COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 09.10.1996 
COM(96) 485 final 
REPORT FROM THE COMMISSION 
Employment in 
EUROPE 
1996 

Executive Summary — Meetin employment challenge 
Executive Summary — Meeting the employment challenge 
The Employment in Europe report 1996 presents the 
latest trends in employment and the labour market in 
the European Union. It analyses the current situation 
and outlines a series of policy issues which have to be 
addressed if the employment problem is to be tackled. 
Trends 
• Employment in 1995 was 348 million, 1.1 million 
more than in 1994, but still 4 million fewer people 
employed than 4 years earlier. 
• the employment rate, at 60%, is lower than it was 
20 years ago, and significantly down from its recent 
peak of 63% in 1991. 
• unemployment remains stubbornly high, at 10.7% 
on average in mid-1996, only slightly below its peak 
of 11.3% reached in April 1994. 
• youth unemployment is still twice as high as that of 
adults, at over 20% on average. 
• long-term unemployment increased in 1995 from 
48% of the unemployed to over 50%. The proportion 
of those unemployed for more than two years rose 
from 27% to over 30%. 
• Women have accounted for the entire growth of the 
labour force in the last 20 years, and their activity 
rate now stands at 70% for the Union as a whole. 
• Unemployment of women, which stood at 12.5% in 
July 1996, has been unaffected by the recovery and 
remains higher than that for men in all but two 
Member States. 
• The nature of working is changing. The number of 
people working at night and at weekends has in­
creased almost everywhere. Most new jobs created 
in the 1990s were part-time. Temporary working 
accounted for all of the increase in employment of 
men and just under half of the rise for women. 
• over the period 1988-95, on an annual average ba­
sis, job losses in large enterprises has largely been 
compensated by job creation in SMEs. Companies 
with fewer than than 100 employees have increased 
net employment at a rate of 259 000 a year, while companies with more than 100 employees have had 
net losses of 222 250 a year. 
• the services sector provided most of the net addition 
to jobs, while the decline in employment in agricul­
ture and industry continued. 
• the recovery in growth which began in 1994 came 
more or less to a halt at the end of 1995, mainly be­
cause of the effects of adverse developments in 
financial markets. Nevertheless, a resumption of 
growth is expected in the course of the year, accel­
erating throughout 1997. 
Areas of policy action 
Member States' margin of manoeuvre appears to be 
narrow in the struggle against unemployment and mar­
ginalisation, and the alternatives are few. Traditional 
demand management through public deficits have not 
proven effective in achieving a sustainable growth per­
formance and a solution to the structural problems in 
the European economies. 
Therefore, the pursuit of stability-oriented macroe-
conomic policies which enhance confidence in financial 
markets and among consumers must be continued, 
without giving in to technology pessimism, fear of global 
trade liberalisation or beggar-thy-neighbour attitudes 
through uncoordinated, stand-alone action. 
An employment-friendly growth must be based on an 
offensive strategy to promote increased demand rather 
than a defensive strategy based on the sharing of exist­
ing jobs. This growth should be driven by efforts 
towards greater innovation to open up sources of job 
creation and consolidate existing jobs. This can be 
brought about by a four-pronged investment-led policy 
comprising: 
• investment in physical productive capacity, 
• investment in intellectual know-how and human re­
sources, 
• investment in an entrepreneurial environment and 
infrastructure. 
• investment in knowledge and skills 
j_ -5 
Executive Summary — Meeting the employment challenge 
In addition, the reforms of the production and employ­
ment systems must contribute by addressing structural 
rigidities in product, service and labour markets to 
enable them to function efficiently. 
At the same time, it must be clear that the reforms must 
respect the principles of solidarity and social justice. 
Combining efficiency, adaptability and security must be 
considered as the strength of the European way of 
organising production and equal opportunity. Experi­
ence in several European countries has demonstrated 
that it is possible to combat poverty and marginalisa­
tion by providing safety nets for those who cannot 
respond to market forces, while encouraging an active 
search for work and workers, thereby promoting both 
flexibility and security. 
The different rate of job creation in the US and Europe 
is due to a complex of factors including different rates 
of output growth, differences in sectoral employment 
trends, greater wage dispersion in the US, and differ­
ences in the degree of regulation on product and service 
I,itjl l-.t;|f5 !'!(,« «-pH i l!MH »•' '•(;' l<l)"MM ' ""I" |l<l< ( < | t:ii|< «1 
distortions in Europe ngninsl low v\ ;ige, low skill 
groups. This distortion must be redressed without trad­
ing off increased wage dispersion against increased 
poverty. 
• there is considerable evidence that European labour 
markets are becoming more flexible, in terms of 
work organisation, the regulatory framework and 
working time. Nevertheless, the employment poten­
tial of this increased flexibility is not being realised. 
The policy focus should aim to continue the trend 
towards greater flexibility, but with a new empha­
sis on security in relation to employment in the 
wider labour market to ensure a balance between 
flexibility and security. 
• The skill level of the European workforce is a criti­
cal element in the potential development of future 
jobs. The challenge posed by the march of new tech­
nology demands an urgent response to the 
upskilling of the workforce. A quantum leap in in­
vestment in education and training is required to 
raise the overall levels of educational attainment 
and skill levels. Continuous training programmes 
based on partnership between public authorities 
and enterprises are needed to deal with the de­
mands of continuous structural change. 
® More emphasis must also be given to training for 
the unemployed to combat the process of deskilling and to give them better access to jobs. A dispropor­
tionate share of the unemployed have no skills or 
outdated skills, and many older workers are leaving 
the labour force for the same reason. 
• Young people have a much greater chance of being 
unemployed than adults, although the numbers in­
volved are smaller than a decade ago because many 
more young people are staying on in education and 
training. A balanced policy for young people will in­
volve supply-side policies to prepare young people 
for the world of work, and demand-side policies to 
improve the functioning of the labour market for 
young people. Active labour market policies should 
concentrate on early, targeted measures of linked 
work experience and training. 
• Long-term unemployment is the intractable ele­
ment of the unemployment problem in Europe, 
increasing again in 1995 to over 50% of the unem­
ployed. Policy action must focus not only on the 
reintegration of the long-term unemployed but even 
,.... ..„!..„ •U '!' 
"HMII, l>3 olfet iiif, overvj"b seeker v.nrk exp"i ienee 
or training before they reach the threshold of long-
term unemployment. 
• A major role in implementing this early action will 
be played by the public employment services. Mem­
ber States' Multi-annual programmes, as agreed by 
the European Councils should take account of this. 
Such early action should include appropriate moni­
toring of those most at risk, adequate counselling 
services, and access to an appropriate range of ac­
tive measures. 
• Women are accounting for an increasing proportion 
of the Union labour force, and for a considerable 
share of the new jobs being created. While some 
real progress in equality has been achieved, it re­
mains incomplete. The thrust of policy should 
remain the mainstreaming of equal opportunities 
for women and men while recognising the specific 
needs of women in reconciling work and family re­
sponsibilities. Policy action should focus on the 
removal of labour market segregation of women 
and the barriers which prevent them from improv­
ing their situation on the labour market. Women 
and men should be encouraged to seek non-conven­
tional career opportunities, thus breaking down 
occupational segregation. 
Executive Summary — Meeting tu., employment challenge 
• The employment strategy calls on the Member 
States to re-balance their labour market policies in 
favour of active measures. This requirement is two­
fold: to transform passive labour market 
expenditure into active policies, and to strengthen 
preventive measures in the framework of active 
policies. Such a strategy is fully compatible with 
the objectives of budgetary consolidation and stable 
exchange rates. 
• Evidence suggests that progress in shifting towards 
more active labour market policies is being 
achieved. Further progress requires greater efforts 
in the focusing of labour market policies, a review of 
the incentive effect of the benefit system and the 
central role of the public employment service. 
The policy challenge: 
from uncertainty to confidence. 
A successful outcome to the employment strategy thus 
requires a concerted effort on the part of all Member 
States and the Union in three areas: 
• a re-balancing of macro-economic and structural 
policies 
• a balanced approach to efficiency and equity 
• a balanced approach to the participation of all those 
involved 
There is much which has already been achieved. There 
is still much to be done. Continuing the European 
employment strategy offers the most potential for real 
progress in providing more and better jobs and raising 
the standard of living of all European citizens. 
-7 
Meeting the employment challenge — issues and pol ]c::e" 
Meeting the employment challenge — issues and policies 
The Employment in Europe Report 1996 analyses the 
current trends and developments in employment and the 
labour market in the Union in the light of the objectives and 
priorities defined in the employment strategy. Last year's 
report had put forward a note of cautious optimism, 
suggesting that the recovery in output which had begun to 
spread across the Union would lead to some increase in net 
job creation, but that the impact on unemployment would be 
small. This year's report confirms that view, but points out 
that the structural performance of the European labour 
market needs to be improved at the same time as other 
measures are taken to strengthen the recovery in output 
growth. 
The European 
employment strategy 
To increase employment in the 
European Union is still the most 
fundamental challenge facing 
Member States. Although many of 
the building blocks are in place for 
sustainable, employment-creating 
growth, the edifice is far from com­
plete, and the commitment is far 
from total. There is uncertainty, 
and a lack of confidence, at the same 
time as macro-economic conditions 
are more stable than for many 
years. 
The fundamental challenge for both 
employment and macro-economic 
policy remains the same to combat 
the problem of low employment 
rates and high unemployment 
rates. From after the first oil shock 
to the monetary crises of 1992-93, 
when unemployment tripled from 5 
million to 15 million, both macro­economics factors and structural 
features played a role in Europe's 
poor employment performance. 
It is for that reason that since the 
Essen European Council in Decem­
ber 1994, the Member States of the 
Union have been committed to a 
European employment strategy 
based on inter-related measures to 
enhance employment-creating 
growth, social solidarity, equal 
treatment, and special efforts to 
promote access to jobs for the most 
vulnerable groups on the labour 
market. 
