EUROPEAN COMMISSION Brussels, 18.11.2020 COM(2020) 744 final PROPOSAL FOR A JOINT EMPLOYMENT REPORT

FROM THE COMMISSION AND THE COUNCIL





TABLE OF CONTENTS FOREWORD KEY MESSAGES 1. OVERVIEW OF LABOUR MARKET AND SOCIAL TRENDS AND CHALLENGES IN THE EUROPEAN UNION 1.1 Labour market trends 1.2 Social trends 2. SNAPSHOTS FROM THE SOCIAL SCOREBOARD 2.1 The scoreboard explained 2.2 Evidence from the social scoreboard 3. EMPLOYMENT AND SOCIAL REFORMS – MEMBER STATES PERFORMANCE AND ACTION 3.1 Guideline 5: Boosting the demand for labour 3.1.1 Key indicators 3.1.2 Measures taken by Member States 3.2 Guideline 6: Enhancing labour supply and improving access to employment, skills and competences 3.2.1 Key indicators 3.2.2 Measures taken by Member States 3.3 Guideline 7: Enhancing the functioning of labour markets and the effectiveness of social dialogue 3.3.1 Key indicators 3.3.2 Measures taken by Member States

3.4 Guideline 8: Promoting equal opportunities for all, fostering social inclusion and fighting poverty 3.4.1 Key indicators 3.4.2 Measures taken by Member States



FOREWORD The Joint Employment Report by the European Commission and the Council is mandated by Article 148 of the Treaty on the Functioning of the European Union. The European Commission’s proposal for this report is part of the Autumn package. The Joint Employment Report provides an annual overview of key employment and social developments in the European Union as well as Member States’ reform actions, in line with the Guidelines for the Employment Policies of the Member States. The report follows the structure of the Guidelines: boosting the demand for labour (Guideline 5), enhancing labour supply and improving access to employment, skills and competences (Guideline 6), enhancing the functioning of labour markets and the effectiveness of social dialogue (Guideline 7), and promoting equal opportunities for all, fostering social inclusion and fighting poverty (Guideline 8). In addition, the Joint Employment Report monitors Member States’ performance in relation to the Social Scoreboard set up in the context of the European Pillar of Social Rights. The Pillar was proclaimed jointly by the European Parliament, the Council and the Commission on 17 November 2017. It identifies principles and rights in three areas: i) equal opportunities and access to the labour market, ii) fair working conditions, and iii) social protection and inclusion. Monitoring of progress in these areas is underpinned by a detailed analysis of the Social Scoreboard accompanying the Pillar. The Joint Employment Report is structured as follows: an introductory chapter (Chapter 1) reports on main labour market and social trends in the European Union, to set the scene. Chapter 2 presents the main results from the analysis of the social scoreboard associated with the European Pillar of Social Rights. Chapter 3 provides a detailed cross-country description of key indicators (including from the social scoreboard), looking at Member States’ performance, challenges and policies implemented to address the Guidelines for Employment Policies.

KEY MESSAGES Before the COVID-19 crisis hit, the EU was experiencing a steady though decelerating employment growth. Continuing the positive performance in the labour markets that started in 2013, employment further expanded in 2019, reaching a record level at the end of the year. Reform efforts by Member States in the aftermath of the financial crisis contributed to this job-rich economic growth, though challenges persisted in some Member States and regions, including with regard to the labour market integration of vulnerable groups. The COVID-19 pandemic reversed this trend, suddenly changing our ways of working and living. It has taken a significant toll in terms of human lives and caused an unprecedented economic shock. The response by European and national authorities has been swift. Safeguarding citizens’ health and jobs has become the top policy priority. Member States have provided support notably to the groups and sectors that have been particularly affected. The implementation of these measures has, so far, avoided the emergence of a massive employment and social crisis across the EU. Yet, many uncertainties remain, notably about how long the pandemic will last, when a sustainable economic recovery will materialise, and the consequences for the most vulnerable. The situation differs across countries, also due to the legacy of the past. Member States that already experienced serious socio-economic challenges before the pandemic are now even more exposed to vulnerabilities. Implementing the European Pillar of Social Rights is key to ensuring that the recovery is fair and inclusive. The Pillar principles, along the three dimensions of equal opportunities and access to the labour market, fair working conditions and social protection, health and inclusion, need to guide the design of policy measures in support of workers and households. Fighting the impact of the pandemic, as well as preparing the recovery, requires fostering social resilience and upward convergence by putting people at the centre. The recently adopted Employment Guidelines integrate specific guidance aimed at mitigating the employment and social impact of COVID-19 and provide Member States with concrete guidance on how to modernise labour market institutions, education and training as well as social protection and health systems, with a view to making them more inclusive and fair. They also incorporate new elements reflecting the Union’s priorities, notably with regard to socially just green and digital transitions. Turning climate and environmental challenges into opportunities, and making the transition just and inclusive for all, is a key goal of the European Green Deal. The EU’s reaction to the crisis has been swift and strong. Member States have been offered unprecedented financial support to mitigate the economic, social and health impact of the crisis and enhance the recovery, including through the new SURE instrument, the Emergency Support Instrument and the increased flexibility in the use of the cohesion policy funds under the Coronavirus Response Investment Initiative. Furthermore, the Recovery and Resilience Facility – which is at the centrepiece of Next Generation EU – will provide large-scale financial support for reforms and investments aimed to support job creation and make the EU economies, societies and health systems more resilient and better prepared for the twin transition. This represents a unique opportunity to boost investment in people and accelerate the economic recovery. This swift response fits within a long-term strategy and contributes to the capacity of the Union to achieve its long-term objectives. The Joint Employment Report aims at helping Member States identify priority areas for reforms and investment. Mandated by Article 148 of the Treaty on the Functioning of the European Union, the Joint Employment Report provides an overview of key employment and social developments in Europe and of the implementation of the Employment Guidelines. It has been an integral part of the European Semester from the onset, highlighting the key employment and social challenges to be tackled in the yearly cycle, as part of the Autumn Package. In the exceptional 2021 European Semester, the Joint Employment Report will additionally help Member States identify priority areas for reforms and investment to be included in their recovery and resilience plans, against the background of the Employment Guidelines. The results from the Social Scoreboard accompanying the European Pillar of Social Rights are presented in the Joint Employment Report and can serve developing the national plans. Moreover, also against the background of the Joint Employment Report, the Commission will assess the substance of the plans in analytical documents accompanying the proposals for the Council implementing acts. In cooperation with the Employment Committee and the Social Protection Committee, the Commission will also keep monitoring closely all labour market and social developments with the regular update of the corresponding Employment Performance Monitor and Social Protection Performance Monitor. ********* The COVID-19 crisis has strongly affected labour market outcomes in the EU. Though signs of slowdown in employment figures were already evident in the second half of 2019, most labour market indicators have interrupted their positive trend at the outbreak of the pandemic. Total employment (that had increased by 15 million since mid-2013) went down by 6.1 million persons between the fourth quarter of 2019 and the second quarter of 2020, the sharpest decline observed over two successive quarters. After six years of positive developments towards the Europe 2020 employment target, the employment rate got farther from it in 2020. The swift adoption of short-time work schemes and other labour market retention measures, together with a decline in activity rates, led so far to an only moderate increase in the unemployment rate, of 1 percentage point (pp) by September 2020. Youth unemployment (15-24) nevertheless increased more markedly than unemployment for other age cohorts, and the share of young people not in employment nor in education or training (NEET) soared. Non-EU born workers have also been severely affected. These outcomes vary significantly across countries, regions and sectors and require close monitoring and policy efforts to avoid a more negative impact in the short run. Massive use of short-time work schemes helped mitigate the consequences of the shock on the labour market. The hours worked per worker fell abruptly, by 11.3% in Q2-2020 compared to the last quarter of 2019; at the same time, absences from work buoyed, from 9.7% in Q4-2019 to 21.8% in Q2-2020 (around half of this increase being due to temporary lay-offs). Since the onset of the crisis, Member States have extended (or introduced when not previously available) short-time work schemes and/or other job preservation schemes, with the aim to limit job losses, avoid the dispersion of human capital and sustain aggregate demand. The European Union is supporting this effort with the temporary instrument Support to mitigate Unemployment Risks in an Emergency (SURE). The extraordinary and synchronised use of short-time work schemes helped addressing the immediate consequences of the crisis and prevented a surge in unemployment. However, the longer the crisis lasts, the higher the risk of subsidising jobs in firms that are no longer viable. Therefore, when considering the phasing out of short-time work schemes, it is important to carefully weigh, on the one hand, the need to protect firms and employees as long as the economic conditions require and, on the other hand, the introduction of policies to promote structural change and the reallocation of workers (e.g. via well-designed hiring incentives and reskilling measures). The COVID-19 crisis is breaking a 6-years long positive trend on the labour market 6.1 million

fewer people in employment in Q2-2020 compared to Q4-2019 72%

employment rate in Q2‑2020 (1.1 pps lower than one year earlier) 7.5%

unemployment rate in September 2020 (1 pp higher than in March) -11.3%

hours worked per worker in Q2-2020 compared to Q4-2019 Activity, unemployment and NEET rates in the EU-27, % Hours worked per worker and absences from work in the EU-27 Source: Eurostat, LFS. Seasonally adjusted, not calendar adjusted data.

