REPORT FROM THE COMMISSION - Employment in EUROPE - 1996
Date: 1996-10-09
Institutions: European Commission
Subjects: EU employment policy, fight against unemployment, labour market, unemployment, vocational training

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. 

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. 

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. 

•  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. 

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 

•  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 

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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 
the 
an  urgent 
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. 

response 

to 

®  More  emphasis  must  also  be  given  to  training  for 
the  unemployed  to  combat  the  process  of  deskilling 

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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. 

incomplete.  The 

•  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 
thrust  of  policy  should 
mains 
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 

to 

transform 

•  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: 
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. 

passive 

labour  market  policies 

•  Evidence  suggests  that  progress  in  shifting  towards 
more  active 
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 

in  employment  and  the 

in  Europe  Report  1996  analyses  the 

The  Employment 
current  trends  and  developments 
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 
labour 
that  the  structural  performance  of the  European 
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 

economics  factors  and  structural 
features  played  a  role  in  Europe's 
poor employment  performance. 

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 
r a t es  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  macro 

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  devel 

- 7- 

J)/i-

opments  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-
v o u r a b le 
and 
employment. 

growth 

to 

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 
t he 
t r a i n i n g, 
c a t i o n al 

a nd 

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 
m a r k et  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. 

is  m a de  of  b o th 

In  the following  sections, an  exami-
n a t i on 
t he 
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  w as 
indeed  j u st  what  the  European 
economy needed. On the basis of the 
macro-economics strategy set out in 
the  Broad  Economic  Policy  Guide 
t h is  c o u ld  h a ve  b e en 
l i n e s, 
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  t he  l a b o ur  m a r k e t. 
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  m a r k ed  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,  a nd  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 recov 

ery  (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  c o u n t r i es 
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 
p a ct  on  t he  economies  of  t he 
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 
through 
ened  the  demand  side 
h i g h er  i n t e r e st  r a t es 
( a l r e a dy 
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  f o r e c a s t,  w i th  e m p l o y m e nt 
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: 

demand, 

and  with 

•  given  the  good  performance  in 
terms  of wages, prices  and  prof 
strong 
itability 
international 
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 
the 
towards  convergence  and 
the  policy-
resulting  shift 
mix,  the  conditions  are  met  for 
a  renewal  of  the  domestic  re 
covery. 

in 

• 

from  a  policy  point  of  view,  de 
mand  should  not  come 
from 
budgetary  or  wage  expansion 
but  from  restoring  confidence 
the 
in  a  full  application  of 
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 
convergence  pol 
nominal 
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 
the 
would  only  occur 
agreed  convergence  objec 
tives  were  abandoned  or 
insufficiently  applied. 

if 

a  lack  of  credible  prospects 
for  employment  creation  in 
other  Member  States.  This 
would  result  from  a  funda 
the 
in 
mental  weakness 
employment 
growth 
and 
in 
strategy  and  especially 
re 
the 
the 
quired 
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. 

consensus 
restoring 

social 
for 

In  the  medium-term: 

• 

and 

from 

result 

budget 

the  expansion  of  productive  ca 
pacity  will 
an 
investment-led  growth  path  if 
budgetary  consolidation 
leads 
towards  a  bal 
progressively 
anced 
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 
of 
unemployment,  the  sustainable 
rate  of growth  has  to  be  higher 
than  in  the  past  two  decades 

absorption 

if 

9-

remains 

that  part  of 

(2.2%  average  annual  growth). 
If  the  1974  96  trend  in  labour 
stable 
productivity 
—  currently  at  around  2%  per 
year  only 
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, 
for 
dealing with  the  prospective  fis 
cal  problems  caused  by  an 
ageing  population. 

is  important 

this 

of 

be 

the 

with  any  lower  rate  of  growth, 
the  only  way  to  increase  em 
ployment 
by 
would 
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 
jobs 
creation 
through  local  initiatives,  which 
are  a  means  of  meeting  new 
needs,  are  a  further  way  of  in 
creasing 
employment 
content  of  growth.  In  this  per 
in 
reduction 
a 
spective, 
non-wage  labour  costs  at 
the 
bottom  end  of  the  scale,  as  sug 
gested 
the  White  Paper, 
could  be  linked  to  effective  job 
creation.  Linking 
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 
the 
recruited 
expense  of  other  categories). 