This strategy calls for an integrated 
approach, whereby all the relevant 
policies, including macro-econom­
ics and structural policies, have to 
contribute and support each other 
in the light against unemployment. 
The macro-economic component of 
the strategy is based on budgetary 
consolidation aiming at a balance in 
the medium-term, and wage devel­opments which take into account 
the objectives of monetary stability 
and investment profitability. Wage 
developments should also reflect 
productivity determined by skills, 
and to a certain extent regional and 
sectoral differences. This paves the 
way for lower interest rates and 
higher investment which will be fa-
vourable to growth and 
employment. 
In its Communication of the 5 June, 
1996, the Commission has called for 
a 'Confidence Pact' for employment, 
which brings the European employ­
ment strategy a step forward, i.e. by 
mobilising all those involved in the 
job creation process, particularly 
the social partners. 
The structural and labour market 
components of the European Em­
ployment Strategy call for a new 
effort to invest in human resources, 
notably through education and vo­
cational training, and the 
-7- J)/i-
Meeting the employment challenge — issues and policies 
promotion of employment in par­
ticular through more flexible work 
organisation, the promotion of in­
itiatives at regional and local level, 
including the territorial pacts re­
ferred to in the 'Confidence Pact', 
the reduction of non-wage labour 
costs on low-paid and low-skilled 
workers and a more effective labour 
market policy. Special efforts 
should be devoted to the integration 
of young people into working life, to 
the prevention of long-term unem­
ployment and to achieving equal 
opportunities for men and women 
in the world of work. 
In the following sections, an exami-
nation is made of both the 
macro-economics and labour mar­
ket context within which the above 
strategy is being implemented, and 
issues are identified where further 
action is needed. This report, how­
ever, does not attempt to present an 
exhaustive analysis of all many and 
varied factors which may have an 
impact on employment in Europe. 
Three factors, in particular, which 
potentially have important effects 
on employment both now and in the 
future merit a more detailed analy­
sis in subsequent reports — the role 
of small and medium-sized enter­
prises (see Employment in Europe 
1994), the impact of globalisation 
and trade liberalisation and the 
prospective enlargement of the 
Union. 
Macro-economics 
stability and 
confidence 
With the sharp recovery of 1994 and 
until mid-1995, there were hopes of 
positive developments in the Euro­
pean economy with forecasts of 
output growth of around 3% for the 
years 1995 and 1996, and with it, an 
improvement in the employment situation. In terms of pace and com­
position, such a recovery was 
indeed just what the European 
economy needed. On the basis of the 
macro-economics strategy set out in 
the Broad Economic Policy Guide­
lines, this could have been 
transformed into the sustainable 
investment-led growth path which 
would have progressively created 
productive capacity and the associ­
ated jobs. This would then have 
formed the basis for a gradual re­
sorption of unemployment and an 
easier application of structural re­
forms on the labour market. 
Business surveys of investment 
plans at the end of 1994 effectively 
confirmed early and strong capital 
stock projects. 
Since then, however, there has been 
a marked slowdown in growth 
which has directly affected labour 
market developments, bringing the 
moderate employment growth reg­
istered since the middle of 1994 
which had reached 0.8% in 1995 
more or less to a halt at the begin­
ning of 1996. 
These lower than expected perform­
ances are essentially explained by 
the lagged effects of two adverse 
developments in financial markets. 
Firstly, the marked rise in long-
term interest rates on world and 
Community financial markets dur­
ing 1994. Secondly, and more 
importantly, the exchange rate tur­
moil in the Spring of 1995, with 
sizeable and abrupt movement be­
tween EC currencies. These two 
events are themselves linked and 
reflected credibility problems or a 
lack of timely application of the 
agreed convergence policy in sev­
eral Member States. 
Among the causes of the long-run 
interest rate rise, the lack of deter­
mined action for cutting structural 
budget deficits along with the recov­ery (only -0.2% of EU GDP in 1994 
and -0.3% in 1995) seems to have 
played a significant role. It was also 
more pronounced in countries 
whose public finances were not yet 
perceived as having been put on a 
sustainable downward path. 
The currency turbulence of early 
1995 had a significant negative im­
pact on the economies of the 
appreciating currencies as well as 
the depreciating ones. In the first 
group a profit squeeze occurred in 
the export/import-competing sector 
which, combined with a still rela­
tively restrictive monetary policy, 
induced a downward revision of pri­
vate expenditure plans. In the 
depreciating currency countries the 
efforts to moderate the inflationary 
effects of depreciation also damp­
ened the demand side through 
higher interest rates (already 
pushed upwards by the widening of 
the risk premium), and the erosion 
in purchasing power of consumers, 
while the export boom was to some 
extent offset by lower growth of 
their main export markets. 
Such a situation, combined with the 
expectation that immediate addi­
tional efforts are required to make 
up for the budget deficit slippage, 
has sapped economic confidence 
among consumers and investors 
alike. 
A resumption in growth is expected 
during the second part of the year 
gaining speed in 1997 and 1998. 
Indeed, leading indicators point in 
that direction, and developments 
are well on track with the Spring 
forecast of Commission services. A 
gradual acceleration from about 
1.5% in 1996 to around 2.5% in 1997 
is forecast, with employment 
growth of 0.2% in 1996 and 0.6% in 
1997. 
Meeting the employment challenge — issues and policies 
The need for action 
The disappointing effects on em­
ployment and unemployment of 
recent macro-economics develop­
ments show clearly the extent to 
which a higher and sustainable rate 
of growth is a priority for fighting 
unemployment. Attention has once 
again turned to the urgent need to 
restore a stronger growth path by 
achieving a credible re-balancing of 
the policy-mix. To achieve that, two 
kinds of conditions must be ful­
filled, according to the time horizon. 
In the short-run: 
• given the good performance in 
terms of wages, prices and prof­
itability and with strong 
international demand, EU 
growth of output and employ­
ment is limited by a lack of 
confidence restraining domestic 
demand. Taking into account 
the recent progress in policies 
towards convergence and the 
resulting shift in the policy-
mix, the conditions are met for 
a renewal of the domestic re­
covery. 
• from a policy point of view, de­
mand should not come from 
budgetary or wage expansion 
but from restoring confidence 
in a full application of the 
Broad Economic Guidelines. 
This means continuing with fis­
cal consolidation, maintaining 
appropriate wage developments 
throughout the EU, speeding 
up the structural reforms and 
creating further room for easier 
monetary conditions. Budget­
ary consolidation will have 
positive effects on business and 
consumer confidence only if 
continued in a credible way, 
i.e., allowing for lower interest 
rates to be sustained. • A major obstacle for growth in 
the short-run could be a re­
newed risk of exchange rate 
turbulence. Such a risk could 
mainly occur in two cases: 
• a lack of credibility in the 
nominal convergence pol­
icies of some Member States 
for meeting the EMU condi­
tions. This would be merely 
a repetition of the 1995 cur­
rency crisis, with damaging 
effects on output and em­
ployment in all countries. It 
would only occur if the 
agreed convergence objec­
tives were abandoned or 
insufficiently applied. 
• a lack of credible prospects 
for employment creation in 
other Member States. This 
would result from a funda­
mental weakness in the 
growth and employment 
strategy and especially in 
the social consensus re­
quired for restoring the 
growth path. Only recovery 
in an environment of macro-
economic stability with a 
gradual return to employ­
ment creation would ensure 
the consistency of the whole 
strategy. 
In the medium-term: 
• the expansion of productive ca­
pacity will result from an 
investment-led growth path if 
budgetary consolidation leads 
progressively towards a bal­
anced budget and if any 
stability conflict can be pre­
vented on the wage side as well 
as on the goods and services 
markets. To achieve a signifi­
cant absorption of 
unemployment, the sustainable 
rate of growth has to be higher 
than in the past two decades (2.2% average annual growth). 
If the 1974 96 trend in labour 
productivity remains stable 
— currently at around 2% per 
year only that part of the 
growth in excess of 2% is job-
creating. Taking into account a 
probable increase in the labour 
force of about 0.6% per year, 
that means that the medium-
term growth should be in the 3 
to 3.5% range for progressively 
reducing unemployment at a 
satisfactory pace (0.5 to 1% per 
year) and raising the EU em­
ployment rate. Amongst other 
things, this is important for 
dealing with the prospective fis­
cal problems caused by an 
ageing population. 
with any lower rate of growth, 
the only way to increase em­
ployment would be by 
increasing the labour-content of 
growth. One way to do this is by 
reducing the substitution of 
capital for labour. This would 
result in a reduction in the rate 
of growth of labour productivity 
as measured by output per per­
son. The creation of jobs 
through local initiatives, which 
are a means of meeting new 
needs, are a further way of in­
creasing the employment 
content of growth. In this per­
spective, a reduction in 
non-wage labour costs at the 
bottom end of the scale, as sug­
gested in the White Paper, 
could be linked to effective job 
creation. Linking the reduc­
tions with net job creation by 
firms, where the employer only 
receives the fiscal advantage if 
a new job is created, can reduce 
dead-weight costs and prevent 
displacement effects (where a 
certain category of worker for 
whom the incentives are avail­
able are recruited at the 
expense of other categories). 
9-
Meeting the employment challenge — issues and policies 
ME2 Annual change in employment in the Union, 
633 1970 to 1995 
Annual % change 
2 r n 2 The European Union has to rise 
to the challenge of globalisation 
and the integration of newly 
industrialising countries as 
major players in the world 
economic and trading system. 
On the one hand, this will in­
crease competition primarily in 
manufacturing but also in serv­
ices and requires supporting 
structural policies to enable in­
dividuals and enterprises to 
adapt to change. The integra­
tion of emerging market 
economies, especially those in 
Central and Eastern Europe, 
will also create the need for 
structural adjustment both in 
entrepreneurial strategies and 
in labour markets, on the other 
hand, such structural adjust­
ment is also necessary for 
European firms to reap the em­
ployment opportunities 
presented by access to new 
markets. 
