Opinion of the European Economic and Social Committee on the ‘Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions: Modernising social protection for more and better jobs - a comprehensive approach contributing to making work pay’ (COM(2003) 842 final)
Date: 2004-07-01
Institutions: European Economic and Social Committee
Subjects: EU employment policy, European social policy, social security

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Official Journal of the European Union

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Opinion of the European Economic and Social Committee on the ‘Communication from the
Commission to the Council,
the European Economic and Social
Committee and the Committee of the Regions: Modernising social protection for more and better
jobs - a comprehensive approach contributing to making work pay’

the European Parliament,

(COM(2003) 842 final)

(2004/C 302/18)

On 5 January 2004, the Commission decided to consult the European Economic and Social Committee,
under Article 262 of the Treaty establishing the European Community, on the abovementioned proposal.

The Section for Employment, Social Affairs and Citizenship, which was responsible for preparing the
Committee's work on the subject, adopted its opinion on 14 June 2004. The rapporteur was Ms St Hill.

At its 410th plenary session (meeting of 1 July 2004), the European Economic and Social Committee
adopted the following opinion by 130 votes in favour, 13 votes against and 24 abstentions.

1. Introduction

4. ensuring effective implementation of reforms through better

governance.

1.1
This spring, the European Council requested the current
Communication and met to discuss progress on the improve-
ment and modernisation of social protection systems with the
aim of making them more ‘employment-friendly’. The aim is
that this should be achieved through a greater emphasis on the
effectiveness of incentives (that is, the way in which member
countries' benefit systems,
family and
work life, pensions for retired workers and subsidies to reduce
poverty and social exclusion). That meeting followed the final
report of
to the European
Commission in November 2003. Communications from both
milestone events highlight the main employment challenges
faced by Europe and identify reforms that need to be carried
out if the EU is to reach the objectives it set for itself in the
Lisbon strategy.

the Employment Task Force (1)

the reconciliation of

the Lisbon summit

The consensus is that the European Union is late in achieving
in 2000, of
its ambitious goal, set at
becoming the most competitive and dynamic knowledge-based
economy in the world capable of sustainable economic growth
with more and better jobs and greater social cohesion by 2010.
They both acknowledge that while the Lisbon objectives are
ambitious Europe cannot afford to miss them and that the key
prerequisite for making the Lisbon objectives a reality is the
compliance for Member States in stepping up their efforts.

At this juncture, all official indicators suggest that success in
creating more and better employment will depend on four key
requirements:

1.

increasing adaptability of workers and enterprises;

2.

including in and attracting more people to the labour
market;

3.

investing more and more effectively in human capital;

(1) ‘Jobs, Jobs, Jobs, Creating more employment in Europe’. Report of
the Employment Task Force chaired by Wim Kok (November
2003). Also see EESC Opinion on Employment support measures-
OJ C 110 of 30-4-2004

While these largely supply-side prerequisites are clearly in the
purview of national governments, this Opinion will introduce
the additional requirement for a truly public-private partnership
on making work pay by including employer responsibilities in
this important effort.

1.2
Underlying the recent assessments is the additional moti-
vation to ensure that incentives to increase labour supply are
effectively balanced with measures to provide adequate social
protection for all while maintaining efficiency of public
spending in this area. This balance is crucial if countries are to
avoid a long-term potential hazard posed by the ageing of
European populations, a prospect which has serious implica-
tions not only for maintaining an optimal workforce but also
threatens the viability of European social systems themselves.
Increasing attachment to the labour market among disadvan-
taged groups, especially mothers, racial minorities, disabled
people and young people in precarious employment,
is an
important goal for the effective combination of social protec-
tion and employment expansion. This opinion singles out these
groups because to list an exhaustive record of every concei-
vable disadvantage becomes less meaningful
for policy and
because these groups identified above find it difficult to trans-
cend their disadvantage precisely because of imprecise policy
traditions that continue to equate all labour market disadvan-
tage.