The economic shock is experienced differently across sectors and categories of workers. All economic activities except construction reduced their employment numbers in the year to Q2-2020, but the sharpest declines were observed in the hospitality sector, in the cultural and entertainment sector as well as among professional activities. The employment fall has affected to a greater extent workers in non-standard forms of employment, though with strong differences across countries. Temporary employees have been severely impacted, with a 16.7% decrease year-on-year in Q2-2020, while permanent employment has remained stable, also thanks to the policy response. This has translated into a significant decrease in the share of temporary employees over total employees, again with wide differences across countries. The pandemic has impacted differently across jobs and sectors 4.2 million fewer workers on temporary contracts in the year to Q2-2020 Employment growth in construction, public administration and ICT activities Largest declines in relative terms in trade, arts and entertainment and agriculture Employment (15-64) by type of contract: percentage change between Q2-2019 and Q2-2020 Source: Eurostat, LFS. Note: *NACE Rev.2 activities. Due to COVID-19, Member States risk facing a sharp increase in youth unemployment, which calls for reforms and reinforced support. After a continued decline in 2019, EU-wide youth unemployment jumped from a low of 14.9% in March 2020 to 17.1% in September, increasing at a faster rate than overall unemployment. The crisis also led to the largest increase between two consecutive quarters in the rates of 15 to 24 year-olds not in employment, education or training since the start of Eurostat series in 2006 (from 10.4% to 11.6% between Q1-2020 and Q2-2020). In 2019, one in ten young people aged 18-24 left education or training with a qualification below upper secondary education, and more than a quarter of people aged 30 to 34 did not have a qualification with direct labour market access (secondary vocational education and training or tertiary education qualification). The Commission proposals for the VET Recommendation and the European Education Area put forward targets to improve attainment in both VET and tertiary education. Since the increases in the NEET rates largely stem from the drop in labour demand, reforms to support job creation, education and skills will be essential. A successful implementation of the reinforced Youth Guarantee, relying on well-functioning Public Employment Services and education and training systems, will be crucial. For young NEET women, among whom inactivity plays a stronger role than for men, reforms should also include measures to remove fiscal disincentives to work and help reconcile work and care responsibilities (see also further below). The COVID-19 crisis led to a substantial rise in NEET rates 11.6%

young NEETs (15-24) in Q2-2020 (1.2 pps more than in the previous quarter) -12%

low-skilled young people in employment between end-2019 and second quarter of 2020 26%

of young people (30-34) hold qualifications that do not grant direct access to the labour market (secondary VET or tertiary education) Young people aged 15-24 neither in employment nor in education and training (NEET), (Q2-2020)

Source: Eurostat, LFS The gender gap in employment stagnated and the one in pay narrowed over the past five years, but the crisis has created new risks and underlined the need for reforms and investments. Although female employment rates increased, the gender gap in pay has only improved slightly since 2013, in spite of the higher average educational attainment of women. Women’s over-representation in lower paid sectors and occupations make them particularly vulnerable in the labour markets struck by the COVID-19 crisis. Gender gaps are larger for women with young children: in 2019, they faced a negative employment gap of 14.3 pps in contrast to women without children, whereas men in the same situation saw a positive gap of 9.6 pps. Employment outcomes are poorer in particular for older, non-EU born, low-skilled and women with disabilities. Women’s participation in the labour market could be strengthened by reforms and investments in early childhood education and care as well as long-term care services, and work-life balance policies, such as gender balanced parental and care leaves. Other reforms and investments could include measures ensuring equal career progression, pay transparency measures, and adjustments to the tax and benefit system, such as inividual, rather than household, levied taxation, and family-based, dependent spouse and transferable deductions. Gender gaps for employment and pay remain substantial in several Member States 11.4 pps

employment gender gap in Q2-2020, almost stable since 2013



14.3 pps

employment impact of parenthood (lower employment rate for women with young children compared to those with no children) Unadjusted gender pay gap in 2014 and 2018

(percentage points) Source: Eurostat. The crisis is likely to have a disproportionate impact on non-EU migrants, with additional efforts needed to ensure their labour market integration. Non-EU migrants had seen an improvement in their average employment rate between 2017 and 2019 (from 61.5% to 64.2%). Yet, since the crisis started the employment rate dropped significantly (down to 60.8% in Q2-2020), due to their over-representation among temporary workers and in sectors impacted strongly by the crisis, though they played a crucial role in key frontline occupations during the pandemic. In addition, first-generation migrant workers are more likely to be found in lower skilled occupations, even when holding tertiary education. Member State policy responses related to the provision of language courses, access to education and training, labour market guidance and recognition of skills and qualifications helped improving their labour market integration. Maintaining and strengthening these policies would help make the recovery more inclusive and build on the skills and potential of migrants including refugees. Addressing the causes of labour market segmentation, including by adapting legislation and ensuring that the right incentives are in place to hiring on stable contracts, is key to improve social resilience. The incidence of temporary employment differs significantly across countries, with young people and women relatively more represented in this category. Member States with a substantial share of fixed-term workers have experienced the largest fluctuations in employment during the crisis. In this perspective, ensuring that fixed-term contracts support labour market entry, while serving as a ‘stepping stone’ to regular employment is key to increase social resilience and to support a fair and inclusive recovery. Reforms to modernise employment protection legislation are important in this context, inter alia by setting clear conditions for using temporary contracts, preventing employment relationships that lead to precarious working conditions, and providing the right incentives for hiring on permanent contracts. At the same time, Member States should ensure that job-seekers with precarious work histories have adequate access to social protection and notably unemployment benefits through adaptable eligibility requirements and enjoy opportunities to train and reskill. Many workers are still not protected by adequate minimum wages. Often statutory minimum wages are low compared to other wages in the economy, despite recent increases in many Member States. The minimum wage is generally not sufficient to protect workers against the risk of poverty. In addition, gaps in coverage occur both in countries with a statutory minimum wage (because of exemptions for specific categories) and in countries where wages are exclusively set through collective bargaining (for workers who are not covered by collective agreements). Following a consultation with social partners, the Commission proposed a Directive to ensure that the workers in the Union are protected by adequate minimum wages. The proposal aims to promote collective bargaining on wages in all Member States. In this regard, countries with statutory minimum wages should put in place the conditions for minimum wages to be set at adequate levels, including clear and stable criteria for minimum wage setting, indicative reference values to guide the assessment of adequacy, and regular and timely updates. These countries are also asked to ensure the proportionate and justified use of variations in and deductions from statutory minimum wages, and the effective involvement of social partners in statutory minimum wage setting and updating. Finally, the proposal provides for improved enforcement and monitoring of the minimum wage protection established in each country. The adaptation of working conditions has become central during the pandemic and will remain key afterwards, requiring investment in the workplace and reforms to enhance the availability of flexible working arrangements. Many Member States have adapted their working terms and conditions, including by extending the use of telework, with a particular focus on protecting vulnerable workers. During the health emergency, teleworking has proven very important for ensuring business continuity, while providing wider options for coping with additional care needs. However, it may also carry risks, including those related with occupational, physical and mental well-being of home-based teleworkers. In perspective, the pandemic will lead to rethinking the organisation of workplaces and work-life balance. Differences exist in the content and coverage of national regulations related to telework, including as regards the promotion of information and communication technologies (ICT) for this purpose. Building on existing national practices regarding collective bargaining, Member States should ensure that working environments are safe and well adapted, and that flexible working arrangements are widely available, in order to balance work, family and private life. More attention is also needed to improve working conditions for workers in vulnerable situations and to attract those in undeclared work into formal employment. The pandemic has also cast light on shortages in certain health professions and the need to adapt or improve their working conditions and skills. The incidence of teleworking during the crisis varies considerably among profiles and sectors 60 pps gap in access to teleworking between high-skilled and low-skilled workers 61% of those living in cities had access to telework, compared to 41% of those living in small towns Workers in education and administrative services used teleworking to a larger extent Work-at-home during COVID-19, main characteristics of the participating workers (EU-27, in %). Source: Eurofound (2020) Living, working and COVID-19 e-survey. Active labour market policies are key to support labour market adjustments following the COVID-19 shock. Member States entered the jobs crisis with different rates of coverage of active labour market policies (ALMPs). Supporting smooth labour market transitions, while preventing the risks of further skills polarisation is essential to inclusive growth. This is particularly important for Member States with still high rates of long-term unemployment, which are likely to be aggravated as a consequence of the COVID-19 shock. Member States have amended existing frameworks or introduced new ALMP systems to better respond to the labour market conditions, promote employment as well as up- and reskilling, often with the support of the European Social Fund. They could now have the possibility to combine cohesion policy funds with funding from the Recovery and Resilience Facility to further promote targeted ALMPs including upskilling and reskilling measures. Access to unemployment benefit schemes with adequate benefit levels and duration is key to mitigate the negative impact of the crisis, and support the transition of the unemployed towards new jobs. The provision of adequate unemployment benefits of reasonable duration accessible to all workers, including those in non-standard contracts, is key to support jobseekers during transitions. Particular attention is required towards individuals with short or discontinuous work histories, as they are often less covered by these schemes. In response to the pandemic, several Member States have reinforced their unemployment protection schemes. These schemes may need to be further reviewed following changes in economic conditions in order to maintain adequate incomes and support the effective labour market activation of those affected. Public Employment Services will need to go beyond traditional ways of working to tackle a surge in the number of job-seekers and support their reallocation across occupations or sectors. The share of unemployed people using public employment services (PES) for job search has been on a decreasing trend over the past years, albeit with strong differences across Member States. Young people, the low-skilled and older job seekers continue to be overrepresented among those seeking assistance from the PES. In the current context, ensuring an adequate and effective response to jobseekers’ and employers’ needs may require scaling up the capacity in relation to strengthening profiling systems, furthering guidance and mentoring capacities for job-seekers. Investment in up-to date information and communication technology (ICT) solutions and reskilling of PES staff will be important for reinforcing their capacity. A stronger support based on individual action plans could help those affected by the crisis get jobs in the context of a future recovery. PES can play a crucial role in facilitating smooth transitions and in promoting a fast recovery 45 pps gap between the highest and the lowest level of PES usage for job search in 2019 Low-skilled and older job seekers are largely represented among those seeking assistance from the PES High long-term unemployment rates prior to the pandemic may add challenges to make the recovery work for all Share of unemployed people using a given job search method (2019) Source: Eurostat, LFS. Social dialogue and social partners’ involvement in policy-making are key to foster a fair and sustainable recovery and support inclusive growth. In several Member States, collective agreements and social dialogue have helped in designing and implementing the immediate socio-economic response to the COVID-19 crisis, including measures to swiftly adapt working patterns, such as the promotion of teleworking, and to protect the health, incomes and jobs of front-line and essential workers. Social partners’ consultation in the crisis response remained strong in those Member States with already well-developed social dialogue structures. In other Member States, the crisis has aggravated the already limited involvement of social partners prior to the health emergency. To ensure effective and smooth design and implementation of their reform and investment agendas under the new Recovery and Resilience Facility over the 2021-23 period, it is crucial that Member States engage with social partners in the preparation of their national recovery and resilience plans. Inequalities in education put at risk social cohesion and inclusive growth, calling for reforms to make education systems more inclusive and deliver better outcomes, support the most vulnerable and invest in educational infrastructure, including digital education. Children from lower socioeconomic groups often face significant challenges in educational attainment. They show considerably lower participation in early childhood education and care and more often fail to achieve basic reading skills in secondary school. They are also underrepresented in tertiary education, alongside students from rural areas, with disabilities and non-EU migrants. Distance learning introduced during lockdowns put the spotlight on these disadvantages: pupils from a lower socioeconomic background typically started with lower digital skills, and more often lacked access to computers and internet connections. A gender gap is also growing in basic skills and tertiary education attainment, where boys perform worse than girls. There is a risk that the combination of these factors translates into disadvantages throughout the working life, also in light of the already large employment gap between the low and the high skilled (29.1 pps in 2019). There is a strong link between education performance, success on the labour market and participation in society, which underlines the importance of inclusive education to ensure a fair recovery and strengthen social resilience. Reforms could cover, among others, preventing early educational tracking, introducing support services and targeted financial schemes and services for disadvantaged schools, families and young people, fostering improved access to education for children in need, including the integration of learners with special educational needs in mainstream settings, and investing in infrastructure and equipment. Socio-economic disadvantages still impact strongly on participation and educational outcomes 36.4% pupils with lower conomic, social and cultural background fail to achieve basic reading skills 11.3 pps gap in ECEC participation for children at risk of poverty or social exclusion in 2016