ME2 Employment rates in Member States, 1985 and 1995 
641 
100 % working-age population The major conclusion of the macro­
economics analysis is that restoring 
a higher growth path as set out in 
the Broad Economic Policy Guide­
lines is both the first priority and the 
most favourable way, from a politi­
cal and social point of view, of 
achieving a durable solution to the 
employment problem in the EU. 
Structural reforms in product and 
labour markets can contribute to 
this, although most of the structural 
policies, which should be accompa­
nying the macro-economics 
strategy, aim to stimulate the endo­
genous forces of growth i.e. 
essentially acting through increases 
in the productivity of the EU econ­
omy and facilitating the conduct of 
a sustainable macro-economics pol­
icy. 
10 
Meeting the employment challenge — issues and policies 
Low employment 
rates, high 
unemployment rates 
Employment increased in 1995 in 
the Union as a whole for the first 
time since 1991 but there is still a 
long way to go to make good the job 
losses which occurred in the three 
years 1991 to 1994 (Graph 
ME2633). Europe lost some 5 mil­
lion jobs during that period and 
there were some 4 million fewer 
people employed in 1995 than four 
years earlier (a decline of 2V6%). In 
Finland and Sweden the numbers 
in work were some 10% lower than 
four years before. Employment con­
tinued to fall in 1995 in some 
Member States such as Germany, 
Italy and Portugal. The employ­
ment rate in the Union, at only 
around 60%, is significantly lower 
than it was 20 years ago and consid­
erably below the level in the US and 
Japan, in both of which it has risen 
since the mid-1970s (Graph 
ME2624). Indeed the overall per­
formance of the Member States in 
providing work for those who want 
it is only slightly better than after 
the second oil price shock in the 1980s, though the situation varies 
markedly between countries 
(Graph ME2641). 
Unemployment in the Union was 
lower in 1995 than in 1994, but hav­
ing fallen from its peak of 11.3% in 
April 1994 to 10.7% in July 1995, 
remained unchanged before starting 
to rise again in November 1995 to 
reach 10.9% in the Spring and 10.8% 
in July 1996. Only 5 of the 15 Mem­
ber States have experienced a 
continuing fall in unemployment 
since mid-1995, and in 8, unemploy­
ment has risen (Graph ME2625) 
particularly in Germany (to 8.9%, up 
from 8.1% 12 months previously). 
The rise in unemployment would 
have been even greater if the aver-
age rate of labour force 
participation had not continued to 
fall in 1995, following its decline of 
the previous four years. This fall is 
concentrated on two groups: young 
men and women under 25 years, 
and men of all ages. The decline in 
participation of young people is al-
most exactly matched by an 
increase in participation in educa­
tion and initial training, reflecting 
both the efforts of Member States to 
improve skill levels and the decision of young people to postpone entry on 
to a labour market where job oppor­
tunities are limited. 
In addition, the decline in the 
number of young people coming 
onto the labour market is likely to 
be reinforced by the underlying 
demographic trends, thus leading to 
considerably fewer people in the la­
bour market with new skills, to 
compensate for the rising retire­
ment rates in the older age groups. 
The continuing trend towards early 
retirement has had a disproportion­
ate effect on the participation of men 
over 50 years. Despite the fact that 
the official retirement age is 65 in 
most Member States, under a third 
of men aged 60 to 64 in the Union are 
still economically active, and only 
just over two-thirds of those aged 55 
to 59. Most disturbingly, there is an 
increasing withdrawal from the la­
bour market of men in the prime age 
group 25 -49. 
Output growth 
and employment 
The renewed growth in employment 
in 1995 reflects the growth of GDP. 
ME2 Employment rates, 1973*86 
624 
gQ % population (15-64) 
70 
60 
SO Japan 
US 
•'*•••'*••'*•• EUR16 -, 80 
70 
60 
i i i i i ME2 Unemployment rates, 1973-95 
626 % labour force 12 
50 
1973 1975 1977 1979 1981 1983 1986 1987 1989 1991 1993 1995 0 I I In II«IIII I. I I I I In I I I ,1 1 il ml i I |„ iln I I I g 
1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 
11 
Meeting the employment challenge — issues and policies 
Employment responds to changes 
in output only with a lag, which is 
why employment can be expected to 
increase slowly over the Union as a 
whole in 1996, despite the modest 
rate of GDP growth now forecast, 
though the increase is only likely to 
be small. GDP growth results from 
a combination of growth in produc­
tivity (value-added per employee) 
and the volume of work (total em­
ployment). In 1995 productivity 
grew by 1.9% and employment by 
0.6%. Nevertheless, growth of GDP 
has led to a larger rise in employ­
ment in some countries than in 
others. In Germany and Italy, GDP 
growth in the two years 1993 95 was 
around the Union average, but em­
ployment fell. In other Member 
States experiencing a similar rate 
of growth (Belgium, Spain, France, 
the UK and particularly the Neth­
erlands) employment increased. 
The need to increase employment-
creating growth is one of the 
priority objectives of the European 
employment strategy, the aim be­
ing to ensure that the output 
growth which is achieved is trans­
lated into more jobs. In other words, 
the objective of policy in the Union 
is not simply to secure GDP growth 
for its own sake, but as a means of 
generating employment creation to 
provide work both for those who are 
unemployed and those who are dis­
couraged from seeking work 
because of the lack of job opportuni­
ties. It is not designed to slow down 
the rate of productivity growth. On 
the contrary, high productivity 
growth is a prerequisite for im­
proved competitiveness of the 
economy and greater prosperity. 
Employment creation in SME is an 
example of this. In the period 
1993-95, a 10% increase in turn­
over in SME coincided with an 
increase in employment of over 5%, 
while the same rate of turnover 
growth in large companies only con­tributed a 3% growth of employ­
ment. 
The recent growth of employment 
in the Union, even in those coun­
tries which have been most 
successful in translating growth 
into more jobs, was significantly be­
low that in the US, where GDP 
increased by only slightly more be­
tween 1993 and 1995, but where the 
number employed went up by an 
average of over 2% a year as com­
pared with only a marginal rise in 
Europe as a whole. This partly re­
flects the fact that whereas the US 
has had sustained growth in output 
since 1991, the European economy 
is in the initial stages of recovery. 
Largely, however, it reflects the un­
derlying difference in the rate of net 
job creation for any given growth of 
GDP which has been much higher 
over the long-term in the US than 
in Europe. 
Various analyses have been put for­
ward for this difference in the 
employment-content of growth, 
though there is disagreement over 
the relative weight to be attached to 
various factors. Two important ele­
ments are, first, the significant job 
losses which have occurred over the 
long-term in agriculture and manu­
facturing in Europe, which are 
substantially greater than in the 
US and which have been associated 
with higher output growth in the 
US rather than lower productivity 
growth and greater competitive­
ness and dynamism. 
The second element is the higher 
rate of net job creation achieved in 
the US in services, where the 
growth of output (or value-added) 
has not differed much from that in 
Europe. It is the high growth of 
employment relative to output in 
this sector which underlies the 
highly employment-creating 
growth in the US economy as a whole. There are differences, how­
ever, both in the scale of service 
sector employment growth and in 
the extent to which services are pro­
vided privately or publicly (see 
below).This employment perform­
ance is also linked to low rates of 
average wage increase or low rises 
in labour costs overall and to a com­
plex of factors such as the widening 
of wage differentials at the lower 
end of the wage scale, particularly 
in the 1970s and the 1980s com­
bined with better functioning 
services markets. This flexibility of 
the wage scale combined with the 
low coverage and limitations of the 
unemployment insurance system 
which obliges many of the unem­
ployed to work at any wage rate, is 
one important factor explaining the 
creation of low productivity jobs in 
services in the US. 
The need for action 
There is, therefore, no room for any 
let up in the pursuit of the Euro­
pean employment strategy, nor for 
any complacency arising from the 
slight fall in unemployment which 
has occurred since 1994. There is a 
need to continue with the moderni­
sation of Europe, fully deploying the 
potential offered by the Union. 
• The establishment of the Single 
Market is leading to the crea­
tion of the world's largest 
economy in terms of GDP and 
purchasing power with 370 mil­
lion consumers. The 
harmonisation of legislation in 
different areas and the removal 
of barriers to trade and the free 
movement of productive factors 
in the fields of services, public 
procurement or financial mar­
kets, have resulted in an 
increase in intra-EU trade and 
is consequently a factor in the 
further modernisation of the 
European economy, growth and 
12 
Meeting the employment challenge — issues and policies 
employment creation. This 
process has to be pursued, im­
proved and its benefits fully 
utilised. The insufficient co-op­
eration between Member States 
over taxation, especially indi­
rect taxation where decisions 
require unanimity, appears 
now to be one the biggest obsta­
cles to the compatibility 
between one market and 15 dif­
ferent, uncoordinated ones 
with different taxation systems. 
Europe's infrastructure must 
also be developed to match the 
Single Market, moving from a 
patchwork of national networks 
to truly Trans-European Net­
works in transport, energy and 
telecommunications. This com­
mon economy, properly 
exploited, offers scope for 
growth, for new employment, in 
a way that cannot be achieved 
by each individual country act­
ing alone. 
• European Monetary Union will 
ensure the conditions for sus­
tained growth and reduced 
unemployment. The require­
ment to maintain convergence 
will improve the conditions for 
a balanced policy mix. The sta­
ble macro-economic framework 
will stimulate investment and 
private consumption. Moreover, 
Monetary Union will allow the 
full potential of the internal 
market to be realised. The per­
manent elimination of 
exchange rate distortions will 
increase price transparency, 
competition and efficiency. 
• The modernisation of Europe's 
employment systems. The old, 
mass-production, mainly male, 
and single skill, employment 
system has gone. The modern 
economy is knowledge-based, 
where information and technol­
ogy play a crucial role in re-shaping the organisation of 
work, creating an economy 
based on the skills and versatil­
ity of people. Each year, at least 
10% of all jobs disappear and 
are replaced by new ones, in 
new processes, in new enter­
prises, requiring new skills. 