the 

are 

in 

at 

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 

ME2  Employment  rates  in Member  States,  1985 and  1995 
641 

% working-age population 

100 

10 

countries 
in 

The  European  Union  has  to  rise 
to  the  challenge  of  globalisation 
the  integration  of  newly 
and 
industrialising 
as 
major  players 
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 
to 
dividuals  and  enterprises 
adapt  to  change.  The  integra 
tion 
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 
for 
European  firms  to reap  the  em 
ployment 
presented  by  access 
markets. 

opportunities 
to  new 

is  also  necessary 

of 

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 
in  the  EU. 
problem 
reforms  in  product  and 
Structural 
labour  markets  can  contribute 
to 
this,  although  most  of the  structural 
policies,  which  should  be  accompa 
macro-economics 
nying 
the  endo 
strategy,  aim  to stimulate 
genous 
i.e. 
forces 
essentially  acting  through 
increases 
in  the  productivity  of  the  EU  econ 
the  conduct  of 
omy  and  facilitating 
a sustainable  macro-economics  pol 
icy. 

of  growth 

the 

Meeting  the  employment  challenge — issues  and  policies 

1980s,  though  the  situation  varies 
m a r k e d ly  b e t w e en  c o u n t r i es 
(Graph  ME2641). 

of young people to postpone entry on 
to a labour market where job oppor 
tunities  are  limited. 

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  S t a t es  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). 

of 

r a te 

l a b o ur 

The  rise  in  unemployment  would 
have  been  even  greater  if the  aver-
a ge 
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-
m o st  e x a c t ly  m a t c h ed  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 

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. 

Low  employment 
rates,  high 
unemployment  rates 

to  1994 

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 
( G r a ph 
y e a rs  1 9 91 
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 
( G r a ph 
s i n ce 
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 

t he  m i d - 1 9 7 0s 

ME2  Unemployment rates, 1973-95 
626 
12 

% labour  force 

ME2 Employment rates, 1973*86 
624 

gQ % population (15-64) 

Japan 

US 

EUR16 

70 

60 

-,  80 

70 

60 

'

•

SO 

50 
1973  1975  1977  1979  1981  1983  1986  1987  1989  1991  1993 1995 

i 

i 

i 

i 

i 

•• 

*

*

*

•

•

•

•

•

'

'

0 

I 

I 

In  I I « I I II  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-
c r e a t i ng  growth  is  one  of  t he 
priority  objectives  of the  European 
employment  strategy,  the  aim  be 
ing  to  e n s u re  t h at  the  o u t p ut 
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 
c o u r a g ed  from  s e e k i ng  w o rk 
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  c o m p e t i t i v e n e ss  of  the 
economy  and  greater  prosperity. 
Employment  creation  in  SME is  an 
example  of  this.  In  t he  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 con 

tributed  a  3%  growth  of  employ 
ment. 

The  recent  growth  of  employment 
in  the  Union,  even  in  those  coun 
t r i es  w h i ch  h a ve  b e en  m o st 
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. 

in 

Various analyses have been put  for 
the 
ward  for  this  difference 
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 
t he  US  in  services,  w h e re 
t he 
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 
h i g h ly 
e m p l o y m e n t - c r e a t i ng 
growth  in  the  US  economy  as  a 

12 

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  w i th  b e t t er 
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 
largest 
the  world's 
economy  in  terms  of  GDP  and 
purchasing  power  with  370  mil 
lion 
The 
consumers. 
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 
an 
kets,  have 
increase  in  intra-EU  trade  and 
is  consequently  a  factor  in  the 
further  modernisation  of 
the 
European  economy, growth  and 

resulted 

in 

Meeting the  employment  challenge — issues  and  policies 

to 

the 

creation. 

its  benefits 

employment 
This 
process  has  to  be  pursued,  im 
fully 
proved  and 
utilised.  The  insufficient  co-op 
eration  between  Member  States 
over  taxation,  especially  indi 
rect  taxation  where  decisions 
require 
appears 
unanimity, 
now  to be  one the biggest  obsta 
cles 
compatibility 
between  one market  and  15 dif 
ones 
uncoordinated 
ferent, 
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 
properly 
economy, 
mon 
exploited, 
for 
offers 
growth,  for  new  employment,  in 
a  way  that  cannot  be  achieved 
by  each  individual  country  act 
ing  alone. 

