Communication from the Commission - Community policies in support of employment
Date: 2000-03-01
Institutions: European Commission
Subjects: EU action, EU employment policy, EU initiative, labour market, single market

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 1.3.2000
COM(2000) 78 final

COMMUNICATION FROM THE COMMISSION

Community policies in support of employment

COMMUNICATION FROM THE COMMISSION

Community policies in support of employment

1.

INTRODUCTION

The promotion of a high level of employment is a core objective of the Union. Employment
plays a central role in raising of average living standards. It contributes to cohesion and social
integration. It is an important measure of Europe's success in using its economic and human
resources fully and effectively.

Europe is now entering an important new phase in its economic and social development. With
stronger growth and an improved economic climate, there are good prospects for further
increases in employment and reductions in unemployment. However, if the union is to realise
its full employment potential - in terms of the quality and quantity of jobs, equal access to
those jobs, and minimum unemployment – it will have to manage change more effectively.
Europe must continue to modernise goods, services, capital and labour markets, and become
more entrepreneurial.

The production, acquisition and use of knowledge is becoming one of the chief means of
improving economic performance and social well-being. Knowledge and innovation redefine
and enhance economic competitiveness, while changing the content of what we do at work
and the way we do it. One of the goals of the special summit in Lisbon is to find ways of
exploiting these new opportunities to promote employment growth and social inclusion, and
thereby, to strengthen both competitiveness and cohesion.

Europe needs to mobilise all its resources to create a modern, inclusive, knowledge-based,
economy, and to tackle, in an integrated manner, the long standing challenges of regional
imbalance and labour market mismatch, along with the new challenges of wider economic,
social and technological changes.

This Communication forms part of the Commission's contribution to the Lisbon Summit on
employment, economic reform and social cohesion. It has a double purpose.

First, the Communication shows how structural reforms and economic growth are mutually
supportive and stresses the employment potential of the Union and the challenges it has to
face: gender gap, skills gap, regional imbalances, demographic trends as well as global
competitive pressures. It sets them in the context of the transition to an inclusive knowledge
based economy. Second, in accordance with article 127 of the Treaty, which provides that
"the objective of a high level of employment shall be taken into account in the formulation and
implementation of all Community policies", the Comunication describes four broad areas of
Community policies which are particularly relevant to the agenda of the Lisbon Summit:

• the development of the knowledge-based economy should be fostered by the initiatives

related to the Information society, research and development;

• the functioning of the Internal Market and the promotion of enterprises and innovation

should be enhanced;

2

• an integrated strategy to foster inclusion and participation in a productive economy should

be adopted;

• finally, job creation at regional and local development level should be actively supported.

2.

CHALLENGES AND OPPORTUNITIES FOR EUROPE

2.1.Europe's overall employment potential

It is widely recognised that the EU's employment record is not good. Levels of employment
are low – with an employment rate, relative to the size of the working age population, of only
61 per cent, compared with around 75 per cent in Japan and the US. Likewise, unemployment
has barely dipped below 8 per cent for almost 20 years. The estimated 'full employment
potential' of the Union – the level of employment that would be achieved if all Member States
performed as well as the best, or as well as the US – is some 30 million people – twice the
numbers of recorded unemployed.

This sub-section will briefly address a number of inter-related problems: the gender gap, the
short-fall in service-sector employment, the regional imbalance, long-term unemployment, the
mismatch in skills and the age gap. The following subsection relates them to the process of
fundamental change Europe is currently undergoing towards an economy based on
knowledge.

The gender dimension

Further increases in employment will involve much higher rates of employment amongst
women. At present, only half of women of working age are in employment in Europe,
compared with over two-thirds in the United States – see Graph 1. This contrasts with the
employment rate of 'prime age' men, where the EU and the US are much closer – 86 per cent
as against 89 per cent. The unemployment rate for women across the Union is still some
3percentage points higher than for men.

Employment rates - EU-US

Graph 1

89%

86%

74%

63%

1999

57%

52%

EU

US

37%

EU US

EU

US

36%

EU

US

100

%

80

60

40

20

0

young 15-24

men 25-54

women 25-54

older 55-64

Source:Eurostat, EU LabourForce Survey; US,
Current Population Survey

458

3

Insufficient job creation in the service sector

The employment gap is also reflected in the structure of jobs across sectors – with the EU
having a low average level of employment
in services compared with the US. While
agricultural and industrial employment in Europe is on a par with the US, the service sector
provides jobs for nearly 55 per cent of the working age population in the US, compared with
only 40 per cent in Europe – see Graph 2. This imbalance is not restricted to any particular
area – employment levels are lower across the board – in business services, health, education
etc (see Employment in Europe 1999).

Graph 2

54,5

39,7

EU US

Employment by sector - EU-US

60

50

40

30

20

10

0

17,8

17,7

EU US

3

1,9

EU

US

Agriculture

Industry

Services

Employmentaspercentageofworkingagepopulation1997

459

Regional imbalances

There is a large, and persistent, geographical imbalance in the distribution of employment and
unemployment across the Union. In many regions of the south, in many regions at the
periphery of the Union, as in many older industrial areas of the Member States, employment
rate of under 55 or 50 per cent is commonplace, with unemployment rates often twice the EU
average (see Employment in Europe 1998).

There has been little overall change in regional disparities in employment rates in the Union
over the long-term. If anything, disparities between regions have widened over the past 15-20
years. Over the last two decades, unemployment rates in the high employment regions has
remained in a narrow range between 4 and 7 per cent while the low employment regions have
seen a marked deterioration from 15 per cent to around 25 per cent.

Even in the Member States where disparities have been reduced in the 1990s, this has been
primarily due to a reduction in employment rates in the high employment areas rather than
increases in low employment areas. This implies quite serious structural problems in the low
employment regions which will need to be comprehensively addressed if the Union's full
employment growth potential is to be realised.

Long-term unemployment

Economic and labour market weaknesses in much of Europe have been reflected, not only in
high levels of unemployment generally, but also in an apparent incapacity to re-integrate
many of those who lose their jobs. In consequence, a high proportion of the unemployed
remain unemployed for a year or more, reducing their employability, and further harming
their prospects of re-entering employment.