But the rapid changes on the 
demand side of the labour mar­
ket have not been matched by 
adequate measures on the sup­
ply side to improve the skill 
development of the work force. 
This two-speed labour market 
is one of the root causes of la­
bour market problems in 
Europe. The long-run competi­
tiveness of the European 
economy therefore depends on a 
new, co-ordinated approach 
where investment in human re­
sources, in training and 
re-training, in the reintegration 
of the unemployed, will im­
prove both the quality of the 
skill supply and the flexibility 
of the labour market. 
This structural change would en­
sure sustained employment growth 
in the medium and long term. This 
effort should be supplemented by 
the appropriate labour cost develop­
ments. In addition, sufficient job 
prospects, especially in services, 
need to be provided for that section 
of the labour force which cannot be 
reasonably be expected to become 
high skilled. This, in particular, will 
enable the European economy to 
face the challenge and opportuni­
ties presented by increasing 
globalisation and increasing compe­
tition from newly industrialising 
and emerging countries, including 
not only those in South-East Asia 
but also those in Central and East­
ern Europe. Access to new markets 
offers opportunities which should 
lead to employment creation. The 
challenge is to develop new areas of 
specialisation, and new areas of job creation in Europe, in place of ac­
tivities in which low labour costs are 
the key element in competition from 
these countries and the increasing 
globalisation of production in low 
labour cost sectors in the Union 
could lead to even higher unemploy­
ment in the Union and growing 
pressure for protectionist measures 
in these sectors. 
Job creation 
and destruction 
The sectoral pattern of employment 
growth was much the same across 
the Union in 1995, with business 
services, health, education and rec­
reational and personal services and 
the environmental sector providing 
most of the net addition to jobs, and 
job losses occurring, as in the past, 
in agriculture and, in most Member 
States, in manufacturing (except in 
instrument engineering, partly 
linked to the growth of environ­
mental protection). This continues a 
long-run trend which is equally evi­
dent in the US and Japan. In these 
two economies, the sectors of activ­
ity in which most job growth has 
taken place have been remarkably 
similar to those in Europe, as have 
the sectors where employment has 
declined or remained largely un­
changed. There are differences, 
however, in the scale of changes. 
Over the recent cycle, employment 
in SME s has held up well. From 
1988-1990, while employment in­
creased in all size classes, it 
expanded more significantly in 
SMEs. From 1991, employment in 
very small enterprises (less than 10 
employees) continued to increase. 
In small (10-^49) and medium-sized 
(50-249) enterprises, employment 
held up, while employment in large 
companies started to fall. Since the 
upturn, however, employment in 
13 
Meeting the employment challenge — issues and policies 
large companies has recovered sub­
stantially. 
In Europe, 18 million additional 
jobs were gained in services in the 
13 years 1980 to 1993, compared 
with 22 million in the US. In propor­
tional terms the scale of job growth 
was around a third higher in the 
US than in Europe. Communal 
services (health, social services and 
education), together with recrea­
tional and leisure activities, 
contributed almost 1% a year to em­
ployment in the US and about Vi% 
a year in Europe, as well as in Ja­
pan. The only other sectors which 
were a significant source of net job 
creation in Europe and the US were 
business services, distribution and 
hotels and restaurants. 
A bigger difference between Europe 
and the US, and even more between 
Europe and Japan, was in industry 
and agriculture. In Europe, employ­
ment in these two sectors combined 
fell by 13 million. In the US, they 
fell by under 2 million and in Japan, 
they increased slightly. These dif­
ferences are principally due to 
changes in employment in industry, 
as employment in agriculture fell in 
all three economies, — albeit to a 
different extent. In quantitative 
terms, the scale of job losses in these 
two sectors are a more important 
aspect of the poor employment per­
formance of Europe in relation to 
the US than the lower rate of job 
creation in services: applying the 
same speed of job creation in serv­
ices as in the US, the EU would 
have created 7 million additional 
jobs while manufacturing industry 
effectively destroyed 6 million more 
than in the US and agriculture and 
construction together lost some 4 
million more. 
This superior employment perform­
ance of the US in industry, unlike 
in services, entirely reflects a much higher rate of output growth rather 
than a lower rate of productivity 
growth. Indeed, the latter has also 
been higher than in Europe over the 
past 15 years, so helping, with the 
considerable devaluation of the dol­
lar against other currencies, to 
boost the competitiveness of US 
producers in home and export mar­
kets and thus to underpin the 
expansion of output. 
In services, on the other hand, out­
put growth seems to have been 
much the same in the US as in 
Europe, the greater expansion of 
jobs in this case reflecting a much 
lower growth of productivity in the 
former or, in other words, a more 
employment-intensive pattern of 
development. This, however, does 
not seem simply to be related to a 
lower rate of average wage increase 
in the US service since the growth 
of real wage costs in services (+3.9% 
during the period 1984-94) has not 
been so much lower than in Europe 
(+4.7%). It is could also be related to 
wider wage dispersion, especially at 
the bottom end of the earnings scale 
during the 1970s and 1980s when a 
significant proportion of the new 
jobs created in services in the US 
seem to have been for low-paid, low 
skilled workers. 
However, in the 1990s a reversal of 
the trend for the US seems to have 
occurred: the evidence on the sec­
toral location of new jobs in the US 
suggests that employment growth 
has been concentrated in more 
highly skilled activities. Indeed, 
68% of the net growth in full-time 
employment between 1994 and 
1996 was found in job categories 
paying above-median wages. Fur­
thermore, 52% of employment 
growth was found in the top 30% of 
job categories. 
This has been accompanied by a 
policy change in the US which now emphasises much more the need to 
improve the quality of jobs, particu-
larly among low-skilled 
occupations, hence the efforts of the 
US administration to improve and 
expand training and employability. 
This convergence in policy ap­
proach was reflected in the 
conclusions of the G7 Jobs Summit 
in Lille. 
Sectoral mobility 
and job turnover 
In Europe as in the US, the scale of 
job creation and loss each year is 
substantial, many times greater 
than the net changes in employ­
ment which are usually the focus of 
attention. An average of around 1 in 
8 of those in employment in the 
Union at any time were either not 
working at all or were not working 
in the same sector a year before. 
Adding the number who change 
jobs within sectors produces a fig­
ure for job turnover each year of 
around 1 in 6 which seems to be on 
a par with that in the US and, in 
some Member States, such as 
Spain, Denmark, the Netherlands 
or the UK, a figure higher than this. 
The scale of movement into and out 
of sectors of activity, however, bears 
little relationship to their rate of 
employment growth or even 
whether they are expanding or de­
clining. More important seem to be 
the skill levels required of workers 
and by implication the amount of 
training needed to do the job. In 
agriculture, therefore, job turnover 
(in terms of employees only) 
amounts to 20-25% a year, while in 
hotels and restaurants, it is almost 
30%. By contrast, in banking and 
insurance and public administra­
tion, where educational and 
training requirements are on aver­
age markedly higher, only some 9% 
of employees tend to be new to the 
-14 
Meeting the employment challenge — issues and policies 
sector each year. This reflects, in 
some degree, the difficulties of peo­
ple moving from one profession to 
another (rather than between simi­
lar jobs in different sectors) in a 
number of countries, which still 
seem to be one source of labour mar-
ket inflexibility. It can be 
questioned, however, whether the 
increasing existence of two-worker 
households is a factor limiting geo­
graphical mobility. 
The need for action 
The comparative experience of 
Europe and the US in terms of em­
ployment growth raises a number of 
policy questions which are not so 
easy to answer. 
• The US has succeeded in gener­
ating more jobs and achieving a 
more employment-creating pat­
tern of growth. The reasons for 
this and the lessons to be 
learned by European Union 
Member States remain open to 
debate and revolve around so­
cial, political and cultural as 
well as economic factors. Al­
though wage dispersion at the 
lower end of the wage scale in 
the US compared to Europe is 
one important factor, other fac-
ME Change in part-tine and full-time 
262 employment, 1967-98 
|in base year 
1987 1968 1969 1990 1991 19S2 1993 1994 1995 tors such as differences in the 
degree of mobility of labour (for 
a variety of reasons) and in the 
regulation of goods and services 
markets are also at play. While 
it is doubtful if the same kind of 
wage differentiation is compat­
ible with the European Social 
model, there is anyway a grow­
ing convergence of views on the 
approach to the problem as dem­
onstrated by the conclusions of 
the G7 Jobs Summit, which 
noted that there should not have 
to be a choice between worsen­
ing unemployment and 
widening income inequality. 
There is, however, no question 
that pragmatic reforms are nec­
essary to remove possible 
disincentives to job search and 
achieve better functioning la­
bour markets. In this context, 
reducing non-wage labour costs 
— especially if targeted at the 
lower-end of the wage scale — 
would help to increase employ­
ment. But the impact is likely to 
be limited, so that it is all the 
more important to meet the con­
ditions for raising the rate of 
growth higher than the produc­
tivity trend and to address any 
other factors which may hinder 
the growth potential of the 
European economy. 
Moreover, though the policy fo­
cus tends to be on the growth 
sectors per se and on measures 
for stimulating the development 
of new activities, a large part of 
Europe's failure to sustain high 
enough rates of employment 
growth is the result of the scale 
of job losses in declining sectors. 
These are predominantly due, 
not to technological advance and 
automation destroying jobs but 
to lower rates of output growth. 
This points to the need for 
improved levels of competitive­ness and more favourable mar­
ket conditions. 
• The scale of job turnover does 
not suggest that labour mar­
kets are excessively inflexible, 
at least in terms of unduly lim­
iting the flow of workers 
between sectors. The evidence 
does suggest, however, that low 
skilled workers account for a 
large part of these flows and 
that it is perhaps easier for 
them to move between different 
activities than those with 
higher and usually more spe­
cific skills. 
