators, monitoring progress on the European Pillar of Social Rights, recorded an improvement over the last year. Of the remaining three, two remained broadly unchanged and only one (impact of social transfers on poverty reduction) slightly deteriorated, though with very differentiated patterns at country level. Overall, this evidence points to ongoing progress with respect to the Pillar's three chapters, supported by the strong recovery and by recent reform efforts. Still, challenges on specific principles of the Pillar are identified for a majority of Member States, as highlighted in the body of the report. These will also be subject of an in-depth analysis in the European Semester Country Reports. Job creation has picked up and employment continues to expand at a firm pace. In the second quarter of 2017 some 235.4 million persons were in employment in the EU (156 million in the euro area), the highest level ever recorded. Employment exceeds its pre-crisis peak in 2008 by 1.7%. Compared to the lowest level in mid-2013, 11 million more people are now in employment in the EU. At the current pace, and with an employment rate of 72.2% in the second quarter of 2017, the Europe2020 target of 75% for the employment rate may be within reach. The main labour market indicators have strengthened across the board. The unemployment rate has continued the decline observed since mid-2013. In August 2017, it decreased to 7.6 % in the EU (and 9.1% in the euro area), the lowest level in the EU since December 2008 (February 2009 in the euro area), approaching its low of 6.8 % in March 2008. Youth unemployment and long-term unemployment also continued to decline at a steady pace. Activity rates, which never fell throughout the crisis, keep increasing in almost all Member States. While all Member States show improvements, very substantial differences can be observed. The unemployment rate ranges from 3.1 % in the Czech Republic and 3.8% in Germany to 17.3 % in Spain and 21.6 % in Greece (Q2-2017). The employment rate ranges from 57.7 % in Greece and 62.1 % in Italy to 79.3 % in Germany and 82 % in Sweden (Q2-2017). In many Member States, employment rates have still some way to go to recover from the crisis and notably also to attain the Europe 2020 national targets. Underutilisation of the labour force is falling but remains sizeable even in countries where unemployment is low. During the recovery the total number of hours worked has increased at a significantly slower rate than employment levels. Importantly, hours worked per employed person are holding stable about 3% below the pre-crisis level. Furthermore, (involuntary) part-time remains high, though full-time employment has increased in 2016. While the recovery is boosting the creation of both permanent and temporary jobs, the share of fixed-term employees remains stable (at around 14%) in the EU. The combination of high shares of fixed-term contracts and low transition rates towards permanent jobs points to labour market segmentation in a number of Member States. Self-employment increased only marginally (by 0.3%) in 2016, with a faster increase among self-employed without employees. Despite the improvements in the labour market, wage growth remains subdued in most countries. The overall modest wage dynamics can be explained by the remaining slack in the labour market, weak productivity growth and low inflation expectations. In addition, in the period 2014 to 2016, real wage growth lagged behind productivity growth. This is a long-term trend: in the EU, from 2000 to 2016, real productivity per person employed grew by 14.3%, while real compensation per employee grew by 10.2%. Several Member States have taken steps to enhance the predictability of the wage setting system, with the involvement of social partners. They have made changes to improve the responsiveness of the wage setting system to economic conditions. Also the processes governing minimum wage developments have been part of this development. It is important that wages are set in a predictable way providing for a decent standard of living, respecting the autonomy of the social partners. Minimum wages, in particular, should be adjusted through a transparent system, with the double aim of preventing in-work poverty whilst safeguarding access to employment and incentives to seek work. Medium-term responsiveness to productivity developments is important in this context.

In line with the labour market upturn there is a general improvement in the financial situation of households. Household disposable income continued to rise at a steady pace. It has now reached the 2009 peak for the EU. Higher job creation and resulting increases in labour incomes were the main contributors to the observed increase. Improvements can be seen in nearly all Member States. However, in a number of Member States household disposable income has not yet reached the pre-crisis levels. Increasing labour market participation, employment rates, and productivity is an imperative in view of demographic change. Ongoing ageing of our societies implies more pressure on younger generations – those same generations who experience also a more difficult access to stable, quality jobs – in order to guarantee sufficient revenues to the pension systems and ensure their sustainability. At the same time, it makes longer working lives a necessity and puts pressure on pension benefits in the future. In broader terms, it risks affecting the "social contract" across generations, potentially creating a generational divide and putting intergenerational fairness into question. Increasing employment rates, participation and productivity to contain these impacts is therefore vital at the current juncture. Recent gains in employment have not been evenly distributed among different population groups. The gap in employment rates between low-skilled and high-skilled workers is large (31 pps), underlining the need to invest in skills to better respond to changing labour market needs. Significant differences remain in the returns on education and training across Member States, showing the potential benefits of further reforms. The employment rate of young people, although recovering, is almost 4 percentage points below the pre-crisis level. Similarly, the employment rate of migrants (non-EU born) has been recovering more slowly than for other groups, and has not yet returned to pre-crisis level. In addition, people with a disability are less likely to be employed than those without disability, although their situation has improved. On the positive side, the employment rates of women and older workers continue to increase, but significant challenges remain for both groups. While the employment rate of women reached another record high, they continue to be underrepresented in the labour market and face a significant pay differential. Women tend to outperform men in terms of educational attainment, but their employment rate is still 11 pps below that of men, even if it has consistently increased. Again, this varies considerably across the EU. The employment gap is especially high for mothers and women with caring responsibilities. This is compounded by financial disincentives faced by women when entering the labour market or wanting to work more. A strong albeit narrowing gender gap in pay persists in the EU, with the average gross hourly earnings of male employees about 16 % higher than those of female employees in 2015. This gap is largely due to an underrepresentation of women in well-paid sectors and occupations, including management and supervisory positions, reflecting to some extent discrimination in the labour market. At the same time, women are more likely to take time off work to take care of dependent family members or relatives. In addition, more part-time work combined with shorter and more discontinuous careers often translates into lower pensions for women. This indicates that a comprehensive integration of work-life balance considerations into policy making is needed. Some Member States are taking further action to ensure access to affordable and quality childcare and other care services, leave and flexible working time arrangements, and reduce existing disincentives to work in tax and benefit systems (notably for second earners). These actions, jointly with the implementation of anti-discrimination practices, play a key role towards equal treatment of women. In turn, they support upward social mobility, foster equal opportunities and reduce inequality and poverty, with benefits extending across generations, in line with the objectives of the Social Pillar. Older workers are staying increasingly longer in the labour market. Their employment rate has increased after the crisis for all age-groups 55+ (but with large variations across Member States), and continues rising. The last wave of pension reforms, which increased retirement age in most Member States, and the availability of more flexible working arrangements, are some of the drivers of this trend. However, the availability of appropriate work-life balance policies and the support to age management, including the modernisation of working environments, is crucial to accompany this process. In this respect, some countries are promoting longer working lives by allowing more flexible transitions into retirement and combining pension with income from work. Tackling youth and long-term unemployment remains a priority. While steadily declining, the youth unemployment rate is still 17 % (Q2-2017) and is a key challenge in a number of countries. The same goes for the share of those not in employment, education or training (NEET). Long-term unemployment remains very high in some Member States and accounts for almost 50% of total unemployment. A high duration of unemployment implies a depreciation of skills, low attachment to the labour market and ultimately a high risk of poverty and social exclusion. Moreover, it risks turning cyclical unemployment into structural, with negative consequences on potential growth. Actions taken by Member States in line with the Council Recommendation of February 2016 on the integration of long-term unemployment and with the Youth Guarantee can be key drivers for improvement. Guaranteeing access to quality and inclusive education, and improving investment in national education systems and skills are key in enabling people to become engaged and active citizens, and in facilitating transitions into and within the labour market. If progress continues at the current pace, Europe is on track towards reaching the 2020 targets on both early school leaving and tertiary education attainment. Member States are taking action to modernise their education systems, notably with a view to prevent early school leaving and tackle low proficiency in basic skills, especially by closing the educational gap of disadvantaged learners. Specific measures are being introduced, in some cases, to encourage the integration of migrants into education. Improving the labour market relevance of higher education is also high in the agendas. In line with the New Skills Agenda for Europe, National Coalitions for Digital Skills and Jobs have been launched in numerous Member States in order to foster investment in digital skills. With frequent support of social partners and other stakeholders, Member States are improving the quality of vocational education and training, apprenticeships and mechanisms for validation of skills acquired outside the formal system. Good labour market functioning, the creation of quality jobs, promotion of entrepreneurship and higher participation in the labour market can be supported by properly combining flexibility and security, on the job and during transitions. Promoting job creation on permanent contracts, ensuring that temporary contracts represent stepping stones and not dead-ends, easing transitions across jobs and enabling entrepreneurs to scale up are key purposes. Member States are taking steps to achieve a balanced policy response in this domain, notably by making the legislative framework for dismissals clearer and more predictable, and by recognizing the need for effective social protection systems adapted to more diverse needs and circumstances, especially as a response to new forms of work. Still, the degree of coverage and adequacy of unemployment and other benefits and services differs considerably across Member States. In this context, effective active labour market policies enabling smooth transitions across jobs appear very important for dealing with the challenges posed by globalisation and digital change. Along with the economic and labour market recovery, the proportion of people at-risk-of poverty or social exclusion continued to decrease in 2016 and has reached its 2008 level. The reduction is mostly due to a fall in the share of low work intensity households and in lower material deprivation rates, while the (monetary) at-risk-of-poverty rate has stabilised. While declining, the total number of people at risk of poverty or social exclusion remains at a very high level – 118 million people or 23.5% of the total population in 2016, which is far off-track in reaching the Europe 2020 poverty and social exclusion target. Income inequality has slightly decreased in the EU, after increasing in the aftermath of the crisis. The richest 20% of the population had a disposable income that was around five times higher than that of the poorest 20% in 2016, with large disparities across countries (and an increase in inequality in some). The persistence of relatively large income inequalities, often linked to inequal opportunities in access to education, training and social protection, and reflecting poor labour market outcomes, raises concerns in terms of fairness, social inclusion and sustainable growth. Member States continue to modernise social protection systems, by improving coverage and adequacy of benefits and services, notably for non-standard workers, and actively encourage labour market participation. In line with the European Pillar of Social Rights principles, some Member States extended eligibility for social security schemes (including parental leave, unemployment and sickness benefits) to self-employed and free-lance workers, previously not covered. Nationwide minimum income support measures were introduced for the first time in two countries, Greece and Italy. Actions are also being taken to strengthen the activation of benefits recipients, for instance by making participation into active labour market policies compulsory and/or by improving individualised services. In this regard, it is important to ensure the effective access of all workers including self-employed to social protection schemes, and improve the coordination between employment and social services, including through the creation of one-stop-shops, in order better to target those in need and support, with quality services, their (re)integration in the labour market. Tax and benefit systems play an important role in reducing the impact on poverty and inequality, but the measured impact of social transfers (excluding pensions) on the risk of poverty was still slightly declining in 2016. This development, which does not yet take into account latest reforms to enhance social safety, hides different developments at country level. In particular, it may reflect changes in benefits adequacy and coverage, lack of indexation (in a context of generally increasing incomes), as well as changes in the composition of households (and related characteristics of those at risk of poverty). To tackle inequalities and reduce poverty, including by breaking their transmission across generations, Member States can take further action in different areas, including by improving the design of tax and benefits systems, fostering equal opportunies in education and training, ensuring access to quality healthcare, and promoting gender equality amongst others. Safeguarding pension adequacy, whilst ensuring the financial sustainability of social security systems, remains a priority. Most recent reforms often feature measures to improve adequacy, notably of lower pensions. In particular, a number of countries took measures to raise minimum pensions or reduce the tax burden on lower pension incomes. Strengthening supplementary pensions and other forms of retirement savings could also play a positive role to improve adequacy in some Member States. In the context of demographic change, pension reforms that may lead to earlier exit from the labour market, thus endangering the sustainability and adequacy of pensions, should be avoided. In this respect and in the light of the persisting pension gap between men and women and the increased risk of poverty for elderly women, measures to ensure the alignement of the retirement age for both genders are essential in some Member States. Equal and timely access to quality health and long term care, as well as effective health promotion and disease prevention, are key to foster a healthy and active population and achieve economic prosperity. In a number of Member States healthcare reforms have been implemented to encourage the provision of and access to effective primary health care services; to enshrine promotion of good health and prevention of diseases in primary care; to streamline and increase the sustainability of specialist and hospital care; and to improve the access to affordable medicines used in a cost-effective way, in line with Member States' competence. Some Member States are also taking steps to improve the efficiency and quality of long-term care services. This should promote social inclusion and reduce obstacles to labour market participation for family carers, especially women. A well-functioning social dialogue is key for achieving social fairness while ensuring economic performance. Social dialogue plays a central role in reinforcing social rights and enhancing sustainable and inclusive growth. The degree and impact of social partners' involvement in the design and implementation of relevant reforms varies considerably among EU countries. This is largely due to a diversity of practices and institutional settings in the different Member States, and to varying social partners' capacities and contributions. Whereas there is no single model that serves as a reference, it is important that social partners are actively involved at all stages of policy-making and implementation, in line with the European Pillar of Social Rights.

