COMMISSION STAFF WORKING DOCUMENT

RESTRUCTURING IN EUROPE 2011

Accompanying the document

GREEN PAPER

Restructuring and anticipation of change, what lessons from recent experience?

RESTRUCTURING IN EUROPE 2011

FOREWORD

The European economy is slowly emerging from the deepest recession in decades. The economic crisis resulted in a large drop in economic activity in the EU, along with millions of jobs lost and a high human cost. The economic and financial crisis is also speeding up new developments on the international competition front with the rise of successful companies in emerging countries that are increasingly competing with European businesses in upper segments of the market.

The competitiveness of the European economy and the preservation of activities and jobs in Europe will depend more and more on the capacity of European companies to boost their competitiveness through innovating and quickly and smoothly adapting to change.

As underlined in the Annual Growth Survey, the EU needs to use this crisis to address decisively the issue of its global competitiveness so that it comes out stronger and turns itself into a smart, sustainable and inclusive economy delivering high levels of employment, productivity, competitiveness and social cohesion.

The positive export performance of some Member States shows that success in global markets rests not only on price competitiveness but also on wider factors such as sector specialisation, innovation, and skills levels that enhance real competitiveness. In that regard, the structural weaknesses pre-dating the crisis which had not been tackled adequately are becoming glaringly obvious.

The EU has built up a strong system of employment and social protection that, combined with a relatively high level of education, has been the basis for its economic and social prosperity over the last few decades. However, at a time when the business environment is changing fast, some aspects of that system are making it more difficult to quickly and smoothly reallocate resources, and especially human resources, from declining activities to emerging ones.

On the other hand, that system, built around the principle of job stability, is less and less capable of giving individual workers a real chance of a secure professional future when their jobs are at risk, because it does not sufficiently encourage them to adapt to change.

The economic and financial crisis and the faster pace of change that it is causing make it more important than ever for Europe to address those two weaknesses. Recognising the need for economic adjustment as a vital feature of future growth and job creation, the Commission wants to encourage permanent business adaptation to fast-changing economic circumstances while maintaining a high level of employment and social protection.

The Green Paper ‘Restructuring and anticipation of change: what lessons from the economic crisis?’ is a sign of the Commission’s determination to put in place all possible mechanisms and frameworks that support and encourage business adaptation while at the same time creating the conditions that will allow workers and regions to accompany that process and avoid unemployment and social distress.

The present report describes the numerous actions developed by the Commission that contribute to the objectives outlined above and details the reasons why further action in this field is needed. It covers multiple policy areas and a wide range of instruments and demonstrates an effort of internal coordination that is all the more needed as restructuring is a complex and multifaceted phenomenon that cannot be efficiently dealt with otherwise.

EXECUTIVE SUMMARY

Anticipating, managing and mitigating the negative consequences of restructuring Coping with the crisis || This report presents an overview of the European Union’s main strategies, policies and actions that aim to help anticipate, prepare and manage restructuring and change. Particular emphasis is placed on efforts to mitigate the negative consequences of restructuring on individual workers and the wider community. The report has been written against the background of the most serious economic and financial crisis for many decades, which has had a severe impact on the levels of restructuring and change throughout the European Union. Over the period from 2002 to 2010, more than 11 000 cases of restructuring were recorded by the European Restructuring Monitor, with the ratio of announced job losses/job creations standing at 1.8:1. In the period 2008-2010, that ratio increased to 2.5:1. The crisis, from which the EU has not yet fully emerged, has tested the ability of both the EU and the individual Member States to cope with high levels of change and as such provides the backdrop to the report. The crisis of the past two years has had a severe impact on the labour market. The level of restructuring has increased considerably as companies struggle to cope with extremely challenging circumstances. Chapter 1 of the report examines the main restructuring developments across Europe, looking at recent levels of restructuring and the numbers of jobs lost and created. It looks in detail at restructuring in the automotive industry, a major sector for the EU economy (the European Restructuring Monitor announced that job losses in the sector from the first quarter of 2008 to the end of the second quarter of 2010 amounted to more than 160 000). It also gives examples of some initiatives undertaken at company level to preserve employment in the context of the economic crisis. It also looks at Member States’ responses to the crisis, including labour market reforms and the widespread use of short-time working in some countries, which has served to cushion the labour market effects of the crisis. Further, it examines the role of industrial policy during the crisis, focusing in particular on the steel and automotive industries.

Restructuring as a necessary part of business life || However, it should not be forgotten that, even in normal times, restructuring is a part of daily business life, and a process that is necessary in order to ensure that organisations keep pace with change and remain competitive in a global market. Restructuring is therefore a vital and constant part of organisational life and can create as well as destroy jobs. It is also a reaction to larger-scale changes, such as global warming and climate change. In order to reflect the changed and changing environment in which the EU finds itself, the report looks at the likely challenges for the EU, which include finding the necessary skills to allow the EU to remain competitive in the global market in the years to come, dealing with the health consequences of restructuring, coping with global warming and climate change, including finding new and alternative sources of energy (which could produce up to 2020 a net effect of about 410 000 additional jobs and a 0.24 % increase in gross domestic product (GDP) in the EU) and adapting industrial policy to ensure that the EU can compete with its global neighbours.

The EU’s wealth of experience in dealing with restructuring || Over the past few decades, the EU has built up a wealth of experience in examining and dealing with how best to anticipate and manage restructuring in order to mitigate its negative impacts as far as possible. There are many examples of best practice at the level of individual Member States, which have been drawn together and showcased in a range of recent EU-funded projects on restructuring. The challenge now is to try to build on and use this experience to formulate a framework at European level on anticipating and managing restructuring. The European Commission has, in its October 2010 Communication on industrial policy, as well as in other recent policy papers, touched on some of the relevant issues, and has indicated that it will consult the EU-level cross-sector social partners on such a framework. Dealing with restructuring in a positive way involves both anticipating and managing it. In order to limit the negative impact of restructuring as much as possible, it is vital that anticipatory measures are put into place as far as possible. There are examples of initiatives such as economic and financial observatories and early warning systems in some EU Member States, although these are not replicated in all of them and could be developed further in those where they are present. The anticipation of restructuring is key to mitigating the adverse effects as far as possible, as it enables the actors to plan and take action to lessen the impact in advance of the restructuring event.

The crucial role of competence and skills development … || Competence and skills development sits at the core of forward-looking employment policy and is a subject that is integral to best practice in the management of restructuring. The demand for a highly qualified labour force remains a key source of future growth. From a market standpoint, it is essential that qualifications, competences and skills of mobile EU professionals are recognised in a fast, simple and reliable way if we are to meet this surge in demand. On 19 December 2011 the European Commission adopted a proposal to modernise the Professional Qualifications Directive[1] in order to adapt it to an evolving labour market. Chapter 2 of the report therefore examines competences and skills in the context of the future direction of the EU economy and the restructuring that the EU has undergone in the past few years. This includes issues such as lifelong learning and the importance of ensuring that all workers have the opportunity to develop their skills and competences throughout their working life. It is also important to ensure that skills are transferable, as this will improve employability and aid movement between companies and between sectors if necessary. A particular focus is placed on the skills needs and skills policy of the automotive sector, and on the skills needs of SMEs (in 2008, according to Eurostat figures, out of nearly 20.8 million companies in the EU, 99.8 % were SMEs and they accounted for around 67.4 % of all employment by enterprises). These businesses cannot offer as targeted an approach to training and skills development as their larger counterparts.

… and of the EU support funds || The EU makes a range of funds available to Member States in order to support restructuring, and this plays an important role in helping to anticipate and manage restructuring. Chapter 3 of the report examines the role of state aid provided by Member States, including the Commission’s policy response to the economic crisis, involving aid both to the financial sector and to the real economy. It also examines the role of the European Social Fund (over 400 000 enterprises have received assistance from the ESF and more than 7 million have been supported by activities funded by it) and the European Globalisation Adjustment Fund (a total of 29 applications were submitted to the Commission in 2009, with an amount requested per worker varying between slightly above € 500 and over € 15 700, with an average of € 5 698); it gives examples of where the funds have succeeded in helping to manage restructuring. Finally, it looks at the impact of restructuring in the EU regions and how EU funds have helped specific regions to manage restructuring.

Legislation and social dialogue shape the employee involvement framework for the response to restructuring || Restructuring in the EU is covered by a body of legislation, in the form of a number of Directives, largely in the field of informing and consulting the workforce about changes that are likely to affect them. Chapter 4 of the report examines this framework and also looks at the implementation of EU law and the preparation of possible new initiatives in this area. Social dialogue also plays an important part in shaping responses to restructuring, at both EU and national level. There are a number of joint actions at EU level on the management of change, and a range of sectoral initiatives that have successfully managed change. A number of transnational agreements on restructuring also cover issues such as social responsibility, anticipating change, and mitigating the negative consequences of change.

Initiatives and tools available at national level to anticipate and manage restructuring || A wide range of measures have been taken by Member States to support restructuring, focusing on anticipation and management of the process, and Chapter 5 of the report reviews them. In particular, it examines the findings of a large-scale Commission-funded project undertaken in 2009-2010, designed to showcase examples of best practice in the anticipation and management of restructuring in each of the 27 EU Member States and to stimulate debate at both national and EU level on these issues. It also reviews the existing schemes, instruments and mechanisms providing support to workers affected by restructuring that have been set up in parallel and in addition to the typical support mechanisms of the public employment services (PES), based on a study carried out for the Commission in 2009. The chapter also provides a comparative analysis of these tools and a review of how flexicurity policies can help to anticipate and manage restructuring.

Facing up to future challenges || The future challenges that the EU is facing are many and varied, and Chapter 6 of the report examines the main issues and how they might be addressed. One of these is the psychosocial effects of restructuring, including the effects not only on the workers who are losing their jobs, but also on the ‘survivors’ and the line managers in an organisation. Managing the psychosocial effects of restructuring is of prime importance as this will help to ensure that the negative consequences of the restructuring process have as little effect as possible on those involved in the process. Climate change is another huge challenge for the EU and an issue that has been a focus for EU policy makers for some time. There are many potential impacts of climate change on employment, such as effects on specific sectors, the changes to skills policies that will be needed in a green economy and the challenges of moving to a low-carbon economy. It is likely that climate change will require a significant and coordinated response from the European Union in order to ensure that the full benefits of the green economy are harnessed by the EU economy. In terms of sectoral impacts, the transport sector is an industry that will be significantly affected by the move to a low-carbon economy and challenges include the development of green jobs, the types of skills that will be needed in the sector, and best practices in restructuring. Future challenges also include the best way forward for EU industrial policy, and most specifically the links between industrial policy and employment and skills policies. Many of the relevant issues are highlighted in the Commission’s October 2010 Communication on industrial policy, which sets out the main challenges for industrial policy in a globalised economy.