Flexibility 
and security 
The debate in recent years has in­
creasingly cited the need for 
increased flexibility on European 
labour markets as a necessary 
structural condition for competi­
tiveness and employment growth. 
Much less consensus exists on what 
this flexibility means, how it should 
come about and whether it is a suf­
ficient condition of growth. At the 
same time, there is comprehensive 
evidence that the European labour 
markets are becoming more flexible 
in terms of work organisation, the 
regulatory framework and working 
time arrangements. 
The number of people working at 
night and at weekends has in­
creased in most parts of the Union 
in the past few years — although 
many people remain reluctant to do 
so (a recent survey of employers in 
five countries suggest that firms 
have difficulty in finding staff to 
work on Saturdays) — signifying 
some move towards more flexible 
working arrangements. At the same 
time, the average length of the 
working week for those working 
full-time has hardly changed at all 
15 
Meeting the employment challenge — issues and policies 
over the last 10 years and actually 
increased between 1990 and 1995. 
The reduction in average working 
time that has occurred over the past 
decade or so across the Union has 
been partly a result of the shift in 
employment between sectors (in 
particular, the loss of jobs in agri­
culture where long hours tend to be 
worked) but mainly as a result of 
increased part-time working. 
Indeed, the majority of the net ad­
ditional jobs created during the 
early 1990s were part-time, both for 
women and men, and this trend 
continued in 1995 (Graph ME2626). 
Some 71% of the net additional jobs 
for men were part-time, and around 
85% of those for women. This re­
flects a move towards a more 
flexible labour market, including 
the fact that employment rights of 
part-time workers are often weaker 
than those of full-timers. In addi­
tion, the relatively small growth in 
full-time jobs for men has probably 
contributed in large part to their 
withdrawal from the labour mar­
ket. The big rise in part-time 
working among men has occurred 
in the prime-age group where it is 
up by 50% over the period 1990 95, 
and a significant proportion of these 
have taken a part-time job because 
they could not find a full-time one. 
Similarly, a high proportion of the 
jobs created in 1995 were tempo­
rary. Temporary working 
accounted for all of the increase in 
the employment of men in the Un­
ion and just under half of the rise in 
the employment of women. While 
temporary working accounts for a 
relatively small proportion of total 
employment in the Union (around 
12%), over 50% of the unemployed 
who found jobs in 1995 took tempo­
rary positions. A slightly larger 
proportion of the under-25 year-
olds took temporary jobs (51% 
compared with 45% of those aged 25—49). While some these jobs in­
volved a period of training, this is 
not a reason for accepting a tempo-
rary job. The share of those 
unemployed who benefited from 
such on-the-job training was actu­
ally less than the share of those 
already employed. Thus, for most of 
these people, temporary jobs were 
the only ones available. 
The relationship between tempo­
rary employment and educational 
attainment level is not uniform 
across the Union and it cannot gen­
erally be said that temporary jobs 
and low skills go together. While it 
is true that in the South of the Un­
ion a relatively high proportion of 
those with a low educational attain­
ment level tend to be in temporary 
jobs, in the North, there is a greater 
chance that someone with a high 
educational level will be in tempo­
rary employment than someone 
with a lower level. 
Most Member States regard the ex-
pansion of flexible working 
arrangements as a key element in 
the changing pattern of employ­
ment, particularly through the 
relaxation of regulations on part-
time work and temporary contracts, 
but also through the re-regulation 
of rules on working time. Other 
regulations, notably on recruitment 
and dismissal may affect employ­
ment creation and the speed with 
which firms adjust their labour 
force in response to change. In sev­
eral Member States a specific link 
between more flexible conditions of 
work and job creation has been put 
in place. 
The need for action 
While the above evidence suggests 
that there is more flexibility in the 
European economy than 10 years 
ago, the impact of this so far on 
employment creation is not appar­ent. This may suggest that some 
barriers to job growth still exist. 
This raises the question why the 
employment potential of more flex­
ible work and working time 
arrangements does not materialise. 
The explanation seems to be related 
to the way enterprises go about the 
reorganisation of production and 
working arrangements. Such meas­
ures are often confined to changes 
at the margin of the workforce 
through expanding the use of out­
sourcing, temporary contracts and 
atypical work arrangements. In or­
der to exploit fully the employment 
potential of new forms of work or­
ganisation a positive and broader 
approach is warranted, involving 
the workers actively in the process. 
• Any policy of work redistribu­
tion depends on lowering the 
barriers between internal and 
external labour markets so that 
people without jobs can move 
into employment and those 
with part-time and temporary 
jobs can move into more secure 
full-time ones. The introduction 
of policies to promote flexibility, 
such as making it easier to em­
ploy part time workers or 
people on fixed term contracts, 
raises issues of the role of the 
social safety net and equality 
between women and. men. 
• A reduction of working time 
which is accompanied by an in­
telligent reorganisation of 
working time can provide gains 
for both employers and employ­
ees. Encouraging the diffusion 
of innovative working organisa­
tion and working time changes 
and good practice in managing 
organisational change should 
be developed, especially for 
small and medium sized enter­
prises. Experiments bringing 
together reductions in working 
time and tax or social security 
16 
Meeting the employment challenge — issues and policies 
advantages, which until now 
have been fairly limited and 
mainly implemented at the 
firm or local level, should also 
be developed. 
• The continuing existence of ri­
gidities on goods and services 
markets is preventing the full 
potential of increased flexibility 
on labour markets from being 
realised. Such rigidities must 
be identified and action taken 
to overcome them. 
• The 'learning company* must 
emerge as a vital component of 
flexibility. This will require 
new forms of partnership be­
tween business, other 
organisations, and educators, to 
ensure that the necessary new 
and changing skills are made 
available. Upgrading skills dur­
ing existing working time can 
make a more important contri­
bution to increased flexibility 
than reductions in working 
time itself. 
• The capacity of enterprises to 
adapt to changes in technology 
and the market depends on the 
effectiveness of the way in 
which they are organised to ex-
ME Population aged 25-59 by education 
202 level, 1095 
% total •ThWtewl 
« Upper «oomtery lave! 
2M 30-4 4<M 4M «M 55-9 ploit non-material resources, in 
particular, research and de­
velopment, innovation and 
lifelong training. To meet this 
challenge, and, at the same 
time, to maintain the balance 
between flexibility and secu­
rity, enterprises must be 
organised in such a way as to 
offer all workers permanent ac­
cess to knowledge and 
information in order to 
strengthen their capacity to 
adapt and their employability. 
• The employability of the work­
force must be continuously 
reinforced through training. 
Otherwise, as firms develop 
more flexible employment con­
tracts, with lower levels of job 
security, so as to rapidly adjust 
to changes in labour demand, 
the rationale for investment in 
the training of a principal la­
bour force may weaken. Large 
Japanese firms invest in train­
ing in the context of life-long 
employment systems so that 
the returns on training are kept 
within the firm. In Europe 
flexibility must not be defined 
in terms of increased job inse­
curity. The capacity of 
enterprises to adjust to market 
and technological change de­
pends on the existence and 
co-operation of a skilled, core 
labour force. 
• A European concept of security 
in relation to employment 
should focus on the employabil­
ity of workers in the labour 
market rather than on their se­
curity in their existing job, thus 
promoting both flexibility and 
the acceptance of change, as 
part of the process of improving 
productivity and employment 
creation. • Greater flexibility in a context 
of employability and security 
will depend on the existence of 
an adequate level of social pro­
tection. Experience in certain 
countries demonstrates that a 
flexible economy can be main­
tained by combining an efficient 
active labour market policy 
with high levels of social protec­
tion. High levels of output and 
production can provide for a 
system based on consensus 
about the respective role and 
obligations of labour market 
policy, employers and workers 
to enable markets to be flexible. 
Recent trends in Danish labour 
market policy provide an exam­
ple of such a consensus 
approach. The Danish experi­
ence also demonstrates, 
however, that such a system 
needs to be supplemented with 
tight control and enforcement 
rules in order to contain its 
budgetary costs and prevent la­
bour supply disincentives. 
There is a need for a radical rethink 
of all relevant labour market sys­
tems — employment protection, 
working time, social protection and 
health and safety — to adapt them 
to a world of work which will be 
organised differently, in which the 
concept of security for workers has to 
be reformulated, focusing more on 
security based on employability in 
the labour market rather security 
based on the individual's work 
place. The focus should move away 
from a simplistic debate about regu­
lation-deregulation towards a new 
balance between flexibility and em­
ployability security, with tangible 
benefits for both workers and em­
ployers. A widespread feeling of 
insecurity not just among the unem­
ployed but also among those in 
employment has contributed to a 
low level of consumer confidence 
17 
Meeting the employment challenge — issues and policies 
and dampened prospects for recov­
ery. 
Skills for the future 
Technological developments and 
competition between enterprises 
are stimulating the speed of struc­
tural change. Ten years from now, 
80% of the technology we operate 
today will be obsolete, and replaced 
with new, more advanced technolo­
gies. By that time, 80% of the 
workforce will be working on the 
basis of formal education and train­
ing more than 10 years old. 
The trend towards the upskilling of 
the labour force is inexorable. Be­
tween 1983 and 1991, the numbers 
of people classified as managerial, 
professional and technical workers 
expanded by over 25% a year, while 
total employment growth was only 
some 1% a year. The shift of employ­
ment towards higher-skilled 
occupations in the Union continued 
in 1995. Increased employment of 
people in these occupations ac­
counted for most of the increase in 
employment of both men and 
women which occurred in the year. 
But a high level of educational at­
tainment is not a guarantee of 
employment. In all Member States 
there is a growing proportion of peo­
ple with higher levels of educational 
attainment who are unemployed. 