At EU level,

1.3
the efforts made by Member States to
review social protection systems in order to make them more
employment friendly are driven through strengthened coordi-
nation of economic, employment and social policies. Ambitious
targets have been set at EU level for 2010: to increase the
overall employment rate to 70 %,
the employment rate of
women to 60 % and the employment rate for people in the age
range 55-64 to 50 %. These targets are supported by various
included in the Broad
guidelines
Economic Policy Guidelines and the Employment Guidelines, as
well as in the common objectives of the Open Method of Coor-
dination in the areas of pensions and social inclusion.

and recommendations

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2. General comments

2.1
It is important that this review be approached from a
medium to long-term perspective as getting more people into
the labour market is also associated with costs, both for the
unemployed or economically inactive and for governments so
that
reforms could necessitate increased costs before the
economic burden on government of un/under-employment is
eventually reduced. Public and private investments in preparing
people for a knowledge-based economy and the continuous
development of human capital of people of working age,
although long-term processes which take up to 20 years to
fully mature, provide the biggest return on investment aimed at
transforming a country's labour market. There is a need for
less-skilled workers to benefit from public and private invest-
ments in higher skills, in particular, to be provided with oppor-
tunities for further training by both public institutions and by
employers, in order to enable such workers to contend with
the changing requirements of a knowledge-based economy.
The effect of longer-term, supply-side productivity measures is
that they reduce the supply of the low skilled; reduce unem-
ployment
increase
labour-force participation rates (especially of women); and they
increase overall productivity. These are permanent results. A
purely supply-side orientated approach would, however, not be
sufficient. It is also essential to increase the demand for labour,
i.e. to boost the supply of jobs by pursuing an active employ-
ment-friendly and employment-promoting financial policy.
However, some Member States which have focussed on the
quick gains of getting the low-skilled into work at the expense
of human capital attainment are unlikely to find lasting solu-
tions to the dilemma of low-pay/no pay for these types of
workers at various points over their working lives. Thus the
effects can occur instantly but die equally rapidly, as low skilled
livelihoods are not sustainable in today's global economy.
Therefore cost efficiency is as important a watchword as cost
reduction in this regard.

long-term unemployment);

(especially

2.2 While traditional financial incentives involved in benefit
and tax systems remain the core of policies to make work pay,
other incentives such as child care, access and special provi-
sions for disabled people, education and public health assets,
are increasingly accepted as having a complimentary role to
play. Therefore, comprehensive national approaches involving
a wide range of financial and other incentives that support
employment attainment and retention are to be recommended
rather than an approach that only emphasises one or the other
method. Again,
taking the long-term view of sustainability,
these issues of care and human capital investment should be
considered from the view point of the recipient (e.g. the chil-
dren of working parents and not the working parents them-
selves) as these rights and provisions form an immutable foun-
dation for accelerated human capital development in a labour
market context in later years. Recourse should be had to the
EU Structural Funds to better assist low skilled job-seekers and
for essential long-term investments in human capital and social
infrastructure.

2.3 While many Member States, together with the social
partners, have increased investments in active measures to help
those re-entering or progressing in the labour market by
improving their skills and enhancing their employability, much
more attention needs to be paid to demand determinants,
including the use of fiscal incentives and promoting employer
best practices in order to assist vulnerable groups in the
economy such as older workers and disabled workers. The ESC
urges the appropriate EU authorities to promote and improve
demand stimulating policies that positively affect employment
levels and quality, and urges the inclusion of examples and
perspectives on the role of corporate social responsibility in
Lisbon objectives on employment. Both
achieving
employers and employees need to have a stake in ‘making
work pay’. Demand-stimulating policies consequently require a
balanced, ‘win-win’ approach, enabling employers to focus on
their core business activities and create jobs, and enabling job-
seekers to find work with pay levels that are better than they
would receive on unemployment benefit or social security and
which provide a living wage. As the Committee has already
argued,
‘Taxation and social security systems in the Member
States should be organised in such a way that it is worth their
while for workers who join the labour market to stay there and
to advance their careers … backed up by measures to boost the
number of available jobs’ (1).

the

2.4
Public support for the reconciliation of work and family
life aim to help families as they perform tasks which are funda-
mental to the very organisation and perpetuation of society. In
particular, this involves supporting families as they give birth
to, nurture and educate children and as they care for dependent
family members, most mainly sick, disabled or elderly depen-
dants. In the context of demographic ageing, these policies are
becoming more important as a means to reverse the declining
fertility rates.

2.5
However it is important that the mechanisms used to
pay family benefits should not adversely affect work incentives.
In some countries the separation of family supplements for
dependents from unemployment benefits helps to strengthen
the financial
incentives to take up employment, especially
among mothers and women caring for elderly relatives. The
non-availability of affordable child-care, due to costs or
physical accessibility is seen as a key barrier to the participation
of parents, in particular women. As such, the key role of subsi-
dised, adequate and affordable provision of childcare in
promoting participation in employment, particularly of
women, is to be strongly welcomed and supported. In some
Member States, women of child-bearing age are losing a
commitment to child bearing as the personal financial costs
associated with parenting for women is simply too high,
resulting in what amounts to a tax on working mothers. While
these attitudes may be short-sighted from a national perspective
it is even more so a false economy on the part of policy-
makers who could do more to halt the continual decline of
European birth-rates by ensuring that the employment rate of
women increases by means of
financial and non-financial
incentives.