4

On average in the Union, around half of those recorded as unemployed have been out of work
for a year. In this respect, those Member States which have been most successful in lowering
overall levels of unemployment, tend to be those which have paid particular attention to
reducing the numbers of unemployed who drift into long-term unemployment, by bringing
policy measures into play earlier rather than later.

Skills mismatch

A common problem in periods of economic recovery is the emergence of mismatches
between demand and supply in the labour market – reflected in upward pressure on wage
differentials as firms compete for scarce skills, or quantitative shortages of particular groups
of workers. The problem is made more acute by the structural change towards a knowledge-
based economy which creates a gap between the supply of skills – the skills workers possess
and the skills in demand due to technological and organisational progress.

The evidence is that in practice, people with only basic education work for far fewer years -
with much longer periods of inactivity or unemployment - than people who have had the
benefit of higher education. Graph 3 shows that the effective working life for men with low
levels of education can be as low as 25 years compared with 35 years for those with higher
leading to even greater differences in life-time earnings. Special attention must
levels,
therefore be given to the development of learning systems which promote access to lifelong
education and training for all, and which enable people to adapt to change in their working
environment.

Employment and education

Graph 3

40yearsworkinglife-men

40 -

30 -

20 -

10 -

0 -

Unemployment

Inactive

Employment

UK

F

D

IT

ES

UK

F

D

IT

ES

UK

F

D

IT

ES

Low education

Medium education

High education

OECD1996

457

Low educational attainment
levels are associated with high rates of unemployment,
particularly among younger workers. Young people aged 20-24 with no schooling beyond
basic education, for example, have an unemployment rate up to 10 percentage points higher
than those with a university education. For the workforce as a whole, unemployment rates for
those with high educational attainment levels are less than half the rates for those with only
basic education – under 6 per cent as against over 12 per cent - with even greater differences
in respect of long-term unemployment. This shows the importance of raising the level of
qualifications among young people by reducing school drop out rates, improving the training
available after compulsory schooling and offering a "second chance" to those who have left
school without appropriate qualifications.

Demographic dimension

5

The demographic shift
in the Union is now well underway, and affects both the age
composition of the working-age population, and the balance of dependency between those of
working age, and those outside – notably those who have retired. This makes the low
employment rates for workers over 55 years (see graph 1) unsustainable, and employment
policies need to be strengthened decisively in this respect (see Broad Economic Policy
Guidelines 1999 and Employment Guidelines 2000).

The working age population shift is even more significant in the longer run – with 12 million
fewer potential workers under 40 years of age, and an increase of 13 million people over 40
years old, over the next decade. Such changes will affect the recruitment and employment
practices of companies and whole sectors, notably those who have traditionally employed a
younger workforce. On the other hand, the shift is gradual, with the workforce ageing by an
average of only (3-4) months a year, and the faster the increase in the employment rate, the
less dramatic the impact will appear.

2.2.Emerging opportunities and constraints

These long-standing challenges are being accentuated by the transition to a knowledge-based
economy accompanied by increasing globalisation of production in many industrial and
services sectors.

The transition to a "knowledge-based economy" is becoming a major feature of our
economies. Today's knowledge is increasingly encoded and transmitted through the
information technologies. And more products and services than ever are based on the use of
knowledge and information. ICTs and knowledge-processing have major implications for the
organisation of work and the nature of jobs: networks - linking businesses together, to their
customers or individuals - are reshaping the ways industries operate and how people work. By
'de-linking' many of the time constraints in the production process, they give an advantage to
decentralised forms of organisation and lead to a stronger emphasis on service to customers.
If appropriate policies are put in place the knowledge economy may thus bring about a
substantial increase in service jobs, which will help bridge the gap in service employment.

Furthermore, if sufficient attention is paid to ensuring equal access across regions and
individuals the new information technologies may enable less-developed communities, both
rural and urban, to create new activities and overcome long entrenched problems, for instance
remoteness from major economic centres. This may give a new impetus to overcome the
deeply rooted regional discrepancies in the European employment performance.

These changes mean that workers – young and old alike – must be able to handle knowledge
in its new forms - digitalisation, networking and real-time processing-, in order to be able to
adapt throughout their working life. The knowledge-based economy seems to be accentuating
the shift in comparative advantage away from those with traditional manual skills towards
those with non-manual, composite and communicative skills, linked in the main to higher
levels of education.

6

Changing skills structure

Annual changes as % total employment, 1994

1,00

%

0,75

0,50

0,25

0,00

-0,25

High skilled non-manual
Medium skilled non-manual
Low skilled non-manual
Skilled manual
Unskilled manual

1,00

0,75

0,50

0,25

0,00

-0,25

All sectors

Fast growth

Medium growth

Low growth

Declining

4groupsofsectors,1994-1998

Source:EurostatLFSS

360

This is particularly apparent in fast growing sectors of the economy – where most of the non-
manual job growth takes place. The bulk of manual job losses, whether skilled and unskilled,
are in slow growing or declining sectors (see graph 4). This calls for more investment in
lifelong learning both in basic education and in upgrading skills, especially those of older
workers. This is especially important in the context of an ageing European workforce. Active
training policies are also needed to reinforce the trend towards the narrowing of the gender
gap in the access to ICTs. Knowledge investment means investment not just in ICT-related
products and services or education, but also in R&D. Data from 1995 suggest that the EU
performance on overall knowledge investment was comparable to the US's. However, in
R&D, the Union was spending proportionally less than the US and Japan - under 2 per cent of
GDP in 1997 as opposed to close to 3 per cent. Furthermore, if one takes a longer perspective
and focuses on absolute spending levels, this gap seems to be on the increase, especially in the
1990s. The current trends in research expenditure could therefore have a negative influence
on the development of employment in Europe in the years ahead.

The continuous growth in global trading has been of substantial benefit
to the Union.
Declining transport costs and improved information through the Internet could open up the
prospect of substantial shifts in world structures of production and distribution in the coming
years and further increase income and employment in the Union.