scope 

•  European  Monetary  Union  will 
ensure  the  conditions  for  sus 
reduced 
tained  growth 
and 
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 
of 
exchange  rate  distortions  will 
increase  price 
transparency, 
competition  and  efficiency. 

elimination 

•  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 
in 
ogy  play  a  crucial 

role 

an 

creating 

re-shaping  the  organisation  of 
work, 
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 
in 
Europe.  The  long-run  competi 
tiveness 
European 
economy  therefore  depends  on  a 
new, 
approach 
where  investment  in  human  re 
sources, 
and 
re-training,  in  the  reintegration 
im 
of  the  unemployed,  will 
prove  both  the  quality  of  the 
skill  supply  and  the  flexibility 
of the  labour  market. 

co-ordinated 

problems 

training 

the 

of 

in 

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 
t i es  p r e s e n t ed  by 
i n c r e a s i ng 
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 

13 

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 
i n s t r u m e nt  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 
in  all  size  c l a s s e s,  it 
c r e a s ed 
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 

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 
t i o n al  a nd 
l e i s u re  a c t i v i t i e s, 
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. 

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  t h us  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 
h as  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 
t h e r m o r e,  52%  of  employment 
growth  was  found  in  the  top 30% of 
job  categories. 

This superior employment  perform 
ance  of  the  US  in  industry,  unlike 
in  services, entirely reflects  a  much 

This  has  been  accompanied  by  a 
policy  change  in  the  US which  now 

- 14 

a m o ng 

emphasises  much  more  the  need  to 
improve the quality of jobs,  particu-
l a r ly 
l o w - s k i l l ed 
occupations, hence the efforts  of the 
US  administration  to  improve  and 
expand  training  and  employability. 
This  convergence  in  policy  ap 
p r o a ch  w as  r e f l e c t ed 
t he 
conclusions  of the  G7 Jobs  Summit 
in  Lille. 

in 

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  S t a t e s,  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 
e m p l o y m e nt  g r o w th  or  e v en 
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  t e r ms  of  e m p l o y e es  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 
t i o n,  w h e re  e d u c a t i o n al  a nd 
training  requirements  are  on  aver 
age markedly higher,  only some 9% 
of employees  tend  to  be  new  to  the 

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-
k et 
It  c an  be 
questioned,  however,  whether  the 
increasing  existence  of  two-worker 
households  is  a  factor  limiting  geo 
graphical  mobility. 

i n f l e x i b i l i t y. 

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 

lessons 

•  The  US  has  succeeded  in  gener 
ating  more jobs  and  achieving  a 
more  employment-creating  pat 
tern  of  growth.  The  reasons  for 
this  and 
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-

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 
and 
unemployment 
ing 
widening 
inequality. 
income 
There  is,  however,  no  question 
that  pragmatic  reforms  are  nec 
possible 
essary 
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. 

remove 

to 

ME Change in part-tine and full-time 
262 employment, 1967-98 

|in base year 

1987 1968 1969 1990 1991 19S2 1993 1994 1995 

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 
for 
to 
improved  levels  of  competitive 

the  need 

15 

ness  and  more  favourable  mar 
ket  conditions. 

the 

•  The  scale  of  job  turnover  does 
not  suggest  that  labour  mar 
kets  are  excessively  inflexible, 
at  least  in  terms  of unduly  lim 
iting 
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 
those  with 
higher  and  usually  more  spe 
cific  skills. 

than 

Flexibility 
and  security 

t he  n e ed 

The  debate  in  recent  years  has  in 
for 
c r e a s i n g ly  cited 
increased  flexibility  on  European 
labour  m a r k e ts  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 

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  p a r t - t i me 
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. 

T e m p o r a ry 

Similarly,  a  high  proportion  of  the 
jobs  created  in  1995  were  tempo 
r a r y. 
w o r k i ng 
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-
r a ry  j o b.  T he  s h a re  of 
t h o se 
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  t h an  someone 
with  a  lower level. 