22.5% of young people born outside the EU leave education and training early (compared to 10.2% EU-wide) Rate of underachievement in reading skills by economic, social and cultural status (in percentage points of 15-year-olds, 2018) Note: ESCS stands for economic, social and cultural status. Source: PISA 2018, OECD.

Upskilling and reskilling are a top priority to foster an inclusive recovery and support the digital and green transitions. Before the crisis, EU companies cited the scarcity of skilled staff as the first obstacle to investment. 20 Member States missed the EU-wide adult learning target of 15% by 2020. Adults with lower qualifications participate significantly less in learning, although they need it the most. A quarter of young adults do not have a qualification that gives direct access to the labour market. Some sectors, like the ICT, report a wide gap between vacancies and graduates. In many Member States it is still too difficult to access further education and training after leaving formal education, and validation of skills remains underdeveloped. Together with the new skills challenges emerging in relation to the digital and green transitions, this points to the need to support the transformation of vocational- and tertiary education. The European Skills Agenda and the European Education Area lay out policies for lifelong learning, upskiling and reskilling, including a Pact for Skills and the implementation of skills strategies, forecasting, guidance and validation. Under the ‘Reskill and Upskill’ flagship, Member States are strongly encouraged to put forward reforms and investment on skills, in particular digital, for financing under the new Recovery and Resilience Facility, on top of and in complementarity with the financing traditionally provided by the European Social Fund. There is scope for strengthening participation in adult learning as key to support career development and successful job transitions 28.3 pps gap in employment rates between low- and high-skilled workers



6.5 pps gap in adult learning participation for low-skilled workers In 20 Member States fewer than 15% of adults took part in adult learning Half of adults should take part in adult learning over one year by 2025, according to the European Skills Agenda (compared to 38% in 2016) Employment rates by educational attainment level (% persons aged 25 – 64 in 2019) Share of adults and low-qualified adults participating in learning (% persons aged 20-64 in 2019) Source: Eurostat. The COVID-19 crisis further highlighted the importance of strengthening digital skills. During the pandemic, digital skills proved essential for the continuity of business, education and training activities, as well as to ensure access to services, including healthcare, to a large share of EU citizens. Digital skills will be increasingly important for full participation in the labour market and in the societies of the future, as well as to support the green and digital transitions. Yet progress in basic digital skills has been slow: in spite of a modest improvement, in 2019 more than four people out of ten in the EU did not have basic digital skills, notably older people and those with low qualifications. In addition, there is a systematic shortage of digital experts and people with advanced digital skills, a challenge driven to a significant extent by the under-representation of women among STEM tertiary graduates and ICT sector jobs. Even though girls do better than boys in digital skills at a young age, they choose the respective study- or career-tracks at a significantly lower rate than boys. Reforms to strengthen digital skills include curricula updates, introducing ICT courses in primary schools, teaching ICT as a discipline in secondary education, support to teachers and trainers (including how to encourage girls’ interest and aspirations), adult learning opportunities in digital skills, measures aimed at increasing the attractiveness of studies in STEM and ICT fields (particularly for girls), strengthened cooperation between businesses, research centres and academia, as well as investment in digital infrastructure and equipment. The digital skills gap remains significant 46% of people

aged 16-74 did not have basic digital skills in 2019

13.5 million

vacancies sought ICT-related skills in 2018 and 2019

57%

of companies reported difficulties recruiting ICT specialists in 2019 50.9%

of teachers did not receive ICT training in their formal education Individuals who have basic or above basic overall digital skills (2019, percentage points, persons aged 16 – 74)



Source: Eurostat Overall income inequality slightly decreased over recent years before the COVID-19 pandemic, but it increased at the lower end of the income distribution over the last decade, raising concerns about the inclusiveness of economic growth. On average across the EU, the richest 20% of households have an income that exceeds by about five times that of the poorest 20%. In past years, income inequality increased more in the lower part of the income distribution (S50/S20) than in the upper part (S80/S50). According to preliminary estimates, automatic stabilisers and policy measures adopted to face the emergency have so far muted the effect of COVID-19 on inequality. Tackling income inequalities requires reforms by Member States in different policy areas, including the design of their tax and benefit systems, wage setting mechanisms, inclusiveness and equal opportunities in education and training (starting from early age), and access to affordable and quality services for all. The assessment of the distributional impacts of policies should be ensured, notably with regard to policies supporting the twin green and digital transition. Though decreasing recently, inequality has increased at the bottom of the income distribution 5 times

is the ratio of the income share of the top 20% incomes to the bottom 20% in 2019

21.4%

is the share of income gained by the bottom 40% of the population, on the rise since 2015 Income quintile share ratio (S80/S20) and breakdown by high and low part of the distribtion

Source: computation on Eurostat data Before the COVID-19 crisis, the number of people at risk of poverty or social exclusion was declining for the seventh consecutive year, though slow progress in countries with higher poverty rates hints at challenges for social protection systems. In 2019, around 92.4 million were at risk of poverty or social exclusion (AROPE), which is 2.3 million fewer people compared to the previous year. Since the peak of 2012, severe material deprivation has been the component that improved most, followed by the share of people living in households with very low work intensity, owing to the robust labour market performance before the crisis, while the at-risk-of-poverty rate reductions were less marked. These positive developments were nonetheless showing some deceleration in many Member States. In-work poverty and the depth of poverty were slowly declining, including for people in very low work intensity households. The COVID-19 crisis, with the associated increase in unemployment and inactivity, makes the achievement of the Europe 2020 target of 20 million fewer people in poverty or social exclusion (compared to 2008) highly unlikely. The current situation poses challenges for social protection systems, in particular in relation to sustainably ensuring adequate incomes and the provision of quality services especially for all those who need them most. Poverty remained high for most vulnerable groups, in particular for families with children, people with disabilities and non-EU born, all disproportionally hit by the COVID-19 crisis. Health, education and social protection systems, in particular social services, have been put under unprecedented pressure, further exacerbating challenges for people in most vulnerable situations. While decreasing in the past few years, the risk of poverty or social exclusion for children (aged below 18) remained 1 pp higher than that for the working-age population, and was very high in some Member States. Beside adequate income levels, access to services, including education, healthcare and housing, plays a key role in supporting families with children, and ensures equal opportunities in life. The Commission will propose in 2021 a European Child Guarantee to provide a framework for action at EU level. People with disabilities and non-EU born, both exposed to higher risks of poverty and social exclusion, also require strengthened support. The new Strategy on the rights of persons with disabilities to be launched by the Commission in 2021 will aim to promote the economic and social inclusion of persons with disabilities. It is expected to focus on a wide range of areas, including education, employment, adequate social protection, accessibility and non-discrimination. The European Pillar of Social Rights reiterates people’s right to access to quality services. Enhancing access to services, including to social services and community and home-based services for independent living and inclusion in the community, will be reflected in a number of the Commission’s upcoming initiatives and work-streams, such as the mentioned strategies and the new Action Plan on Integration and Inclusion for people with a migrant background. The AROPE rate was on the decline before the COVID-19 crisis, though at a slow pace 92.4 million

people at risk of poverty or social exclusion in EU-27 in 2019, 2.3 million fewer than in 2018 22.5% of children

are at risk of poverty or social exclusion 9% of workers

are at risk of poverty At-risk-of-poverty or social exclusion rate and its sub-components in the EU