The challenges of economic and social change and the need for a common approach || As mentioned above, the EU has developed many responses to restructuring and change, and Chapter 7 of the report looks into them. It focuses in particular on how the EU is dealing with the challenges posed by economic and social change, including a review of the range of policies and practices that have been developed in order to anticipate and manage change. In particular, it looks at what the Commission has been undertaking to try to improve the process of managing change, including its consultations with the EU-level cross-sector social partners on the issue of anticipating and managing change, and the social partners’ response, which took the form of joint orientations for managing change. Drawing on all this experience, the Commission has stated that ‘updated orientations on restructuring can be very useful in reinforcing the capacity of businesses and workforce to adapt to a fast-changing economic environment’.

Tentative lessons on anticipation and management of restructuring || The Commission has initiated a range of activities over the past 15 years with the aim of trying to help organisations and stakeholders manage restructuring in a way that has the least possible negative impact on workers, their families and the surrounding community. These include two consultations with the EU-level social partners on the issue of managing change. The Commission has also, over the past two decades, funded a wide range of research, in the form of studies or analyses aimed at identifying good practices, measures or actions to better anticipate restructuring and manage it in a responsible way. There is a significant degree of convergence between the good practices and measures highlighted in these studies, enabling the following tentative messages to be identified: ● Measures to anticipate and manage restructuring differ in individual Member States, depending on factors such as national culture, national industrial relations and employment systems, national welfare and social security systems and national skills and training strategies. Nevertheless, there is clearly scope for transposing initiatives or parts of initiatives across borders, adapting them to different national contexts. ● Active social partner involvement is crucial in many of the schemes available to anticipate and manage restructuring. ● Where a wide range of actors participate in measures, this is a strengthening factor. Partnerships can provide a broad spectrum of expertise and human resources to support organisations that are trying to manage restructuring. This can also limit the effects of restructuring on the wider region, community and employees’ families. ● SMEs have specific challenges when engaging with the anticipation and management of restructuring in a socially responsible way. They often lack the resources, both financial and in terms of personnel, to go much beyond statutory compliance. ● Anticipation of restructuring is a powerful tool that can limit its adverse effects. However, there needs to be greater emphasis on anticipation and preparation of restructuring. ● European funds play an important role in some of the newer EU Member States and in southern Europe. ● While redundancy should always be a last resort, active measures should take precedence over passive measures. ● Training is a crucial and core issue when considering the anticipation and management of restructuring. ● The impact of restructuring on the health of the individuals concerned should be monitored closely, and adverse effects, such as psychosocial but also physical impacts, should be mitigated as much as possible. This concerns those who are made redundant, those overseeing the redundancies (line managers) and the ‘survivors’ of restructuring. Although a range of innovative policies and practices have been highlighted by all these studies, at national, regional, sectoral and organisational level, there is a general lack of coordination and consistency in the implementation of socially responsible restructuring. More emphasis therefore needs to be placed on coordinating measures.