Most Member  States regard  the ex-
p a n s i on  of  f l e x i b le  w o r k i ng 
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  appar 

16 

ent.  This  may  suggest  that  some 
barriers  to  job  growth  still  exist. 
This  raises  the  question  why  the 
employment  potential  of more  flex 
i b le  w o rk  a nd  w o r k i ng 
t i me 
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 
time  workers  or 
ploy  part 
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 

reorganisation 

time 
which  is  accompanied  by  an  in 
telligent 
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 

advantages,  which  until  now 
have  been  fairly  limited  and 
the 
mainly 
firm  or  local  level,  should  also 
be developed. 

implemented  at 

•  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 
other 
business, 
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 
in  working 
time itself. 

reductions 

•  The  capacity  of  enterprises  to 
adapt  to  changes  in  technology 
and  the market  depends on the 
in 
effectiveness  of  the  way 
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 

Meeting the employment challenge — issues and policies 

•  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 
consensus 
approach.  The  Danish  experi 
ence 
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. 

such 

also 

a 

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 

innovation 

ploit non-material  resources, in 
particular,  research  and  de 
and 
velopment, 
lifelong  training.  To  meet  this 
challenge,  and,  at  the  same 
time,  to  maintain  the  balance 
between  flexibility  and  secu 
enterprises  must  be 
rity, 
organised  in  such  a  way  as  to 
offer  all workers permanent ac 
and 
cess 
to 
information 
strengthen 
to 
adapt and their employability. 

their  capacity 

knowledge 

order 

to 

in 

•  The  employability  of  the  work 
force  must  be  continuously 
reinforced 
training. 
through 
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 
of 
curity. 
enterprises  to adjust  to  market 
and  technological  change  de 
pends  on  the  existence  and 
co-operation  of  a  skilled,  core 
labour force. 

capacity 

The 

relation 

•  A European  concept  of security 
to  employment 
in 
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. 

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  t h at  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 
m e nt 
t o w a r ds  h i g h e r - s k i l l ed 
occupations  in the Union  continued 
in  1995.  Increased  employment  of 
people  in  these  occupations  ac 
counted  for  most  of the  increase  in 
e m p l o y m e nt  of  b o th  m en  a nd 
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 
c r e a s e.  A l t h o u gh 
l e v e ls  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 
low. 
skill  levels  are  relatively 
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% 
though 
university  degrees,  even 
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 
h i g h er  s k i l l s,  i r r e s p e c t i ve  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 

- 18 

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 
t er  quality  and  m a r k e t - d r i v en 
education  and  training,  and  a  sub 
s t a n t i al 
t he 
i m p r o v e m e nt 
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-
a l r e a dy 
k e t;  a nd 
employed,  who make  up  the  major 
ity  of the  labour  force. 

t h o se 

for 

in 

• 

needs, 

In  a  labour  market  with  ever-
increasing 
too 
skill 
many  unemployed  people  are 
insufficiently  qualified.  People 
inadequate 
with  outdated  or 
training  find  it  difficult  to  re 
enter 
the  workforce.  Rising 
overall  skill  levels  imply  that 

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 
labour 
ever  more  competitive 
market. 

for 

important 

•  But  the  even  bigger  challenge 
lies  in  retraining  those  already 
employed  to  adapt  to  the  new 
requirements.  This  is  particu 
lower 
larly 
*  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 
(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. 

the  young 

for 

• 

life. 

in  order 

Improved  training  design  and 
provision  should  be  based  on  a 
partnership  between 
industry 
to 
and  government, 
link  both  to  the  needs  of  work 
ing 
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. 