On the other hand such changes are accompanied by a continuous process of large scale
industrial adjustment in Europe. Such adjustment processes are often far from smooth. Some
sectors of the economy, and some groups of professions and some regions will benefit from
the growth of new activities – see Annex – but there will also be offsetting losses. This creates
challenges, not just for the objectives of inclusion and cohesion, but equally for the effective
use of economic resources. There is now a growing recognition of the interaction between
globalisation, domestic employment and relative incomes, and of the need for strong
supportive policies – in terms of safety nets and re-skilling possibilities.

While the new trends may reinforce the employment/unemployment challenges they could
also give appropriately designed policies a new impetus for tackling unemployment, in
particular long term unemployment, and effectively reducing the age, gender and skill gaps in
employment and the huge discrepancies between the regional labour markets.

7

3. EMPLOYMENT IN COMMUNITY POLICIES

Having characterised the employment challenges, this section looks at the employment impact
of a set of Community policies central to the development of the knowledge-based economy.

Taking up these challenges requires effective mobilisation of all economic and structural
policies, operating in a mutually supportive way. Employment policy has to be embedded in a
comprehensive approach encompassing macro-economic policies directed towards growth,
stability and employment, economic reform promoting competitiveness and the functioning of
the markets, and the Employment Guidelines - designed to improve employability,
adaptability, equal opportunities and to promote entrepreneurship with a view to job creation
in existing and new enterprises. The Employment Guidelines and the Broad Economic Policy
Guidelines, which provide the framework for the definition of overall policy objectives and
orientations, are monitored by the respective implementation reports, with the main
responsibility of the implementation resting with the Member States.

Article 127(1) of the EC Treaty states that the Community shall contribute to a high level of
employment by encouraging cooperation between Member States and by supporting and, if
necessary, complementing their action. This support was requested by the European Council
at its extraordinary Luxembourg meeting, when it called for the harnessing of all Community
policies in support of employment, both framework policies and support policies. This call
was echoed by Article 127(2) of the EC Treaty according to which the objective of a high
level of employment shall be taken into consideration in the formulation and implementation
of Community policies and activities.

Although this Communication deals with the mainstreaming of employment in the policies of
the Community with its present membership, it is important to recognise the significant
implications for employment policies that an enlarged Union will represent. The integration
of countries that are at different stages of development, growth and competitiveness to the
present Member States is a challenge that needs to be taken up now. Employment reviews are
in candidate countries at present, with a view to gaining a better
being carried out
understanding of the situation in these countries to enable them to align their employment
policies on the Community's.

The following sections concentrate on four areas:

• The development of the knowledge-based economy

• Fostering the dynamism of the internal market

• Inclusion and participation in a productive economy

• EU support for developing employment at regional and local level.

3.1.Towards a knowledge-based economy

EU support for a European Information Society

The information and communication technologies offer Europe new opportunities for growth
and job creation. These technologies will affect employment across most economic sectors in
different ways: new organisational arrangements and innovation in business processes will
boost productivity, leading to lower prices, better quality products and, eventually increased
demand; and product and service innovation will generate new jobs and new demand.

8

Europe's strengths and weaknesses

The US economy has taken up new technologies faster than Europe and been quicker to
exploit the "information highways" infrastructure. As a consequence, it has been able to
launch successful world-wide applications dependent on these technologies, and is dominant
in many sections of the IT markets. For instance, most Internet providers must still use US
"backbones" (large bandwidth infrastructures) for carrying Internet traffic. On a positive note,
Europe is now the fastest growing market for Internet development with about 50 million
Europeans using the Internet as of year end 1999. The figure is expected to rise manifold by
2004. However today, the European Internet penetration rate in homes stands at only one third
of the US rate, which means that Europe should promote a much faster pace of Internet
penetration than it has at present.

Furthermore, the skills gap is a significant barrier to job creation in Europe, both at the level
of basic ICT literacy and at the expert level: there will be as many as 1.6 million unfilled ICT
specialist vacancies by 2002.

The EU, however, occupies a leading position regarding mobile communications and digital
TV. In December 1999, the EU had 136 million mobile subscribers, and the growth rate in
many Member States is currently 1 per cent per month. Some prediction refer to a penetration
rate close to 100% within the next 5 years. GSM, originally a European standard, has become
a global standard. Third generation mobile telephony, offering the possibility of effective
mobile e-commerce and wireless Internet access, will build on this success and give European
companies a strong lead, as there will be over 600 million mobile phones with these
capabilities by 2004.

EU initiatives

• The initiative "eEurope – An Information Society for All", launched by the European
Commission on 8 November, aims to bring the benefits of the Information Society within
reach of all Europeans. It addresses the necessary framework conditions such as bringing
all schools online, cheaper Internet access, accelerating e-commerce, fast Internet for
researchers and students, risk capital for high tech SMEs, e-participation for the disabled
and ensuring easy access to public information. Giving policy priority to the ten areas
addressed in the e-Europe initiative will enable Europe to create a substantial number of
high-skill jobs in areas of growing demand. The initiative also focuses on providing people
with cheap and accessible tools to upgrade their skills, thereby enabling them to grasp new
opportunities.

• The Communication "Strategies for Jobs in the Information Society" adopted on 4
February, sets out recommendations to Member States, social partners, and industries to
overcome present shortcomings in four areas: learning, working, public services, and the
enterprise in the Information Society. The Commission proposes ambitious objectives,
which provide the basis for benchmarking the Knowledge Society dimension within the
European Employment Strategy. The Commission will encourage Member States to
promote the Information Society and new skills by focusing Structural Funds investment
on human resources and the relevant infrastructure.

EU support for a common European Research Area: building knowledge for growth and
employment

9

The generation and dissemination of new knowledge through research support employment
by laying the foundations for the new growth industries of the future and by enabling people
to expand their knowledge and skills. In fact, the major world economies have experienced an
increase in the number of jobs in industries and regions with high R&D intensity and high
technology levels.

Europe's strengths and weaknesses

In terms of employment researchers account for only 2.5 in every thousand of the industrial
workforce in Europe, as against 6.7 in the United States and 6 in Japan. Between 1988 and
1997, domestic expenditure on research and development in the European Union failed to
keep pace with GDP. The average research effort in the Union is currently only 1.8 % of
Europe’s GDP, as against 2.8 % in the United States and 2.9 % in Japan, and this gap is on the
increase since 1995, especially as regards the investment in research by the private sector,
medium-sized business and small enterprises.