1. OVERVIEW OF LABOUR MARKET AND SOCIAL TRENDS AND CHALLENGES IN THE EUROPEAN UNION This section presents an overview of labour market and social trends and challenges in the European Union, providing a detailed analytical account of major employment and social policy areas.

1.1 Labour market trends European Union labour market conditions significantly improved in 2016 and the first half of 2017, with substantial progress towards the Europe 2020 strategy employment rate target. The employment rate (20-64) recorded the largest increase after the crisis, by 1 percentage point to 71.1% in 2016. It continued rising in the first half of 2017, to 72.2% in Q2-2017, the highest level ever reached in the EU. At the same time, the number of people in employment amounted to 235.4 million in Q2-2017, 3.5 million jobs more than one year before. If the employment rate continues increasing at the current pace, the Europe 2020 strategy employment target of 75% would be broadly within reach. The situation improved substantially also in the euro area, where the employment rate attained its highest level at 70.9% in Q2-2017. The employment recovery is supported by a steady increase in labour market participation, with the activity rate (15-64) having achieved a record level at 73.4% in Q2-2017 (73% in the euro area). The continuous increase in employment translated into a continuous drop in the unemployment rate (15-74), which reached 7.7% in Q2-2017 (9.2% in the euro area), slowly approaching the pre-crisis level. This is all the more positive considering that more people who were previously inactive joined the labour market and increased the size of the labour force (including more job-seekers). Youth and long-term unemployment have been decreasing quickly. While still high (particularly so in some Member States), the youth unemployment rate dropped by almost 2 pps year-on-year, to 17% in Q2-2017 (19.1% in the euro area). It is now about 7 pps below the peak of 23.9% reached in Q1-2013. The long-term unemployment rate (i.e. unemployed for more than 12 months as a share of the active population) followed a similar trend, declining by 0.6 pps year-on-year to 3.4% in Q2-2017 (4.7% in the euro area). The share of long-term unemployment among total unemployment is also falling but remains high at 45.6% (49.7% in the euro area) and surpasses 50% in some Member States. Moreover, the very long-term unemployment rate (i.e. considering those unemployed for more than 24 months) is only declining slowly, which increases the risk that it becomes entrenched. Source: Eurostat, LFS. The recovery in employment and the decline in unemployment have been surprisingly strong given the steady but moderate GDP growth. This trend emerged clearly during the last two years, both in the EU and the euro area. However, subdued growth in hours worked per employed person points to some remaining slack in the labour market as they remain about 3% below the pre-crisis level in the EU (Figure 2) and about 4% in the euro area. Increases in part-time work and, to a smaller extent, reductions in the hours of full-time workers have contributed to this development. Nonetheless, over 2016 full-time employment grew faster than part-time (as shown later in this section). Source: Eurostat, National accounts (DG EMPL calculations). Employment growth has been stronger among older workers. As shown in Figure 3, the largest increase in employment figures in the EU, by 4.6% in 2016, was recorded by older workers (aged 55-64). This adds up to a continuously rising employment rate for this group in the post-crisis period, from 45.5% in 2008 to 55.3% in 2016, and a corresponding rise in the activity rate (to 59.1% in 2016). This trend reflects ongoing reforms of national pension systems, with a view to improve their sustainability and increase labour supply in a context of demographic change (including increasing life expectancy). As in 2015, employment growth was comparatively lower among young (15-24) and prime age (25-54) workers, though quicker for the former group (1.3% vs 0.8%). In view of a stable activity rate (at 41.5% both in 2015 and 2016), steady job creation among young people contributed to the decrease in youth unemployment. Employment growth was comparable across genders, as already in 2015. Employment of both men and women increased by 1.4% over 2016. This means that whereas employment rates increased for both groups (by 1 pp to respectively 76.9% and 65.3%) the gender employment gap remained unaffected. While rising across all education levels, employment increased the most among higher-educated workers. Indeed, the number of people with higher education in employment increased by 3.1% in 2016 (age group 25-64). Medium- (i.e. with upper secondary education) and low-skilled (with lower secondary education or below) workers recorded a comparatively lower increase by 0.4% and 0.9% respectively. Detailed trends by Member States are provided in the following sections of the report.