(1) See EESC Opinion on Employment support measures OJ C 110 of

30/4/2004 point 4.1.

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2.6
Occupational and geographic mobility is crucial for a
high level of economic efficiency and therefore measures need
to be taken to ensure that entitlements under statutory pension
schemes and company pension schemes are maintained when
persons change employers or place of residence within the EU.
It is also important to target those who are entering the labour
market or who are changing from employee to entrepreneur to
ensure that they are adequately supported by social protection.
There is also room for reducing last resort labour mobility by
stimulating stagnant local economies through partnerships of
public and private investment that maximise local employment
markets. Considering that while one aspect of increased profes-
sional mobility may be loss of particular skills from one area to
another, the other side of the mobility coin is that individuals
are free to re-locate to where there is real demand for their
skills as well as opportunities to experience the kind of tech-
nology transfer that adds value to their current skills base.
Therefore mobility cannot be narrowly understood as repre-
senting a loss but a more effective allocation of relevant skills
and talents where they are most in need.

2.8
In terms of mature workers, the Stockholm European
Council set the ambitious goal of raising the employment rate
of people aged 55-64 years to 50 % (standing at 40.1 % in
2002 and as low as one quarter for people aged 60-64). The
Barcelona European Council set the Member States a comple-
mentary ambitious target of introducing measures by 2010 to
increase by five years the average effective age of exit from the
labour market. Achieving these goals will be crucial
for
ensuring the future financial sustainability of social protection
and notably for guaranteeing adequate level incomes for future
pensioners. The Committee considers this to be a sensible
objective. The Committee considers this to be a sensible objec-
tive, in principle, provided the labour market allows employ-
ment of older workers and special measures are taken to
improve
are
enough suitable jobs for older people the main result of this
requirement would be rising unemployment and decreased
pensions.

long-term employability. Unless

there

their

Physical and mental

incapacity reduces labour supply
2.7
significantly, particularly among workers in their 50s and 60s
who are prime targets of a European Making Work Pay
strategy. In some Member States up to one fifth or even one
quarter of people in the age groups 55-59 and 60-64 are on
invalidity benefits. This fact reflects significant pressures in
today's world of work, which can be highly detrimental to
physical and mental health. This problem, which can be linked
to occupational health, needs to be tackled by adopting appro-
priate strategies with regard to preventive employee-protection
and health-protection and by improving working conditions.
Persons who are not
fully incapacitated but have only an
impaired ability to work have little chance of finding a suitable
job which takes account of their limitations. There is therefore
a need to boost the supply of such jobs in order to provide
opportunities also for persons who are not fully able to work.
However, many people who are in this situation of disguised
unemployment would prefer to pursue some gainful activity if
they still have significant working capacity left. Member States
must take necessary measures to ensure that employment and
disability benefits do not force disabled workers into an unem-
ployment
instead raise the complementarity of
different strands of social policy in the interests of disabled
workers. It must, however, be recognized that disability is on a
spectrum of ability and new thinking defines disability as socie-
ty's response to an individual which is disabling rather than the
physical or other constraint on its own determining whether or
not a person is disabled. In this context, the Committee would
caution against policies that inadvertently end up obscuring
true levels of unemployment. While remaining protective and
supportive of disabled people's needs, closer cooperation for
observing and improving the exchange of best practice in inva-
lidity policy across States is crucial. So is the need for an open
coordination framework of good practice and positive action
providing benefits that are related to the promotion of employ-
ment and self employment among those along the spectrum of
physical and mental ability.

trap, but

3. Specific comments

age.

reaching pensionable

3.1
Along with specific, targeted economic policies, making
work pay is also about process. One area of making work pay
that is ripe for reform is the situation of workers who leave
paid employment before
For
example, in many Member States people with long contribu-
tion records may be eligible for a pension before reaching the
standard retirement age, although they often incur considerable
financial penalties as a result. These workers may well still have
an economic contribution to make and the decision to go
ahead should be made easier, not least by establishing a labour
market environment sensitive to the needs of older people. For
women early exit from the workforce is not always voluntary
but is often linked to workplace discrimination against females.
This also has an impact on the pension rights of women, most
of whom will have experienced broken employment careers
due to maternity and child/elder care, occupational segregation
into insecure and low paying ‘feminised’ professions and the
gender pay gap all of which would reduce the length of time
and quantity of contributions to retirement pension schemes
and would only worsen women's economic prospects in retire-
ment by prematurely truncating their paid employment. The
feminisation of poverty has long been a cause for concern and
the greying of Europe necessitates urgent policy attention to
improve women's economic empowerment over the life course.
For instance,
the impact of discrimination against women
during their active working life would be substantially miti-
gated in retirement if, when calculating pension rights, greater
weight were given to substitute periods credited to cover spells
of childcare.