Source: Eurostat While housing costs remain very high for a large share of households, the crisis requires action to protect the most vulnerable. One European in ten is affected by housing cost overburden. Lowest income households and people living in cities are most affected. Homelessness, the most extreme form of housing exclusion, increased over the last decade in most Member States. The health crisis has put further in evidence these housing difficulties. Many Member States undertook emergency measures to protect the most vulnerable, including by providing emergency accommodation for the homeless. Member States’ reforms should put a particular focus on investing in the renovation of residential and social housing and on increasing access to the latter. The COVID-19 crisis is a powerful reminder of the importance of social protection systems and their role in mitigating the economic and social effects of reduced economic activity. The COVID-19 crisis is likely to increase the number of people falling on unemployment benefits and other income support, stress-testing the capacity of our social protection systems. Countries have extended and scaled up existing schemes, and expanded their eligibility conditions on a temporary basis. In a recovery phase, sustained efforts are needed to maintain and reinforce social protection for all in a sustainable manner. Building on the crisis response, protection of the self-employed and non-standard workers should be further improved on a structural basis, in line with the Recommendation on Access to social protection. Reforms should address, among others, coverage, adequacy, transferability of social protection rights, and support for the labour market integration of those who are able to work. In most Member States, the minimum income level falls below the poverty threshold On average, social transferes (excluding pensions) reduce poverty by 32.7%

63.9%

of the EU population at risk of poverty received any kind of benefits in 2018 Net income of minimum income recipients (income year: 2018) Source: computation on OECD and Eurostat data COVID-19 has put Member States’ health and long-term care systems under unprecedented stress. The crisis response capability of our healthcare systems has often been put under strain and existing structural challenges related to the effectiveness, accessibility and resilience of healthcare have been exacerbated. These relate for instance to insufficient financing for health investments (including crisis preparedness and response), limited coordination and integration of care, weak primary care and persisting obstacles to access to healthcare and unmet needs for medical care. Such difficulties affected strongly the most vulnerable. As mentioned above, the pandemic also highlighted shortages in certain health professions and the importance to adapt or improve their working conditions and skills. Reforms should cover in particular the strengthening of health care capacities in Member States (in particular surge and crisis management capacity), a better coordination between inpatient, outpatient and primary care, up-skilling and reskilling of health workers and improvements to their working conditions, digital health and reduced out-of-pocket payments. Long-term care systems have been also strongly affected by the pandemic, in relation to their users’ and staff’s high vulnerability to COVID-19. Challenges for long-term care systems – ranging from difficult situations for workers and informal carers, discontinuity of services and capacity issues – have come to the fore. Reforms should cover, among others, preventive measures such as active and healthy ageing, and reactive measures such as setting–up properly integrated health and social care services, expanding access and coverage, in particular to home care and community-based services, upskilling and reskilling of the workforce and supporting integrated care services and independent living. In several Member States, income levels affect access to healthcare 1.8% of the EU population reported unmet medical needs in 2019, before the COVID-19 crisis in 11 MS out-of-pocket payments are more than 20% of health expenditure Self-reported unmet needs for medical examination by income level, 2019 Source: computation on Eurostat data Demographic change continues to pose long-term challenges to pension systems. Pension adequacy remained generally stable in 2019. Pension incomes slightly deteriorated relative to labour incomes, while the share of older people suffering from severe material deprivation continued to decrease. The gender gap in pensions remains large, despite a gradual decrease over the last ten years. The impact of the crisis on employment and labour incomes, in particular for non-standard workers and the self-employed, adds to the risks for pension adequacy over the longer term. Reforms should aim at building inclusive and sustainable pension systems, providing adequate access and saving opportunities for men and women alike and for people in different types of contracts and economic activities, while ensuring adequate minimum income in old age. Member States should take action to address the employment, skills and social policy challenges identified in this Joint Employment Report. The analysis presented in the report highlights a number of priority areas for reforms and investments. These should aim to foster job creation, ease transitions from unemployment into employment and across sectors, improve economic and social resilience and mitigate the employment and social impact of the crisis. EU funding, including via the European Social Fund Plus (with the additional resources made available by REACT-EU) and the new Recovery and Resilience Facility, provides support to Member States to speed up the implementation of policy action in these domains. In line with the Employment Guidelines, Member States are invited to:

-Keep short-time work schemes in place as long as necessary and couple them with upskilling/reskilling schemes; as soon as conditions allow, introduce support for the reallocation of labour (e.g. via well-designed hiring incentives) notably towards green and digital economy, while protecting workers during the transition; -Ensure that working environments are safe and well adapted to the new social distancing requirements, and that flexible working arrangements are widely available; -Enhance labour market support and upskilling opportunities to address the increase in youth unemployment, notably through support for apprenticeships (in particular in SMEs), hiring subsidies, learning infrastructure, technology and equipment; -Invest in Public Employment Services, notably to increase their capacity, modernise their ICT infrastructure, strengthen profiling systems, and provide staff with adequate skills; -Promote collective bargaining and social dialogue; if statutory minimum wages are in place, ensure conditions for them to be set at adequate levels, through clear and stable criteria, and regular and timely updates, and with effective involvement of the social partners; -Reform labour market regulation, as well as tax and benefit systems, to ensure that labour market segmentation is reduced and the recovery will boost quality jobs; make sure that workers on non-standards forms of work and the self-employed gain access to social protection; -Invest in reskilling and upskillsing, notably in digital skills, by reinforcing VET systems, supporting large-scale public private multi-stakeholder partnerships under the Pact for Skills, providing greater incentives to businesses and workers to engage in upskilling and reskilling, investing in infrastructure and equipment, including digital, supporting teachers and trainers; ensure equal access to education and training; -Invest in sustainable social protection for all, supporting reforms to maintain and reinforce levels of protection, and improving the protection of those who are not covered; ensure adequate benefits, transferability of rights, access to services and support for the labour market integration of those who are able to work; invest in quality and accessibility of early childhood education and care (ECEC) and long-term care services; assess distributional impacts of policies; -Invest in the renovation of residential and social housing; ease access to social and affordable housing where appropriate; -Invest in healthcare system capacity including surge capacity, primary care, coordination of care, healthcare staff and eHealth. Reduce out-of-pocket payments, improve healthcare coverage and promote up-skilling and reskilling of health workers.

1.OVERVIEW OF LABOUR MARKET AND SOCIAL TRENDS AND CHALLENGES IN THE EUROPEAN UNION This section presents an overview of labour market and social trends and challenges in the European Union at the aggregate level. 1.1 Labour market trends Economic growth continued to uphold job creation in 2019, though at a slower pace than in past years. In the fourth quarter of 2019, 209.3 million of people were in employment in the EU-27 (1.9 million more than in Q4-2018), the highest level ever reached. Older and high-skilled workers continued to be the main drivers of employment growth in this period, supporting the rise in the overall employment rate of people aged 20-64 to 73% in 2019. Unemployment reached a record low at 6.5% in the fourth quarter of 2019. Youth and long-term unemployment were declining too, though they were still high in some Member States. The COVID-19 crisis has reversed the positive employment trend of the last six years in the EU-27. The economic recession sparked by the pandemic has had a strong impact on the labour market. Total employment has decreased at an accelerated pace during the first two quarters of 2020, down to 203.1 million in the second quarter of 2020. With about 6.1 million (or 2.9%) fewer persons employed, this was the sharpest decline ever observed over two successive quarters since 1995. In annual terms, after increasing by 1% in 2019, total employment is projected to decrease by 4.5% in 2020 and then to rebound 1.8% in 2021, with large downside risks to the forecast conditional on how the pandemic will evolve. The employment rate of people aged 20-64 decreased despite the swift policy response and measures taken to contain job losses. In 2019, the employment rate in EU-27 continued increasing up to 73.1% on average (72.7% in the euro area), 0.7 pps more than in 2018 (for both EU and euro area; Figure 1 ). Nonetheless, after a peak of 73.3% in Q2-2019, it started slowly declining in the second part of the year. As the COVID-19 crisis erupted, the employment rate dropped to 72% in Q2‑2020, which is 1.1 percentage point (pp) lower than in Q4-2019 and 1.3 pp below the level observed in Q2‑2019. In the euro area, the decrease was more marked, with the employment rate reaching 71.4% in Q2-2020, respectively 1.2 pps and 1.5 pps lower than in Q4-2019 and Q2-2019. The employment rate of women decreased less markedly (by 0.9 pps in the EU-27 and by 1 pps in the euro area) than that of men (by 1.1 pps and by 1.3 pps, respectively), albeit the gap remains broadly at pre-pandemic levels (it was 11.7 pps in 2019 and remains close at 11.4 pps in Q2-2020). After six years of positive developments towards the Europe 2020 75% target, the employment rate started moving away from it, while high uncertainty persists with regard to further developments in economic activity and related repercussions on employment. Figure 1: The pandemic has produced a major shock in the labour market, breaking a 6 year-long spell of positive performance Employment and unemployment rates in the EU and euro area