Source: Eurostat, LFS. The recovery is boosting both permanent and temporary jobs, with increasingly full-time work schedules. In absolute terms, the increase in the number of employees on permanent contracts in 2016 exceeded that of employees on temporary contracts (2.7 million vs. 0.6 million), though in percentage terms the increase was larger for the latter. The share of temporary employees over total employees remained stable at 14.2% (more details in Section 3.3.1). Self-employment increased only marginally (by 0.3%) in 2016, with a faster increase among self-employed without employees (more details in Section 3.1.1). As mentioned earlier in the chapter, since the onset of the crisis the number of part-time workers has increased substantially (by around 11% compared to 2008), while full-time employment has dropped (by 2%). Nonetheless, this trend might be on the verge of changing, as in 2016 proportionally more full-time than part-time jobs were created (the same had occurred only once since 2008, in 2014). In addition, the share of involuntary part-time has decreased in 2016, from 29.1% to 27.7%. In line with the trend of recent years, most job creation occurred in services (+1.7%). Industry and construction also showed good growth (both with +1%). In construction, employment growth showed a positive sign for the first year since 2008 – though compared to that year, there are still 18% fewer people employed in the sector. Jobs in agriculture continued to fall, following a long-term trend, by 4% in 2016. 1.2 Social trends Improved labour market conditions have brought general improvements in the financial situation of households. The real Gross Disposable Household Income (GDHI), which measures household market income adjusted for taxes and social transfers, increased for a third consecutive year in 2016 and has reached the previous peak of 2009. Quarterly data indicate a stable increase of around 2% on yearly basis in 2016. Growth continued in the first quarter of 2017, though at a slower pace. Recent growth is driven by higher incomes from work, with compensation of the self-employed and especially employees increasing at a firm pace. This mostly reflects higher employment rates, and to a lesser extent wage increases. Increases in social benefits also raised the disposable income of households, but their contribution to overall GDHI growth has decreased in the second half of 2016. Property incomes and other income contributions have remained stable in the past years, while higher social contributions and taxes had a negative contribution to GDHI growth. The improved income situation of households has reduced the number of people at risk of poverty or social exclusion (AROPE). This indicator continued to improve for a fourth consecutive year in 2016, dropping to 23.5% (from 23.8% one year earlier), and is now approaching its lowest level of 23.3% in 2009. Still, progress towards achieving the Europe 2020 strategy headline target – of lifting at least 20 million people out of poverty compared to 2008 – remains insufficient. Around 118 million people were at risk of poverty or social exclusion in 2016, i.e. about 700,000 more than in 2008. The risk was more prevalent among certain groups: children (aged 0-17, 26.4%), young people (aged 18-24, 30.5%) as well as people with at most lower secondary level education (34.9%) and people with disabilities (aged 16+, 29.9%). Two-thirds of the unemployed were also at risk of poverty or social exclusion in 2016. Non-EU born people tend to face higher risks of poverty or social exclusion (39.1% in 2015). Conversely, elderly people (age 65+) remain relatively better protected (with a slight deterioration, from 17.4% in 2015 to 18.3% in 2016). Source: Eurostat, SILC. Note: EU27 in this graph equals EU minus Croatia (only available since 2010). Looking at sub-components of the AROPE, monetary poverty remains the most relevant challenge. The number of people at risk of poverty (AROP) rose for several years following the crisis, driven by the weak economic and labour market situation until mid-2014, reaching a peak of 87 million in 2016. However, as a share of the population, the number of people at risk of poverty has stabilised in 2015 and 2016 (17.3% in both years), thanks to the recovery and improving labour market conditions. Still, it remains above the pre-crisis level of 16.4% in 2009. Flash estimates for income year 2016 suggest that monetary poverty further stabilised in most Member States. The number of people suffering from severe material deprivation (SMD) has been declining since 2013, and in 2016 reached the lowest level ever recorded (37.8 million). This figure amounts to 7.5% of the EU population (from 8.1% in 2015). Its decrease, reflecting a fall in absolute poverty, is the main driver behind the reduced number of people at risk of poverty or social exclusion. The improved labour market situation led to a decrease in the share of people living in (quasi) jobless households. This share amounted to 10.4% (or 38.8 million) in 2016, declining from the 2014 peak of 11.2%. However, over a longer time horizon, it remains elevated compared to 2008 (9.2%). In-work poverty risk has remained on an increasing trend (started with the crisis), affecting 9.6% of the working age population in 2016. This value remains above its lowest level of 8.3% in 2010, and correspnds to over 32 million workers at risk of poverty. Although crucial in bringing down the risk of poverty, employment alone is not always sufficient to lift people out of poverty. Increases in non-standard forms of employment and employment polarisation may impact future results for this indicator. Income inequality started slowly declining in 2016, after having increased in the aftermath of the crisis. The income quintile share ratio (i.e. the ratio of total income received by the 20% of the population with the highest income to that received by the 20 % of the population with the lowest income) slightly receded from 5.2 in 2015 to 5.1 in 2016, after increasing from 4.9 in 2009. This modest development reflects the improved economic and labour market conditions. Nonetheless, the average EU indicator on income inequality hides considerable variation across countries (see Section 3.4).





2. SNAPSHOTS FROM THE SOCIAL SCOREBOARD The European Pillar of Social Rights, signed as an inter-institutional Proclamation by the European Parliament, the Council and the Commission on 17 November 2017, sets out a number of key principles and rights to support fair and well-functioning labour markets and welfare systems. It is designed as a compass for a renewed process of convergence among Member States towards better working and living conditions. The European Pillar of Social Rights is accompanied by a new social scoreboard to monitor performances and track trends across the Member States. This edition of the Joint Employment Report presents the results from the social scoreboard, which replaces the scoreboard of key employment and social indicators agreed in 2013. The new scoreboard provides a number of Headline Indicators to screen the employment and social performance of Member States along three broad dimensions, identified in the context of the Pillar: (i) equal opportunities and access to the labour market, (ii) dynamic labour markets and fair working conditions, and (iii) public support / social protection and inclusion. This analysis is placed in the broader reform context presented in Chapter 3. 2.1 The scoreboard explained The social scoreboard will be a central tool for monitoring convergence towards better working and living conditions. It notably consists of the following 14 headline indicators that assess employment and social trends at large : -Equal opportunities and access to the labour market: 1.Share of early leavers from education and training, age 18-24 2.Gender gap in employment rate, age 20-64 3.Income inequality measured as quintile share ratio - S80/S20 4.At-risk-of-poverty or social exclusion rate (AROPE) 5.Young people neither in employment nor in education or training (NEET rate), age 15-24 -Dynamic labour markets and fair working conditions: 6.Employment rate, age 20-64 7.Unemployment rate, age 15-74 8.Participants in active labour market policies per 100 persons wanting to work 9.Gross disposable income of households in real terms, per capita 10.Compensation of employees per hour worked, in euro -Public support / Social protection and inclusion: 11.Impact of social transfers (other than pensions) on poverty reduction

12.Children aged less than 3 years in formal childcare 13.Self-reported unmet need for medical care 14.Share of population with basic overall digital skills or above. The common methodology used to analyse the Scoreboard has been agreed by the Employment Committee and the Social Protection Committee (see Annex 3 for details). It evaluates the situation and developments in Member States by looking at levels and yearly changes of each of the headline indicators included in the social scoreboard. Levels and changes are classified according to their distance from the respective (unweighted) EU averages. Member States' performances on levels and changes are then combined (by using a predefined matrix) so that each Member State is assigned to one out of seven categories ("best performers", "better than average", "good but to monitor", "on average/neutral", "weak but improving", "to watch" and "critical situations"). On this basis, Table 1 provides a summary of the readings of the scoreboard according to the latest figures available for each indicator. A careful and non-mechanical reading of the table is warranted. To this purpose, a detailed analysis of the fourteen indicators, including longer-term trends and additional indicators, when relevant, is presented in Chapter 3. In addition, the forthcoming country reports will provide an in-depth analysis of all "critical situations" and additional socio-economic background to better qualify country-specific challenges in the context of the European Semester. This will provide an analytical basis for the subsequent Commission proposals for Country Specific Recommendations where appropriate. 2.2 Evidence from the social scoreboard Action is required to achieve convergence in 'societal progress' along the dimensions identified by the Social Pillar. The analysis of headline indicators shows for 17 Member States at least one "critical situation". Across the 14 domains assessed, 50 "critical situations" are identified, corresponding to almost 13% of the total number of assessments. Counting the three more problematic classifications, "critical situation", "to watch" and "weak but improving" brings the global count to 129 i.e. about one-third of all assessments. Looking at the three broad dimensions covered by the scoreboard, problematic flags appear more frequently in the area of "public support/social protection and inclusion", with an average of 11.8 cases (of which 4.5 "critical situations") per indicator. Impact of social transfers in poverty reduction appears the most difficult , with indicators flashing for 13 Member States (of which 5 in the bottom category). The dimensions of "Equal opportunities and access to the labour market" and "dynamic labour markets and fair working conditions" follow, with for both an average of about 9 and 8.8 cases flagging per indicator (respectively 4 and 3 "critical situations" each). In the first domain, the most flagged indicator is the gender employment gap (10 times). In the latter, compensation of employees per hour worked appears as the indicators with most numerous challenges (13 flags). The Scoreboard depicts an improving labour market and social situation for the EU as a whole. On average for the EU, 11 out of the 14 headline indicators recorded an improvement over the last available year (i.e. 2016 or 2015 depending on data availability), confiming the steady improvement in labour markets and social situation which has accompanied the economic recovery. In particular, on the unemployment rate, 11 Member States can now be categorised as best perfomers or better than average, and only one country is in a critical situation. Twelve Member States also flag as best perfomers or better than average in terms of the employment rate and 12 Member States when considering the share of people at risk of poverty of social exclusion. Nevertheless, two indicators (gender employment gap and compensation of employees per hour worked) remained broadly unchanged and one of them (impact of social transfers on poverty reduction) slightly deteriorated. The situation of Member States remains scattered and the severity of challenges varies widely across Member States. Most Member States are flagged at least once with a challenge on headline indicators, except for Denmark, Germany, France, the Netherlands, Sweden and the United Kingdom. Greece, Romania, Italy and Bulgaria report "critical", "to watch", or "weak but improving" situations on ten or more indicators. In that group, Greece and Romania present by far the largest number of "critical situations" (i.e. indicators which are much worse than average, and either not improving sufficiently fast or deteriorating further). In the case of Greece, critical situations are spread across all the three areas (yet, a good performance is recorded on early school leaving). For Romania, they are mostly concentrated in the "equal opportunities and access to labour market" and "public support / social protection and exclusion" areas. In terms of overall count, Cyprus (9 challenges), Spain and Croatia (8 challenges each), Latvia, Lithuania and Portugal (7 challenges each) follow. By contrast, Denmark is a best performer or better than average in all 14 headline indicators, followed by Sweden (12 indicators), Austria (10 indicators) and the Netherlands (9 indicators). When looking at equal opportunities and access to the labour market, the situation improved over the last year in terms of early leavers from education and training, the risk of poverty and social exclusion and NEETs in the EU. However, it remained broadly stable in terms of gender employment gap and income inequality (as measured by the income quintile share ratio). When looking by indicator: ·Spain, Malta, Portugal and Romania face a critical situation when it comes to early leavers from education and training compared to Croatia, Lithuania and Slovenia as the best performers; ·Greece, Italy, Malta and Romania score critical on the gender employment gap, compared to Latvia, Lithuania and Sweden as best performers; ·Bulgaria, Greece, Spain and Lithuania face a critical situation in terms of income inequality compared to the good performance of the Czech Republic, Slovenia, Slovakia and Finland; ·The situation as concerns the risk of poverty or social exclusion is critical in Bulgaria, Greece and Romania, compared to the Czech Republic, Denmark, the Netherlands and Finland as best performers; ·Bulgaria, Greece, Croatia, Cyprus and Romania face a critical situation when looking at NEETs while Denmark, Luxembourg, the Netherlands and Sweden perform the best. Turning to dynamic labour markets and fair working conditions in the EU, the situation improved over the last year in terms of employment and unemployment rates, participation in active labour market policies (ALMPs) and gross disposable household income (GDHI) per capita growth, while it was fairly stable in terms of compensation per employee. When looking by indicator: ·Greece, Croatia and Italy still face a critical situation when it comes to their employment rate, compared to Denmark, Germany, the Netherlands, Sweden and the UK as the best performers; ·Greece scores critical on the unemployment rate, compared to the Czech Republic and Germany as best performers;