Various factors have created this 
apparent paradox. The rising over­
all level of educational attainment 
is likely to mean that the proportion 
of more highly qualified people 
among the unemployed will in­
crease. Although levels of 
educational attainment are rising, 
the education and training being 
provided in many cases does not 
match the skills required, in terms 
of both the wider range of skills and 
greater flexibility. The pattern of sectoral employment 
change has important implications 
for the skills and education attain­
ment levels required of the work 
force. The sectors where jobs are 
expanding most rapidly are, in gen­
eral, though not invariably, ones in 
which workers are relatively highly 
educated and trained, while those 
in which employment is declining 
tend to be ones where education and 
skill levels are relatively low. 
Whereas in declining sectors, some 
45% of those employed in the Union 
had not progressed beyond basic 
schooling and only 13% had univer­
sity degrees or the equivalent, in 
the high growth sectors, only 27% 
had only basic schooling and 35% 
university degrees, even though 
this group of sectors includes hotels 
and restaurants which have a work 
force with among the lowest educa­
tion levels. 
Moreover, a significantly higher 
proportion of those with low educa­
tion levels are prone to lose their 
jobs than in the case of those with 
higher skills, irrespective of 
whether they work in growing or 
declining sectors. The clear implica­
tion is that sectoral trends are 
reinforcing the occupational trends 
within sectors and reducing the de­
mand for low skilled workers while 
raising that for those with higher 
education levels. 
In recent years, Member States 
have taken many steps to improve 
the structure, quality, and suitabil­
ity of vocational education and 
training, both for employees and 
the unemployed (Graph ME2627). 
A wide variety of instruments have 
been used to promote investment in 
training for those i n work, including 
training levies (IRL), compulsory 
training investment (F), tax relief 
or reductions in social contributions 
(F, NL). A widespread measure is the promotion of training leave (B, 
DK, D, F, P, FIN, SV). 
All Member States also have a wide 
range of training programmes for 
the unemployed; in most of them, 
the promotion of participation is a 
cornerstone of the activation of la­
bour market policies (see below). 
Despite this, however, there are in­
dications that the proportion of the 
unemployed aged 25 59 in training 
has fallen slightly over the last 3 
years from 7.1% to 6.9%. 
Despite the above improvements, it 
is doubtful whether the current rate 
of human resources development 
and the institutional arrangements 
in place are sufficient for Europe to 
meet the global challenges of the 
21st century. 
The need for action 
The challenge for policy is therefore 
twofold: first, to make a quantum 
leap in investment in human re­
sources to raise overall skill levels 
to meet the trend towards more 
skilled jobs. This implies both bet­
ter quality and market-driven 
education and training, and a sub­
stantial improvement in the 
efficiency and appropriateness of 
current schemes. Secondly, to pre­
pare an acceptable workforce able 
to meet the needs of continuous 
structural change. This entails two 
types of action: for the unemployed 
and new entrants to the labour mar-
ket; and for those already 
employed, who make up the major­
ity of the labour force. 
• In a labour market with ever-
increasing skill needs, too 
many unemployed people are 
insufficiently qualified. People 
with outdated or inadequate 
training find it difficult to re­
enter the workforce. Rising 
overall skill levels imply that 
-18 
Meeting the employment challenge — issues and policies 
those with lower educational 
attainment will be left even fur­
ther behind and at greater risk 
of social exclusion. A particular 
effort is needed to raise their 
skill levels to enable them to 
compete more effectively in an 
ever more competitive labour 
market. 
• But the even bigger challenge 
lies in retraining those already 
employed to adapt to the new 
requirements. This is particu­
larly important for lower 
* skilled workers, where upgrad­
ing and broadening of skills 
while in work could be the most 
significant and cost effective in­
vestment to be made to prevent 
long term unemployment and 
promote employability. Most 
training and retraining is or­
ganised for the young (see 
below), not for people already in 
the workplace, or for those who 
have been working for 10, 20 or 
30 years and have lost their 
jobs. 
• Improved training design and 
provision should be based on a 
partnership between industry 
and government, in order to 
link both to the needs of work­
ing life. Industry must 
recognise its role in the provi­
sion of training to its workforce, 
and public provision of training 
must respond to the needs of 
industry and the desires of em­
ployees. 
• Upskilling the labour force will 
involve a substantial overhaul 
of education and training that 
can match the ICT revolution 
and keep pace with the contin­
ued ICT development in the 
years to come. This implies a 
new interplay between work 
and training, instead of the old 
interplay between work and non-work. The education sys­
tem must be transformed from 
teaching to learning. Enter­
prises must offer more learning 
by doing. The unemployed must 
be offered retraining instead of 
long-term unemployment and 
de-skilling. 
• Stopping the decline in the par­
ticipation of older workers, 
particularly men, in the labour 
market is a major challenge. 
Many of those taking early re­
tirement are the low-skilled, 
often after an extensive period 
of long-term unemployment. It 
seems as if society neither 
knew nor cared what to do with 
them. The future competitive­
ness of the European economy 
and workforce depends on the 
continued participation of these 
people in work. Efforts to im­
prove upgrading and upskilling should concentrate more heav­
ily on this group. 
Europe needs to develop a new ar­
chitecture of life-long education and 
training, with particular regard to 
gender, but also aimed more effec­
tively at older people and those with 
disabilities. This effort is now being 
initiated by the 1996 European Year 
of Lifelong Learning and the Com­
mission's White Paper on Teaching 
and Learning. But the urgent need 
is to arrest the growing skill obsoles­
cence of the adult working 
population both those who are still 
employed and those who have re­
treated from working life. 
Structural goals for 
employment policy 
The Essen re-employment strategy 
underlined the priority to be given 
to certain disadvantaged groups on 
ME2Youth unemployment in Member States, 1990 and 
629 1995 
45 
40 
35 
30 
25 
20 
15 L 
10 
5 H 11990 
11995 45 
40 
35 
30 
25 
H 20 
15 
10 
B OK o an e F ira. i u ML o P Sf s UREU 8 OK D OR 6 F iw, i i NL o P SF s UKEIS 
% Labour Force % Population 
19-
Meeting the employment challenge — issues and policies 
the labour market: young people, 
the long term unemployed, and un­
employed women. 
Subsequently, in the Single Report 
to the Madrid Summit and the In­
terim Report to the Florence 
Summit the strategy has been de­
veloped and translated into three 
structural goals for employment 
policy. 
• Integration of young people 
into working life: all young 
people should be provided with 
the level of education, training 
and work experience needed to 
make them employable 
• Prevention of long term un­
employment: all unemployed 
people should have the opportu­
nity of retraining and 
reintegration before reaching 
the point of long term unem­
ployment 
• Mainstreaming of all employ­
ment policies for equal 
opportunities: An active policy 
of de-segregation of the labour 
market should be pursued us­
ing a renewed approach to part 
time working as a transitional 
measure and the reconciliation 
ME Long-term unemployment in the 
262 Union, 1966-95 
% of unemployed B unemployed > 1 year 
• Unemployed > 2 years 
1986196719661960199019911992199319941995 of family and working life for 
men and women . 
The purpose of these structural 
goals is not to limit the policies to 
certain groups. On the contrary: the 
purpose is to develop a comprehen­
sive policy to get the whole labour 
market to work better. 
The integration of 
young people into 
the labour market 
Youth unemployment is still twice 
as high as that of adults, at over 
20% on average. The gap between 
youth unemployment and adult un­
employment which narrowed 
appreciably during the second half 
of the 1980s when unemployment 
fell widened again in the recession 
of the early 1990s. But it remains 
smaller than a decade ago and the 
numbers affected are much smaller, 
because of the decline in participa­
tion coupled with the fall in the 
population of young people (Graph 
ME2629). 
The number of young people enter­
ing the labour force in 1995 in the 
Union would have fallen naturally 
even without any fall in participa­
tion because the size of this age 
group is declining in most Member 
States. This demographic effect 
alone reduced the size of the youth 
labour force by around 1% in 1995, 
and when the participation effect is 
added, the decline was some 3% in 
this one year alone. Unlike in other 
age groups, these trends are almost 
equally shared between men and 
women. 
Much of the action taken by Mem­
ber States to improve the 
employment prospects of young 
people, aims at providing the oppor­
tunities to acquire the right skills 
and qualifications for the job mar­ket and avoid unemployment. In 
particular, action has focused on re­
ducing the number of young people 
leaving the educational and/or 
training system prematurely and 
with few or no qualifications. 
Some Member States guarantee a 
training place to young people who 
want one when they leave compul­
sory schooling (NL, UK). Other 
Member States ensure that a mini­
mum number of places will be 
provided in upper-secondary school 
to ensure that anyone who wishes 
to stay on will be able to do so (FIN, 
SV). Various Member States have 
set targets to increase participation 
rates at various levels (F, IT, ES, 
UK). Even in Member States with 
long traditions of apprenticeship 
schemes, steps are being taken to 
strengthen them or improve their 
image with employers and young 
people. Other Member States are 
developing or widening their voca­
tional training systems in order to 
make them more attractive. 
The need for action 
Since the employment and unem­
ployment rates of young people are 
highly responsive to overall labour 
market trends, a successful youth 
strategy will involve a combination 
of: supply-side policies to equip 
young people adequately for the la­
bour market, and demand-side 
policies to improve the functioning 
of the labour market and attack the 
root causes of high and persistent 
youth unemployment. 
• On the supply-side, early inter­
vention is the key to preventing 
young people from becoming 
unemployed and subsequently 
drifting into long-term unem­
ployment. Evidence suggests 
that those without qualifica­
tions are four times more likely 
to be unemployed than those 
20 
Meeting the employment challenge — issues and policies 
with qualifications. Policy 
should focus on reducing illiter­
acy and school failure and 
increasing levels of educational 
attainment. Some countries 
have set quantitative and time-
bound targets for improving 
standards. Where they exist, 
they should be supported by 
adequate resources. 
For unemployed young people 
active policy measures should 
be triggered much sooner than 
is usually the case at present. 