*average of Q1-2020 and Q2-2020, seasonally adjusted. Source: Eurostat, LFS. The crisis has resulted in a moderate impact on unemployment rates across Europe, compared to the magnitude of the shock on GDP. The unemployment rate kept decreasing in the course of 2019 both in the EU and in the euro area ( Figure 1 ). In Q2-2020, 6.7% of the active population was unemployed, which is 0.2 pps below Q4-2019 (the lowest level ever recorded in the EU-27) and at the same level as in Q2-2019. In the euro area, the unemployment rate was higher, at 7.3% in Q2-2020, the same as in Q4-2019, but 0.2 pps lower than in Q2-2019. Differences are nonetheless marked when looking at the breakdown by age groups. The unemployment rate has increased in particular for the youth (15-24 years old), following a decrease in 2019 compared to the previous year. Between Q4-2019 and Q2-2020 it rose by 1.2 pps in the EU-27 and by 1.1 pps in the euro area. Conversely, unemployment actually decreased for those aged 55-74 (-0.4 pps and -0.5 pps, respectively). Looking at monthly data, the overall unemployment rate has followed a steady increase since the outbreak of the pandemic, reaching 7.5% in the EU-27 (8.3% in the euro area) last September. As a result, 16 million people were unemployed in the EU-27 at that point, about 1.8 million more than in the same month of 2019 (13.6 million and 1.4 million more respectively in the euro area). Two main reasons could explain this sluggish response of unemployment. First, the significant reduction in the hours worked per person employed (mostly thanks to the swift adoption of short-time work measures) and the dismissal restrictions imposed in several Member States helped to contain labour shedding. Second, the severity of the economic shock pushed many unemployed people into inactivity (‘discouraged worker’ effect). However, there is a significant heterogeneity across Member States (see Figure 2 and Section 3.1.1). At 2% of the active population in Q2-2020, long-term unemployment has reached the lowest level ever in the EU-27 (2.4% in the Euro area). The potential impact of the crisis on this indicator will only be visible with a delay. Total hours worked have seen a sharp decline largely related to the adoption of containment measures to fight the pandemic. COVID-19 broke a positive trend that had started with the recovery in 2013. The total number of hours worked in the economy increased up to a peak of around 85 billion in the fourth quarter of 2019. It then dropped abruptly (quarter on quarter) by 3.1% in Q1-2020 and 10.7% in Q2-2020. The number of hours worked per person employed in the EU-27, which was already on a decreasing trend ( Figure 2 ), dropped by 2.7% in Q1-2020 and by 10.1% in Q2-2020 (quarter on quarter changes). This sharp decline is largely due to the extensive use of short-time work or temporary lay-off schemes, together with firing restrictions imposed by several Member States to help preserve employment. However, the employment disruption generated by the pandemic may also have a sustained impact on hours worked. Long-term trends such as high part-time work, on-demand work on digital platforms and a more structural occupational shift towards less labour-intensive sectors could exacerbate this trend. Figure 2: Trends in employment and hours worked have been severely affected by the pandemic Growth in employment (15-64) and hours worked per employed person in the EU-27 and Euro area (cumulative change, quarterly data – index Q4-2008 = 100) Source: Eurostat, National accounts, seasonally and calendar adjusted data (DG EMPL calculations). Labour market participation dropped sharply during the pandemic. After increasing up to a peak of 78.4% in the EU-27 and 78.8% in the euro area in Q2-2019, the activity rate for the age group 20-64 dropped respectively to 77% and 76.9% in Q2-2020, with significant differences across countries. Activity rates have declined, together with employment rates, in most Member States (see Figure 3 and Chapter 3.1). This decrease has not seen substantial differences by gender (-1.4 pps in the EU-27 and -1.9 pps in the euro area for men, compared to -1.5 pps and -1.8 pps respectively for women). It has nevertheless affected to a greater extent the young cohorts (15-24) compared to older workers (55-64). Figure 3: The impact of the pandemic was felt differently across Member States Employment, unemployment and activity rates in the EU-27: cumulative change (in pps) between Q4-2019 and Q2-2020 Source: Eurostat, LFS. Seasonally adjusted data, not calendar adjusted. The job vacancy rate dropped significantly, having started to decrease already before the COVID-19 crisis. The Beveridge curve ( Figure 4 ) shows a strong decrease in the number of vacancies along with a slight increase in unemployment (15-74 years old). In the EU-27, the job vacancy rate was 1.6% in the second quarter of 2020, down from 1.9% in the first quarter of 2020 and from 2.3% in the second quarter of 2019. These latest developments break the moderate albeit constant increases in the vacancy rate observed between 2014 and the beginning of 2019 (from 1.3% in Q1-2014 to 2.3% in Q1-2019), prior to the crisis. In this new context, a better matching of workers and jobs is expected to play a key role in creating resilient and competitive labour markets (see Section 3.3). While the situation differs substantially across Member States in terms of labour demand, the capacity to identify and prepare for changes in skills needs will importantly affect the evolution of the vacancy rate in the post-crisis period. Figure 4: Job vacancies fall while unemployment rises moderately Beveridge curve for the EU, 2008-2020, quarterly data Source: Eurostat, LFS and job vacancy statistics. Note: Seasonally adjusted data (except job vacancy rate for 2008 and 2009).

The economic shock has affected employment in all sectors, although with important differences across economic activities. All economic activities except construction (NACE classification) have seen a reduction in employment between Q2-2019 and Q2-2020. In absolute terms, ‘wholesale and retail trade, accommodation and transport’ have been the most affected activities in the EU-27 (2.8 million fewer employed people compared to Q2-2019; a reduction by 5.5%), followed by ‘professional, scientific and technical activities’ (i.e. administrative and support services), with one million fewer persons employed compared to Q2-2019 (a reduction by 3.6%). In relative terms, ‘arts, entertainment and recreation’ and ‘agriculture, forestry and fishing’ activities have seen the greatest reductions (by 5% and 4.3%, respectively). In the case of agriculture, the impact of the pandemic on employment may have accelerated its long-term downward trend. The number of people employed in construction nonetheless showed a slight increase compared to Q2-2019 (by 0.4%). Young people are among the most affected by the labour market deterioration, though with strong differences across Member States. In 2019 the youth employment rate (15-24) increased up to 33.5% in the EU-27, 0.6 pps more than in 2018 (34% and 0.6 pps in the euro area). As the COVID-19 crisis started, it decreased by 1.6 pps in the year to Q2-2020, down to 31.2% (-1.5 pps in the euro area, down to 31.8% in Q2-2020). The youth unemployment rate (15-24), which previously reached a minimum in 2019, increased by 1.4 pps in the EU-27 (by 1.2 pps in the euro area) between Q4-2019 and Q2-2020. Overall, 2.8 million young people were unemployed in the EU in Q2-2020, and this number expands to 5.4 million when all those neither in employment, nor in education or training (NEET) are considered. The quarterly NEET rate increased up to 11.6% in the EU and 12% in the euro area in Q2-2020 (from a minimum of 9.8% and 9.9%, respectively, in Q2-2019). Older workers have better weathered the impact of the pandemic in terms of labour market outcomes. The activity rate of older workers (aged 55-64) continued increasing in the course of 2019. It stood at 62.2% in Q2-2020, with only a slight reduction (0.2 pps) compared to Q2-2019, but still 9.3 pps higher than in Q2-2013, when the previous recovery started. The unemployment rate (55-74) has remained at low levels and with a steady decreasing trend (4.4% in Q2-2020 compared to 4.8% one year before), possibly indicating a discouragement effect among older job-seekers. On the contrary, the employment rate (55-64), at 59.2% in Q2-2020 (after a steady increase by 10.6 pps since Q2-2013), has held up relatively better than for other age groups, with no change for instance compared to Q2-2019 (while the number of young people aged 15-24 in employment decreased by 2.5 pps over the same period). The employment rate of prime age adults (25-54) decreased by 1.1 pps, resulting in a 79.4% employment rate in Q2-2020. The employment rate of women has been affected by the COVID-19 shock slightly less than that of men, but gender differences persist and need monitoring going forward. In 2019, the employment rate of women has increased to 67.3%, 0.8 pps more than in the previous year. In Q2-2020, the employment rate of women has shown a more moderate decrease (‑1 pps compared to Q1-2020 and -1.2 pps compared to Q2-2019) than for men (-1.3 pps and -1.5 pps, respectively). However, these recent developments did not significantly reduce the gender employment gap, which stood at 11.4 pps in Q2-2020 (slightly lower than the 11.7 pps recorded in Q2-2019. The impact of the crisis on employment outcomes by gender requires close monitoring, as the reduction in the gap may be due to a more significant, and temporary, impact of the pandemic on male employment rather than an increased labour market attachment of women. The employment gap decreased to 11.5 pps for women aged 25-49 in Q2-2020, while standing at 13 pps for those aged 55-64. The gap was 22.1 pps for low-skilled women in 2019, significantly higher than that for medium-skilled (12.1 pps) and high-skilled women (6.4 pps). The employment rate of non-EU born people has been strongly affected by the pandemic. Before the crisis, this indicator (in the age group 20-64) rose steadily until 2019. It then dropped to 60.8% in Q2-2020 (3.6 pps less than in Q2-2019), corresponding to a decrease in absolute terms of 1.4 million persons (from 16.2 million in Q2-2019 to 14.8 million in Q2-2020) and almost 9% in relative terms. Albeit decreasing, the number of workers in non-standard employment still remains sizeable, which entails individual and social vulnerability to labour market adjustments. Over the total number of employees (aged 15-64) in the EU-27 in 2019 (167 million), almost 85% were employed under a permanent contract (+1.3% compared to 2018), while the remaining 25.2 million were under a contract of limited duration (-1.3% compared to 2018). The drop in the number of temporary workers has been accentuated by the pandemic. Some 21.2 million workers (aged 15-64, seasonally adjusted) were on temporary contracts in the EU-27 in Q2-2020, a decrease by 4.1 million compared to one year before. As a consequence, the share of temporary contracts in total employment went down to 11.1% in Q2-2020 (a decrease of 2.9 pps compared to one year before). This share remains slightly higher in the euro area, at 11.7%. The proportion of part-time workers (15-64) in total employment dropped by 1.4 pps (to 17% in Q2-2020), and more significantly so in the euro area (by 1.8 pps). Out of this, the share of involuntary part-time workers decreased by 1.5 pps between 2018 and 2019 and it is now 6.2 pps lower than at its 2014 peak (32.7%), with a slightly higher figure in the euro area (26.9% in 2019). The number of employed persons having a second job continued to steadily increase in 2019 (8.2 million people in 2019, compared to 7.8 in 2014). Figure 5: Differences in the impact of the crisis by gender and age Employment rates (domestic concept) across gender and age groups in the EU, seasonally adjusted data Source: Eurostat, LFS. Educational attainment remains key to improve employability and labour market outcomes. Prior to the pandemic, the number of employed people (aged 25-64) with higher education continued to grow steadily (by 0.5 pps between 2018 and 2019), resulting in a corresponding employment rate of 86.2%. The employment rate of medium-skilled workers (i.e. those with upper secondary education) stood at 76.5% in 2019. This is an increase of 0.5 pps compared to the previous year and 4.7 pps higher than in 2014. These changes reflect that fact that labour demand has progressively shifted towards higher skills levels, including digital skills. This trend has often corresponded with a higher average level of skills among the new cohorts entering the labour market. The share of low-skilled workers (i.e. those with lower secondary education or below) increased by 0.7 pps during the last year (and by 1 pps between 2017 and 2018). In 2019, the employment rate of this group stood at 56.3%. The employment gap between the low- and high-skilled stood at 30 pps in 2019, highlighting the need for further upskilling and reskilling.