Gap in R&D spending between Europe and the US

10000

1990

1991

1992

1993

1994

1995

1996

1997

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GOVERNMENT INDUSTRY OTHER

Furthermore, Europe's research effort suffers from fragmentation and compartmentalisation.
The regulatory and administrative frameworks and the reference systems for research show a
wide variations, and there is no real “internal market” for scientific knowledge and
technology today.

Yet Europe has a high potential in research. It produces a third of the world’s scientific
knowledge. It is in the forefront in areas such as medical research and chemistry. And it has
notable success
such as aeronautics and mobile
communications. This potential must be maintained, increased and fully exploited.

in technology,

in sectors

stories

EU initiatives

In the Communication "Towards a common European research area", the Commission
proposed an overall strategy for enhancing scientific and technological activities in Europe,
while fully taking advantage of the high level potential already existing in the Member States.
A better integration of Europe's scientific and technological activities and a determined move

10

towards a real European research policy are indispensable conditions for invigorating research
in Europe.

The communication calls for in particular the mapping and networking of centers of
excellence, increased mobility of researchers and the creation of better framework conditions
for the private investment in research.Benchmarking exercises should be undertaken, leading
to the preparation of a regular
report on the situation of research in Europe. This
benchmarking and the report should be based on a set of key indicators which are the most
research and development on competitiveness and
relevant
employment, in the context of the knowledge-based society.

to assess the impact of

Measures will need to be implemented by the Member States and the Union. The full panoply
of practical, legal and policy instruments available should be brought into play and the range
of possibilities provided by the Treaty should be re-examined in this respect.

EU support for developing a European area of life-long learning: addressing the education
gap

Progress made in information and communication technologies is changing the way in which
knowledge is accumulated and supporting the transition to a knowledge-based society.
However, this newly emerging model is still giving rise to many challenges: How to stimulate
innovation, not only in processes, but also in products and services,
in order to boost
enterprise and job creation? How to equip the workforce for much more rapid changes in
occupational activities? How to cope with the risk of new social activities?

The educational systems throughout the Union have to be responsive to the need of all
citizens to be equipped to face rapid change in the overall framework of the knowledge-based
economy. Moreover, education policies must take into account the changing social trends, in
relation to population ageing, household and family structures as well as the related
behavioural changes associated with gender and intergenerational issues.

Europe's strengths and weaknesses

Current low employment partly reflects a mismatch between the skills in demand and in
supply. High youth unemployment emphasises the need to focus more on a successful
transition from school to work by improving the quality of education and training including
the development of core skills and strengthening links between the labour market and
educational and training institutions. For older workers improved access to high-quality
continuing education and training is needed to help them adapt to the new labour market's
requirements.

There is a strong political commitment
to change. The Employment Strategy and the
Community programmes for education, training and youth contribute to the development of a
common European area for Education and Training through co-operation and mobility.
Indeed, one of the cornerstones of the Employment Guidelines is to bring about the full
participation of all in the knowledge-based economy through a partnership approach to
lifelong learning, involving the Member States, the social partners, enterprises and the
individuals.

EU initiatives

11

• The Commission is preparing a Memorandum on “Implementing Lifelong Learning for
Active Citizenship in a Europe of Knowledge”, with ideas for a comprehensive lifelong
learning strategy and development of indicators to facilitate the assessment of the Member
States’ policies and systems, and Community programmes and initiatives. The
Commission is also preparing a "European report on the Quality of Education" based on
the results of the working group on indicators of quality in educational systems. The
Commission will also analyse how the curricula and the definition of qualifications evolve
and monitor whether they match the needs of the labour market and whether they promote
the transition to a knowledge-based society.

• In response to the skill shortages, the Commission's Communication "Strategy for jobs in
the Information Society" puts particular emphasis on a new, integrated, life-long learning
approach. Member States should provide every student and worker with the opportunity to
become ICT-literate, and enhance the training of ICT specialists both at university and
technical
level. Particular attention should be paid to gender mainstreaming of
Information-Society related training. The Commission is also launching a study on the
economic cost of the skills gap.

(cid:1)

In addition, the Commission intends to present this year an initiative aimed at Designing
tomorrow's education and promoting innovation with the new technologies, in line with its
initiative on e-Europe and with the employment strategy.

EU support
development

for using knowledge to promote employment compatible with sustainable

It should be easier to achieve sustainable development, i.e. development supporting long-term
economic social and environmental objectives,
in a knowledge-based economy. New
industries that deal in knowledge pollute less than traditional manufacturing, and a better
educated workforce makes for more environmentally aware consumers. Research and
innovation will make it possible to meet their demand for environmentally friendly products.

Europe's strengths and weaknesses

Technological progress and improved regulation have reduced the amount of pollution
produced by many industrial processes, but growth in the scale of activity has worked in the
opposite direction. The recent European Environment Agency ‘State of the Environment
Report’ predicts that some environmental problems would be alleviated if current policy is
implemented in full. However, in a number of important sectors (e.g. climatic change, waste,
soil), the "business as usual" scenarios show a further environmental deterioration by 2010.

Use of market-based instruments,
remains patchy. Despite frequent
including taxes,
announcements, little progress has been achieved in a broader use of fiscal instruments, such
as taxation of energy production and consumption and in shifting the tax burden from labour
to resource use. The integration of environmental concerns into various sectoral policies (e.g.
transport, energy, agriculture) has only started.

The EU's commitment to sustainable development and high standards may become a motor
for innovation, technology, new entrepreneurial activity and high quality jobs. The EU is a
world leader in environmental technology, creating jobs and income in Member States.