·Bulgaria, Estonia, Croatia, Romania and Slovenia face a critical situation in terms of participation to ALMPs, compared to the performance of Belgium, Denmark, France, Hungary and Sweden; ·The growth in per capita GDHI is seen as a critical situation in Greece and Cyprus, compared to Poland and Romania as best performers; ·Bulgaria, Hungary and Poland face a critical situation when looking at compensation per employee, while Belgium, Denmark, France, Luxembourg and the Netherlands perform the best. As regards public support and social protection and inclusion, the situation improved over the last year in terms of childcare availability, self-reported unmet need for medical care and digital skills but it worsened in terms of the impact of social transfers on poverty reduction. When looking by indicator: ·Bulgaria, Greece, Italy, Lithuania and Romania still face a critical situation when it comes to the ability of their social transfers to reduce poverty. This compares to Denmark, Austria, Finland and Sweden as the best performers; ·The Czech Republic, Poland and Slovakia score critical on the availability of formal childcare, compared to Belgium, Denmark, Luxembourg, Portugal and Sweden as best performers; ·Estonia, Greece, Italy, Poland and Romania face a critical situation in terms of self-reported unmet need for medical care (no "best performers" identified through the methodology); ·Bulgaria and Romania face a critical situation when looking at levels of digital skills, while Denmark, Luxembourg, the Netherlands and Finland perform the best. Table 1. Summary of the headline indicators in the social scoreboard Note: At 31 October 2017, participation in ALMPs not available for EL, IT, MT, UK (LU not reported for data verification issue); GDHI per capita growth not available for HR, LU and MT; income quintile ratio, at-risk-of-poverty or social exclusion rate, and impact of social transfers on poverty reduction not available for IE.



Box 1. Benchmarking - state of play The Communication of 26 April 2017 establishing a European Pillar of Social Rights notes that "benchmarking and exchange of best practices will be conducted for a number of areas, such as employment protection legislation, unemployment benefits, minimum wages, minimum income and skills". The Commission started in 2015, following the Five Presidents' Report and in cooperation with Member States, benchmarking exercises in some of the areas mentioned in the Social Pillar Communication. The purpose of benchmarking is to support structural reforms and upward convergence towards best performers. In comparison with other cross-examination exercises, where the focus is mainly on comparing general outcomes, these benchmarking exercises focus notably also on policy levers (i.e. on specific policy parameters that can lead to better outcomes). The Employment Committee (EMCO) and the Social Protection Committee (SPC) have agreed on a common approach relying on a three-step approach: (1) identification of key challenges and a set of high level outcome indicators relevant for the policy area under consideration; (2) performance indicators which allow for benchmarking the performance; (3) the identification of policy levers, which are accompanied by general principles for policy guidance and, when available, by specific indicators. At this stage the aim is to allow for comparisons of Member States for each policy lever, rather than setting reference values. Discussions in the Employment Committee on a pilot on Unemployment Benefits and Active Labour Market Policies started in 2016 and an agreement was found in 2017. This notably concerns three outcome indicators (unemployment rate, long-term unemployment and at-risk-of-poverty rate of the unemployed), two performance indicators (share of people wanting to work participating in regular activation measures and coverage of unemployed with unemployment duration shorter than 12 months by unemployment benefits); and three policy lever indicators, notably in the domain of unemployment benefits (replacement rate, eligibility conditions and benefit duration). The analysis of unemployment benefits presented in Chapter 3.3 draws on the results of the benchmarking exercise. Work is still ongoing as regards policy levers on activation policies. A benchmarking exercise for minimum income schemes is also being developed jointly with Member States in the Social Protection Committee. The state of play of this exercise is presented in Chapter 3.4. Work is also progressing on benchmarking skills, with a focus as concerns policy levers on adult learning. Within the context of the European Pillar of Social Rights, the Commission intends to pursue a further reflection on benchmarking together with Member States. It aims at identifying Pillar principles for which benchmarking can provide a positive contribution towards mutual learning and upward convergence.



3. EMPLOYMENT AND SOCIAL REFORMS – MEMBER STATES PERFORMANCE AND ACTION This section presents an overview of recent key employment and social indicators and measures taken by the Member States in priority areas identified by the EU employment guidelines, as adopted by the Council in 2015. For each guideline, recent developments on a selection of key indicators are presented, as well as policy measures taken by Member States. As concerns the latter, the section draws on Member States’ National Reform Programmes 2017 and European Commission sources. If not specified otherwise, only policy measures implemented after June 2016 are presented in the report. An in-depth analysis of recent labour market developments can be found in the Labour Market and Wage Developments 2017 report and the Employment and Social Developments in Europe Review 2017.

3.1 Guideline 5: Boosting demand for labour This section looks at the implementation of the employment guideline no. 5, which recommends Member States to create conditions promoting labour demand and job creation. It first presents an overview of unemployment and employment rates by Member State, complementing the analysis at EU level made in Chapter 1, so as to highlight the relevance of the job creation challenge across countries. It then looks at self-employment dynamics, as a proxy for entrepreneurship and as a source of employment growth per se. It finally investigates key macroeconomic determinants of hiring decisions, namely wage and tax wedge developments. Section 3.1.2 reports on policy measures implemented by Member States in these areas to promote labour demand, including hiring subsidies. 3.1.1 Key indicators In almost half of the Member States the unemployment rate decreased markedly in 2016, by more than 1 percentage point. A quicker-than-average drop occurred notably in some Member States suffering from very high unemployment rates – especially Spain, Croatia and Cyprus (by 2 pps or more) but also Greece and Portugal – pointing to a convergence towards lower unemployment levels. However, differences remain big. As evident from Figure 5 (which looks jointly at levels and changes according to the agreed methodology for assessing headline indicators of the social scoreboard), the dispersion of unemployment rates remained sizeable in 2016, with values ranging from around 4% in the Czech Republic and Germany ("best performers") to 23.6% in Greece ("critical situation"). Although the unemployment rate decreased by 1.3 pps in Greece, the overall level remains very high. Moreover, unemployment rates also remain high in Italy, with no significant improvements in 2016 (decreasing by only 0.2 pps). Among Member States with lower than average unemployment rates, Estonia and Austria recorded a slight increase in 2016. In spite of the steady decrease since 2013, in most Member States the unemployment rate was still higher in 2016 than in 2008 (Figure 6). The only exceptions are Germany, Hungary, Malta, Poland, the United Kingdom and the Czech Republic. Source: Eurostat, LFS (DG EMPL calculations). Period: 2016 levels and yearly changes with respect to 2015. Note: Axes are centred on the unweighted EU average. The legend is presented in the Annex. Source: Eurostat, LFS. The employment rate has increased in 27 out of 28 Member States, though significant disparities remain. Only Luxembourg has recorded a slight decrease over the last year. As shown in Figure 7, employment rates are only partially converging. This is reflected in the moderately negative slope of the regression line that links changes with levels in employment rates. This suggests that Member States characterised by lower employment rates are growing somewhat faster than average, and vice versa – but the situation remains scattered. Employment rates (age group 20-64) diverge widely, ranging from 56.2% in Greece to 81.2% in Sweden. At the lower end, the employment rate remains much below the EU average (below 65%) in Greece, Croatia, Italy (flagged as "critical situations"), and Spain (flagged as "weak but improving" in view of a significant improvement). It is marginally higher in Romania, Belgium and Bulgaria, though increasing at a slower than average pace. Conversely, the Netherlands, Denmark, United Kingdom, Germany and Sweden are flagged as "best performers" with employment rates of 77% or higher. An expansion of employment is, according to the European Commission Autumn 2017 economic forecast, expected over 2017 and 2018 in almost all Member States. Source: Eurostat, LFS (DG EMPL calculations). Period: 2016 levels and yearly changes with respect to 2015. Note: Axes are centred on the unweighted EU average. The legend is presented in the Annex.