3.2
Another example of where appropriate administrative
reforms must take precedence over public inertia is ensuring
that efforts to make work pay are gender equitable. While
some new Member States are lumbered with social and
employment policies that restrict women's access to employ-
ment, others have complementary tax and social policies that
promote high levels of workforce participation among females.

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These previously outstandingly high employment rates have
been declining during the transition to a market economy. It is
important that the gains women workers made towards full
employment should not be sacrificed in a gender-blind effort to
restructure the economies of the accession countries. National
policy-makers must be encouraged to prioritise those workers
for whom making work pay presents the greatest challenge
rather than continue to act as though all un/under-employed
groups are equally disadvantaged.

4. Specific comments on some of the Commission's seven

policy lessons

First policy lesson: The Committee considers that the
4.1
idea of creating new social protection instruments as well as
making better use of existing ones should not be rejected, but
rather developed and made mutually complementary. For
example, the highly fragmented and diverse forms of aid and
services aimed at young people are no longer appropriate,
given the unprecedented extension of this phase of people's
lives. The absence of social protection instruments specifically
targeted at this age group causes some young people to opt
hastily for low-skill forms of training and employment, with
very serious consequences for them throughout their lives, and
with a
social
spending. Similarly, the lack of new instruments providing life-
long occupational social protection – making it possible to
alternate periods of training, work and caring responsibilities –
without
social exclusion considerably
impedes labour-market mobility and flexibility (sixth policy
lesson).

corresponding positive

risking poverty or

impact on public

The EESC considers it extremely important to pay close
4.2
attention to the medium-term effects of the many initiatives
adopted by Member States in an attempt to ‘activate’ social
benefits.

4.3
The EESC considers that the time has come for strong
European incentives (in particular incentives aimed at and
implemented in cooperation with the social partners)
to
promote the coordination of supplementary social protection
schemes, which, as the Commission points out, are becoming
an important element of social protection (seventh policy
lesson).

5. Conclusions and recommendations

The Committee calls

for convergence in European
5.1
Member States efforts to make work pay by making employ-

Brussels, 1 July 2004.

ment truly an economically attractive option to unemployment
or welfare by targeting the full range of barriers to paid work.
Domestic policies need to enable the low-paid and low-skilled
to escape poverty and unemployment through work. Hence the
key issue facing Member States in making work pay is to
design a common and reasonable level of
in-and-out-of-
employment supports which maintain people's incentives for
labour-market attachment. The Committee has distinguished
between the contributions of quick-gain policies to provide
short but terminal benefits for the low-skilled, and the more
long-term human capital
investments which are the key to
making work pay, especially for those most vulnerable, in the
sustainable long term.

5.2
The Committee highlights the substantial scope for the
contribution of private firms and employers in meeting Euro-
pean employment objectives. Effort should be made to identify
feasible demand policies that target changing employer beha-
viour in ways that promote the achievement of Lisbon objec-
tives of more quality, sustainable employment
throughout
Europe. The Commission should provide and disseminate
evidence and experience on where good corporate behaviour
has improved the quantity and quality of jobs and look for
ways to replicate the successes.

5.3
In addition to supporting good practice, sanctions on
inappropriate employer behaviour including discrimination on
the basis of gender, race, sexual orientation, religion or age
must be enforced to support
increased labour
supply and the possibility of having longer working lives in
European
drives
Employment
talented people into the underground or informal sector where
productivity is low, incentives to train and invest are weak and
social protection non-existent. Such irrational economic beha-
viour not only deprives Europe of economic competitiveness
but it robs national economies of much needed tax revenue.

discrimination

innovation,

economies.

5.4
Thus a range of instruments and benefit schemes need
to be applied in Member States backed by strong national coor-
dination which balances labour supply and demand instru-
ments. The combined household effects of benefits or tax levels
on income must be carefully balanced and anticipated, paying
particular attention to the incentive structures these create for
poor households. Other measures such as the provision of
childcare, flexible working times, job security, job mobility and
training opportunities have been highlighted as essential to a
comprehensive policy framework for making work pay.

The President

of the European Economic and Social Committee

Roger BRIESCH