FOREWORD 2

EXECUTIVE SUMMARY 4

CHAPTER 1: RESPONDING TO THE CRISIS 17

1: RECENT LEVELS OF RESTRUCTURING IN THE EUROPEAN UNION 18

1.1: THE EMPLOYMENT IMPACT OF RESTRUCTURING IN EUROPE 22

1.2: RESTRUCTURING ACTIVITY DURING THE ECONOMIC CRISIS 24

1.3: JOB LOSSES 25

1.4: RESTRUCTURING INVOLVING JOB CREATION 34

1.5: EMPLOYMENT-MAINTAINING INITIATIVES DURING THE CRISIS 37

1.6: TENTATIVELY EMERGING FROM RECESSION? 40

2: LABOUR MARKET REFORMS 46

3: SUPPORTING LABOUR MARKETS DURING THE CRISIS: SHORT-TIME WORKING 54

3.1: SHORT-TIME WORKING ARRANGEMENTS 54

3.2: PHASING OUT CRISIS-RELATED LABOUR MARKET MEASURES 59

3.3: THE WAY FORWARD 60

4: THE ROLE OF INDUSTRIAL POLICY IN RESTRUCTURING DURING A PERIOD OF CRISIS 62

4.1: CHALLENGES AND OPPORTUNITIES DRIVING FUTURE RESTRUCTURING 63

4.2: IMPLICATIONS FOR INDUSTRIAL POLICY MEASURES 68

4.3: SECTOR-SPECIFIC INDUSTRIAL POLICIES FOR RESTRUCTURING 69

4.4: THE WAY FORWARD 74

5: ACCESS TO FINANCE IN THE CRISIS 74

CHAPTER 2: DEVELOPING COMPETENCES 79

1: THE IMPORTANCE OF LIFELONG LEARNING 81

1.1: PLANNED NEW PROPOSAL ON THE VALIDATION OF INFORMAL LEARNING 83

1.2: THE EUROPASS FRAMEWORK 83

1.3: EU POLICY ON LIFELONG LEARNING AND SKILLS DEVELOPMENT 84

2: THE ROLE OF SKILLS IN IMPROVING LABOUR MARKET MOBILITY 86

2.1: GENERAL VS SPECIFIC COMPETENCES 86

2.2: TRANSFERABLE SKILL SETS 88

2.3: FUTURE SKILLS NEEDS 90

2.4: THE ROLE OF DIFFERENT ACTORS IN SKILLS DEVELOPMENT 90

3: SECTOR STUDIES AND THE NEW SKILLS FOR NEW JOBS INITIATIVE 94

3.1: NEW SKILLS FOR NEW JOBS INITIATIVES 94

3.2: SECTORAL STUDIES OF INNOVATION, SKILLS AND JOBS 95

3.3: EVOLUTION OF OCCUPATIONS IN THE EU 97

3.4: EMERGING COMPETENCES 102

3.5. WORK AND LIFE QUALITY IN NEW AND GROWING JOBS 103

4: EUROPEAN SECTOR COUNCILS ON JOBS AND SKILLS 106

4.1: FEASIBILITY STUDY’S RECOMMENDATIONS AND POLICY OPTIONS 108

4.2: MODEL CHOSEN BY THE COMMISSION 110

4.3: FIRST PILOT SECTOR COUNCILS ON JOBS AND SKILLS 111

5: SKILLS INITIATIVES IN THE AUTOMOTIVE SECTOR 113

5.1: EUROPEAN PARTNERSHIP FOR THE ANTICIPATION OF CHANGE IN THE AUTOMOTIVE INDUSTRY 114

5.2: ANTICIPATION OF SKILLS NEEDS — TOWARDS A EUROPEAN SECTOR COUNCIL 117

6: TRAINING IN SMALL AND MEDIUM-SIZED ENTERPRISES 119

6.1: SMEs IN EUROPE 119

6.2: GUIDE FOR TRAINING IN SMEs 121

6.3: TRAINING — A KEY TO SUCCESS AND ADAPTATION 123

6.4: FINANCIAL AND ORGANISATIONAL MEANS 124

6.5: HR AND SKILLS DEVELOPMENT POLICY 125

6.6: LESSONS LEARNED 127

CHAPTER 3: EU ROLE WITH REGARD TO RESTRUCTURING SUPPORT 129

1: THE ROLE OF STATE AID 130

1.1: THE COMMISSION’S POLICY RESPONSE TO THE FINANCIAL CRISIS 131

1.2: WAY FORWARD 135

2: THE ROLE OF THE EUROPEAN SOCIAL FUND 137

2.1: ADAPTABILITY IN THE ESF OPERATIONAL PROGRAMMES FOR DURING 2007-2013 138

2.2: ESF INTERVENTIONS AT THE DIFFERENT STAGES OF THE RESTRUCTURING AND CHANGE PROCESS 140

3: THE ROLE OF THE EUROPEAN GLOBALISATION ADJUSTMENT FUND 146

3.1: THE FUNCTIONING OF THE EGF 146

3.2: OVERVIEW OF APPLICATIONS RECEIVED IN 2009 148

3.3: NEXT STEPS 152

4: THE IMPACT OF RESTRUCTURING IN THE EU REGIONS 154

4.1: THE INFLUENCE OF GLOBALISATION 154

4.1.3: ‘SMART SPECIALISATION STRATEGIES’ AND THE SMART SPECIALISATION FORUM 160

4.2: MANAGEMENT OF RESTRUCTURING UNDER THE EUROPEAN REGIONAL DEVELOPMENT FUND 162

CHAPTER 4: DIALOGUE AND LAW 167

1: EU LABOUR LAW AND RESTRUCTURING 168

1.1: MAIN EU LABOUR LEGISLATION RELATING TO RESTRUCTURING 168

1.2: IMPLEMENTING AND ADAPTING LEGISLATION 170

1.3: PREPARATION OF NEW INITIATIVES 174

2: EUROPEAN-LEVEL SOCIAL DIALOGUE ON MANAGEMENT AND ANTICIPATION OF CHANGE 175

2.1: UNDERSTANDING WHAT HAPPENS 175

2.2: SECTOR-LEVEL SOCIAL DIALOGUE 178

3: TRANSNATIONAL COMPANY AGREEMENTS AND RESTRUCTURING 184

3.1: AN EMERGING PHENOMENON 184

3.2: ADDRESSING SPECIFIC RESTRUCTURING EVENTS 184

3.3: SOCIALLY RESPONSIBLE MANAGEMENT OF FUTURE RESTRUCTURING 186

3.4: ANTICIPATING CHANGE 188

3.5: ADDRESSING RESTRUCTURING IN GLOBAL AGREEMENTS 189

3.6: COMMISSION’S ROLE IN PROMOTING TRANSNATIONAL COMPANY AGREEMENTS 190

4: CROSS-BORDER MERGERS 192

4.1: EMPLOYEE PARTICIPATION IN CROSS-BORDER MERGERS 192

4.2: EUROPEAN COMPANIES (SEs) 193

CHAPTER 5: MEMBER STATE ACTIONS TO SUPPORT RESTRUCTURING 198

1: RESTRUCTURING IN THE MEMBER STATES 198

2: ORGANISING TRANSITIONS 206

2.1: CLASSIFYING EXISTING SCHEMES AND MECHANISMS 207

2.2: RESULTS OF A COMPARATIVE EVALUATION 212

2.3: THE ROLE OF FLEXICURITY IN SECURING TRANSITIONS 213

CHAPTER 6: ISSUES AND CHALLENGES 219

1: PSYCHOSOCIAL EFFECTS OF RESTRUCTURING AND MENTAL HEALTH IN THE WORKPLACE 220

1.1: THE EU FRAMEWORK, STRATEGIES AND ACTIONS 220

1.2. THE PSYCHOSOCIAL RISKS OF RESTRUCTURING AND CHANGE 225

1.3: MENTAL HEALTH AND WELL-BEING AT WORK 231

2: THE IMPACT OF CLIMATE CHANGE ON EMPLOYMENT 235

2.1: OVERALL IMPACT OF CLIMATE CHANGE ON EMPLOYMENT 235

2.2: SECTORAL IMPACT OF CLIMATE-CHANGE POLICIES 236

2.3: CLIMATE-CHANGE POLICIES AND SKILLS 238

2.4: THE TRANSITION TO A LOW-CARBON ECONOMY 239

3: THE IMPACT OF RENEWABLE ENERGY POLICY ON EMPLOYMENT 241

3.1: THE BENEFITS OF THE RES SECTOR 243

3.1.1: THE EMPLOYMENT BENEFITS OF RES 244

3.1.2: THE FUTURE IMPACT OF RES ON EMPLOYMENT 245

3.1.3: LOOKING TO THE FUTURE 247

4: CHALLENGES FOR THE TRANSPORT SECTOR 248

4.1: OVERVIEW OF THE EU TRANSPORT SECTOR 252

4.2: DECARBONISATION AND GREEN JOBS 253

4.3: DEMOGRAPHY: HEADING FOR SKILL AND LABOUR SHORTAGES 257

4.4: INTEGRATION IN THE TRANSPORT SECTOR 259

4.5: FROM NATIONAL PUBLIC MONOPOLIES TO EUROPEAN PRIVATE MONOPOLIES? 260

4.6: THE EFFECTS OF THE ECONOMIC CRISIS 261

4.7: EXISTING PRACTICES IN RESTRUCTURING 263

4.8: EU ACTIONS TO SOFTEN THE SOCIAL EFFECTS OF RESTRUCTURING 264

4.9: OBJECTIVES FOR THE FUTURE 266

5: THE FUTURE OF INDUSTRIAL POLICY 267

5.1: AN INTEGRATED INDUSTRIAL POLICY FOR THE GLOBALISATION ERA 267

5.2: IMPROVING THE FRAMEWORK CONDITIONS FOR INDUSTRY 268

5.3: INDUSTRIAL INNOVATION 268

5.4: IMPROVING THE EU’S SKILLS BASE 269

5.5: TACKLING STRUCTURAL EXCESS CAPACITIES 269

5.6: THE ROLE OF MANAGEMENT AND WORKER REPRESENTATIVES 270

5.7: TOWARDS A NEW EU GOVERNANCE FOR INDUSTRIAL POLICY 271

5.8: SUSTAINABLE INDUSTRIAL POLICY 271

5.9: ENERGY-INTENSIVE INDUSTRIES AND INTERNATIONAL ASPECTS 275

5.10: DEVELOPING A SUSTAINABLE INDUSTRIAL POLICY 277

5.11: THE FUTURE 278

CHAPTER 7: MAIN ECONOMIC AND SOCIAL CHALLENGES: THE RESPONSE OF THE EU 280

1: PRINCIPLES EXPRESSED IN AND RESULTING FROM THE COMMISSION’S CONSULTATIONS OF EUROPEAN SOCIAL PARTNERS 281

1.1: THE 2002 CONSULTATION OF THE EUROPEAN SOCIAL PARTNERS ON ANTICIPATING AND MANAGING CHANGE 281

1.2: THE 2003 EUROPEAN SOCIAL PARTNERS’ WORK ON MANAGING CHANGE 284

1.3: THE 2005 CONSULTATION OF THE EUROPEAN SOCIAL PARTNERS ON RESTRUCTURING AND EMPLOYMENT 286

2: PRINCIPLES RESULTING FROM ANALYTICAL WORK AND STAKEHOLDERS’ VIEWS 288

2.1: SOURCES: STUDIES, REPORTS, RESTRUCTURING FORA 288

3: MAIN ISSUES RELATING TO THE ANTICIPATION AND MANAGEMENT OF CHANGE 294

3.1: THE IMPORTANCE OF TIMELY ACTION 294

3.2: A MULTI-LEVEL, MULTI-ACTOR ISSUE 296

CHAPTER 8: CONCLUSIONS 302

1: TEN TENTATIVE LESSONS ON THE ANTICIPATION AND MANAGEMENT OF RESTRUCTURING 303

SOURCES AND FURTHER READING 310

BIBLIOGRAPHY 313

CHAPTER 1: RESPONDING TO THE CRISIS

The economic crisis of the past two years has had a severe impact on the labour market, as organisations are obliged to make redundancies in significant numbers in order to try to respond to the external environment. Over the period from 2002 to 2010, over 11 000 cases of restructuring were recorded by the European Restructuring Monitor, based at the European Foundation for the Improvement of Living and Working Conditions (Eurofound) in Dublin, with a ration of 2:1 regarding announced job loss to announced job creation. The level of recorded restructuring announcements has, of course, increased over the past two years, accompanied by higher levels of job loss, although it would seem that both announced job loss and cases of restructuring peaked during the first quarter of 2009.

The crisis has, however, had an uneven impact in terms of sector, with some sectors hit much harder than others. The automotive sector, which is a manufacturing sector for the EU, has been hit hard by the crisis, due to reduced demand. By contrast, other sectors, such as the retail sector, appear to have weathered the crisis comparatively well, with job creation, certainly more recently, outweighing job loss in this sector.

In terms of employment, the automotive sector is vital in the EU, both in terms of direct and indirect employment. In order to weather the recent crisis, employers in this sector have resorted to a range of initiatives, the most common of which has been short-time working, which aims to bridge difficult but temporary economic circumstances.

In response to these challenges, the EU institutions have been trying to put into place a sustainable labour market policy response, in the form of an integrated strategy based on factors such as interventions in employment protection, lifelong learning and activation policies. These may help to improve the adjustment capacity of labour markets and smooth the employment and social impact of restructuring. Increasing participation, and enhancing workers’ employability through better skills. The ultimate goal is to return to strong growth. The Europe 2020 strategy, which is based on seven flagship policies, contains two policies that are relevant for the labour market: an agenda for new skills and new jobs, aimed at modernising the labour market, notably by developing skills which better match with labour market needs and enhancing labour mobility prospects; and the ‘Youth on the Move’ initiative, which aims to remove obstacles to reaching greater educational attainment and higher employment rates for young people.

More widely around the EU, short-time working has been one of the major policy responses of organisations, and one that appears to have had the desired effect in terms of maintaining employment levels. However, there are limitations to this measure, and it is particularly important to ensure that short-time working is phased out correctly and not viewed as a long-term option, as this will undermine recovery and growth.

It is not easy to see a clear way forward, following on from the recent crisis, but it is clear that recovery will come and that EU employment and industrial policy must be in a position to face up to the challenges of the future, in order to ensure that recovery and growth in the EU is strong and smooth. To this end, industrial policy has begun to be more active in supporting the transition of industries by setting up public private partnerships, fostering innovation and coordinating Member States’ policies. In addition, in its strategies on restructuring, industrial policy is also trying to better incorporate initiatives from other policies, as it is clear that only a holistic approach will lead to sustainable growth in the future. The Commission’s October 2010 Communication on industrial policy makes this clear.

1: RECENT LEVELS OF RESTRUCTURING IN THE EUROPEAN UNION

The European Restructuring Monitor (ERM), operated by Eurofound, Dublin, records restructuring announcements in establishments, based on media reporting. The ERM has been in operation since 2002 and now constitutes a dataset of over 11 000 individual cases of restructuring which, notwithstanding certain biases (see below), is the best single, publicly available source of EU data on the employment impacts of large-scale organisational restructuring.

Using a network of national correspondents based in each of the EU27 Member States plus Norway, the ERM captures basic descriptive and quantitative data concerning each reported case of restructuring involving over 100 announced job losses or job creations or, in the case of companies employing more than 250 persons, announced restructurings affecting at least 10 % of the workforce.

It should be noted that this definition only captures reported mass or large-scale restructuring processes. It therefore only corresponds to the tip of the iceberg in terms of job creation and loss most likely to be captured by national media. First, the information does not include the impact on subcontractors unless these also satisfy the thresholds, and ignores local spill-over effects indirectly generated on employment in a given area. Second, it is well known that the main flows of job loss and creation in a given country overwhelmingly come from small-scale loss and creation. However, these large-scale processes are highly meaningful, for several reasons. They are dramatic in scope and affect a large number of people, both the workers given notice, their dependants and their families. Further, as they often relate to major employers in a location, they can have a disproportionate impact on the local and sometimes the regional economy, often including important spill-over effects.

The value of the ERM database also stems from the distinctions it allows regarding various organisational dimensions of restructuring. Box 1.1 summarises the types of restructuring identified in the ERM.

Box 1.1: Type of restructuring

Relocation: When the activity stays within the same company, but is relocated to another location within the same country.

Outsourcing: When the activity is subcontracted to another company within the same country.

Offshoring/delocalisation: When the activity is relocated or outsourced outside of the country’s borders.

Bankruptcy/closure: When an industrial site is closed or a company goes bankrupt for economic reasons not directly connected to relocation or outsourcing.

Merger/acquisition: When two companies merge or during an acquisition, which then involves an internal restructuring programme aimed at rationalising an organisation by cutting personnel.

Internal restructuring: When the company undertakes a job-cutting plan, which is not linked to another type of restructuring defined above.

Business expansion: Where a company extends its business activities, hiring new employees. This form of restructuring has been introduced to the ERM database in order to reflect the positive effects of certain restructuring processes on employment.