Over-emphasis on legal rules 
linked to qualification for bene­
fit can push young people into 
long waiting periods and raises 
the risk of active labour market 
policy becoming remedial and 
subservient to the benefit sys­
tem rather than pro-actively 
seeking to get these young peo­
ple into work. 
Once young people enter the la­
bour market, they should have 
access to an integrated package 
of advice and guidance and the 
opportunity to develop the 
skills and experience required. 
Modernising the apprenticeship 
model where it exists, and de­
veloping programmes which 
reflect the essence of the dual 
system is one way to achieve 
this. For those who already 
have vocational qualifications, 
access to jobs to enable them to 
gain relevant work experience 
is the most important. Coun­
tries which make a guarantee 
of an offer of work experience 
or training at a certain point of 
unemployment have been suc­
cessful in significantly reducing 
youth unemployment. 
On the demand-side the provi­
sion of work-experience and 
entry-level jobs are essential. 
The social partners have a key role to play in making that hap­
pen and in developing 
innovative forms of work organ­
isation (career breaks, gradual 
retirement etc.) and flexible 
working time to create addi­
tional openings to help young 
people into the labour market. 
Preventing and combating unem­
ployment and particularly 
long-term unemployment among 
Europe's young people requires tar­
geted, early, active labour market 
measures of linked work experience 
and training opportunities for the 3 
million young people who have al­
ready been out of work for at least 
six months. They should be de­
signed to maximise the life-time 
employment chances of this group, 
reducing the risk of unemployment 
later in life. The prevention 
of long-term 
unemployment 
Long-term unemployment in the 
Union increased during 1995 from 
48% of those unemployed to over 
50% (EUR12). The proportion of the 
unemployed without jobs for two 
years or more rose by even more, 
from 27% to over 30% (Graph 
ME2628). Long-term unemploy­
ment has risen continuously since 
1992 when the proportion was down 
to a 10-year low of 41%. 
A much higher proportion of those 
currently unemployed will have ex­
perienced a previous spell of 
unemployment (often a spell of long-
term unemployment) than those 
currently employed. The proportion 
of the workforce experiencing a 
spell of unemployment, neverthe-
BRU Participation of women aged 25-49 in Member 
1415 States, 1987 and 1095 
100 r i 100 
B DK D GR E F IRL I L NL A P SF S UK E15 
E15 includes new Lander (D 87: estimation); SF, S: 1985; S: 25-44 
-21-
Meeting the employment challenge — issues and policies 
less, seems to have increased over 
time. Around 45% of young people 
under 25 in the Union have experi­
enced a spell of unemployment 
either before or after starting their 
first job. 
Long-term unemployment is the re­
sult of the outflows and inflows into 
unemployment. Evidence from 
some Member States suggests that 
some 20% of those who become ur 
employed are likely to become 
long-term unemployed. 
Long term unemployment also 
leads to de-skilling. Individuals not 
only lose confidence and self-esteem 
during long periods of unemploy­
ment, they also lose employability. 
This process has profound conse­
quences for individuals and for the 
economy as a whole. 
The scale of long term unemploy­
ment is an indicator of deficiencies 
in economic and employment poli­
cies. The overall employment 
situation explains part of the prob-
lem, but the different labour 
market policy strategies are as im­
portant. Member States with a 
proactive policy have been more 
successful in preventing long term 
unemployment (Luxembourg, Den­
mark, Austria, Sweden). 
Most Member States have had a 
benefit-oriented strategy with a 
small element of active policies, and 
active measures are often focused 
on curing, not on preventing, long 
term unemployment. Curing meas­
ures are necessary and important, 
but if labour market policy is con­
fined to such measures, there is a 
risk of giving wrong signals to job-
seekers, enterprises and to the 
employment service, delaying ac­
tion and thereby maintaining, or 
even creating, long term unemploy­
ment. The need for action 
Policy action needs to approach the 
problem of long-term unemploy­
ment from two directions: 
reintegrating the long-term unem­
ployed back into work, and 
preventing the unemployed from 
becoming long-term unemployed. 
This approach is motivated by two 
considerations. Firstly, proactive 
measures aim to stop the inflow into 
long term unemployment, acting on 
the number of long term unem­
ployed, the length of unemployment 
spells and total unemployment. 
Secondly, measures are likely to be 
more cost effective if actions are 
taken when people still have confi­
dence and employability. 
• Reintegration should start long 
before people become long term 
unemployed and discouraged. 
Member States must give a 
clear expression in their Multi-
annual programmes that this 
agreed preventive approach 
will be implemented in the 
daily work of the employment 
service. 
• Early action requires system­
atic monitoring of people who 
risk becoming long term unem­
ployed. The local employment 
service must be capable of de­
livering a high quality guidance 
and counselling service. 
• Successful reintegration often 
includes training for the new 
more skilled jobs; greater tar­
geting of the skill needs of 
enterprises and of the local 
economy improves the pros­
pects for the unemployed. 
• Combined measures of training 
and work experience may help 
to overcome resistance to train­
ing, motivating the long-term 
unemployed by pointing to pos­sible labour market opportuni­
ties. On-the-job experience is 
more appreciated by employers 
than pure training. 
• Employment creation schemes 
should be based on active part­
nership and joint funding 
involving all actors in the local 
labour market. Particular em­
phasis should be put on the 
active participation of the social 
partners. Smaller scale job 
creation programmes, targeted 
at the most disadvantaged 
groups and communities often 
offer a greater potential and 
are more cost-effective than 
some of the large scale 
schemes. 
• More generally, successful pre­
vention and re-integration 
strategies for tackling long-
term unemployment and social 
exclusion depend on the devel­
opment of wider institutions 
and support structures (full-
time and part-time work, 
self-employment, education and 
training, reconciliation of fam­
ily and work). 
• The effectiveness and value of 
active labour market policies to 
prevent and combat long-term 
unemployment should be 
judged not only in terms of 
short-term placements, but also 
in terms of long-term employ-
ability. 
• The concept of transitional la­
bour markets , with short term 
jobs that help to maintain or re­
gain employability, should be 
developed as an important ele­
ment in an proactive, 
preventive strategy. 
Early action is the crucial element 
in the fight against long-term un­
employment, both for prevention 
22-
Meeting the employment challenge — issues and policies 
and reintegration. The nature of 
long-term unemployment implies a 
differentiated approach to match 
the diverse needs of this group, in-
cluding appropriate support 
structures, combined training and 
work experience and the active in­
volvement of the public 
employment service. 
The promotion of 
equal opportunities 
for women and men 
Equality of opportunity for women 
and men is a key objective of the 
European employment strategy. 
Partly this is due to the increased 
participation of women in the la­
bour market and their 
ever-increasing role in the Euro­
pean economy. To a certain extent, 
therefore, women are already expe­
riencing real, though incomplete, 
progress in equality of access, as 
well as in opportunity, conditions 
and remuneration. 
Women, for the past 20 years or 
more, have accounted for the entire 
growth of the Union's workforce, 
and are likely to continue to do so in 
the future. Rates of women's par­
ticipation, taking for example the 
25 49 age group, show a rise, during 
the short period between 1987 and 
1995, from 63% to just over 70% of 
the population across the 15 Mem­
ber States (Graph BRU 1415). It has 
risen, during that period, in all of 
them except Denmark, Finland and 
Sweden, where it is still high at over 
80%, and the increase has been es­
pecially pronounced in countries 
where the level was low at the start 
of this period, such as Spain and 
Ireland, where it rose from around 
40% to around 58-59%. Neverthe­
less, participation of women in this 
age group remains less than in the 
US, where it is nearer to 80% — an -effective difference in the number of 
women employed (i.e. allowing for 
the difference in the size of the 
population) of around 6 million. 
While the employment and partici­
pation rates of women have tended 
to increase over time, those of men 
have tended to decline. Just over 
62% of the net additional jobs cre­
ated in the Union in 1995, as in all 
of the recent past, went to women 
rather than men. To a certain ex­
tent this reflects the sectoral 
pattern of changes in employment 
with job growth being concentrated 
in services, and agriculture and 
manufacturing jobs, which are pre­
dominantly filled by men, 
continuing to decline. 
The sectors of activity which are 
growing most rapidly in terms of 
employment are those in which 
women account for a disproportion­
ate share of the work force. Over 
60% of the jobs in these sectors are 
filled by women in the Union and a 
similar share of any additional jobs 
being created go to women rather 
than men. By contrast, men account 
for over 70% of employment in the 
declining industrial sectors. A sig­
nificant proportion of the women in 
the growing service sectors are 
highly educated with university de­
grees or the equivalent. Indeed, 
some 70% of women with such 
qualifications worked in these sec­
tors in 1995 as opposed to only 46% 
of men with similar education lev­
els. More significantly perhaps, just 
over 40% of women with only a basic 
level of education also worked in the 
growing sectors of activity as com­
pared with only 14% of men. 
However, unemployment of women 
has hardly been affected at all by 
the recovery and remains higher 
than that for men in all Member 
States except in the UK and Swe­
den. The average rate over the Union as a whole declined by less 
than that of men between 1994 and 
1995. But between mid-1995 and 
Spring 1996, the rate for both men 
and women edged up to much the 
same extent before stabilising. Ger­
many is an exception in that 
unemployment of men has risen 
much faster than that of women, 
though this largely reflects the sig­
nificant withdrawal of women from 
the labour force in the former East 
Germany where their participation 
had been particularly high. 
The need for action 
• The continued participation of 
women in the labour market 
is an essential element in the 
future development of employ­
ment in Europe, particularly in 
view of the future demographic 
trends. High levels of female 
participation are linked to high 
levels of employment growth, of 
income and overall economic 
development. Policy should 
therefore be directed at ensur­
ing and facilitating the access of 
women to adequate and appro­
priate job opportunities. 
• Despite the fact that a higher 
proportion of the jobs being cre­
ated tend to be for women 
rather than men, it remains 
true that women across the Un­
ion are more affected by 
unemployment than men. It is 
important to implement suit­
able policy action to ensure that 
women are fairly and equitably 
treated in the work place and 
have every opportunity to com­
bine work with caring 
responsibilities without suffer­
ing career disadvantages. 