EU initiatives

12

• At the Helsinki European Council, strategies for integrating the environmental dimension
into agriculture, transport and energy sectors were agreed. Work on similar strategies has
started in the areas of internal market, development and industry. The Council has been
requested to submit to the European Council in June 2001 comprehensive strategies with
the possibility of including a timetable for further measures and a set of indicators for these
sectors. The European Council also asked the Commission to prepare a long-term
sustainable development
environmental dimension is
mainstreamed in the Employment Guidelines for 2000.

strategy. Furthermore,

the

• The Communication on "Environment and Employment" underlined the importance of
policy integration, mobilising all stakeholders, particularly public authorities. The
Commission has launched a dialogue between the Ministries for Employment and Social
Affairs, for the Environment, and for Industry on the integration of competitiveness,
environmental and employment policies.

(cid:1)

(cid:1)

A mixture of financial incentives and disincentives are needed to encourage investment in
new, cleaner, capital stock. Together with investment
this will
improve both competitiveness and the quality of (working)
life. Building on the
Communication on "Environment and Employment (Building a sustainable Europe)" the
Commission will give further support for the development of long-term national strategies
and help develop indicators applicable to all industries.

in human resources,

The Commission will continue to investigate measures with a potential for improving the
environment, the competitiveness of the economy and employment. Examples include
eco-taxes and pricing policies. The Commission will also study the impactof
environmentally harmful subsidies. The Commission will consider i.a. environmental
concerns and the security of supply when assessing such subsidies under the state aid
rules. A 6th Environmental action Programme will be proposed by the Commission before
the end of the year.

3.2.Fostering the dynamism of EU Internal Market

EU support for the development of the internal market

The expanding trade in intangible goods makes market integration all the more necessary.
Innovation, creativity and economic and financial integration are essential for boosting
efficiency and competitiveness by promoting competition and reducing costs.

Europe's strengths and weaknesses

The removal of trade barriers and market liberalisation accelerate integration of the Member
States' markets and create new opportunities: by widening their customer base and achieving
economies of scale, companies can expand their business and create additional employment.

However, problems remain - e.g the protection of intellectual property rights is still
insufficient, which may hamper innovation and investment in technology, research and other
forms of
immaterial capital. Certain industries too are obstructed from integrating,
particularly in the service sector, which employs twice as many people as industry and
agriculture combined. The European market in financial services is still fragmented. Lack of
appropriate regulation on some key sectors, such as e-commerce still undermines consumers
confidence. Widespread inequalities and lack of universal service obligations prevent the EU
from taking full advantage of the potential for the creation of high-quality jobs.

13

EU initiatives

• The Community should continue to improve co-ordination of fiscal policies and avoid
harmful tax competition, which can interfere with efficient resource allocation in the
internal market.

• The proposals to protect industrial and intellectual property rights should aim to encourage
innovation, investment and high quality employment. Swift adoption of the proposal for a
Directive on "Certain aspects of e-commerce in the internal market" will help create an
appropriate regulatory environment for this major potential source of new jobs. Enhanced
competition in the IT and telecommunications industries will have a major impact on the
growth rate of e-commerce. The Commission will therefore pay more attention to the
enforcement of competition rules and to specific problems, such as network-access pricing
in the telecommunications industry.

• Progress made in economic reforms provides the basis for benchmarking exercises. They
are monitored within the framework of the Cardiff report and the NAPs as well as more
comprehensively in the Broad Economic Policy Guidelines and its implementation report.

(cid:1)

(cid:1)

The EU must be forceful in implementing the target measures agreed on, in the New
Strategy for the Internal Market. In particular, the Commission will focus its initiatives on
the financial services sector and it will monitor implementation, with a first review at the
Internal Market Council in spring 2000.

The Commission will continue to examine the beneficial effects on labour markets of
removing obstacles to occupational and geographical mobility for workers, such as
differences in social security systems, particularly pensions. The situation of migrant
workers or retired people depending on a social security system in one country while
paying income taxes in another country is to be reviewed, when it
leads to a less
favourable treatment than the one they would receive if they were subject either to the tax
system of the country where they pay social contributions, or to the social system of the
country where they pay taxes. More generally, in order to avoid distortions of treatment,
the co-ordination of national policies should aim at greater compatibility between tax and
social contributions schemes throughout the Union. Member States will be encouraged to
take measures through the European Employment Strategy and co-operation on social
protection.

EU support for enterprises and a culture of entrepreneurship

To derive optimum benefit from economic reforms geared towards competitiveness and job
creation, Europe must build a culture of entrepreneurial dynamism, particularly in the new
knowledge and ICT-related industries.

Europe's strengths and weaknesses

Europe is considered to have a predominant employee culture. The proportion of people who
set up their own business in Italy and the United Kingdom is half the US rate. In Europe,
school-leavers and graduates have a strong preference for finding, rather than creating a job.
Many Member States have acknowledged the importance of this entrepreneur shortage and
have already taken steps to include entrepreneurship in the curriculum, beginning at primary-
school level.

14

In many Member States, the volume and complexity of regulations and administrative
procedures makes setting up a new business an expensive and cumbersome affair. Research
from 1997 has shown that
the countries with the fewest and quickest procedures for
registering companies were also often those with the highest overall employment rates.

As a rule, European SMEs are undercapitalised; their level of indebtedness is on average
twice the level of own funds. This can be explained by cultural barriers (the reluctance of
some SME entrepreneurs to let outsiders acquire equity in their company), as well as by the
the
number of obstacles SMEs
underdevelopment of European venture capital markets and stock markets specialised in
smaller firms). The availability of risk capital is especially crucial to the development of
innovative and high-growth enterprises.

to equity finance (for

face in access

instance,

To bridge the gap between the US and the EU, employment needs to grow fast in all sub-
sectors: hotels, restaurants and distribution; financial and business services; local services
(education, health and social services). This should be a major goal for Europe over the next
10 years.

EU initiatives

existing regulatory environment

• In its Communication Promoting Entrepreneurship and Competitiveness1 the Commission
proposed a BEST Action Plan which was endorsed by the Council on 19 April 1999. The
Action Plan draws conclusions from the BEST (Business Environment Task Force) reports,
and made
which reviewed the
recommendations for improvements. It proposes concrete measures in various areas, in
particular the teaching of entrepreneurship, training, access to finance, research, innovation
and improving public administration. It constitutes a reference framework for measures at
Community, national and regional level and complements the SLIM (Simpler legislation
for the Internal Market) initiative which aims to simplify and improve Internal Market
rules. The Action Plan requires the Commission to report by the end of 2000 on
implementation.

for businesses

• In its annual Cardiff Report, the Commission quantitatively assesses the performance of
European product and capital markets. On that basis, it proposes a certain number of policy
recommendations aiming to foster economic reform or eliminate obstacles preventing
markets from performing efficiently. These can provide input for the preparation of the
Broad Economic Policy Guidelines and serve as the basis for Commission proposals to
update target actions included in the Internal Market Strategy.