Box 1.2 below gives information about the methodology used by the ERM

Box 1.2: Measuring the employment effects of restructuring, the ERM methodology

The information contained in the ERM comes from correspondents in each of the EU Member States, together with Norway, who submit fact sheets on the basis of articles published in national newspapers and the business press in the country in question of enterprise restructuring, where this is defined as cases which:

● affect at least one EU Member State;

● entail an announced or actual reduction of at least 100 jobs; or

● involve sites employing more than 250 people and affecting at least 10 % of the workforce; or

● create at least 100 jobs.

In principle, all instances of restructuring that meet these criteria should be included in the ERM, although how far this is the case in practice depends on both the diligence of the national correspondents concerned in reviewing the sources in question and the extent to which the news sources (a selection of three to five business or economy-oriented newspapers is screened in each country) actually report relevant cases. Both may vary between Member States, partly with the size of the country, since a case of restructuring involving the loss of, say, 30 jobs at a worksite employing 250 people is likely to be more newsworthy in a small country than a large one.

The cases excluded because they do not meet the criteria defined because of either the worksite concerned or the job losses involved being too small, are also likely to vary between countries. In this case, the cases excluded might be expected to vary inversely with the size of the country, though this is not necessarily so, since the typical size of enterprise itself tends to vary across countries, there being a much larger number of small and medium-sized enterprises in the southern Member States in particular than in other parts of the EU.

There is an acute lack of solid evidence on the employment effects of restructuring at European level. While the ERM is not fully representative of the employment effects of restructuring, it is the only EU-wide attempt to measure restructuring directly. Moreover, the ERM is very timely[2] and is based on publicly available information. This characteristic, together with the fact that it identifies the companies and establishments undergoing restructuring, makes the ERM a particularly useful measure from a policy perspective.

Potential biases in ERM

The ERM defines job loss as intended redundancies, which are not notified to any public authority but rather ‘announced’ either in the media or some other public domain. The thresholds for inclusion in the ERM database are: at least 100 jobs or involving sites employing more than 250 people and affecting at least 10 % of the workforce. There is no stipulation of the time within which the intended job loss is to occur.

The major advantage of the ERM is that it occurs very early in the dismissal process and that it will capture those who come to leave very early in the dismissal process. It will, however, almost certainly overestimate the actual number affected by the restructuring. The early warning feature of the ERM is one of its major strengths as information is usually available long before the reduction of the workforce is enacted. Another major strength of the ERM is that it is based on information in the public domain. There are no issues of privacy and the identification of specific cases allows the process of structural change to be observed at the company level.

However, the major problem with the ERM is whether the macro picture that it tells is representative of job loss in general. How then can we expect the ERM to be biased with respect to job loss in general? A priori, there is reason to suppose the following.

Firm size bias occurs by definition due to the ERM thresholds. Moreover, even within the firm size definitions there will almost certainly be an over-representation of large firms and large workforce reduction as these are more likely to be reported in the media. As firm size is correlated with a number of important factors such as economic sector, size bias will lead to many types of bias. For example, the large firm bias probably leads to a higher reporting rate in the ERM for manufacturing relative to services. The manufacturing bias may in turn lead to bias as regards region and gender. The fact that the sampling error will be greater when firms are small may lead to inconsistencies over time (if firm size varies over time) and between countries with differing firm size distributions. The most obvious impact of large firm bias impacts on small Member States such as Malta and Cyprus as they have very few firms of the size that fall under the ERM thresholds. Indeed, the ERM database provides very poor information on restructuring in these countries.

Regional bias, apart from that which follows from the large firm bias mentioned earlier, is likely to occur when media coverage is not evenly spread throughout the country. While most of the designated newspapers are formally national, there may well be some national or regional capital city bias.

Country size bias is also likely. In absolute numbers, there is obviously much more job loss in large countries. In terms of national impact, restructuring involving for example 100 employees will be a less frequently occurring and more media-prominent event in Portugal or Greece than in Germany or the UK. This suggests that the reporting frequency will be higher in small countries than in big ones. This could seriously flaw comparisons between countries (but not over time). Note that because there are more large firms in large countries, this leads to better coverage in the ERM. Thus there are likely to be conflicting tendencies to bias as regards country size, leaving little indication on the size and direction of the bias.

Type of restructuring bias (in terms of internal restructuring, relocation, closure etc.) may also occur if public and media focus is more concentrated on certain types of restructuring. Otherwise there is little to suggest that bias occurs in this aspect of the ERM.

The ERM also reports cases of job creation. As the major part of ERM cases are identified in newspapers, one could presume, in accordance with the journalist adage that ‘the best news is bad news’, a higher rate of reporting of job loss relative to job creation.

Regarding the information collected, the sample ERM fact sheet below illustrates the basic data that the system is designed to capture.

This section of this chapter gives a basic descriptive overview of the employment effects of large-scale restructuring in EU27 and Norway from the ERM dataset from 2002 to the end of the second quarter of 2010. Then it turns to look in more detail at recent data covering the period 2008 to the second quarter of 2010, which covers the mini-cycle both before, during and after the acute economic and financial crisis from the fourth quarter of 2008 to the first quarter of 2009, when restructuring activity also peaked. The section includes brief features looking at instances of early retirement captured in ERM cases in the recent period and at restructuring developments in the car manufacturing sector. It concludes with some short examples of company and social partner initiatives which have helped to mitigate the negative employment impacts of the most severe European recession in recent memory.[3]

1.1: THE EMPLOYMENT IMPACT OF RESTRUCTURING IN EUROPE

Between the beginning of 2002 and the end of the second quarter of 2010, over 11 000 cases of large-scale restructuring in EU Member States (including the new central and eastern European Member States from 2005 onwards) were recorded by the ERM. The ratio of cases of announced job loss to announced job creation was around 2:1 over the period.[4] The cases recorded[5] were associated with announced job losses totalling just above 3.8 million and announced job creation of just over 2.0 million. The annual median size of restructuring cases varied between 200 and 250 over the period covered for both job gain and job loss. For details, see table 1.1 below.

Table 1.1: Large-scale restructuring in Europe: an overview of ERM cases from 2002 to 2010*

|| Cases || Employment || Median case size

|| Job loss || Job gain || Job loss || Job gain || Job loss || Job gain

2002-7 || 4 341 || 2 622 || 2 509 713 || 1 532 048 || 210 || 250

2008 || 1 032 || 535 || 527 124 || 278 781 || 227.5 || 200

2009 || 1 650 || 359 || 651 557 || 203 295 || 200 || 220

2010* || 345 || 183 || 144 162 || 61 566 || 230 || 200

Total || 7 368 || 3 699 || 3 832 556 || 2 075 690 || 205 || 231

Source: ERM (*2010, q1 and q2 only).

As the chart below indicates, the distribution of announced employment gains and losses is heavily concentrated in larger-scale restructurings. In part this is for reasons of large-firm bias and media coverage bias which are inherent to ERM (see box 1.2). It is possible to discern patterns comparing year-on-year shifts in the composition of announced job loss by case size. The share of announced job loss in large-scale cases involving at least 1 000 job losses has varied between 40 % and 60 % over the period (share of cases on the other hand varies between 7 % and 11 % by year). The share of medium-sized cases and smaller cases increased markedly during the crisis (2008-9) before beginning to fall back in early 2010. For details, see figure 1.1 below.

Figure 1.1: Share of ERM-recorded announced job loss/gain by case size, 2002-10*

Source: ERM (*2010, q1 and q2 only).

In terms of announced job gain, large-scale cases involving at least 1 000 new jobs account for the majority (c.60 %) of overall job gains recorded on ERM in the period 2002-2009. The pattern in the first semester of 2010 as growth has resumed has, however, been quite distinctive: the share of jobs in medium-sized cases involving 150-499 jobs has doubled (from 21 % to 42 %).

Over the period from 2002-2007 to 2010, the median number employed in companies announcing major job loss has risen from 800 to 900 and the share of larger employing units[6] (500 or more employed in the affected units) announcing job loss has not decreased; in fact it has increased, from 58 % to 60 %.

In summary, the trends appear to be for a declining share of large-scale restructuring-related job loss or gain to be in very large cases (those leading to the announced dismissal of over 1 000 individuals). At the same time, a consistently high share (around 60 %) of job loss cases involves larger employing units (those with more than 500 employees).

Box 1.3: What is the employment impact of restructuring?

The word ‘restructuring’ has several meanings and some definitions of restructuring might include events that do not have any impact on employment levels or that, through a reorganisation of work, may have an impact on the workforce in some other way. Similarly, the relationships between restructuring and employment are neither simple nor straightforward.

The term ‘restructuring’ has come to be associated with the enactment of structural change below the macro or national level: there are reports of the restructuring of sectors, companies and establishments. Restructuring is also seen as more of an active process initiated by employers, in contrast to the more passive and deterministic long-term forces of structural change and economic development. Even if it is driven by the need to maintain or enhance profitability, and to ensure by so doing the survival of the company (and thus jobs) in the long term, restructuring is primarily perceived as having a negative impact on employment levels at particular workplaces.

Nonetheless, the more abstract concept of structural change, ie the reallocation of resources to more productive uses, is generally viewed in positive terms. Job creation in new companies and sectors of the economy is, together with cheaper goods and services, the main benefit of structural change. However, to define this job creation as restructuring is both contrary to public perceptions of the term, as well as being somewhat illogical. It is also a complex theoretical problem insofar as restructuring is also often defined by its negative effect on jobs and no clear-cut definition has yet emerged.

Nonetheless, job creation is related to restructuring in the short term in one particular context — when jobs are lost in one company or location in order to be moved to another company or location. This occurs either through the process of outsourcing or offshoring. Jobs may be lost due to offshoring, for example, in Germany, but not from the EU. Some evidence, for instance in the ERM, indicates that much job creation in the newer Member States emanates from companies located in the old EU15. Similarly, significant technological changes have already triggered restructuring processes in which the loss of (unskilled) jobs has gone hand in hand with the creation of (skilled) jobs. In the meantime, it is obvious that not all job creations are linked to change, let alone to restructuring.