Industry 

•  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 
the 
years  to  come.  This  implies  a 
interplay  between  work 
new 
and  training,  instead  of  the  old 
interplay  between  work  and 

in 

Meeting  the  employment  challenge — issues  and  policies 

to 

non-work.  The  education  sys 
tem  must  be  transformed  from 
teaching 
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 
low-skilled, 
the 
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 
working 
the  adult 
population  both  those  who  are  still 
employed  and  those  who  have  re 
treated  from  working  life. 

of 

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  U R EU 

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 
to  t he  F l o r e n ce 
t e r im  R e p o rt 
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 
and 
reaching 
reintegration  before 
the  point  of  long  term  unem 
ployment 

retraining 

of 

for 

policies 

•  Mainstreaming  of  all  employ 
ment 
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 
e m p l o y m e nt  w h i ch  n a r r o w ed 
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. 

to 

i m p r o ve 

Much  of  the  action  taken  by  Mem 
t he 
b er  S t a t es 
employment  prospects  of  young 
people, aims at providing the  oppor 
tunities  to  acquire  the  right  skills 
and  qualifications  for  the job  mar 

ket  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  n u m b er  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  m a r k e t,  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 
suggests 
ployment.  Evidence 
that 
those  without  qualifica 
tions  are  four  times  more  likely 
those 
to  be  unemployed  than 

20 

with 
Policy 
qualifications. 
should focus on reducing  illiter 
acy  and  school  failure  and 
increasing levels of educational 
attainment.  Some 
countries 
have set quantitative  and  time-
improving 
bound 
standards.  Where  they  exist, 
they  should  be  supported  by 
adequate resources. 

targets  for 

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. 

to  develop 

Once young people enter the la 
bour  market,  they  should  have 
access to an integrated  package 
of advice  and  guidance  and  the 
opportunity 
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 

Meeting the employment challenge — issues and policies 

and 

role to play in making that hap 
pen 
developing 
in 
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. 

and 

Preventing  and  combating  unem 
ployment 
p a r t i c u l a r ly 
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 

- 2 1-

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 
u n e m p l o y m e n t.  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.  T he  overall  e m p l o y m e nt 
situation  explains  part  of the  prob-
lem,  b ut  t he  different 
l a b o ur 
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 

from 

Policy  action  needs  to approach  the 
problem  of  long-term  unemploy 
m e nt 
d i r e c t i o n s: 
two 
reintegrating  the  long-term  unem 
p l o y ed  b a ck 
i n to  w o r k,  a nd 
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-
this 
annual  programmes  that 
preventive 
approach 
agreed 
will  be 
the 
implemented 
daily  work  of  the  employment 
service. 

in 

•  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 
local 
enterprises  and  of 
the 
economy 
the  pros 
improves 
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  pos 

22-

sible  labour  market  opportuni 
is 
ties.  On-the-job  experience 
more  appreciated  by  employers 
than  pure  training. 

and 

joint 

•  Employment  creation  schemes 
should  be  based  on  active  part 
nership 
funding 
involving  all  actors  in  the  local 
labour  market.  Particular  em 
phasis  should  be  put  on  the 
active  participation  of the  social 
partners.  Smaller 
job 
creation  programmes,  targeted 
disadvantaged 
at 
groups  and  communities  often 
offer  a  greater  potential  and 
than 
are  more  cost-effective 
scale 
large 
some 
schemes. 

the  most 

scale 

the 

of 

tackling 

and 
for 

•  More  generally,  successful  pre 
vention 
re-integration 
long-
strategies 
term  unemployment  and  social 
exclusion  depend  on  the  devel 
institutions 
opment  of  wider 
(full-
and  support  structures 
time 
part-time  work, 
self-employment,  education  and 
training,  reconciliation  of  fam 
ily and  work). 

and 

•  The  effectiveness  and  value  of 
active  labour  market  policies  to 
prevent  and  combat  long-term 
be 
unemployment 
judged  not  only  in 
terms  of 
short-term  placements,  but  also 
in  terms  of  long-term  employ-
ability. 

should 

•  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 
proactive, 
an 
in 
preventive  strategy. 

Early  action  is  the  crucial  element 
in  the  fight  against  long-term  un 
employment,  both  for  prevention 

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-
c l u d i ng  a p p r o p r i a te 
s u p p o rt 
structures,  combined  training  and 
work  experience  and  the  active  in 
v o l v e m e nt 
p u b l ic 
of 
employment  service. 

t he 

The promotion  of 
equal  opportunities 
for women and  men 

m a r k et 

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 
b o ur 
t h e ir 
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. 

a nd 

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 
t e nt  t h is  reflects 
t he  sectoral 
pattern  of  changes  in  employment 
with job growth  being  concentrated 
in  services,  and  agriculture  and 
manufacturing  jobs, which  are  pre 
d o m i n a n t ly 
by  m e n, 
filled 
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 

-  23 

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 
t h at 
m a ny  is  an  exception  in 
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. 
should 
therefore  be  directed  at  ensur 
ing  and  facilitating  the  access of 
women  to  adequate  and  appro 
priate job  opportunities. 