Average employment rates in the EU have been constantly rising since 2013 and are now above pre-crisis levels, but disparities are still high. In 2016 more than half of the Member States, 17 countries, are still below the 2008 levels (Figure 8). This is particularly evident in those countries more affected by the crisis – notably Greece (-10.1 pps), Cyprus (-7.7 pps), Spain (-4.6 pps) and Croatia (-3.5 pps). Reassuringly, the recovery has contributed to employment growth in almost all Member States compared to 2013. The largest increases in employment rates since 2008 took place in Hungary (+8.5 pps) and Lithuania (+5.3 pps). Source: Eurostat, LFS. In a context of sustained employment growth, trends in self-employment tend to be more stable. The average self-employment rate decreased in 2016 to 14.0%, the lowest rate since 2008, as total employment grew faster (+1.5%) than self-employment (+0.3%). However, if the primary sector (agriculture, forestry and fishing), which is affected by a structural decline, is excluded, the number of self-employed grew almost as fast as total employment (by 1.3%). Self-employment by people with a migrant background continued its steady rise: the rate for people with a non-EU citizenship rose to 12.2% in 2016, from 11.9% in 2015 (it was only 10.0% in 2010). Moreover, demographic developments have led to a strong increase in the number of self-employed of 65 years and older. In 2016, their number amounted to 8% of the total number of self-employed (6% in 2006). In absolute terms, self-employment rose in 2016 in a majority of Member States. Sectoral developments played a role, with decreases mainly concentrated in Member States with an above-average share of self-employed in the primary sector (Croatia, Romania, Slovenia, Bulgaria, Portugal, Finland and Poland). Decreases were also recorded in Cyprus, Germany, Belgium, Sweden and Italy, while self-employment went up in all other Member States (by 5% or more in Luxembourg, Slovakia and the United Kingdom). The male self-employment rate continued its steady decrease (to 17.5% in 2016; it stood above 18% up to 2014), while the female self-employment rate has remained constant at around 9.9% since 2012. Self-employment without employees (so-called own-account workers) remained widespread. In 2016, the number of own-account workers outside the primary sector rose by 1.8% (and stood 9% higher than in 2008), while the number of employers (self-employed with employees) outside the primary sector rose only by 0.3% (and stood 10% lower than in 2008). Self-employment without employees can hide situations of "bogus" self-employment in some circumstances; this issue will be further discussed in Section 3.3 along with labour market segmentation. Wage growth remains subdued in the EU, despite continued improvements in the labour market. Real wages adjusted for the change in consumer prices increased in almost all Member States and grew overall by 1.3% in the EU. Growth was lower in the euro area, where, in the low-inflation environment of 2015 and 2016, real wages grew by slightly less than 1% in both years. Modest wage growth, coupled with a slight slowdown in productivity growth, translated into a moderate pick-up in unit labour cost dynamics. Compensation of employees varies widely across Europe, ranging from EUR 4.6 per hour worked in Bulgaria to EUR 43.3 in Luxembourg. Moreover, Figure 9 shows that Europe is broadly split in two groups of low-wage and high-wage countries, with only Cyprus, Slovenia, Italy and Spain being close to EU average. On the low end, in particular Bulgaria, Poland and Hungary stand out, as well as Romania which recorded a large increase in the last year. Some signs of convergence can be identified, even if the correlation between the absolute level of wages and the change in compensations does not seem strong. Source: Eurostat, National accounts. Period: 2016 levels and yearly changes with respect to 2015. Note: Axes are centred on the unweighted EU average. The legend is presented in the Annex. In the period 2011 to 2016, real wage growth lagged behind average productivity growth in the majority of Member States (18 out of 28). In six countries (Belgium, Cyprus, Finland, Croatia, Greece, Portugal) real wage growth was negative over the period 2014-2016. Also over the longer term, on average real wage developments have been trailing behind productivity (see Figure 10). Source: Eurostat, National Accounts (DG EMPL calculations).

Cost competitiveness developments were supportive of rebalancing in the euro area, but progress has slowed down. In the euro area, following prolonged fiscal and wage restraint, by 2015 most Member States turned to a current account surplus position. In the context of the subdued wage growth in the euro area, nominal unit labour costs have grown slightly faster in countries characterised by large and persistent current account surpluses than in net debtor countries. However, the difference narrowed somewhat in 2016, slowing down the rebalancing. In most Member States, wage growth in 2016 was slower or equal than predicted by the historical relationship with unemployment, notably with wages lagging behind the drop of unemployment. Countries where wage growth remained furthest below the historical relationship include Belgium, Bulgaria, Finland, Slovakia and Sweden. The Phillips curve – the (normally negative) relationship between wage growth and unemployment – confirms that wages have reacted slowly to the recovery, especially in the euro area. Figure 11 compares the annual change in nominal compensation per employee with the so-called unemployment gap, i.e. the difference between the actual unemployment rate and its trend. Since the start of the crisis, the curve has been flatter than previously, implying a weaker reaction of wages to falls in unemployment. Moreover, the growth rate of compensations has over the last three years been below the trend expected in the light of labour market improvement. The modest wage dynamics can be explained by weak productivity developments, low inflation expectations, the effect of some labour market reforms and the remaining slack in the labour market. In particular, the current unemployment rate may not adequately capture the effective state of resource utilisation in the labour market. In addition to those effectively looking for a job (i.e. the unemployed), discouraged workers and underemployed part-time workers may exert additional downward pressures on wages. The decline in inflation expectations and the productivity slowdown may also affect wage negotiations, keeping wage growth down, thus undermining the sustainability of the recovery. The negotiated wages also give a clear picture of how wage pressures have not materialised, especially in the euro area: the yearly percentage change in the first quarter of 2017 was 1.5%, about 0.5 pps lower than its pace at the early stage of the recovery. Source: DG ECFIN AMECO database and Eurostat, LFS The tax burden on labour is broadly stable in Europe, but with significant differences across Member States. In 2016, reductions in the tax wedge for single workers earning the average wage were most significant in Austria (-2.4 pps), Belgium (-1.4 pps) and Italy (-1.2 pps), while it increased markedly in the Netherlands (1.3 pps), Greece (1.0 pps) and Poland (0.9 pps). As evident from Figure 12, the tax wedge ranges from less than 30% in Ireland and Malta to around 50% in Belgium, Germany, Hungary, Italy, France and Austria. A similar dispersion can be observed for lower income workers (defined as those earning 67% of the average wage), though different country patterns emerge as concerns the progressivity of tax rates. Between 2013 and 2016 the non-weighted average tax wedge decreased by 0.5 pps (and by 0.8 pps for low income workers), with large reductions in some of the countries experiencing the highest rates (Belgium, Austria, as well as Italy and France, but limited to low income workers), and also in Romania and Denmark. On the contrary, there were significant increases in Luxembourg and, limited to low wages, Portugal. Source: Tax and benefits database, European Commission/OECD. Note: data are for single earner households (no children). No recent data available for Cyprus. 3.1.2 Policy response Member States continued to resort to employment subsidies to support labour demand and job creation. Most measures in this area are targeted to specific groups facing labour market integration problems (e.g. youth, older people, long-term unemployed, refugees, etc.) and consist of financial incentives (or tax/social security contribution rebates) to employers for hiring targeted workers. Over the reference period (from the second half of 2016 onwards), targeted hiring subsidies were introduced by several Member States (more details to be found in section 3.2). A few countries also introduced (or plan to introduce) hiring subsidies for a wider public, i.e. without or with looser eligibility conditions, usually with the aim of promoting open-ended employment. Italy introduced, limited to the Southern regions, a reduction of social security contributions for employers hiring on a permanent basis (or through professional apprenticeship) people younger than 25 or unemployed from at least six months. France extended by six months (to the first semester 2017, now phasing out) the EUR 4 000 premium granted for the hire by a small or medium enterprise of an employee paid up to 1.3 times the minimum wage; close to 1.6 million workers benefitted from the premium. In Austria, the introduction of an employment bonus aimed at creating new jobs by reducing the wage costs for employers opening additional positions is currently under study. In other cases, hiring subsidies are targeted to several disadvantaged groups. For instance, Portugal set up financial incentives to permanent hiring, in the form of partial exemptions of social security contributions for certain vulnerable groups (young people, long-term unemployed, older people). Moreover, a hiring support measure, targeted to the same groups, provides incentives to convert fixed-term contracts into permanent ones. The European Social Fund (ESF) contributes to this measure, as well as to a recent initiative aimed at promoting the transition from traineeships into permanent contracts. Cyprus introduced employment subsidies for hiring people who belong to vulnerable groups, including GMI recipient and persons with disabilities. In Hungary, the ESF contributes to enhancing the employment potential of social enterprises through incentives and subsidies for job creation. Some Member States are taking action to promote entrepreneurship and start-ups. For instance, Hungary is supporting young people under the age of 30 and registered job seekers over the age of 30 to become entrepreneurs in the frame of the Youth Guarantee Scheme. In Romania, the Start-up nation scheme, supported by the ESF, aims at promoting the development of new SMEs. In Finland, as of 2018, it will be possible to receive the unemployment benefit as start-up grants and while working as a part-time entrepreneur. Moreover, discussions are ongoing on how to make easier for the unemployed to set up companies. Steps have also been taken in many Member States to make sure that self-employed enjoy adequate social rights (see section 3.3 on labour market segmentation). Several Member States reduced labour costs by cutting the tax wedge, often targeting the lowest incomes. In recent months, the tax wedge was tackled in many countries, especially for low income earners, through reforms focused on personal income taxation, often by increasing tax allowances (i.e. the tax-free amount of income). For instance, in Germany the Federal Government updated the income tax rate to reduce the fiscal drag and increase the Basic Personal Allowance, Child Tax Credit, Child Benefit and Child Supplement. In Estonia, the Parliament adopted the new tax-reform plan entering into force in 2018, which includes an increase in basic income tax allowance per month to EUR 500 per month (up from EUR 180 in 2017). Lithuania amended the Law on Personal Income Tax, increasing the basic and additional tax-exempt amount of income. Hungary increased family tax allowances for earners with two children. The United Kingdom increased the personal allowance to £11,500 (approximately EUR 13,100) per year and the threshold for the higher rate from £43,000 to £45,000 (EUR 51,400). France further decreased income tax for lower and middle incomes. In Belgium, the second phase of the Brussels tax reform, with additional reductions in personal income tax and a shift from taxation on labour to real estate, entered into force on 1 January 2017. In Latvia, a major tax reform includes the replacement of a flat 23% personal income tax rate with a progressive system. Cyprus abolished the “special contribution” – a progressive tax on the gross monthly incomes emoluments of all employees, self-employed and pensioners. Slovenia amended the Personal Income Tax Act to reduce the personal income tax burden. Many Member States also intervened on the tax wedge through reductions in social security contributions. In France, employers' contributions were cut, partially counterbalanced by increases on the employees’ side. In other countries, reductions in social security contributions were rather aimed at supporting the employment of specific target groups, such as the young and older workers (Belgium and Italy), the disabled (Malta), new hires on permanent contracts (Italy) or new hires by the self-employed (Sweden). Hungary decreased the social contribution tax, with an impact on tax wedge for low-wage earners. At the same time, several countries (Greece, Lithuania, Latvia, Croatia) introduced or increased social security contributions for the self-employed or for those employed under atypical work arrangements. Finally, as of 2018 Latvia will generally increase social contributions for both employers and employees to finance health care. Building on major reforms over the past years, some Member States are introducing further changes in their wage setting systems. Belgium completed, after consultation with social partners, the revision of the 1996 Law on wage setting, establishing an automatic correction mechanism, introducing a safety margin and strengthening the legal basis of the wage norm, so as to prevent loss of cost competitiveness. The federal government also announced in July 2017 its intention to simplify and promote the participation of employees in the benefits of their enterprises. Croatia made the process of collective bargaining more effective on the conclusion of collective agreements binding for the government, ensuring equal access to negotiating committees, enhancing financial management of funds from the state budget and ensuring the sustainability of the payroll system. Portugal temporarily suspended the automatic expiry of collective agreements, for a period of 18 months until July 2018, due to the low number of new signed collective agreements. Moreover, following the publication of the green paper on labour relations, and as part of the tripartite agreement with social partners, the government is planning measures to foster collective bargaining. In Slovenia, public sector trade unions and the government continued negotiations on how to loosen several temporary austerity measures enacted by the Fiscal Balance Act of 2012, on issues such as remuneration for job performance linked to increased work load, wage increase for promotion, reimbursement for annual leave and termination of the employment contract of persons fulfilling pensionable conditions. In France, a new reform of the Labour Law was adopted following consultation with social partners, further expanding the perimeter where company-level agreements prevail, while defining where branch-level agreements should remain decisive.