1.2: RESTRUCTURING ACTIVITY DURING THE ECONOMIC CRISIS

As noted at the beginning of this chapter, the past two years have been extremely difficult for the EU economy, due to the financial and economic crisis that it has been experiencing during this time, and from which it has not yet fully emerged. The crisis has, naturally, caused the level of restructuring in the EU to increase, due to the higher incidence of bankruptcies and closures. The trends of the past two years have been captured by ERM data.

As stated above, the ERM has been in existence since 2002 and tends on average to record approximately 90-100 large-scale restructurings per month. Restructuring activity recorded on ERM peaked in the last quarter of 2008 and the first quarter of 2009 almost immediately following the global financial crisis triggered by the collapse of Lehman Bank in September 2008. In this period, monthly case totals climbed to over 300 and featured a much higher share of job loss cases. For details, see figure 1.2 below.

Figure 1.2: Restructuring activity during the crisis (by quarter)

Source: ERM.

Declining ERM restructuring activity since the second quarter of 2009 coincides with the onset of recovery in output, although unemployment levels only began to stabilise at the end of the first quarter of 2010.

1.3: JOB LOSSES

The sectors most affected by large-scale restructuring job loss during the peak quarters of the economic crisis were manufacturing, retail and financial intermediation. Public administration, which had accounted for 17 % of restructuring-related job loss announcements in 2006-2007, represented a much smaller share of announced job loss in the most recent period. This may be due to the fact that public sector employment levels often have a counter-cyclical nature, ie they can rise during private sector downturn. Nevertheless, there have been some high-profile announcements of job losses in public administration most recently, in countries such as the UK, although these announcements will affect actual employment levels over a longer period than announcements in the private sector.

For details, see figure 1.3 below.

Figure 1.3: Announced job loss in ERM restructuring cases by major sector, 2008-2010q2

Source: ERM.

The next part of this chapter looks in more detail at recent restructuring activity in the automotive sector, which is a major manufacturing sector for the EU, and one that has experienced a significant level of restructuring in recent years.

1.3.1: SECTOR IN FOCUS: AUTOMOTIVE MANUFACTURING

Within the broad manufacturing sector, announced job losses were most acute in automotive manufacturing, which accounted for over a quarter of all manufacturing job losses. Demand for cars and trucks has been severely affected by the economic downturn. Europe’s automotive industry, with the assistance of the public authorities, has experimented with various remedies to endure and survive the slump while preparing for the next generation of vehicles and consumers.

The automotive sector remains vital as an employer in Europe — more than 2 million workers are directly employed and nearly 10 million work in supply-chain activities. It is also a major hub of research and development activity, a source of tax revenues and a positive contributor to the EU’s trade balance with the rest of the world. This last fact is important as it signals that the industry in Europe is internationally competitive.

Nonetheless, the scale of the slump in demand for cars has raised questions over the viability of parts of the automotive industry, especially in a context of local and global overcapacity, estimated to be in the range of 20 % to 30 %. Two main stimulus paths have been identified for the sector, one short-term and the other more medium-term, both involving relatively large public investment. In the short term, car scrappage premia introduced by a number of Member State governments have provided a boost to production and sales, especially of smaller, economy cars. In the medium-term, climate-change imperatives are motivating large-scale public investment such as the European Investment Bank’s European Clean Transport Facility, which will underwrite research, development and production of less polluting, more energy-efficient vehicles.[7]

Various flexibility measures — including short-term working, shift reductions and temporary plant closures — have been deployed to confront the consequences of a fall-off in demand for passenger vehicles, which was over 25 % year-on-year at the height of the crisis.[8] While these measures may have absorbed some, perhaps many, potential job losses, according to Eurostat short-term business statistics data there was nonetheless a net decline of nearly 8 % in automotive sector employment between the first quarter of 2008 and the first quarter of 2009. The sector also accounted for the largest single share of announced job losses by sector in ERM restructuring cases during 2008-2010. For an overview, see figure 1.4 below.

Figure 1.4: Breakdown of ERM job losses by sub-sector (within NACE 34, automotive manufacture)

Source: ERM (*2010, q1 and q2 only).

As figure 1.4 above illustrates, announced ERM job losses in the sector in the 30-month period from the first quarter of 2008 to the end of the second quarter of 2010 amounted to more than 160 000. Of these, the majority were in supply-chain firms (NACE 34.3) rather than in original equipment manufacturers (OEMs, NACE 34.1), in contrast to the earlier period, when OEM job loss announcements predominated. The increasing share of job loss announcements in the manufacture of auto parts/accessories is suggestive evidence that the combination of negotiated flexibility and public measures to stem unemployment in the sector have been more effective at avoiding restructuring job loss in the main auto manufacturers rather than in their supply chains. This may reflect the political importance of the principal manufacturers (and their employees) and also the pragmatic fact that OEMs lie at the centre of an extensive network of high-end manufacturing activity and are its least dispensable components. Another possible contributing factor is the fact that during the recession the main car producers have moved certain ancillary functions in house that had been previously outsourced to supplier firms.

The sector’s problems were thrown into stark perspective by the plight of two of the big three US car manufacturing groups. The US administration guided Chrysler and General Motors through fast-track bankruptcies in the second quarter of 2009 and financed their restructuring with over $ 60 billion in public funding. General Motors announced the cut of 8 369 out of 48 000 jobs at its European Opel plants in February 2010. An additional 850 partial retirement jobs are due to be cut when current workers retire. The plan included the closure of the Belgian plant in Antwerp, where 2 606 people are employed, 3 900 job cuts in Germany and 900 jobs in Spain. PSA Peugeot Citroen announced in late 2009 the loss of 6 000 jobs in its factories in France between January 2010 and December 2013 in a performance plan aimed at restoring the profitability of the group.

In the early part of the crisis, car sector restructurings revealed in particular the vulnerability of temporary and fixed-term workers, who constituted a front-line buffer of numerical flexibility for manufacturers. BMW announced in February 2008 that it would cut a total of 8 100 jobs, mainly in its German operations. Temporary agency workers accounted for 5 000 of these jobs. The decision of the company to let go at short notice of 850 of its temporary agency staff at its Cowley (UK) plant, which produces the new Mini, caused an outcry in the UK. Union leaders accused the company of taking advantage of the basic level of protections afforded agency workers in the UK. In the case of Skoda Auto’s announcement of 4 000 job losses in December 2008 in its Czech operations, all were temporary agency worker positions. Similarly, Volkswagen in March 2009 announced that it would be cutting all 16 500 temporary jobs in its worldwide operations.

When consumer demand returned in 2009 as a result of scrappage incentives, much of the slack was taken up by hiring/firing temporary workers. The ERM records one case of 1 000 jobs created at Skoda Auto, Mladi Boleslav (Czech Republic) in March 2009, attributed to increased demand arising from scrappage schemes in neighbouring Member States, notably Germany. Less than a year later, VW Skoda announced 2 440 job losses at its Czech units (including Mladi Boleslav), principally temporary workers taken on to deal with scrappage scheme demand.

As already noted, the automotive sector has seen announced job creation as well as (more significant) job loss during 2008 to 2010 and is the second sector, after retail, in terms of announced new jobs on ERM. As the geographical distribution of job gains/losses below shows, the major West European producing countries are in general those with the largest announced job losses. In France, Sweden, Germany and the UK, extensive job losses were reported with only nominal countervailing job gain. Germany had the highest level of announced job losses (over 26 000) but this represents a much smaller percentage of overall sector employment in that Member State than in the case of Sweden for example. There was also some countervailing job gain as was also the case in the Czech Republic — the one exception to a qualified East-West dichotomy of job creation and loss.

Figure 1.5: Automotive sector job losses/gains recorded on ERM 2008-2010q2 — countries most actively restructuring

Source: ERM (*2010, q1 and q2 only).

Since 2008, there have been 13 very large-scale cases of business expansion in auto manufacturing involving the announced creation of at least 1 000 jobs. All but one were in the central and eastern European Member States (including four in the Czech Republic, three in Poland and two each in Romania and Hungary). This was a continuation of previous trends and shows clearly a shift — though not explicitly, or necessarily, an offshoring — of productive capacity in the sector from older to newer Member States.

At company level, the ERM picked up a number of concrete examples of the above shifts. Autoliv, manufacturer of safety equipment including seatbelts and airbags, announced a major worldwide restructuring involving 3 000 announced job losses in July 2008. Subsequently, specific job loss announcements were made at facilities in Hasselholm, Sweden (August 2008) and Gournay-en-Bray, France (March 2009) while 800 new jobs were announced (also in March 2009) as the company expanded production at Jelcz-Laskowice in Poland. In 2008, auto components manufacturer, Faurecia, announced 1 250 job losses at its French units between 2009 and 2011, and 1 000 new jobs at its facilities in Pisek and Karvina in the Czech Republic. Similar patterns can be observed in cases involving a number of other automotive component manufacturing firms including Keiper, Johnson Control and Mahle.

While much attention has been paid to the successful employment-maintaining effects of short-time working schemes, especially in the car sector during the most acute phase of the crisis in late 2008 to early 2009, the scale of the demand slump for consumer and commercial vehicles was such that job losses were extensive in the sector. Short-time work and other forms of working time flexibility ensured that losses were not even greater, but the ERM is consistent with short-term business statistics data in finding that auto manufacture was nonetheless the sectoral division contributing most to aggregate manufacturing net employment decline.

1.3.2: TYPE OF RESTRUCTURING: RISING CONTRIBUTION OF BANKRUPTCY/CLOSURE TO OVERALL JOB LOSS

Internal restructuring represents a kind of catch-all or default category of restructuring and has tended to account for around 70 % of announced job loss in ERM cases for any given period since 2002. Of the other categories of restructuring that the ERM captures, the most important is the combined bankruptcy/closure category, which accounted for a sharply increased proportion of announced job losses during the crisis period in 2008-2010 (up from 14 % in 2002-2007 to 22 % of total in 2008-2010).

The factors leading to this increased incidence of restructuring borne of business failure are not difficult to identify. Reduced demand, difficulties in accessing credit and receiving payment are all customary features of a recession that make trading difficult even for stronger companies. In the period immediately preceding the crisis, a combination of low interest rates, easy credit and excessive debt/leverage may also have weakened the financial foundations of many companies by encouraging them to over-extend. Firms that are already over-borrowed or structurally weak may not have the commercial resilience to withstand a more challenging commercial environment during a recession. The largest single bankruptcy in the period was that of UK high street retailers Woolworths in late 2008, where the closure of over 800 stores resulted in over 27 000 announced job losses; the firm’s former German subsidiary, Woolworths Deutschland, also declared bankruptcy in May 2009 with the announced loss of over 5 000 jobs. Figure 1.6 below shows announced job losses by type of restructuring and year.