1.2 Social trends Before the onset of the COVID-19 crisis the number of people at risk of poverty or social exclusion continued to decline in the EU-27. , This downward trend continued for seven consecutive years until 2019 ( Figure 6 ), when the number of people at risk of poverty or social exclusion fell to 92.4 million (21.1% of the total population), about 2.3 million fewer than in 2018 (3.8 pps less than the 2012 peak value). The overall trend was decreasing for all three sub-indicators, the severe material deprivation rate (‑0.5pps), the very low work intensity rate (‑0.3pps) and also the at-risk-of-poverty rate (‑0.3pps). These developments are in line with increases in employment and disposable incomes experienced in 2019 (see Section 3.4). However, all these indicators still do not capture the effects of the COVID-19 crisis. Given the relevance of labour income for households’ livelihoods and the drop in both employment rates and hours worked, the income situation and work intensity of households are likely to worsen in 2020. As a result, the positive trend in AROPE may be broken and the Europe 2020 target of 20 million fewer people at risk of poverty or social exclusion may become more distant. The percentage of people at risk of poverty after social transfers decreased in 2019, but was still high; it is difficult to estimate the impact of the crisis. The at-risk-of-poverty indicator remained broadly stable, decreasing marginally to 16.5% in 2019 (from 16.8% in 2018, based on incomes from one year earlier). The number of people living in households with a disposable equivalised income below 60% of the national median was slightly above 84.5 million, one and a half million people less than in the previous year. Eurostat flash estimates for the income year 2019 point to a rather stable scenario. At the moment of drafting, the flash estimates referring to 2020 incomes (thus reflecting the impact of the crisis) are not yet available. Changes in 2020 are rather difficult to foresee, also due to the likely impact of the crisis on median incomes. Simulation results show that, thanks to the policy measures adopted in response to the crisis, the AROP rate may only increase by 0.1pp on average in the EU. The anchored AROP rate (i.e. the rate computed against a poverty threshold fixed on a base year) would instead increase by 1.7 pps, reflecting the substantial expected drop of income levels against a fixed poverty line. The sharp fall in the number of people suffering from severe material deprivation before the pandemic contributed to upwards social convergence. More than 2 million people were relieved of severe material deprivation in 2019, bringing the overall number down to 24.4 million, or 5.6% of the EU population. This decline represented a significant improvement for the seventh year in a row. It was driven by the good performance recorded by the Member States for which severe material deprivation was the highest (see Section 3.4), thus contributing to continued upwards social convergence (though at a slower pace in 2019 than in previous years). Figure 6: The share of people at risk of poverty or social exclusion was on the decline before COVID-19, but the share of those at risk of poverty remained broadly stable Percentage of population at risk of poverty or social exclusion (AROPE) and its sub-indicators (2010-2019) Source: Eurostat, indicators t2020_50, t2020_51, t2020_52, t2020_53. Data refer to Member States of the EU-27 from 2020 February on.

At the same time, the good labour market performance prior to the pandemic has helped further reducing the number of persons living in quasi-jobless households. The number of people living in households with very low work intensity decreased by more than 1 million people in 2019. This represented 8.5% of the overall population, further decreasing from the 2014 peak. Given that the COVID-19 shock affected relatively more workers in less stable jobs (see Section 3.3), this indicator may deteriorate heavily in 2020. Although the risk of poverty or social exclusion decreased substantially in 2019, it remained higher for children. Between 2018 and 2019, the number of children (aged less than 18) at risk of poverty or social exclusion decreased in the EU-27 by 674 000, or 3.6%. As a result, the related AROPE rate was 22.5% for children, down from 23.4% in 2018. Compared to an AROPE rate of 21.5% for the working-age population (18-64) and 18.6% for older people (65 years or more), this rate remains still high. The in-work poverty risk slightly decreased in 2019 but remained at a high level, while the depth of poverty was high for people in very low work intensity households. In 2019, the percentage of people at risk of in-work poverty decreased by 0.3 pps, down to 9%, further below the peak of 9.8% reached in 2016, but still 0.5 pps above the minimum achieved in 2010. People working part-time and under temporary contracts remain more exposed to such risk, with in-work poverty rates respectively at 15.1% and 16.2% (see also sections 3.1.1 and 3.4.1). At the same time, the relative median income poverty gap, which measures how far income levels of those at poverty risk are from the poverty line (i.e. how severe poverty is), was 24.4% in 2019, almost unchanged from 2018. Member States show different dynamics (see Section 3.4.1 for details). At aggregate level, the poverty gap for the working-age population (18-64) living in (quasi-)jobless households was stable at 36.2% in 2019, suggesting low adequacy and coverage of benefits. Income inequality remained at a high level in 2019 and convergence decelerated. On average, income levels of the richest 20% of households in Member States were five times higher than that of the poorest 20%. Evidence suggests that over the last decade the overall increase in income inequality has been driven by an increase of inequalities in the lower end of the distribution (see Section 3.4). Limited improvements, especially in countries with higher levels of inequality, suggest a slowing pace in convergence. The income share of households in the bottom 40% of the income distribution was increasing until 2019, in line with moderate improvements in other income inequality indicators. The EU-27 average reached 21.4% in 2019, compared to 21.2% in 2018 and in 2017 (and a minimum of 20.9% in 2014 and 2015). In view of the long-term nature of these issues, it is important to develop an in-depth understanding of the possible ways forward through systemic foresight analyses and strengthen the resilience of the EU.



2.SNAPSHOTS FROM THE SOCIAL SCOREBOARD The European Pillar of Social Rights was proclaimed jointly by the European Parliament, the Council and the Commission on 17 November 2017. It sets out twenty principles and rights to support equal opportunities and access to the labour market, fair working conditions and social protection and inclusion. It is designed as a compass for a process of convergence among Member States towards better socio-economic conditions. Especially in the current crisis situation, implementing the European Pillar of Social Rights is a priority. The Commission will put forward an ambitious action plan in the first quarter of 2021 to ensure its full implementation. The action plan will be this Commission’s key instrument to contribute to socio-economic recovery and resilience in the medium and long-term, with a view to enhance social fairness of the digital and green transitions. The European Pillar of Social Rights is accompanied by a social scoreboard to monitor performances and track trends across Member States. The scoreboard provides a number of indicators (headline and secondary) to screen the employment and social performance of Member States along three broad dimensions, identified in the context of the Pillar: (i) equal opportunities and access to the labour market, (ii) dynamic labour markets and fair working conditions, and (iii) public support / social protection and inclusion. Since the 2018 edition, the Joint Employment Report includes the social scoreboard, the results of which are summarised in this Chapter as concerns headline indicators. The analysis is placed in the broader reform context presented in Chapter 3. 2.1 The scoreboard explained The social scoreboard is a central tool for monitoring performance in the employment and social domains, and convergence towards better living and working conditions. In particular, it helps monitoring the situation of Member States on measurable dimensions of the Pillar, complementing the existing monitoring tools, in particular the Employment Performance Monitor and the Social Protection Performance Monitor. The social scoreboard notably includes 14 headline indicators that assess employment and social trends at large: -Equal opportunities and access to the labour market: §Share of early leavers from education and training, age 18-24 §Gender gap in employment rate, age 20-64 §Income inequality measured as quintile share ratio - S80/S20 §At-risk-of-poverty or social exclusion rate (AROPE) §Young people neither in employment nor in education or training (NEET rate), age 15-24 -Dynamic labour markets and fair working conditions: §Employment rate, age 20-64 §Unemployment rate, age 15-74 §Long-term unemployment rate, age 15-74