Some Member States adjusted their minimum wages or took steps to make minimum wage setting frameworks more predictable, with the involvement of social partners. In Bulgaria, the government has tabled a draft minimum wage setting mechanism with three scenarios and an impact analysis component, pending agreement with the social partners. The government plans to incrementally increase the minimum wage from its current level of EUR 230 per month to EUR 305 in 2020. Romania has set the level of minimum wages until 2020 in its government programme. The minimum wage has more than doubled since 2010 and is set increase from EUR 315 per month to EUR 380 in 2020. In Ireland, the minimum wage was increased from EUR 9.15 per hour in 2016 to EUR 9.25 in 2017 based on recommendations from the Low Pay Commission, which also assesses the social impact of minimum wage adjustments. The Irish Government recently announced a further increase of the minimum wage up to EUR 9.55 per hour from January 2018. Latvia established a minimum wage increase to EUR 430 per month, up from EUR 380, as of 1 January 2018. Poland increased the monthly minimum wage to 2000 PLN and introduced minimum hourly remuneration for those working on civil law contract (13 PLN per hour, i.e. around EUR 3). In Portugal, following a tripartite agreement with social partners, the Government increased the statutory minimum wage on 1 January 2017 from EUR 530 to EUR 557 a month. The increase was accompanied by a temporary reduction in employer's social security contribution for workers receiving the minimum wage. The UK government aims at increasing the national minimum wage for those over 25 up to 60% of median earnings by 2020 (around £9 per hour, approximately EUR 10.3). The annual uprating in April 2017 moved the national living wage to £7.50 per hour (EUR 8.6) and the national minimum wage will also increase for young workers and apprentices. In Germany, the Federal Government followed the recommendation of the permanent Minimum Wage Commission of the social partners, increasing the general minimum wage from EUR 8.50 to 8.84 per hour as from 1 January 2017.



3.2 Guideline 6: Enhancing labour supply, skills and competences This section looks at the implementation of the employment guideline no. 6, which recommends to Member States to create conditions to promote labour supply, skills and competences. It presents indicators about the impact of the education and training system on the employability of the workforce (basic skills proficiency, participation in lifelong learning, and school-to-work transitions for different types of curricula) before going through labour market outcomes for various groups underrepresented in the labour market (e.g. young people, older workers, people with a migrant background and women). Section 3.2.2 reports on policy measures of Member States in these areas and measures targeted at those disadvantaged groups. 3.2.1 Key indicators In 2016, the early school leaving rate (ESL) further decreased in the EU. It stood at 10.7%, down 0.3 pps from 2015. Seventeen Member States recorded rates below the EU target value of 10%. At the same time, the rate was close to 20% in Malta, Spain and Romania (which together with Portugal are flagged as "critical situations"), while it was below 5% in Croatia, Lithuania and Slovenia ("best performers"). In the past year the ESL rate remained stable in the large majority of Member States (as shown in Figure 13), decreased the most in Luxembourg (by 3.5 pps) and Greece (1.4 pps), but showed a substantial increase in Cyprus (by 2.8 pps, although for the level is still below the EU average). There is no evidence of convergence across Member States in 2016, as evidenced by the almost horizontal regression line which relates yearly changes to levels in the ESL rate. Compared to 2008 (Figure 14), however, the ESL rate declined across almost all Member States, by 4 pps on average; it dropped the most in Portugal, Spain, Greece and Luxemburg, while it went up in Hungary, the Czech Republic, Slovakia, and Romania. The difference in the early school leaving rate between men and women in 2016 has shrunk to 3 pps from 3.9 pps in 2008, with women being less likely to leave school early than men. Source: Eurostat. Period: 2016 levels and yearly changes with respect to 2015. Note: Axes are centred on the unweighted EU average. The legend is presented in the Annex. Source: Eurostat (LFS). Online data code: edat_lfse_14. The long-term decline of early school leaving in Europe is a positive trend that largely stems from structural reforms in education and training systems and targeted policy measures. Yet, in the aftermath of the crisis, it may in part be related to the persistent difficult access to the labour market of countries with high levels of youth unemployment, where young people have decided to remain longer in education. Moreover, early school leaving is strongly linked to social disadvantage and low education backgrounds of parents. Pupils with a migrant background, particularly foreign-born pupils, have higher drop-out rates. Pupils with disabilities are also more disadvantaged with a 10.3 pps gap compared to pupils without disabilities in 2015. An important indicator of the quality of initial education and training systems is the proficiency of students in basic competences such as reading, mathematics and science. The OECD's Programme for International Student Assessment (PISA) 2015 survey of basic competences gained in primary and lower-secondary education shows that 19.7% of European students, at the age of 15, were low achievers in reading, 22.2% in maths and 20.6% in science. Compared with the previous survey of 2012, performance has deteriorated across all domains on average in the EU and in most EU countries, although a large variation among Member States in the acquisition of basic skills persists. This means that EU countries are further away from the goal to reduce underachievement in reading, maths and science to below 15% by 2020. A disadvantaged socio-economic background is the most significant factor associated with low educational achievement. There is also an overlap between low achieving students and students with special educational needs and/or with a migrant background. The EU average proportion of low achievers in science within the bottom socio-economic quartile of the 2015 PISA student population is around 34%, 26 pps more than in the top socio-economic quartile (Figure 15). Member States with substantial shares of students with a migrant background have generally higher-than-average shares of low-achievers in basic skills, and students' performance is usually strongly correlated with their socio-economic status. Additionally, as has been previously discussed in the 2017 Joint Employment Report, the recent migration surge into the EU has highlighted the role of education and training systems in helping many thousands of incoming young people to develop their full potential and foster their integration in European societies.