• In its October 1999 Communication Risk Capital: Implementation of the Action Plan.
Proposals for moving forward2, the Commission has assessed the progress made with the
implementation of the Action Plan3 to promote the development of risk capital markets in
Europe. This Action Plan is part of the Communication adopted in 1998 by the
Commission and endorsed by the Council, Risk Capital: a key to job creation in the EU,
analysing the importance of pan-European risk capital markets for the European Union,
highlighting the barriers to their development and proposing measures to remove them.

1

2

3

COM (98) 550 final of 30.09.1998
COM(1999) 493 final of 20.10.1999, related: Commission Working Document "Risk Capital: a key to
job creation. Implementation of the Action Plan", SEC (1999) 1725.
Commission Working Document “Risk Capital: A key to job creation in the European Union", SEC
(1998) 552, published separately by OPOCE, Brussels/Luxembourg April 1998.

15

The October 1999 Communication concluded that, despite the progress made, the EU still
suffers from major weaknesses and made proposals for further progress. The Commission
will review progress regularly.

• The Action Plan for innovation sets three major priority areas: promotion of a culture of
innovation, setting-up of a favourable framework for innovation and creation of stronger
links between research and enterprises. The 5th Framework Programme includes a
horizontal programme to promote participation of SMEs and innovation, with a
Community budget of

362 million over the period 1998-2002.

€

• The Commission continues to work on ongoing activities such as CREA, a programme
which supports seed capital funds for small innovative businesses, and the European
Business Angels Network (EBAN), which brings together business starters with potential
investors.

(cid:1)

(cid:1)

(cid:1)

(cid:1)

(cid:1)

The impact of teaching entrepreneurship and business knowledge more generally will be
addressed as part of the mid-term review of the Employment Guidelines.

In line with the conclusions of the Luxembourg Jobs Summit, an update of the
Employment Rates Report data will be included in the next Employment in Europe
Report.

To raise entrepreneurial awareness among young people, more must be done within
educational institutions. The implementation of Community programmes and activities,
such as the Leonardo II programme, will encourage Member States to include
entrepreneurship in all curricula, and will provide practical support.

A 4th multi-annual programme targeted at enterprises and SMEs is due to cover the period
2001-2006.

The Commission will implement its strategy endorsed by the Council on enhancing
tourism's potential for employment.4

3.3.EU support for inclusion and participation in a productive economy

Primary responsibility for combating social exclusion – both the old forms and the new,
associated with the Information Society –– lies with the national authorities, social partners
and non-governmental organisations. However, in accordance with the new provisions of Art.
137 of the Treaty, the EU role is to support and complement the initiatives implemented in the
Member States.

Preventing and combating social exclusion in all its dimensions calls for comprehensive and
integrated strategies. Within this framework, the EU has a particular role to play in promoting
job creation, which is a fundamental precondition of welfare, as well as change in the
workplace and in the way work is organised and in helping people to adapt to it. It can also
support the modernisation of social protection systems to deal with new challenges (ageing,
changing world of work), and help strike a new balance between flexibility and security.

4

COM (1999)205 of 28 April 1999

16

Proportion of Internet users by income group 1998
37%

19%

% Internet users

13%

high-income

medium-income

low-income

(Source:IDC)

Europe's strengths and weaknesses

According to current Eurostat data, some 18 % of the EU population live with less than 60 %
of national median incomes, the low income threshold taken to measure relative poverty5.
This figure is EU average reflecting national poverty rates which vary from 11 to 24 %, and
has been roughly stable during the last ten years. This share would be 26 % in the absence of
social benefit systems other than pensions. When social benefits are taken into account, it falls
to 18 %, which indicates both the successes and the limits of income redistribution policies6.
Eurostat data also show that those living under this poverty line are experiencing deprivation
and serious difficulties in fully participating in society7. A purely market-based income
distribution without the redistribution effect provided by the European welfare systems would
keep a significant proportion of the population under the poverty line.

Changes in the economy, the labour market, society's demographic profile and family patterns
weaken social cohesion, by increasing income inequalities and vulnerability. The problem of
permanent poverty is compounded by more widespread insecurity: a high percentage of
people experience poverty or are threatened by it at some point in their lives. This is notably
due to labour market segmentation, which confines a number of people to low-paid,
precarious jobs alternating with frequent spells of unemployment, making it extremely
difficult for them to escape from poverty8. The Community's strength lies in the political
commitment to an EU-wide strategy to prevent unemployment, promote activation and the
adaptability of the workforce, develop education and training policies and modernise social
security systems. Discrimination-free access to the labour market will be stimulated by the
adoption of the proposals recently made by the Commission,9 as well as by the strengthening
of the efforts which are under way with regard to gender equality.

5

6

7

8

9

Eurostat, Statistics in Focus, 1/2000 Social exclusion in the EU Member States and 13/1999. The
figures relate to second wave of the European Community Household Panel and refer to the income
situation in 1994 in 13 Member States (EU except Sweden and Finland). Applied to the 15 Member
Sates, the 18 % rate would represent more than 65 million people.
Eurostat, Statistics in Focus, 8/1999. European welfare systems remain an important instrument to
reduce poverty, keeping in mind that the presence of a large welfare system itself affects people’s
behaviour and household structure, for example, allowing people to live in their own households while
relying on benefits.
Eurostat Statistics in Focus 1/2000; see also the Commission Communication "Social Trends :
prospects and challenges"
See the statistical annex to the communication "Building an inclusive Europe".
COM(1999) 565 to 567

17

EU initiatives

The following initiatives are part of a coherent strategy and demonstrate the EU's
commitment to combining modernisation, growth and employment with European social
values.