§Gross disposable income of households in real terms, per capita §Net earnings of a full-time single worker without children earning an average wage -Public support / Social protection and inclusion: §Impact of social transfers (other than pensions) on poverty reduction §Children aged less than 3 years in formal childcare §Self-reported unmet needs for medical care §Share of population with basic overall digital skills or above. Headline indicators are analysed using a common methodology agreed by the Employment Committee and the Social Protection Committee (see Annex 3 for details). This methodology evaluates the situation and developments in Member States by looking at levels and yearly changes of each of the headline indicators included in the social scoreboard. Levels and changes are classified according to their distance from the respective (unweighted) EU averages. Member States' performances on levels and changes are then combined (by using a predefined matrix) so that each Member State is assigned to one out of seven categories (‘best performers’, ‘better than average’, ‘good but to monitor’, ‘on average/neutral’, ‘weak but improving’, ‘to watch’ and ‘critical situations’). On this basis, Table 1 provides a summary of the readings of the scoreboard according to the latest figures available for each indicator. A detailed analysis of the fourteen indicators, including longer-term trends and additional indicators, when relevant, is presented in Chapter 3. The reading from the social scoreboard helps identifying employment and social challenges in Member States. In the context of the European Semester, evidence from the social scoreboard has been regularly used in the country reports to inform the analysis of country-specific challenges. At Member States’ level, it also fed into the preparation of National Reform Programmes and Stability and Convergence Programmes. Together with further analysis included in the Employment Performance Monitor and the Social Protection Performance Monitor, this has provided an analytical basis for the subsequent Commission’s proposals for Country Specific Recommendations, where appropriate. During this process, a careful and non-mechanical reading of the table is warranted, and further elements – of qualitative and quantitative nature – are considered. The social scoreboard will support the preparation of national reform plans and recovery and resilience plans, the main reference documents under the Recovery and Resilience Facility. As indicated in the Annual Sustainable Growth Strategy 2021, the Recovery and Resilience Facility will entail changes in the 2021 European Semester cycle. Given the complementarities with the Europen Semester, Member States are encouraged to submit their National Reform Programme and recovery and resilience plan in a single integrated document. Moreover, as highlighted in the guidance to Member States on Recovery and Resilience Plans, Member States are invited to explain in broad terms how the plans are coherent with, and effectively contribute to, implementing the European Pillar of Social Rights. In addition, they are invited to provide a picture of the overall economic and social impact of the plan (together with an assessment of the macroeconomic outlook), presenting relevant indicators, including from the social scoreboard. For the Member States submitting their plans in 2021, the Commission will assess their substance in analytical documents accompanying the proposals for the Council implementing acts. The 2021 Joint Employment Report integrates a regional dimension to the Social Scoreboard. The evolution of the indicators at the national level may mask important differences at regional level (while, in many Member States, a number of policies and funding are often decided at this level). Against this background, for the second year, the Joint Employment Report features evidence on the regional situation, on the basis of the social scoreboard. In particular, a series of maps showing regional breakdowns by Member State are presented in Annex 4 for some Social Scoreboard headline indicators. Furthermore, the analysis in Chapter 3 reports, where relevant, findings at the regional level for the Member States where large disparities exist between NUTS 2 regions. The data and findings make it possible to better understand how different regions in a country fare as regards some key dimensions of the Pillar and helps monitor convergence within countries, assess the impact of regional policies and shape regional policy-making. 2.2 Evidence from the social scoreboard The social scoreboard reflects the employment conditions following the COVID-19 crisis while showing social and skills conditions before the pandemic, due to data availability. Since the scoreboard was presented, the assessment of Member States’ situation on its headline indicators (through the methodology described in the previous section) has been based on the latest available annual data, both for levels and for changes. At the current juncture, this approach would mean looking at 2019 data (and changes with respect to 2018) for most indicators. However, using yearly data would not allow observing the latest labour market developments in a context of crisis, and their reversal compared to past (pre-pandemic) trends. In this context, the EMCO Indicators Group agreed to temporarily depart from the use of yearly figures for the Social Scoreboard assessment, and use the latest quarterly figures instead, for the following five labour market headline indicators for which they are actually available (based on the Labour Force Survey): ·Employment rate, age 20-64 ·Gender gap in employment rate, age 20-64 ·Unemployment rate, age 15-74 ·Long-term unemployment rate, age 15-74 ·Young people neither in employment nor in education or training (NEET rate), 15-24

Headline indicators point to some deterioration in labour market conditions in the first half of 2020. Of the five above-mentioned labour market indicators, the emploment rate and NEET rate have worsened in the EU-27 in Q2-2020 compared to the same quarter of 2019, while the unemployment rate has remained constant; the gender employment gap and the long-term unemployment rate, conversely, showed some improvement (more details on recent trends in Chapter 1). Social and skills indicators, for which only pre-COVID-19 data is available, continued to improve in 2019. The remaining nine headline indicators show a positive or broadly stable trend on yearly basis (i.e. either in 2019 or 2018 depending on data availability). In particular, an improvement was observed on average for poverty, inequality and related indicators (i.e. share of people at risk of poverty or social exclusion, income quintile share ratio, gross disposable household income per capita, net earnings of a full-time single worker earning the average wage) as well as for education, childcare and skills indicators (early leavers from education and training, participation of children aged less than three in childcare, share of population with basic or above basic digital skills). A broadly stable trend was observed for the impact of social transfers on poverty reduction and self-reported unmet need for medical care. As highlighted by the scatterplot graphs in Chapter 3, a divergent trend across Member States can be observed for most labour market indicators (except the long-term unemployment rate). This means that, on average, Member States with a worse initial situation have experienced a stronger deterioration in the year to Q2-2020. Nevertheless, some degree of convergence can generally be observed for the other headline indicators (in some cases, the trend is not clearly defined). Almost all Member States face challenges on at least one headline indicator. Considering the three most problematic classifications altogether (i.e. ‘critical situation’, ‘to watch’ and ‘weak but improving’), all Member States are flagged at least once, with the exception of Germany. Looking at ‘critical situations’ only (i.e. indicators for which the level is much worse than average, and either not improving sufficiently fast or deteriorating further over the last year), 15 Member States were flagged, one more than in the 2020 Joint Employment Report. Austria, Hungary and Portugal joined this group of countries (the two latter ‘re-joined’ it, after having left it in the previous year), while Estonia and Lithuania left it. Across the 14 domains assessed, overall 116 ‘critical situation’, ‘to watch’ or ‘weak but improving’ cases are identified, i.e. about 33% of the total number of assessments (one percentage point more than in the 2020 Joint Employment Report). Of these, 41 are ‘critical situations’ (corresponding to 11.1% of all assessments), compared to 40 in the 2019 Joint Employment Report (corresponding to 10.3% of all assessments). As in previous years, the situation of Member States and the severity of their challenges vary widely – also reflecting the impact of the crisis, as far as labour market indicators are concerned. Romania and Spain present ‘critical’, ‘to watch’, or ‘weak but improving’ assessments on ten or more indicators, followed by Bulgaria and Greece with nine challenges each (see Table 1). Of these countries, Bulgaria, Romania and Spain present the highest number of ‘critical situations’ (6 each) followed by Greece (4). Yet, Greece, Romania and Spain also report a number of positive assessments each (recorded before the start of the pandemic): Greece is among the ‘best performers’ on early school leaving and ‘better than average’ on income inequality and individuals’ level of digital skills; Spain is among the ‘best performers’ on participation to childcare and ‘better than average’ on self-reported unmet needs for medical care; Romania is among the ‘best performers’ on household disposable income per capita growth. In terms of overall count of challenges, Italy (seven challenges), Cyprus, Hungaria and Latvia (six challenges each) follow. By contrast, Czechia and the Netherlands are ‘best performers’ or ‘better than average’ on ten headline indicators, followed by the Denmark and Sweden (nine indicators each), and Germany (eight indicators). Table 1. Summary of headline indicators of the Social Scoreboard Note: update of 28 October 2020. Income quintile share ratio not available for IE, FR, IT, LV and SK. At-risk-of-poverty or social exclusion rate not available for IE, IT. NEET rate and long-term unemploymennt rate not available for DE. GDHI per capita growth not available for BG, EL, LU, MT and PL. Net earnings of a full-time single worker without children earning the average wage unreliable (and not reported) for DK. Impact of social transfers on poverty reduction not available for IE, IT and SK. Self-reported unmet needs for medical care not available for IE, FR, IT and SK. Participation of children aged less than 3 in childcare not available for FR, IE, IT and SK. Individuals' level of digital skills not available for IT (2017 missing). Breaks in series and other statistical flags are reported in Annexes 1 and 2. 3. EMPLOYMENT AND SOCIAL REFORMS – MEMBER STATES PERFORMANCE AND ACTION This section presents an overview of recent key employment and social indicators and measures taken by the Member States in priority areas identified by the EU employment guidelines, as adopted by the Council in 2020. It draws on Member States’ National Reform Programmes 2020 and European Commission sources. If not specified otherwise, only policy measures implemented after June 2019 are presented in the report. An in-depth analysis of recent labour market developments can be found in the Labour Market and Wage Developments Annual Review 2020 and the Employment and Social Developments in Europe Annual Review 2020. 3.1 Guideline 5: Boosting the demand for labour This section looks at the implementation of the employment guideline no. 5, which recommends Member States to create conditions promoting labour demand and job creation. It first presents an overview of unemployment and employment rates by Member State, complementing the analysis at EU level presented in Chapter 1. It then looks at self-employment trends, wage dynamics, minimum wage and tax wedge developments. Section 3.1.2 reports on policy measures implemented by Member States in these areas, with a special focus on the policy responses to preserve employment and support job creation in the context of the pandemic. 3.1.1 Key indicators The number of employed people dropped in the second quarter of 2020, reflecting the impact of the COVID‑19 crisis. During 2019, total employment increased or remained stable in all Member States compared to 2018 (except for small declines in Poland and Romania). Employment growth decelerated or turned negative in several Member States in the first quarter of 2020 (with an average of -0.2% in the EU quarter-on-quarter). Subsequently, all Member States (with the exception of Malta) recorded a fall in the second quarter (with an average of ‑2.7% in the EU). Compared to the employment peak in Q4-2019, this drop exceeded six million people. The largest decreases were recorded by Spain (-8.4%, corresponding to 1.7 million people), Ireland (-6.1%), Estonia and Hungary (‑5.6%). Employment growth was below -2% in other thirteen Member States ( Figure 7 ). On the contrary, the fall was more moderate in Cyprus (-0.9%), Poland (-0.4%) and Luxembourg (‑0.3%). Malta was the only country to record an increase in employment, by 1.7%. Figure 7: Substantial fall in employment across the EU Percentage change in total employment and hours worked between Q4-2019 and Q2-2020