Figure 1.6: Share (%) of ERM announced job losses by type of restructuring (except internal restructuring) and year

Source: ERM (*2010, q1 and q2 only).

At national level, the increased share of bankruptcy/closure-related job losses was notable in the UK, Slovenia, Portugal, Greece, Italy and Finland (more than 15 percentage points in each country). At aggregate EU level, the increase in the share of bankruptcy/closure-related announced job losses was matched by a decline in the share of offshoring/relocation/outsourcing announced job losses. This is consistent with expected patterns of business behaviour during an economic downturn — higher levels of business failure and retrenchment and less emphasis on expansion or diversification via offshoring and relocation. From this perspective, the most recent data showing an increase in the share of offshoring may be considered a hopeful signal of recovery.

1.3.3: EARLY RETIREMENT AS A MEANS OF DEALING WITH JOB LOSS

There are many ways in which the effects of restructuring involving job loss can be mitigated. Traditionally, and particularly when a larger part of the workforce was engaged in more traditional heavy industry sectors, early retirement was a favoured means of allowing older workers to leave the workforce in a relatively non-traumatic way.

However, the past 10 years have seen a withdrawal or reduction of incentives to early retirement — in both the public and private sectors — in line with a policy consensus [9] that emphasises the importance of broadening labour market participation and of increasing the effective retirement age.[10] The move to reduce early retirement incentives has been made all the more pressing by empirical evidence that countries with generous and easy-to-access early retirement schemes have also been those which have suffered the sharpest declines in the employment levels of 55-64 year olds. Old age employment rates are particularly sensitive to retirement incentive structures, which vary considerably from country to country. Research also largely confirms that early retirement has not been successful at aggregate level in one of its ancillary objectives[11] — contributing to increased youth employment by ‘freeing up’ jobs for younger workers.

However, there are strong interests in maintaining early retirement arrangements, which can be attractive for different reasons for a variety of stakeholders, including unions, employees and employers. While some governments have recently attached more stringent limitations to access to early retirement benefits (for example Poland, Sweden and France[12]), others have rediscovered the short-term attractions of early retirement as a cost-saving measure and/or as a politically acceptable means of gaining numerical flexibility in the public service. An illustrative example is the early retirement scheme for civil servants introduced by the Irish government in April 2009. The scheme was included in an emergency budget as one of a number of measures explicitly targeting public sector cost savings.[13] ERM national correspondents also report increased recourse to early retirement in Romania, Latvia, Luxembourg and Hungary.[14]

The ERM shows some evidence of the persistence of early retirement as one form of labour-shedding during restructuring, especially amongst large companies. In the ERM in 2008-2010, 80 cases make explicit mention of early retirement. Early retirement features in particular in cases from the following countries — Belgium, France and Spain (10 cases), UK (7), Italy and Norway (6). As a rule, early retirement tends to be one of a range of measures deployed when restructuring as by definition it relates only to that part of a company’s workforce between 50 and 60[15] years of age and the statutory retirement age (generally 65). Other measures may include partial retirement, part-time working, relocation, retraining and voluntary redundancies, and the mix of measures in specific restructurings is generally agreed on the basis of social partner negotiations.

Early retirement has in the past been associated with restructuring arising from privatisation where states have bought industrial peace by offering generous early retirement packages to workforces affected by post privatisation restructuring job loss. Three examples of company restructuring involving the use of early retirement are set out below, focusing on the Italian airline Alitalia, the Italian telecommunications group Telecom Italia, and the Austrian retail bank BAWAG.

Alitalia’s new phase as a private company began in January 2009 after Italian investor group Compagnia Aerea Italiana (CAI), acquired the ‘new’ Alitalia, leaving the Italian government with the old company’s debts and its least profitable units. Employment in the privatised Alitalia totalled 12 600 compared with 21 500 in the combined ‘old’ Alitalia and Air One, the smaller Italian airline, with which it merged. Prior to the acquisition and in a context of sustained industrial action, the Italian government and main trade unions reached a deal which made use of the full range of Italian social shock absorbers (ammortizzatori sociali) to cushion the effects of redundancies for over 3 000 of the Alitalia employees. The agreement included recourse to the ‘extraordinary’ Wages Guarantee Fund (Cassa Integrazione Guadagni Straordinaria, CIGS) for four years. After this period, redundant workers benefit for three years from the ‘mobility’ programme, which supports their incomes until they reach retirement age (or find a new job). The Italian state — through the National Social Security Institute (Istituto Nazionale Previdenza Sociale, Inps) — pays an allowance equal to 80 % of the average wage lost by the workers.

At Telecom Italia, the announcement of 5 000 job losses in June 2008 led to strike action which was resolved when the restructuring plan was largely deferred to 2009-2010. The job cuts were planned to be effected with recourse to a mobility procedure (procedura di mobilita), which is an administrative prelude to dismissal, with a view to early retirement, which would guarantee up to 90 % of salary for the redundant workers.

BAWAG, the Austrian retail bank, formerly owned by the Austrian Federation of Trade Unions (ÖGB), announced its intention to reduce its workforce by 400 during 2008 without recourse to compulsory redundancies. The bank was taken over in 2007 by a consortium led by the US private equity firm Cerberus Capital Management following losses incurred on currency derivative investments. The takeover was facilitated by a large injection of public funds by the Austrian state. Employees within seven years of the official retirement age were allowed to opt for early retirement, in which case they continued to receive at least 60 % of their last take-home pay until reaching the legal retirement age — 60 for women and 65 for men.

Other large-scale restructurings with a significant element of early retirement include those at:

● Eon-Energy, in August 2008

● Air France-KLM, in May 2009

● Michelin, in June 2009

● Volvo Europa, in October 2008

● Malta Shipyards, in June 2008

● Birmingham City Council, in February 2010, and

● Vattenfall Europe, in March 2010.

The above examples show how early retirement is still being used by organisations throughout the EU, albeit in a more limited way than in previous decades. Early retirement is clearly still an option for organisations that are faced with the need to make large-scale redundancies, although this does have implications for the balance of age and experience in an organisation’s workforce, and for the wider workforce as a whole, within the context of EU policy targets concerning the level of employment for older workers.

1.4: RESTRUCTURING INVOLVING JOB CREATION

Although cases of announced job loss have generally outweighed those announcing job creation during restructuring events, there was a marked shift to job-creating as opposed to job-destroying cases of restructuring on ERM in the years up to 2008. This is reflected in the fact that while cases of business expansion only began to be included in the dataset late in 2003 — the original focus of ERM was on the negative employment consequences of industrial change — in 2007, they accounted for the majority of individual restructuring cases. 2007 was also the first year in which the aggregate positive employment impact of all cases exceeded the aggregate negative employment impact.

Since the second quarter of 2008, however, announced job losses have exceeded job gains in every quarter and in aggregate by a ratio of around 3:1. Nevertheless, there has also been a sharp decline in the level of reported job creation by quarter in the most recent period — with the somewhat surprising exception of the first quarter of 2009, near the height of the crisis, when low-price retailers (Asda, Tesco) and restaurant chains (KFC) in the UK announced major countrywide expansions.

Data contained in the latest ERM Quarterly publication, which tracks developments in the third quarter of 2010, shows that some sectors are now beginning to recover and to create jobs. For example, it would seem that the automotive manufacturing sector is slowly recovering from the deep decline of 2008 and 2009. In the third quarter of 2010, several auto manufacturing companies that between September 2008 and the end of 2009 announced dismissals of large numbers of employees are now creating new jobs. In Sweden, the Volvo group has been responsible for three cases of job creation announcements. Volvo Trucks announced it will hire 200 employees at its plant in Tuve, Gothenburg. Volvo Powertrain announced it has permanently employed 150 people, who are part of 350 fixed-term recruitments the company made during last year. Further, Volvo PV announced that 140 fixed-term employees will be permanently employed at the factory facility in Torslanda. Volkswagen Slovakia announced it is to create 1 000 new jobs at its Bratislava plant by September, while PSA Peugeot Citroën announced the recruitment of 900 new employees to be employed in various plants across France before the end of 2010. The company also announced that it will reintroduce a third shift at its plant in Portugal, which was abolished in 2009. This decision will result in 300 new jobs; the third shift was planned to be operative in November 2010 and to last six months. Whether it continues thereafter will depend on market conditions.

In the computer and related activities sector, the largest case of job announcement refers to Hewlett Packard (HP), which announced it is to create 700 new jobs at its plant near Glasgow, as the company is setting up an IT service hub. In 2009, HP announced the loss of 700 manufacturing jobs at the same plant following the decision to transfer production to the Czech Republic. These jobs were expected to be gone by October 2010 but with the newly created jobs in IT services, the plant will go back to employing around 1 300 people. In Ireland, internet company Google has announced the creation of 200 jobs for graduates with strong IT skills as a result of a new operations centre in Dublin. The new centre was expected to be operational by the end of 2010 and it will focus mainly on Google geographical products such as Google Maps and Google Local.

As can be seen from figure 1.7 below, which shows ERM data for aggregate announced job creations, manufacturing has been one of the more dynamic sectors in terms of announced job creations, although this relates largely to the first half of 2008, before the onset of the economic crisis. Thereafter, manufacturing accounts for a declining share of job gains and the principal source of announced job creation has been the retail sector. From the first quarter of 2008 to the second quarter of 2010, around 30 % of announced job gains were in the retail sector and around 25 % in manufacturing.

Figure 1.7: Announced job gain in ERM restructuring cases by major sector, 2008-2010q2

Source: ERM (*2010, q1 and q2 only).

Box 1.4 below looks at the retail sector, which has been one of the sole motors of job creation in the EU over the past few months.

Box 1.4: Examples of restructuring involving job creation: the retail sector

The retail sector is of great importance to the EU economy, employing over 14 % of the workforce. The European Commission characterises this sector as being one of the EU’s main employers, and often the entry point into the labour market for many young, low-skilled or unskilled people. However, the Commission also notes that a number of issues have an impact on employment and competitiveness in the sector, such as: differences in labour law and collective agreements applicable to retail services; the negative impact of the informal economy on working conditions; and a mismatch between the skills needs of companies and those of staff in the retail sector.