(cid:1)

(cid:1)

(cid:1)

(cid:1)

(cid:1)

including the EQUAL initiative, will be used to support

the
The Structural Funds,
National Action Plans for employment
in the fight against exclusion. Community
programmes, particularly Socrates II, will fund measures aimed at people who left school
with no qualifications. In line with the Employment Guidelines, vigorous measures will be
encouraged to cut the number of people who leave school early.

The European Strategy to promote employment and labour market reforms will continue
to focus on the prevention of long-term unemployment. Member States will give special
attention to equal opportunities for women and men, the disabled, ethnic minorities and
other disadvantaged groups and individuals.

Helping people adapt to the changing world of work strengthens social cohesion and
prevents exclusion. The Vienna European Council asked Commission and Council to
follow up the High Level Expert Group's recommendations on economic and social
implication of industrial change, which include a proposal for a Forum on Industrial
Change. The Commission is examining how best to respond to these requests. The
Commission will also encourage companies to produce Managing Change Reports as an
important anticipation tool to become learning businesses that help their workforce
respond to economic change.

In line with the Commission's Communication A Concerted strategy for Modernising
Social Protection, the Commission and Member States have initiated a dialogue on social
protection. This should develop into cooperation on four objectives: to provide people
with secure income through work; to make pension systems safe and sustainable; to
promote social inclusion and to ensure high-quality and sustainable health care. The co-
operation process will be linked to the European Employment Strategy.

Social inclusion will be taken into consideration in the other Community policies. The
Commission intends to suggest further activities in this field, including the development
of expertise trans-national co-operation, exchange of good practices, common indicators
and policy dialogue on social inclusion, in full compliance with the subsidiarity principle.
The forthcoming Commission Report on the Social situation in the European Union 2000
provides information and analyses on underlying trends and future needs.

For the implementation of the above strategy, the Commission will continue to co-operate
with the Member States and all actors, including social partners. This will help them to invest
in balanced economic development and will provide a competitive advantage in a globalised
economy.

3.4.EU support for developing employment at regional and local level

Local
initiatives and local development are essential
entrepreneurship, tackling unemployment and fostering inclusion:

for promoting innovation and

18

• Would-be entrepreneurs and businesses benefit from support from local research networks,
businesses services, public administrations and financial institutions which can pool their
knowledge of the local market.

• Public employment services can implement active measures tailored to specific patterns of

unemployment and labour market requirements.

• All actors, including NGOs, may be involved in local measures to fight social exclusion,

particularly in deprived urban areas.

Europe strengths and weaknesses

The commitment of people working locally for employment and social cohesion – be it in the
public or private sectors – is real. The social or intermediary sector provides a good deal of
support to local job creation. The synergies where fully exploited between these three partners
have a considerable impact on employment.

The NAP process has not
taken sufficient account of the local dimension of regional
development. Co-ordination of activities directed at the local level has been poor, irrespective
of whether they originated from national governments or the EU. Local agencies of national
or regional authorities (e.g. local employment services, local agencies of welfare ministries,
etc.) have not always been given sufficient encouragement to work together with local
authorities.

EU initiatives

• The Community intends to provide support for employment at local and regional levels
through the Employment Strategy and the Structural Funds. Both are strongly geared
towards helping local actors to launch new job-creation initiatives, promote participation
and fight exclusion. The Territorial Employment Pacts, involving representatives of local
interests, will be assessed to determine what changes could be made to maximise their
effect on local development and employment creation. In view of their success, the Pacts
will now be integrated into the mainstream of the Structural Funds.10

• The Employment Guidelines for 2000 call for the promotion of measures to exploit fully
the possibilities offered by job creation at local level and to support the special role and
responsibility of partners at the regional and local levels. The review of the National
Action Plans in 2000 will give greater consideration to views and experiences of people
responsible for local responses to unemployment.

• A new campaign "Act Locally for Employment" is being prepared in co-operation with the
Committee of the Regions, in order to support the major role concerted local actions can
play in the European Employment Strategy. To underpin it, a budget of 12 million euros
has been made available for 2000 to increase awareness of the local dimension of the
Strategy, promote co-operation and exchange of best practice, develop local enterprise
especially in the social economy, and evaluate what impact National Actions Plans are
having at regional and local levels.

10

See the Guide to Territorial Employment Pacts 2000-2006, SEC(1999)1933.

19

• The regulations governing the Structural Funds in the period 2000-2006 have been
adjusted to increase the amount of support they can give to new activities and partnerships
at regional and local levels. The overall transfer of
195 billion, including phasing out
support, Community initiatives and innovative actions should have a significant impact on
development and economic growth at regional and local levels when combined with
national expenditure.

€

• The European Regional Development Fund and the Cohesion Fund have a major role to
play in enhancing competitiveness and social cohesion and thereby creating the right
conditions for sustainable jobs. The focus on integration,
thematic and geographic
concentration, and partnership in the new ERDF regulation should increase the efficiency
of structural measures. Employment issues are given special consideration in programmes
aiming at the economic and social conversion of "Objective 2" areas. Under the ERDF,
employment creation is also helped by two Community initiatives: INTERREG, which
supports cross-border,
trans-national and inter-regional co-operation and URBAN,
concerned with restructuring in deprived urban areas.

• The European Agricultural Guidance and Guarantee Fund (EAGGF) promotes sustainable
rural development, which is becoming the second pillar of the EU Common Agricultural
Policy, notably through the diversification of activities and job creation, with the aim to
use existing potential more effectively. The related LEADER initiative supports this
integrated rural development policy and stimulates responses to new demands for
employment intensive services in a range of sectors.

• The ESF is the main financial instrument to promote the employment strategy and has a
horizontal priority for local employment development. The ESF regulation provides that
programmes implemented at Member States level promote the priorities put forward in the
Employment Guidelines and in the National Action Plans for employment. In this
framework, activities co-funded by the ESF should include active and preventive labour
market measures, support for lifelong learning schemes, and the vigorous promotion of a
skilled, well trained and adaptable workforce. The Community Initiative EQUAL, funded
by the ESF, provides support for new means of combating all forms of discrimination and
inequalities in connection with the labour market.