Policy 

tend 

affected 

are  more 

•  Despite  the  fact  that  a  higher 
proportion  of the jobs  being  cre 
to  be  for  women 
ated 
than  men,  it  remains 
rather 
true  that  women  across  the  Un 
ion 
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 
caring 
bine 
responsibilities  without  suffer 
ing  career  disadvantages. 

work 

with 

•  A  crucial  element  is  a  higher 
and  more  effective  provision  of 
facilities  to  support  household 
members  to  reconcile  work  and 

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 
when 
women 
for  child-
interrupting  work 
bearing 
caring 
responsibilities. 

or 

to  long-term 
this 
unemployment 

•  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 
idle 
is  called 
ness,  whether 
long-term 
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 
social 
assistance). 

pensions 

or 

•  Mainstreaming  equal  opportu 
nities  policy  into  labour  market 
policy 
impact 
implies  gender 
assessment 
to  see  if  govern 
ment  policies  have  unintended, 
important  ef 
unforeseen  but 
fects 
relations 
gender 
on 
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 
t e r i s ed  by  too  m u ch  low  pay, 
atypical  work,  insecure  job  condi 
t i o ns 
c a r e er 
too 
possibilities.  Policy  should  concen 
t r a te  on  m a i n s t r e a m i ng  equal 
opportunities  for  women  and  men. 

a nd 

few 

s y s t e ms 

b e n e f it 
to 
strengthen  incentives  to  active  job 
search. 

in  o r d er 

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 
r e g u l a t i on 
p r o g r e s s i ve 
a nd 
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 
c r e a se  a nd  e x e rt  p r e s s u re  on 
resources.  The  recent  trends  in  ex 
penditure  illustrate  the  tendency 

From  passive 
to active  measures 
to  promote 
participation 
and job  access 

a nd 

u n e m p l o y e d, 

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-
t he 
i ng 
l e n g t h e n i ng  of  u n e m p l o y m e nt 
spells. Imbalances in labour  market 
policies may have aggravated  struc 
t u r al  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  t h at  public  e x p e n d i t u re 
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 
m a i n t e n a n ce  a nd  a c t i ve  pro 
grammes more efficiently  through  a 
r e s t r u c t u r i ng  of  unemployment 

- 2 4-

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. 

to  activate 

The  increase  in  1995 can  be  attrib 
uted  in  part  to a  slight  reduction  in 
unemployment,  partly  to  identifi 
labour 
able  efforts 
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 
instru 
ments  used. 

the 

• 

from 

passive 

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 
income 
ences 
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 

Meeting  the  employment  challenge — issues  and  policies 

training  and 

mation  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, 
retraining, 
and  schemes.  The  fourth  is  the 
delivery  function,  managing  ac 
tive 
close 
programmes 
in 
the  other 
co-ordination  with 
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 
greatest 
scope. 

offer 

the 

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-

force.  But  it  is  only  achievable 
if  there  is  a  clear  and  mutual 
understanding  of  reciprocal  re 
sponsibility 
the 
unemployed  and  the  public  in 
stitutions  which  are  there 
to 
help  them  to  return  into  em 
ployment. 

between 

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 
of 
review 
pact. 
is  required  and 
programmes 
the  most  efficient 
solutions 
need  to be  identified. 

Careful 

the 

this 

A crucial  instrument  for  achiev 
is 
ing 
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 
is  the  conventional  job 
these 
brokerage  function,  bringing  to 
gether 
job 
offers.  The  second  is  the  infor 

seekers  and 

job 

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 
and  equity,  pro 
efficiency 
moting 
of 
creation 
the 
productive  employment,  while 
pursuing the  structural  goals of 
and 
integration,  prevention 
mainstreaming 
the 
to  meet 
needs  of  the  most  disadvan 
taged  groups  —  young  people 
and 
unemployed 
— at the same time as ensuring 
equality of opportunity 

long-term 

• 

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 

2 6-

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 

*>