The sector has experienced major job losses over the past two years, due to high levels of restructuring. However, over the past few months, this sector has also seen significant job creation, and it is indeed one of the few sectors currently recruiting workers. In the second quarter of 2010, around 30 % of announced job gains in the ERM were in the retail sector. The retail sector is extremely competitive and in the current difficult economic climate, the lower-cost chains are doing well and embarking on business expansion, at the expense of other retail groups.

Recent job creation plans have been announced in a range of retail groups, often the result of multinationals investing in central and eastern European countries. For example, in mid-August, hypermarket chain Kaufland, part of the German group Lidl & Schwarz, announced the creation of 180 new jobs near Turda (Cluj, Romania) as result of an investment of € 80 million in a new regional distribution centre. Kaufland operates 53 stores in Romania; the group intends to open five to six new units in the second half of 2010. Also in Romania, the Romanian DIY chain Dedeman announced in late September that it planned to open a new store at Cluj Napoca in February 2011, creating 230 jobs.

In the Czech Republic, towards the end of August, AAA Auto, one of the largest used car retailers in Europe, announced that it has created 200 jobs in the first six months of 2010. The company, operating in the Czech Republic and Slovakia, reported substantial profits despite a decline in sales. In Estonia, in mid-August, Maxima Eesti, a member of the international retail chain Maxima Grupe, announced the creation of 120 new jobs by the end of 2010 in three new stores. Maxima Grupe is based in the Lithuanian capital and is one of the largest employers in the Baltic States with approximately 25 500 employees. Also in Estonia, in mid-August, the Estonian retail sale company OG Elektra announced that 200 new jobs will be created by the end of 2010 in six new stores. Between January and August 2010, the company created 130 new jobs by opening five new stores, mostly in the capital Tallinn.

The UK supermarket chain Tesco has been expanding into central and Eastern Europe. In Hungary, in mid-August, Tesco Hungary announced the opening of two new supermarkets, in Bicske and Tolna, creating 200 new jobs in total. Over the past 16 years, Tesco Hungary has opened 108 supermarkets and has around 22 000 employees in the country. Tesco is also expanding in Ireland: in mid-July, it announced an expansion that will result in seven new stores and the creation of approximately 750 jobs during the course of 2010, the majority of which will be outside Dublin.

Other job creation announcements in the older EU Member States include the announcement in mid-September by the furnishing retailer Ikea that it is to create 240 new jobs, with the opening of a new store in Catania (Sicily, Italy). The new store will be opened in March 2011. Ikea already has 18 stores and 6 300 employees in Italy. Also in mid-September, the French retail group Mestdagh announced its intention to hire between 250 and 300 workers before 1 October in Belgium, in order to run the 16 stores that the group bought from the French retailer Carrefour. In Ireland, the American fashion retailer, Forever 21, announced in early October that it is to open a new fashion outlet in Dublin in November 2010, which will create 250 new jobs. This chain has over 500 shops in 15 countries. Finally, in the UK, in early August, the US cash and carry company Costco announced the creation of 130 jobs in Coventry, with the opening of a new warehouse.

The future is likely to hold more restructuring activity in the retail sector, as private equity firms are reported to be engaged in renewed takeover activity in this sector. Although takeover activity has dropped sharply over the past year — there were only € 8.7 billion worth of retail takeover deals in Europe last year, which is down from € 15.2 billion in 2008 and € 44.5 billion in 2007, according to data from Thomson Reuters — there are reports that many retail chains, including some well-known high street names, could become targets for takeovers in the months ahead.

Source: ERM Quarterly 3, autumn 2010.

1.5: EMPLOYMENT-MAINTAINING INITIATIVES DURING THE CRISIS

In addition to the large-scale cases of restructuring involving job loss or creation, a key labour market development during the 2008-2009 economic crisis was the often innovative approaches to forestalling or avoiding job loss that may otherwise have occurred. In most cases, these involved combinations of company initiatives and social partner negotiation often within a framework of public policy initiatives — notably public short-time working schemes — that were rapidly adapted to the worsening economic situation.

In the face of unprecedented large output losses, especially in major goods-producing sectors, employment losses have been in many cases surprisingly modest. Even the significant decline in employment in automotive manufacturing noted above is in the context of declines in sales and production which were many factors greater than the associated job loss.

At company level, the main instruments, in addition to early retirement, used by companies to adapt cost structures to an abrupt decline in demand while avoiding permanent job loss included:

● pay freezes (in some cases, pay cuts) or deferred bonuses/wage claims; and

● various forms of working time flexibility, such as:

● short-time working — with or without public incentives;

● running down of working time account surpluses;

● overtime reductions;

● compulsory unpaid or partially paid leave;

● temporary lay-offs;

● temporary plant closures; and

● career breaks.

Box 1.5 below serves as a brief illustration of some of the measures identified or implemented to share the pain of adjustment while retaining jobs. They involve a range of initiatives, many of which re-frame the conventional labour contract from working for free (albeit very temporarily) to being paid for not working (albeit at a marginal rate).

Box 1.5: Measures aimed at retaining jobs during restructuring

Career break/sabbatical

At the beginning of May 2009, Spanish-headquartered BBVA bank introduced a set of cost-cutting measures which also aimed to help employees to reconcile family and working life and allow them more flexibility. The measures were offered to its 30 000 Spain-based employees on a voluntary basis and included:

● three to five years of leave to pursue personal or professional projects, with a guaranteed job at the end of the leave. During the leave, employees receive the equivalent of 30 % of their annual pre-tax compensation, subject to an annual minimum of € 12 000, plus € 3 600 in healthcare coverage. To qualify for the scheme, the employee must have worked at BBVA for at least eight years (BBVA, 2009);

● up to two years of special leave to take care of children or relatives or to take up post-graduate studies. Employees on study leave are paid € 6 000 a year. To be eligible, employees must have worked at the bank for at least three years. Family leave is unpaid and requires having worked at BBVA for at least one year; and

● shorter working days: a five-hour day, five days a week or a four-day working week. During the short-time working period, an employee’s pay is reduced in proportion to the reduction in working hours.[16]

Pay freezes and pay cuts

In December 2009, Independent News and Media (INM), which owns several newspapers in Ireland, announced pay cuts and freezes affecting employees working on its two main Irish newspaper titles — the Irish Independent and the Sunday Independent. All directors and top executives would have their pay cut by 10 % and bonuses would not be paid for the 2008/2009 period. Employees at other levels were also affected by pay cuts in proportion to their salaries. The cuts varied from a pay freeze for those on € 40 000 or less per annum and a reduction of 2.5 % for those on between € 40 000 and € 50 000. Those earning between € 50 000 and € 100 000 took a 5 % pay cut (The Irish Independent, 2008). At the same time, INM introduced a new share-buying scheme whereby employees were given the option to buy shares — at the share price on the day of introduction of the scheme — worth 2.5 times the pay cut.

Working for free

In June 2009, British Airways chief executive Willie Walsh announced that he would work for free the following month, forgoing his monthly salary of £ 61 000. He was immediately followed by the airline’s financial officer. All employees were given the option to volunteer (as the company was aware that not all staff members were in the financial position to participate) for between one and four weeks’ unpaid leave or unpaid work, with the pay loss spread over three or six months. The measure was announced to the employees in the form of an email as well as by a letter of the chief executive published in the company internal magazine. Employees had one month to apply for their participation, and the measures were to be carried out by March 2010.

By June 2009, around 800 out of the 40 000 employees had volunteered to work for free (mostly for one week) and a further 7 000 had agreed to unpaid leave, which will save the company up to £ 10 million.[17] The participants came from all employee groups, with no group being particularly represented.

Financial employee participation

Works councils at German car producers such as Opel, Volkswagen and Daimler have started a discussion about the role of financial participation in times of economic crisis.

In the past, employees of Opel have accepted wage cuts in exchange for investment commitments and employment guarantees. In the context of the crisis, the Opel employees were ready to waive wage claims worth about € 1.2 billion. In return, they asked for 10 % of future Opel shares. According to the works councils’ proposal, the stock corporation would hold the employees’ shares in trust, while the chairs of the works councils of Opel’s German plants would serve as shareholders.[18]

At Daimler, the works council was also considering the conversion of employee bonus payments, worth a total of € 280 million, into Daimler shares. Similarly, in the case of the combined Volkswagen-Porsche group, the unions’ and the works councils’ goal consists in enabling the more than 380 000-strong workforce to hold a significant share of the company. The works council’s model of financial participation is based on the bundling of employee shares in a foundation, cooperative or registered association. According to this model, employees would receive dividends in the form of social projects. Also the voting stock should be exercised collectively in order to guarantee an effective influence on strategic decisions.

1.6: TENTATIVELY EMERGING FROM RECESSION?

At the time of writing, it would seem that Europe is beginning to emerge from recession, albeit tentatively. The latest available figures from Eurostat, which relate to the third quarter of 2010, show that GDP in the EU27 increased by 2.1 % compared with figures for the third quarter of 2009. Compared with the previous quarter, EU27 GDP increased by 0.4 %. However, GDP growth in many individual Member States is below the EU average, with some still experiencing negative growth in the third quarter of 2010, compared with the second quarter of the year. Further, there are disparities in growth rates in individual Member States, ranging from 5.3 % in Luxembourg and 4.5 % in Sweden on a year-on-year basis, to negative growth in some countries, such as -4.5 % in Greece and -2.3 % in Romania on a year-on-year basis. For details, see figures 1.8 and 1.9 below. Further, there remain concerns over the level of public debt in some countries and some concern over the stability of the euro.

Figure 1.8: GDP growth in EU Member States, third quarter 2010. % change compared with third quarter 2009

Source: Eurostat.

* Second quarter figures

**Percentage change calculated from non-seasonally adjusted data

Figure 1.9: GDP growth in EU Member States, third quarter 2010. % change compared with second quarter 2010

Source: Eurostat.

Unemployment levels in the EU27 countries have stabilised over 2010. Recent internal flexibility arrangements — short-term contracts, part-time work, temporary lay-offs and job share schemes — as well as improvements in the general macroeconomic climate have helped to stabilise labour markets, according to the ERM Quarterly for the third quarter of 2010.