Source: European Commission (2016), PISA 2015: EU performance and initial conclusions regarding education policies in Europe. The EU rate of tertiary education attainment among those aged 30-34 has been constantly and visibly increasing for more than a decade. The rate currently stands at 39.1%, up 0.4 pps in the past year alone. Eighteen Member States have attainment rates above the Europe 2020 headline target of 40%. Since 2008, the EU average tertiary attainment rate rose by 8 pps (Figure 16). Despite significant progress over the years, Member States lagging behind still have around half the attainment rate of the leading countries. Considerable differences in tertiary education attainment persist between genders, with women performing better than men in all Member States but Germany and an EU average difference in tertiary attainment between men and women of nearly 10 pps. Parental background still influences tertiary attainment with about 5 pps lower average attainment for people born abroad, although the opposite is observed in Denmark, Ireland, Luxembourg, Latvia, and the United Kingdom. Furthermore, the young people who migrated in the middle or at the end of their compulsory school age face greater difficulties than those who migrated at a younger age, and they require non-traditional pathways to access higher education that recognise the skills they might have picked up outside traditional upper secondary education. People with disabilities also have consistently lower tertiary education attainment, with a gap of 13.6 pps in 2015. Source: Eurostat (LFS). Online data code edat_lfse_03. The labour-market relevance of education is a crucial determinant of young people's ability to find work and contribute effectively to economic growth. On average, the employment rate of recent graduates from higher education (aged 20-34) is 82.8% in the EU, whereas for those with upper secondary education the employment rate is 72.6% (reaching 75% for those with vocational pathway). The gap is greater in Member States with lower overall youth employment rates. The gap in employment and/or unemployment rates across skills levels to a certain extent provides an indication of a skills mismatch, as an equivalent match of labour supply and demand by level of education would imply identic employment rates across skill groups. In 2016, the highest dispersion of employment rates by education levels (less than upper secondary, upper and post-secondary, and tertiary education) was observed in Bulgaria, the Czech Republic, Croatia, Lithuania, Poland, Slovenia and Slovakia. Despite relatively good labour market outcomes of Vocational Education and Training (VET), the number of students enrolling in initial VET in the EU has in most countries been steadily falling since 2013. The overall number of initial VET students at the upper-secondary level in the EU dropped since 2013 by around 500 000 (4.7 %), to 10.3 million in 2015. The United Kingdom registered the most notable fall in absolute numbers of initial VET student population – by almost 200 000. At the same time, enrolment in general education stayed at the same level. Therefore, the share of VET students in the total student population enrolled at upper secondary level has decreased from 48.9 % in 2013 to 47.3 % in 2015. VET students who enter the labour market directly after attaining their upper-secondary level qualification enjoy in most countries relatively high employment rates. This is evident in countries having well-functioning VET systems, including strong permeability and school-to-work transition systems, such as Malta, the United Kingdom, Germany, the Netherlands, Sweden, Austria and Denmark (except for health and welfare VET graduates). However in other countries, VET graduates from some fields seem to be under-performing (particularly in the field of business, administration and law) as, for example, in Hungary, Lithuania, Slovenia, Poland, France, Bulgaria and Romania. In Italy and Greece, within the generally not very well performing labour market, there are particularly large differences in employment rates depending on field of study. Besides employability, expected wages is another important factor indicating the attractiveness of different educational pathways. The wage premium for those with a medium-level vocational qualification as compared to those with medium level general qualification varies from 60% in Germany to a wage penalty of around -25% in the Czech Republic (though it is a special case since the majority of VET graduates continue into higher education). Overall in the EU, young people with a vocational qualification earn around 25% more than those with only a low level of education (ISCED 0-2), 17% more than those with a medium level qualification with a general orientation, and 40% less compared to those with a high level of education. One of the key characteristics of VET systems that facilitate a smooth transition to and success on the labour market is the integration of work-based learning in VET programmes. According to the 2016 Education and Training Monitor, in 2015, there were around 2.8 million students enrolled in combined work- and school-based programmes (who spend at least 25% of the programme duration learning in a real work environment in a company) in the EU. However, the availability of programmes with a substantial element of work-based learning is still limited in most EU countries and the situation is not improving. Between 2013 and 2015, there was little change in the prevalence of combined work- and school-based programmes in the EU. In a number of countries the share of students attending such programmes fell – for example in the United Kingdom, Austria, France, Luxembourg and Finland. A noticeable increase was observed only in Slovakia and Hungary, in the latter case potentially due to changes in the classification of certain programmes as including a sufficient amount of work-based learning. The overall rate of adult participation in learning in the EU has changed little since 2013 (Figure 17). In all countries, the majority of adult learning is of a non-formal nature, usually work-related and provided as well as financed by employers or individuals themselves. Such learning often targets those employees who already have the highest levels of skills and are performing the most complex jobs, while for the rest of employees, opportunities to access training are often much more limited. The fact that most learning is of a non-formal nature also implies that it is often of only short duration and aims to develop company-specific skills. This results in a situation where most adult learning is not able to help adults develop skills that are more transferable across companies including the basic skills – literacy, numeracy or ICT.

Source: Eurostat (EU-LFS, special extraction, 2016). Note: the indicator captures the participation rate in formal and non-formal education and training (last four weeks) of 25 to 64 year-olds. Data category “both” indicates the share of persons who participated during the reference period of 4 weeks in both formal and non-formal learning activities. Data in HR, HU and LV for those participating in “both” forms of learning is unreliable and in CY, LT, SK, BG and RO is unavailable. The level of digital skills is increasing, although very slowly, leaving parts of the population unable to benefit from the digital transformation. This has an impact on innovation, productivity and eventually growth. In 2016, 44% of the EU population aged 16 to 74 did not have the basic digital skills to meet current needs, while 19% had none at all (in 2015, the figures stood at 45% and 21% respectively). The variation across Member States is substantial, with ten Member States (Portugal, Poland, Slovenia, Croatia, Lithuania, Italy, Greece, Cyprus, Bulgaria and Romania) where at least one quarter of the population had no digital skills in 2016. The level is particularly low in Bulgaria and Romania ("critical situations") whilst in Finland, the Netherlands, Denmark, and Luxembourg ("best performers") it is much higher than average. There is evidence of divergence on this indicator across the EU – as the level of digital skills is improving comparatively faster, on average, in best performing countries. Source: Eurostat. Period: 2016 levels and yearly changes with respect to 2015. Note: Axes are centred on the unweighted EU average. The legend is presented in the Annex. The labour market situation of young people continues to improve, in line with the strengthening of the economy. In the EU, the youth unemployment rate decreased by 5 pps from a peak of 23.7% in 2013 to 18.7% in 2016, and further to 17% in Q2-2017. However, it is still 1.4 pps above the level observed in Q2-2008. The dispersion of youth unemployment is high, with some Member States recording levels close to or above 40% (Italy, Spain, Greece), but it is decreasing over time (see Figure 19). Young women experience lower unemployment rates than men (17.9% versus 19.4% in 2016). This may be related to better educational achievements, but also to lower activity rates. In spite of improving labour market prospects, young people are more often employed under non-standard and atypical forms of employment, including temporary jobs, involuntary part-time work and lower wage jobs (in 2016, 43.8% of young workers – and more than 70% in Slovenia, Spain and Poland – work under a temporary contract, compared to 13.1% of workers aged 25-49); as shown in section 3.4, these contracts not always evolve towards more stable patterns. Source: Eurostat, LFS. In addition to those working or seeking a job, a considerable part of the young people aged 15-24 in the EU are economically inactive. In total in the EU, in 2016 more than 6 million people aged 15-24 were neither in employment, education or training (NEET). This amounts to 11.5% of population in that age class, down from a peak of 13.2% in 2012 but still above 2008 level (10.9%). This reduction was mainly due to unemployed NEETs moving into work. As shown in Figure 20, NEET rates above 15% are still recorded in several countries (Bulgaria, Romania, Croatia, Cyprus and Greece, all flagged as "critical situations") and Italy, where the level dropped by 1.5 pps in 2016 ("weak but improving"). Conversely, the Netherlands, Luxembourg, Denmark and Sweden are "best performers". The number of NEETs is increasing in Germany, Austria, Lithuania, Latvia and, more worryingly, in Cyprus (starting from an already high rate). Fast reductions can be observed in Belgium, Malta, Estonia and Slovenia. The negative slope of the regression line relating yearly changes to levels suggests ongoing convergence across Member States. In the EU, NEETs are equally divided between unemployed and inactive, but with substantial differences among Member States (with the highest share of inactive in Bulgaria and Romania and the highest share of unemployed in Croatia and Spain). Having only a low-level education is the main risk factor for being NEET. Among female NEETs, inactivity is more frequent than unemployment, while the opposite holds for men. Source: Eurostat. Period: 2016 levels and yearly changes with respect to 2015. Note: Axes are centred on the unweighted EU average. The legend is presented in the Annex.