• A crucial element is a higher 
and more effective provision of 
facilities to support household 
members to reconcile work and 
- 23 
Meeting the employment challenge — issues and policies 
family responsibilities (includ­
ing both childcare and care of 
the elderly). This implies a re­
vision of all those regulations 
which directly or indirectly pe­
nalise women when 
interrupting work for child-
bearing or caring 
responsibilities. 
• There is a pressing need not to 
neglect the many men whose 
skills are no longer required on 
the labour market and who are 
condemned to long-term idle­
ness, whether this is called 
long-term unemployment or 
early retirement. So far, no ef­
fective measures have been 
devised to assist them back into 
work and policy remains fo­
cused on passive measures of 
income support in a variety of 
guises (unemployment benefits, 
disability benefits, early retire­
ment pensions or social 
assistance). 
• Mainstreaming equal opportu­
nities policy into labour market 
policy implies gender impact 
assessment to see if govern­
ment policies have unintended, 
unforeseen but important ef­
fects on gender relations 
although they are assumed to 
apply equally to both women 
and men and affect them in the 
same way. 
Policy efforts should be directed to 
removing labour market segrega­
tion and all existing barriers which 
prevent women improving their 
situation on the labour market. 
Women's employment is charac­
terised by too much low pay, 
atypical work, insecure job condi­
tions and too few career 
possibilities. Policy should concen­
trate on mainstreaming equal 
opportunities for women and men. From passive 
to active measures 
to promote 
participation 
and job access 
A number of factors, particularly 
macro-economics developments, 
played a role in the emergence of 
mass unemployment. But struc­
tural factors also had an impact. 
Rising unemployment is the result 
of two factors: more people becom-
ing unemployed, and the 
lengthening of unemployment 
spells. Imbalances in labour market 
policies may have aggravated struc­
tural unemployment by merely 
offering income support to the ma­
jority of the unemployed, instead of 
the means of acquiring new skills 
for a re-start in the new, more skill-
based labour market. This may 
have promoted the emergence of 
long-term unemployment and so­
cial exclusion. 
Multi-Annual Employment Pro­
grammes confirm a widespread 
belief that public expenditure 
should be re-balanced from passive 
to active policies. It makes more 
sense to finance employment crea­
tion or training than merely to 
support the income of the unem­
ployed and to shift outlays from 
consumption to investment. How­
ever, the ways of obtaining this 
outcome are diverse. In some cases, 
priority has been given to a direct 
substitution of passive outlays by 
active ones, such as training and job 
offers, and new measures tend to 
focus more on opportunities to take 
up a new job. In others, an improved 
complementarity between these 
two categories of expenditure has 
been sought, by connecting income 
maintenance and active pro­
grammes more efficiently through a 
restructuring of unemployment benefit systems in order to 
strengthen incentives to active job 
search. 
The role of the Public Employment 
Services (PES) is recognised in all 
Member States as a key instrument 
in the fight against unemployment 
and the achievement of a high de­
gree of flexibility in the labour 
market. In response to criticisms 
stressing the perceived ineffective­
ness of PES in the light of the 
changing needs of the labour mar­
ket, most Member States have 
recently reformed their employ­
ment services. This often involves a 
decentralisation of the PES, de­
regulation and progressive 
extension of private services in 
placement activities, the provision 
of more targeted counselling to job-
seekers, and the effort to increase 
levels of customer orientation. 
In 1995, the 15 EU Member States 
spent approximately 180 billion 
ECU in labour market policies, of 
which ECU 63 billion was spent on 
active measures. Only slightly more 
than one third of total expenditure 
was spent on measures specifically 
designed to promote the reintegra­
tion of the unemployed, rather than 
to support their income. 
Increasing awareness of the rela­
tive modesty of active policies in 
total spending by most Member 
States as well as of the alarmingly 
high level of long-term unemploy­
ment, has led many to undertake 
efforts to shift expenditure from 
passive income support of the un­
employed to active labour market 
measures to help them find work. 
This is difficult to achieve, espe­
cially during a recession when the 
numbers of the unemployed in­
crease and exert pressure on 
resources. The recent trends in ex­
penditure illustrate the tendency 
-24-
Meeting the employment challenge — issues and policies 
for passive policies to crowd out ac­
tive ones in recession periods. 
Between 1990 and 1994, the aver­
age share of active policies in total 
spending in the Union declined 
from 36% to 33% before increasing 
to 35% in 1995. 
The increase in 1995 can be attrib­
uted in part to a slight reduction in 
unemployment, partly to identifi­
able efforts to activate labour 
market policy. This strategy is not 
limited to a substitution of passive 
by active expenditure. An impor­
tant part of that strategy has been 
an overhaul of the unemployment 
benefit system, to ensure that the 
level and duration of unemploy­
ment and related welfare benefits 
do not act as a disincentive to job 
search and to integrate income sup­
port more fully into the delivery of 
active programmes. 
The need for action 
• A successful outcome to such a 
policy change will depend on 
action both to re-examine the 
objectives and interaction of 
both active and passive meas­
ures, and an examination and 
strengthening of the instru­
ments used. 
• It should be accompanied by a 
review of the incentive function 
of benefit provisions. This 
should aim at two effects. First 
to change individual prefer­
ences from passive income 
support to active job search and 
participation. Secondly, making 
tailor-made programmes avail­
able to help the unemployed to 
find a durable solution to their 
problems. Such a move from 
passive to active measures is 
crucial not only to reintegrating 
those already unemployed but 
also to engaging the productive 
potential of the whole labour force. But it is only achievable 
if there is a clear and mutual 
understanding of reciprocal re­
sponsibility between the 
unemployed and the public in­
stitutions which are there to 
help them to return into em­
ployment. 
Member States use a wide 
range of measures to increase 
benefit incentives, in particular 
to hire employees with low 
skills and to make them accept 
a new job rather than remain 
inactive. Such measures need 
to strike a difficult balance be­
tween their direct and indirect 
effects. They may increase 
pressure on the unemployed to 
accept employment, but dis­
courage their spouses. They 
may reduce marginal tax rates 
at the lower end, but increase 
the median or average wage. 
This may reduce total labour 
costs for lower skilled jobs, but 
with a substantial fiscal im­
pact. Careful review of 
programmes is required and 
the most efficient solutions 
need to be identified. 
A crucial instrument for achiev­
ing this is the public 
employment service. A wide 
range of measures are being 
used by Member States to de­
velop and reform the services. 
The aim so far has focused on 
decentralisation, regulation, 
and more targeting of special 
needs groups. Further reforms 
should aim at strengthening 
the four major functions of the 
public employment service in 
order that they can play a full 
role in the activation of labour 
market policies. The first of 
these is the conventional job 
brokerage function, bringing to­
gether job seekers and job 
offers. The second is the infor­mation function, providing in­
formation to job seekers and 
employers about programmes 
and measures, and the third is 
the guidance function, provid­
ing advice and counselling to 
job seekers about job opportuni­
ties, training and retraining, 
and schemes. The fourth is the 
delivery function, managing ac­
tive programmes in close 
co-ordination with the other 
functions and the income sup­
port system. The latter three 
will demand a much more pro­
active role to be played by the 
employment services, but po­
tentially offer the greatest 
scope. 
The policy challenge: 
from uncertainty to 
confidence 
With the Single Market, Europe is 
taking a leap forward in the mod­
ernisation of the economy. It offers 
the framework and the potential for 
growth and employment-oriented 
macro-economic policies, allowing 
Member States to make better use 
of the multiplier effect, as empha­
sised in the Commission's Action for 
Employment in Europe — A Confi­
dence Pact. Together with the 
continued support for employment 
from the activities of the Commu­
nity Structural Funds, in particular 
the European Social Fund, which 
play a significant role in promoting 
economic and social cohesion be­
tween and within Member States, it 
highlights the potential of the inte­
gration process. This potential has 
not yet been used to optimum effect. 
Sustained co-ordinated action gives 
more value added than the sum of 
individual, disparate measures in 
each Member State. This approach 
involves replacing the zero-sum 
game of beggar-thy-neighbour poli-
25 
Meeting the employment challenge — issues and policies 
cies with a plus-sum game of co-or­
dinated growth policy, creating 
confidence among consumers and 
investors. Community offers the best chance 
of overcoming the climate of uncer­
tainty and moving ahead with 
confidence in the future. 
This report has pointed out the ar­
eas of action which still need to be 
addressed if the European employ­
ment strategy is to be pursued 
successfully. The framework exists, 
now the task is to make it work. The 
key to success lies in the reconcilia­
tion of often conflicting objectives: 
• a decisive approach balancing 
macro-economic and structural 
policy to improve the perform­
ance of the European labour 
market in parallel to measures 
to promote the recovery in the 
economy 
• a decisive approach balancing 
efficiency and equity, pro­
moting the creation of 
productive employment, while 
pursuing the structural goals of 
integration, prevention and 
mainstreaming to meet the 
needs of the most disadvan­
taged groups — young people 
and long-term unemployed 
— at the same time as ensuring 
equality of opportunity 
• the active involvement of all 
those concerned in the deci­
sions that concern them. An 
efficient and equitable economy 
and society can only function if 
both employers and employees 
have a mutual and balanced 
perception of their role and 
function in that society. 
Europe has the means to solve its 
employment problem. The path to 
that solution lies in the resolution 
of a number of serious and difficult 
policy choices. The co-operative 
path which is the hallmark and the 
watchword of European construc­
tion since the founding of the 
26-
BSN 0254-1475 
COM(96) 485 final 
DOCUMENTS 
EN 04 05 
Catalogue number : CB-CO-96-5O0-EN-C 
ISBN 92-78-09904-X 
fer Official Publications of the European Communities 
L-38S Luxembourg 
*>