According to the European Restructuring Monitor’s most recent figures at the time of writing, which relate to the third quarter of 2010, the number of restructuring events recorded is falling steadily, indicating that the worst may be over, in terms of weathering the current crisis. The number of restructuring cases recorded in the second quarter of 2010 was 224, of which 120 were cases of restructuring involving the announcement of job loss. The total number of announced job losses was around 128 000. This compares with a high point recorded by the ERM in the first quarter of 2009, in which over 700 cases of restructuring concerning the announcement of job losses were recorded, involving around 280 000 announced job losses.

In terms of sectors, it would seem that the automotive manufacturing sector is beginning to recover, and job creation in the retail sector is outweighing job loss, due to the expansion plans of a number of retail chains. However, some sectors are still suffering from the downturn, notably the construction sector, which recorded a 1.7 % seasonally adjusted drop in output in September 2010 in the EU27, compared with figures for August 2010, and a 3.6 % drop compared with September 2010. Figures for the eurozone were even more pronounced, with a 2.1 % fall compared with August 2010 and an 8.6 % fall compared with September 2009.

In the medium-term, therefore, it would seem that the European economy is beginning to stabilise and that growth is reasserting itself, certainly in terms of export-led growth in countries such as Germany. The incidence of restructuring is therefore likely to fall further, although some countries, including Greece, Portugal, Italy and Spain, may continue to experience some turbulence due to high levels of public debt and unbalanced budgets. The ERM Quarterly for the third quarter of 2010 notes that opinions differ on the timing of the budget consolidation in EU Member States and withdrawal of fiscal stimulus at this stage of recovery while the EU economy is still fragile. Critics point out that fiscal consolidation with prolonged unemployment will weigh on nominal wages. In this context, private consumption may lose momentum with negative knock-on consequences for domestic demand. Further, softening global demand for the European goods in the second half of 2010 could pose a risk for EU exports.

Adopting a longer-term perspective and looking forward to the coming 10 years, the EU’s 2020 Strategy sets out a framework for economic growth and job creation in the EU. Its specific targets are as follows:

● 75 % of the population aged 20-64 should be employed, including through the greater involvement of women, older workers and the better integration of migrants in the work force;

● 3 % of the EU’s GDP should be invested in R&D;

● The ‘20/20/20’ climate/energy targets should be met (including an increase to 30 % of emissions reduction if the conditions are right);

● The share of early school leavers should be under 10 % and at least 40 % of the younger generation should have a tertiary degree; and

● 20 million less people should be at risk of poverty.

The 2020 Strategy aims to turn the EU into a smart, sustainable and inclusive economy delivering high levels of employment, productivity and social cohesion. Under its flagship initiative ‘An agenda for new skills and jobs’, the Commission intends to create conditions for modernising labour markets with a view to raising employment levels. It states that in order to achieve this, it will work:

● to define and implement the second phase of the flexicurity agenda, together with European social partners, to identify ways to better manage economic transitions and to fight unemployment and raise activity rates;

● to adapt the legislative framework, in line with ‘smart’ regulation principles, to evolving work patterns (eg working time, posting of workers) and new risks for health and safety at work;

● to facilitate and promote intra-EU labour mobility and better match labour supply with demand with appropriate financial support from the structural funds, notably the European Social Fund (ESF), and to promote a forward-looking and comprehensive labour migration policy which would respond in a flexible way to the priorities and needs of labour markets;

● to strengthen the capacity of social partners and make full use of the problem-solving potential of social dialogue at all levels (EU, national/regional, sectoral, company), and to promote strengthened cooperation between labour market institutions including the public employment services of the Member States;

● to give a strong impetus to the strategic framework for cooperation in education and training (ET 2020) involving all stakeholders. This should notably result in the completion of of lifelong learning strategies (in cooperation with Member States, social partners, experts) including through flexible learning pathways between different education and training sectors and levels and by reinforcing the attractiveness of vocational education and training. Social partners at European level should be consulted in view of developing an initiative of their own in this area; and

● to ensure that the competences required to engage in further learning and the labour market are acquired and recognised throughout general, vocational, higher and adult education, and to develop a common language and operational tool for education/training and work: a European Skills, Competences and Occupations framework (ESCO).

The next section of this chapter examines the reactions of the EU labour market to the crisis and the types of reforms that are being put into place to ensure that it emerges from the crisis in a way that ensures its future competitiveness in the global economy.

2: LABOUR MARKET REFORMS

As already set out in the previous section of this chapter, in the second half of 2008, the EU economy entered a recession that continued for most of 2009, although in 2010 there were renewed signs of growth. The impacts of this recession have taken a severe toll on the economic well-being of many European citizens over the past two years. In the euro area alone, GDP contracted by 4 % in 2009, unemployment surged, and public debt rose to unprecedented levels. However, the latest figures, relating to the third quarter of 2010, show that GDP has begun to rise again, by 1.9 % in the eurozone and by 2.2 % in the EU27, compared with the third quarter of 2009.

European labour markets have reacted to the economic slowdown of 2008 and 2009 with a gradual but steady decline in employment that has yet to come to an end. Around 4 million jobs were lost in Europe in 2009 and the rate of unemployment reached 9.4 % in the last quarter of the year, despite some moderate signals of economic recovery appearing in some countries. The latest figures, relating to November 2010, show that unemployment is still climbing, with a eurozone rate of 10.1 %, compared with 9.9 % in November 2009, and an EU27 rate of 9.6 %, compared with 9.4 % in November 2009.

Figure 1.10 below gives details of GDP and employment growth in the EU27 from 1996 to 2009.

Figure 1.10: GDP and employment growth

Source: Commission services. GDP growth is year-on-year growth.

During 2008 and 2009, the deterioration of the labour market in the US was accompanied by a drop in the participation rate (the fourth quarter of 2009 was some 2 % lower than the level in the first quarter of 2008). Conversely, a moderate drop in employment was accompanied by an increase in participation in the EU and the euro area. This should be seen as a positive development for the prospects of the recovery, as a fall in participation during the recession can also turn into a persistently low labour supply during the recovery. Unemployment at record high levels for a long period may in fact mean that those without jobs, especially those with a low attachment to the labour market, may give up searching because of their relatively low employment chances. Skills mismatch and unconditional welfare policies can further worsen this discouragement to participating in the labour market, while activation policies and support to workers affected by economic change can encourage people to remain in the labour market and facilitate their transition to new jobs.

The first signal of discouragement is a decrease in labour force participation, which usually means a falling unemployment rate in the short run. In the long run, a low participation rate hampers the functioning of the labour market, through shortages of labour supply and higher wage pressures, and can be a bottleneck for economic growth. Avoiding such effects in labour markets is of crucial importance in averting a lasting negative impact on potential output after a crisis. This is why the European Economic Recovery Plan[19] (EERP) placed considerable importance on measures to prevent unnecessary labour shedding which would have entailed great losses in human capital and had a lasting negative impact on potential output.

The EERP also called for priority to be given to those reforms which can support aggregate demand, employment and/or household income during the crisis, while at the same time improving adjustment capacity to enable a faster recovery when conditions improve. In line with this, in spring 2009 the European Commission issued a number of guiding principles for labour market and social policy action contingent to the crisis,[20] including:

● keeping people in viable employment, while supporting employability and easing transitions to new jobs;

● providing adequate income support and reinforcing activation;

● considering measures to boost both labour demand and labour supply; and

● investing in training and skills upgrading, and enhancing the employment services to cope with increasing unemployment.

By contrast, it stated that measures such as indiscriminate tax-funded support for jobs in declining sectors or regions, which could delay necessary restructuring, large direct job-creation schemes in the public sector not sufficiently targeted at specific vulnerable groups and early retirement or other policies that push workers out of the labour market needed to be avoided.

European labour markets have reacted very differently to the crisis in terms of labour turnover. Many countries have recorded on average a low labour turnover. However, while in the Nordic countries, high turnover is associated with efficient labour market activation policies and low hiring and firing restrictions, in France and Spain this appears to be a consequence of a segmented labour market. As a result, one can draw the conclusion that there is a faster labour market response to the first signs of recovery in those countries with more flexible labour market institutions, as they enable better transitions in the labour market.[21]

Together with changes in the number of jobs, firms have also used changes in working hours as a tool to adjust labour input during the crisis. Labour hoarding is the normal response of firms that prefer to keep their experienced workers during the early stages of a recession, especially if high-skilled workers are difficult to find when the recovery takes hold. By cutting hours, firms can keep their wage costs down and save jobs during difficult periods. In addition, government-sponsored short-time schemes have also been widely used in many EU Member States. These schemes have been reinforced in some countries and introduced for the first time in others (see also section 3 of this chapter, which focuses on short-time working).[22]

Many countries responded to the impact of the severe economic crisis that hit the EU economy by extending the coverage or generosity of unemployment benefits, by reinforcing other social benefits, and/or by introducing generous short-time work schemes. Measures have also been reinforced to support activation and facilitate transitions to new jobs. Temporary labour market and income support measures amount to 0.4 % and 0.2 % of GDP in 2009 and 2010 respectively — and represent a large share of all temporary measures in 2009 and 2010 respectively. Three main types of measures can be identified:

● measures addressing labour demand, consisting of public subsidies for temporary working time reductions, wage subsidies and changes in labour taxation;

● measures dealing with activation, comprising a range of active labour market policies; and

● measures supporting incomes and thereby aggregate demand, such as changes in the generosity of unemployment benefits and social measures to support households’ purchasing power.

These measures have played a role in shaping the impact of the crisis on labour market developments in the EU, where, compared to the US, participation rates have in general held up well and unemployment increases have been more muted than could have been expected. Even so, the crisis has clearly shown the underlying structural weaknesses of the European labour markets, which ultimately need to be tackled, irrespective of the prevailing cyclical conditions. Pre-existing long-term challenges (such as ageing, globalisation and technological change) have also remained unchanged, if not intensified by the crisis. Further, the crisis has added two new dimensions to existing challenges. First, with the unemployment rate increasing almost everywhere, the burden of adjustment has been unequally spread across various socio-economic groups. Second, public finances will be extremely constrained in the coming years. Within this new environment, the focus has to be first and foremost on well-targeted policies (for example to activate those with low levels of skills or who are unemployed on a long-term basis) with low or no direct budgetary impact and designed in such a way as to avoid deadweight losses. At the same tim