The employment rate of older workers has grown substantially over the last decade. Older workers have weathered the crisis relatively better than other age groups. In fact, as already shown in Chapter 1, age group 55-64 is the main driver of the overall increase in employment rate over the last ten years. In 2016, the employment rate of people aged 55-64 was 55.3%, 2 pps higher than in the previous year, and the steady increase is projected to continue against the background of demographic change. Employment rates of older workers vary widely across Member States, ranging from 75.5% in Sweden to 36.3% in Greece. The employment rate of women aged 55-64 is also catching up, and stood at 48.9% in 2016. The gender gap in the duration of working lives is declining but still significant, with women participating in the labour market on average 4.9 years less than men (33.1 vs 38.0 years in 2016). This average is the result of major variations across Member States and is driven by multiple factors, such as insufficient access to care services as well as lower pensionable ages for women in some Member States, reflecting into shorter duration of working life (see Figure 21). Finally, older workers are more likely to have part-time contracts than prime age workers, but they are less likely to work part-time than younger workers. Similarly, they are more likely to have permanent jobs (only 5.3 % of older workers aged 55-64 had temporary contracts). Source, Eurostat, LFS. In all Member States, women are underrepresented in the labour market. The Social Scoreboard headline indicator in the area of gender equality in the labour market is the gender employment gap, which is the difference between the employment rates for men and women. In 2016, the gender employment gap amounted to 11.6 percentage points for the EU, with a 76.9% employment rate for men and 65.3% for women (Figure 22). The gap is particularly high for non-EU born and Roma women. Overall, it remained stable compared to 2015, as shown in Chapter 1. However, in a longer-term perspective, it is substantially lower than in 2008, when the gender employment gap was 15.0 percentage points. This long-term improvement was mainly driven by an increase in the female employment rate. Still, in 2016 six Member States had a female employment rate below 60%, together with a high employment gender gap (highest values recorded for Malta, Italy, Greece and Romania, flagged as "critical situations"). The gap is also increasing in a number of Member States, significantly faster than average in Finland, Belgium, Cyprus and Greece (in these countries, employment rate increased for both genders, but faster for men than for women). Lithuania, Latvia and Sweden are assessed as "best performers". The positive slope of the regression line relating changes to levels of gender employment gap in Figure 22 suggests that, on average, Member States' performances are slightly diverging as regards this indicator. Source: Eurostat, LFS. Period: 2016 levels and yearly changes with respect to 2015. Note: Axes are centred on the unweighted EU average. The legend is presented in the Annex. Unequal participation in the labour market by gender is also reflected by the large gender gap in part-time employment, which amounted to 23.0 pps in 2016 in the EU (slightly down from 23.2 pps in 2015). There is large variation between countries. While the gap is low in most Central and Eastern European Member States, it exceeds 30 percentage points in four Member States, reaching a high of 52.7 percentage points in the Netherlands (Figure 23). Moreover, 23.5% of female part-time employment was involuntary in 2016. Source: Eurostat, LFS. Gender gaps in employment are particularly acute for those with caring responsibilities, with women still more likely than men to carry these responsibilities. On average, the employment rate of women with at least one child under the age of 6 is 9 pps less than the employment rate of women without children (with a stronger effect for low-skilled mothers as well as single parents), and in some countries this difference is over 30 pps (Slovakia, the Czech Republic, Hungary). Conversely, parenthood has the opposite effect on the employment rates of men, as fathers are more likely to be employed (Figure 24). Women are also more likely than men to assume long-term care responsibilities. More than 19% of the EU potential female workforce in 2016 was inactive because of looking after children or incapacitated adults. This figure exceeded 28% in the Czech Republic, Estonia, Ireland, Hungary, Slovakia, and the United Kingdom. Female employment rates appear to be higher than average in countries with well-designed gender-balanced work-life balance measures (notably Sweden and Denmark).

Source: Eurostat. Note: the employment impact of parenthood is measured as the difference of the employment rate of women (men) with at least one child under the age of 6 and the employment rate of women (men) with no children. The lack of available, accessible and quality formal care services, especially for children, is one of the factors hampering women's participation in the labour market. As shown by the Social Scoreboard headline indicator on participation in early childhood education and care, in 2015 only 30.5% of children aged 0-3 years old were cared for in formal education and care services, up from 28.5% in 2014 and 28.0% in 2008. There is a large variation across Member States: while in Denmark and Sweden more than 60% of the children were in formal childcare, this share was below 10% in Slovakia, the Czech Republic and Poland ("critical situations"), as well as in Bulgaria, Romania and Lithuania. Along with Denmark and Sweden, Luxembourg, Belgium and Portugal are assessed as "best performers". This variation is to some extent related to differences in family leave arrangements across countries. Member States' performances on this indicator are actually diverging, as shown by the positive slope of the regression line relating yearly changes to levels – best performing countries are improving faster. Source: Eurostat, LFS. Period: 2015 levels and yearly changes with respect to 2014. Note: Axes are centred on the unweighted EU average. The legend is presented in the Annex. Moreover, the sufficient provision of formal accessible, high-quality and sustainable long-term care services remains a challenge in several Member States. Their underdevelopment can be a major impediment for women to stay in employment, as informal care is often the only option for many families. It is estimated that the number of dependent elderly will rise by 12 million (from 40 to 52 between 2013-2060) . In addition to lower full-time equivalent employment rates, women also tend to suffer from a significant pay gap. This gap stood at 16.3% in 2015 in the EU, slowly declining compared to 2014 (16.7%). There are, however, large variations across Member States, with pay gaps ranging from 26.9% in Estonia to 5.5% in Italy and Luxemburg. Over the last two years with available data, the highest increase was registered in Portugal (+4.5 pps), while fast reductions were recorded in Hungary (-4.4 pps) and Estonia (-2.9 pps) and Spain (-2.9 pps). Potential reasons behind the gender pay gap include differences in work experience, working time, type of job or sector of employment, due to some extent to discrimination in the labour market. This also risks to translate into a gender gap in pensions, which stood at 38.3% in 2015. Source: Eurostat. Note: the unadjusted Gender Pay Gap (GPG) is measured as the difference between average gross hourly earnings of male paid employees and of female paid employees as a percentage of average gross hourly earnings of male paid employees. No data available for Greece. For Croatia, Malta and Ireland, 2014 figures instead of 2015. The labour market potential of migrants is strongly underutilised. Whereas non-EU born people make up an increasing share of population in the EU (6.6% in 2014, 6.9% in 2016), they are less likely to participate in the labour market than native born. The integration challenge has increased with the impact of the economic crisis and with the recent increased inflows of refugees, whose labour market integration is more difficult than other groups. While in 2008 non-EU born people experienced activity rates and employment rates respectively 1.0 pps and 4.6 pps lower than native born, by 2016 these gaps had widened to 4.8 pps and 10.6 pps (age class 20-64). In seven EU countries (Belgium, Finland, the Netherlands, Sweden, France, Austria and Denmark) the employment gaps exceeds 15 pps. Inactivity of non-EU born women is particularly high, 9.1 pps below that of native born women. Source: Eurostat [lfsa_ergacob]. Note: For DE there is no breakdown available for non-EU born (the gap between host country nationals and third country nationals is 26.5 pps, the sixth highest in the EU).

Labour market outcomes differ markedly by reason of migration. The employment rate of non-EU born people is higher for those arrived for study or employment reasons (71% in 2014, even higher than for natives) and lower for those arrived for family reasons and for refugees. While the lower employment rates of migrants are partly driven by a higher share of persons with low level of education, a rising level of education does not translate into better employment outcomes and there is a significant under-use of migrants' skills and qualifications. Social challenges have a tendency of being passed over generations. This risk is particularly relevant in view of the high and increasing share of people with a migrant background among young people in some Member States. As labour markets recover, persons with disabilities risk being left behind. A high gap persists in the employment (and activity) rates between people with and without disabilities, amounting to 25.7 percentage points (47.4% versus 73.1%) in 2015. This gap is increasing (it was 22.9 pps in 2012), as those without disabilities have higher chances to return to work. In particular, in Ireland and Malta it was more than 40 pps and in 7 countries it was higher than 30 pps. The lowest gaps were observed in Italy (13.8 pps) and Slovenia (16 pps). 3.2.2 Policy response Policy work has led to the identification of key aspects to improve the inclusiveness, relevance and quality of education, notably to tackle early school leaving. In May 2017, two Commission Communications outlined how EU action can support Member States and education providers in meeting these objectives. In addition, the 2015 Council Conclusions on reducing early school leaving and promoting success in school invited Member States to develop and implement comprehensive strategies against early school leaving (ESL), along with a number of specific measures. Several Member States are taking action in this area. In 2016, the Flemish community in Belgium approved a discussion paper on a policy related to study entitlement, truancy and school drop-out that will replace the current action plans. In the French-speaking community in Belgium, reducing ESL is a major element of the ongoing school reform which focuses on improving equity, effectiveness and efficiency. Bulgaria is implementing an inter-institutional cooperation mechanism to improve school enrolment and retention, with local teams deployed on the ground to identify out-of-school children or students at risk of dropout, improve the information exchange between relevant institutions, and improve data collection. In Estonia, career counselling and increasing the attractiveness of VET to tackle drop-out is being pursued. France has taken steps to ensure that young adults aged 16-25 who left school without a certificate or a qualification have the right to return to education or training. In November 2016, Hungary adopted an action plan to reduce ESL and introduced mandatory data collection on pupils’ school progress. Romania is developing an early warning mechanism and is planning ESF-funded second chance programmes and after-school activities. Across the EU, policies to effectively tackle low proficiency in basic skills are increasingly combined with efforts to promote inclusive education. The aim is reducing the impact of socio-economic status on students' performance, closing the educational gap of disadvantaged learners and fostering excellence in education. In Portugal, local administrations and school clusters cooperate in the implementation of the National plan to Promote Success in School, the Government’s flagship initiative to prevent school failure and reduce grade repetition. In 2017, Ireland set for the first time specific targets for literacy and numeracy within disadvantaged schools; it also set a relatively ambitious target to maintain the proportion of low-achievers below 10%, while increasing the proportion of top performers by 2025. The Czech Republic is implementing ESF-funded projects, whi