(cid:1)

The Commission is envisaging to adopt a Communication ("Acting Locally for
Employment") to promote employment at local level. This will tie the above initiatives in
with other European measures, and launch a consultative process. Through this, the
Commission hopes to develop a consensus on the measures to be taken, at the appropriate
levels, to enable Europe to take full advantage of its untapped local potential.

4.

CONCLUSIONS

4.1.Conditions for progress

the EU's
This Communication has examined key characteristics and dimensions of
employment performance and has considered how the transition towards an inclusive
knowledge-based economy impacts on the employment challenges that Europe faces. The
Communication analysed in section 3 a set of Community policies that form an important part
of the comprehensive policy approach that is necessary to building an inclusive and dynamic
knowledge-based economy.

20

Intensifying the positive interactions between growth and structural change, encouraged by
the range of structural policies discussed in this Communication, will further support this
policy strategy. Such a comprehensive policy approach could enhance the rate of growth and
create the conditions for a gradual return to full employment. If an average rate of yearly
economic growth of around 3 per cent was ensured over 5 years, for example, the EU's
employment rate could be increased by some 4-5 per cent – to more than 65 per cent – a rate
last achieved by the Union three decades ago. Similar growth performance for 10 years could
bring the employment rate close to 70 per cent. The impact on the rate of unemployment is
much less predictable – since it would depend, inter alia, on the scale of new entries onto the
labour market – but it could fall to 6-7 per cent after 5 years, and around 4 per cent after 10.

At the heart of many of the employment challenges identified in this Communication, and of
lie questions of human resources and capabilities.
the Community policies discussed,
Ensuring a wide distribution and high level of skills and knowledge is central to the
development of a dynamic and inclusive knowledge economy and can make a major
including
contribution to the solution of different aspects of the employment challenge,
regional imbalances, employment of older workers, gender gap issues, skills gaps and long
run unemployment.

Policies addressing human resources cover a wide-range of issues from lifelong learning,
training of researchers, and entrepreneurial skills,
to the minimum skills necessary for
effective participation in work - and in wider society - in the knowledge economy. In a
situation of continuous change, exemplified by the knowledge economy, such human
resources policies must reflect and match the changing conditions people, businesses and
governments face. They must be policies that face up to the different needs of different groups
and areas, and to differing individual needs over the life cycle.

Human resources policies must be complemented by effective policies promoting the
competitive infrastructure and investment necessary for the successful knowledge economy.
Furthermore, as shown in the discussion of the internal market and entrepreneurship, policies
for competition and openness in product markets have a very important role in tackling
employment challenges in the knowledge economy, such as the imbalance in the services
sector.

Developing and taking forward the policy approaches described in this Communication will
require close cooperation between the Community and the Member States. National, regional
and local authorities will also have to look for increased synergies and co-operation.

Furthermore, in order to free resources for the promotion of an inclusive knowledge based
economy Member States will need to put decisively into practice the conclusions of the
Florence European Council to focus public spending on investment in emerging activities,
education, training, R&D and infrastructure, notably in the knowledge area.

Most Member States have a lot to gain - in terms of both budgetary savings and improved
policy outcomes - from such a restructuring of public expenditure. Seeking to cut social
support in order to drive the people concerned into work, but without any compensating
positive actions to improve their ability to obtain, and keep, regular employment - risks
serious negative consequences - driving down actual living standards, and reducing both
aspirations and motivation.

However, the positive impact of the comprehensive strategy outlined in this Communication
risks being reduced if taxation systems keep on being employment adverse. The reversal of

21

the upward trend of effective labour taxation is one of the guidelines of the European
Employment Strategy. Achieving this aim could imply in many Member States a change in
the financing structure of social protection, and/or a reduction of public expenditure and/or an
increase in revenues from other tax bases (an increase in public deficits being excluded).

Successful promotion of this policy approach also requires dialogue and partnership between
public authorities and other stakeholders. The ongoing macroeconomic dialogue and the
discussions with the Social Partners in the framework of the social dialogue are major
contributions to this.

Finally, as set out in section 3 of this Communication, the benefits of growth and structural
change must be distributed in such a way as to ensure inclusion. A return to full employment
will represent an essential step in this direction. This implies the removal of the barriers
making it difficult for many groups and individuals to access the labour market. Actions to
create more and better jobs are a major dimension of a comprehensive strategy to promote
inclusion, but they must be complemented by policies designed to tackle multiple deprivation,
as well as discrimination. Successful promotion of inclusion will have economic as well as
social benefits and contribute to a positive interaction between competitiveness and cohesion
in the knowledge economy.

4.2.The Lisbon European Council and beyond

The Council Presidency is looking to the Extraordinary European Council in Lisbon to
establish short and long term objectives for employment, economic reform and social
cohesion in the Union, paying particular attention to the need to develop the necessary broad
capacity to respond to new policy challenges – notably the potential of the knowledge–based
economy. Such objectives should be pursued within a common methodology - developing
common objectives, translating them into benchmarks, and monitoring success and failure.
The Commission will follow up the policy orientations and initiatives of the Lisbon Summit
in its submissions for the Broad Economic Policy Guidelines 2000 and the Employment
Guidelines 2001. In order, to follow up the Lisbon Summit and to pursue the mainstreaming
of employment in Community policies in line with the Employment title, and especially
Article 127 of the Treaty, the Commission will:

• Strengthen and deepen its examination of developments and prospects in employment and
labour markets across the Union and its international environment through the annual
Employment in Europe Report. This will include a more extensive analysis of the linkages
between employment
in this
Communication.

and the broader

highlighted

structural

changes

• Develop a systematic, multiannual assessment of the relevance of Community policies for
employment. This will be based on a more in-depth examination of the employment and
labour market effects of major areas of Community policies. It will include the monitoring
of the achievement of agreed objectives and a review of benefits of the EU's financial
instruments on the development of employment and its structure.

• Improve the targeting of Community incentive measures to support innovative actions by

the Member States in the employment area.

• Further strengthen the dialogue at all

levels between Community institutions, Social
Partners and other actors with a view of enhancing their responsibility and commitment to
promote EU employment objectives.

22

ANNEX

Employment in
advanced services, 1998

465

23