Source: Eurostat, National accounts. Note: seasonally and calendar adjusted data, except only seasonally adjusted for CZ, EL, FR, MT, PL, PT, SK (employment) and MT, SK (hours worked). Data on hours worked for BE is not available. Figure 8: Absences from work increased abruptly across the EU Absences from work as a share of total employment (20-64) Source: Eurostat, LFS. Note: seasonally adjusted data. Data for DE are not available for Q2-2020. Short-time work schemes helped contain job destruction. Since the onset of the crisis, Member States have extensively implemented and/or strengthened short-time work schemes or other job preservation schemes, with the aim to limit job losses, avoid the dispersion of human capital at firm level, and sustain aggregate demand in a phase of substantial economic slump. At the same time, employers have also adjusted their labour demand autonomously to ensure the sustainability of their operations. As already shown in Section 1 and evident from Figure 7 , the fall in hours worked has been substantially larger than the fall in employment (‑13.5% vs ‑2.9% in the EU in Q2-2020 compared to Q4-2019) which can be largely ascribed to the functioning of short-time work schemes. Across countries, the largest discrepancies between the two indicators could be observed in Luxembourg, Slovakia, Cyprus, Greece, Czechia, Germany, France and Italy. At the same time, as evident in Figure 8 , the number of workers absent from employment (as a proportion of total employment) rose abruptly, with an increase of 12.1 pps for the EU (from 9.7% in Q4-2019, following a stable trend over the last decade, to 21.8% in Q2-2020). Temporary lay-offs alone accounted for almost half of all absences (a sudden increase from 0.2% in Q4-2019 to 10.3% in Q2-2020). The largest increases in the share of absences were recorded in Greece (+35.9 pps), Cyprus (+25 pps), Ireland (+19 pps), Spain (+18.7 pps), Italy and Portugal (+18 pps). The use of short-time work schemes has reached unprecedented levels during the COVID-19 crisis in all countries (for which data are publicly available). The use of short-time work was particularly widespread in the services sector (mainly hotels and restaurants) and in retail trade. The take-up was comparatively lower in Member States with newly established schemes. This could have been in part due to the design of their schemes, slow adaptation to the new administrative procedures, or implementation delays. In some of the newly established schemes (for example in Bulgaria, Czechia, Croatia and Hungary), the requirement for firms to share part of the costs could have curtailed take up. In Poland, initial take-up was lowered by a requirement to maintain employment after the expiry of support. A limited drop in the overall employment rate hides major differences across Member States. Over 2019, the employment rate (age group 20-64) increased on average and in all Member States (except for a small decline in Sweden, still from the highest level across the EU). As shown in Section 1, in Q2-2020 the employment rate decreased by 1.3 pps, down to 72% from the peak of 73.3% reached in Q2-2019 (bringing back the indicator to the level seen in the first quarter of 2018). As mentioned, the overall modest fall can be ascribed to the extraordinary measures taken in the context of the crisis. Yet, the situation hides substantial heterogeneity across Member States. As shown in Figure 9 , Spain experienced the largest fall (by 3.8 pps) followed by Bulgaria (3.2 pps), Austria (2.4 pps) and Ireland (2.4 pps). On the contrary, Croatia recorded an increase (by 0.7 pps) while Malta, Latvia and Poland recorded a stable or marginally decreasing rate. Looking at the assessment based on the methodology for headline social scoreboard indicators, the situation does not change significantly compared to previous years, with Greece, Italy and Spain still marked as ‘critical situations’ (with rates close to or below 65%) while Sweden, Germany, Czechia and the Netherlands are ‘best performers’ (with rates close to or above 80%). In between, the sudden drop in employment rates explains the classification of Bulgaria, Ireland and Austria as ‘to watch’ countries (though the respective levels are still close to average). Belgium and Romania, with an employment rate falling to below 70% over the last year, are also ‘to watch’. Croatia, which still presents a low employment rate at 66.8% in Q2-2020 is marked as ‘weak but improving’ in view of the recent increase (in spite of the crisis). The positive slope of the regression line suggests that Member States are experiencing a diverging trend (i.e. employment rates have decreased faster in countries starting from a lower level). Whether this trend will be sustained over time, as it happened in the financial crisis, remains to be seen. A number of Member States present significant regional disparities in employment rates (see Annex 4). Figure 9: The employment rate dropped in almost all Member States Employment rate (20-64) and its yearly change (Social Scoreboard headline indicator) Source: Eurostat, LFS. Period: Q2-2020 levels and yearly changes with respect to Q2-2019. Note: Axes are centred on the unweighted EU average. The legend is presented in the Annex. In most Member States, the increase in unemployment has been moderate so far. As shown in Section 1, the average unemployment rate for the EU has increased to 7.5% in September 2020, i.e. by only 1 pp compared to the lowest pre-crisis level recorded in February 2020. This follows a continuous decline in the majority of Member States in 2019. Such a moderate increase can be seen as the effect of the functioning of short-time work schemes, though inactivity could also explain part of it (in several Member States a sizeable share of workers gave up active job search, especially during the lockdown phases). Figure 10 , showing the level of unemployment rate in Q2-2020 and the change compared to Q2-2019, indicates that to such a moderate average increase correspond very different national trends. For 20 out of 27 Member States the unemployment rate actually rose over this period, with increases close or above 2 pps in Lithuania, Latvia, Estonia and Sweden (all marked ‘to watch’ according to the social scoreboard methodology). On the contrary, the unemployment rate has actually decreased in Italy, France, Portugal, Belgium, Ireland, Poland and Greece (in the case of Italy, by more than 2 pps). The falling activity rate (by 3.1 pps in Ireland and Portugal, 2.9 pps in Italy, 2.1 pps in France, 1.7 pps in Belgium, 1.5 pps in Greece) can help explain this behaviour. Monthly figures for September 2020 point indeed to an actual increase in unemployment compared to one year before for all those countries except Belgium and France. In comparative terms, Spain and Greece are still classified as ‘critical situations’ (with unemployment rates above 15%) while Czechia and Poland are ‘best performers’ (with unemployment rates below 4%). Large disparities persist at regional level (see Annex 4) with some regions of Greece, Italy and Spain recording unemployment rates above 20%. Figure 10: Unemployment has risen in most Member States, with a moderate overall increase Unemployment rate (15-74) and yearly change (Social Scoreboard headline indicator)

Source: Eurostat, LFS. Period: Q2-2020 levels and yearly changes with respect to Q2-2019. Note: Axes are centred on the unweighted EU average. The legend is presented in the Annex. Self-employment was, on average, less affected by the crisis than total employment – but with a higher heterogeneity across Member States. Between Q4-2019 and Q2-2020, the number of self-employed workers dropped by 1.8% (or 530 000), compared to 2.9% for total employment (National Accounts figures, seasonally adjusted). While this fall is sizeable, the comparison with total employment suggests that a large share of the self-employed managed to keep their activity running in spite of the collapse in economic activity, either by (temporarily) reducing the size of their business or switching to remote forms of working. Still, the self-employed represent one of the categories most at risk if the recession is protracted, not least because of limited access to social protection schemes in many Member States. Only in seven Member States did self-employment drop faster than total employment between Q4-2019 and Q2-2020 (Bulgaria, Germany, Estonia, Malta, Romania, Slovakia and Finland). Overall, the largest drop was recorded in Romania (-10.5%), followed by Estonia (‑6%), Ireland (-5.7%) and Spain (-4.6%). Interestingly, the number of the self-employed increased in eleven Member States during the crisis, the largest increases recorded in Latvia, Poland and Luxembourg. In recent years, self-employment slowly declined as a share of total employment. Overall, the share of self-employed on total employment has been slowly decreasing, from 14.3% in 2008 to 13.4% in 2019. Such a decrease was evident in particular during the phase of economic expansion between 2013 and 2019, when job creation occurred more than proportionally among employees. As shown in detail in the Joint Employment Report 2020, this decrease over time hides a continuous shift in the composition of self-employment away from traditional activities towards services and higher value-added sectors – notably away from agriculture, trade and transport, towards information and communication, professional, scientific and technical activities, human health and social work activities. This structural change is accompanied by a faster increase in the average level of educational attainment among self-employed than among employees: the share of tertiary educated workers among the former increased from 26% in 2008 to 36.1% in 2019, against a more limited increase (from 26.1% to 34.5%) among employees. The crisis is likely to accelerate the shift towards services sectors and a higher educational level among the self-employed, as low-skilled workers in traditional sectors (that cannot be performed digitally) are among the most affected. Nominal wage growth accelerated in 2019 to then react to the economic slump. The EU‑27 average growth of nominal compensation of employees was above 3% and it reached more than 4% in the Baltics, Central and Eastern Europe and Ireland ( Figure 11 ). For Hungary, Lithuania and Ireland, the changes in 2019 substantially outpaced those of the previous year, whereas signs of deceleration from high growth trend were recorded for Romania, Bulgaria, Estonia and Czechia. Wages decelerated also in Sweden and especially in Italy and France (in the latter, they remained at the same level of 2018). In 2020, with several Member States entering into recession, growth of compensation per employee started to slow down in most of them. This response mainly reflects the shortfall of hours worked (and, often, of associated wage costs) related to the widespread use of short-time work schemes. Depending on the design of national schemes, the share of employees involved and the intensity of the drop in hours worked, wage decreases varied considerably. By Q2-2020, a large number (18) of Member States recorded negative changes (y-o-y), with substantial decreases in France (-8.5%), Belgium (-9.5%) and Italy (-10.3%). In some of the remaing ones, positive developments were higher than 3.5% in Romania, the Netherlands and Poland, and especially significant in Bulgaria (+8.3%), Hungary (+6.6%) and Lithuania (+5.1%). Furthermore, as firms reducing the hours worked attempt to save labour costs, compensation per employee has also been affected by the freezing of the variable components of pay or the postponement of labour contracts renewals. Figure 11: Nominal wage growth turned negative during the crisis in most Member States Nominal compensation per employee, 2018-2019 and Q2-2020, annual% change (1) Wages are measured by the indicator ‘Nominal compensation per employee’, which is calculated as a total compensation of employees divided by total number of employees. The total compensation is defined as the total remuneration, in cash or in kind, payable by an employer to an employee in return for work done by the latter during the accounting period and it has two components: i) Wages and salaries payable in cash or in kind; and ii) Social contributions payable by employers. (2) All the data used are national accounts data. The indicators are based on national currency values. Aggregates are weighted averages. Source: European Commission, AMECO database. While the compensation per employee dropped, the reduction of hours worked triggered an increase in hourly wages. While in few countries (Cyprus, Czechia, Croatia, Poland and Romania), hourly wages actually decreased in the second quarter of 2020 (quarter on quarter), they generally outpaced compensation per employee. In seven countries, the gap is above 10 pps, with the highest values for France and Portugal (14% and 19.6%, repectively). Real wages increased in alm