Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions Concerning a consultation on action at EU level to promote the active inclusion of the people furthest from the labour market
Date: 2006-02-08
Institutions: European Commission
Subjects: EU employment policy, European Employment Strategy, labour market, marginalisation, poverty

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 8.2.2006 
COM(2006)44 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, 
THE EUROPEAN PARLIAMENT, THE EUROPEAN ECONOMIC AND 
SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS 

Concerning a consultation on action at EU level to promote the active inclusion of 
the people furthest from the labour market 

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AIM OF THE COMMUNICATION 

The  European  Council  of  March  2005  has  relaunched  the  Lisbon  strategy  by  refocusing  on 
growth and employment with the goal of contributing to social cohesion. While the European 
Employment  Strategy  has  the  lead  role  in  implementing  the  employment  objectives  of  the 
Lisbon  strategy,  greater  social  cohesion  is  also  a  key  element  for  the  success  of  the  Lisbon 
strategy.  Conversely,  the  success  of  the  European  Employment  Strategy  is  key  to  the 
achievement of greater social cohesion.1  

The fight against poverty and social exclusion is a central concern of the European Union and 
its  Member  States.  At  the  launch  of  the  Lisbon  strategy  in  March  2000,  the  Council  asked 
Member States and the European Commission to take steps to make a decisive impact on the 
eradication of poverty by 2010. The Member States have shown strong political commitment 
and  many  actions  have  been  taken  at  both  EU  and  national  levels.  But  the  fight  against 
poverty and the integration of people excluded from the labour market remain a real challenge 
for the enlarged European Union. The goals of the revised Lisbon strategy cannot be realised 
if  we  continue  to  “waste”  a  large  proportion  of  our  single  most  precious  resource:  human 
capital. 

Comprehensive social assistance policies are in place in most Member States and activation 
policies have been implemented to bring excluded people back to the labour market, but there 
is still a sizeable 'hard core' of people with little prospect of finding a job who, for that reason, 
remain at high risk of falling into poverty and social exclusion. For those who find themselves 
furthest  from  the  labour  market,  Minimum  Income  (MI)  schemes  can  be  the  only  way  to 
escape extreme poverty; yet, while performing this indispensable function, MI schemes must 
also  promote  labour  market  integration  of  those  capable  of  working.  The  main  challenge  is 
thus to ensure that social protection policies effectively contribute to mobilising people who 
are  capable  of  working  while  achieving  the  wider  objective  of  providing  a  decent  living 
standard to those who are and will remain outside the labour market. 

This communication thus has two goals: 

–  First, to review the progress achieved in the context of an enlarged Union towards the aim 

of fostering labour market access for those who are excluded (Part 1). 

–  -Second, based upon this review, to launch a public consultation on possible guidelines for 
action at EU-level, with a view to promoting the active inclusion of people furthest from 
the labour market (Part 2). This consultation is based on Article 138 of the Treaty. 

1  

EN 

"Guidelines 

See 
OJ L 205 of 6.8.2005, p. 21. 

for 

the 

employment  policies  of 

the  Member  States 

(2005-2008)", 

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–  By so doing, this communication responds to the new Social Agenda for the period 2005-
2010,  which  confirmed  that  the  Commission  would  launch  a  Community  Initiative  on 
minimum income schemes and the integration of people excluded from the labour market, 
after due Impact Assessment procedures have been observed. It also sets out to address the 
the 
concerns  regularly  expressed  by 
implementation of the Lisbon strategy. 

the  European  Parliament  when  reviewing 

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1. 

FIGHTING  POVERTY  AND  EXCLUSION  FROM  THE  LABOUR  MARKET:  A  CONTINUING 
CHALLENGE FOR THE UNION. 

1.1. 

Action at Member State level 

Sophisticated social protection systems have been developed in EU Member States with the 
aim  of  providing  insurance  against  social  risks  such  as  sickness  and  unemployment  and 
preventing and fighting poverty and social exclusion. In line with the policy shift during the 
nineties at EU level towards active schemes, income support schemes have been increasingly 
subject to activation criteria to minimise disincentives to paid employment and avoid poverty 
traps.2  As  a  consequence,  the  consistency  between  income-support  schemes  and  activation 
policies  has  been  improved.  In  many  Member  States,  the  entitlement  to  benefits  has  been 
made  conditional  on  active  job  search,  availability  for  work  or  participation  in  training.  In 
some  instances,  this  takes  the  form  of  an  individual  contract  stipulating  the  duties  of  the 
recipient in terms of the participation in an agreed path of re-insertion into employment. In an 
increasing  number  of  countries  financial  incentives  are  being  improved  with  the  aim  of 
ensuring  a  strong  incentive  to  take  up  work.  For  instance,  tax  credits  have  been  made 
available to workers in low-paid employment as an income top-up conditional on carrying out 
paid  work,  and  at  the  cut-off  point  where  benefits  would  normally  have  been  withdrawn, 
payments now are gradually phased out in order not to discourage work effort. Also, special 
measures  to  facilitate  access  to  basic  services  and  goods,  such  as  healthcare,  child-care, 
decent housing or even food (in the most extreme cases of material deprivation), have been 
designed and implemented to favour the insertion of disadvantaged persons into mainstream 
society. 

To this end, EU Member States have often implemented various MI schemes in order to make 
up  the  shortfall  between,  on  the  one  hand,  individual  and  family  income  –  whether  earned 
from  work  or  other  social  benefit  –  and,  on  the  other,  the  guaranteed  minimum.  Several 
common characteristics may be identified: 

•  they ensure basic needs at minimum standards of living, providing assistance for 
individuals  and  their  dependants,  when  no  other  source  of  financial  support  is 
available; 

•  they are non-contributory and tax-financed;  

•  for  the  most  part,  they  are  not  time-limited,  although  they  are  assumed  to  be 

temporary;  

•  they require capable people to be available for work;  

•  they are means-tested and subject to some degree of discretion from authorities; 

•  their eligibility depends on age, and residence for a minimum specified period;  

2 

The European Employment Strategy has been instrumental in this policy shift. Following the revision of 
the Lisbon strategy and the adoption of integrated guidelines, the Member States are now called upon to 
implement  a  full  range  of  measures  "to  ensure  inclusive  labour  markets,  enhance  work  attractiveness 
and make work pay for job seekers, including disadvantaged people and the inactive" (Guideline 19). 

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•  benefits  usually  depend  on  the  household  situation  of  the  family  and  are  often 

combined with other social benefits (housing, heating, child allowances). 

Within this common framework, there is a large variety of MI schemes across EU Member 
States.  They  vary  in  terms  of  the  level  of  the  benefits,  the  extent  of  decentralisation  of  the 
system  of  delivery,  the  degree  of  discretion  in  interpreting  the  legal  rules,  the  residence 
criteria, and the balance between a universal approach and an approach by social categories. 
They also vary greatly in terms of the extent to which basic income support is linked to other 
policy components, such as labour market policies and access to services. Nonetheless, they 
all perform, with varying degrees of success, an essential task for the functioning of society as 
well as the labour market 

The good performance of social protection systems must be clearly recognised: without them, 
the risk of poverty would have reached unsustainable levels in most Member States and the 
Union as a whole. In the EU-25 Member States in 2003, according to provisional figures,3 the 
at-risk-of-poverty rate would have been 25%, i.e. 9 percentage points higher than the actual 
poverty risk, had social transfers4 (excluding pensions) not been implemented. But the overall 
situation  as  regards  poverty  and  access  to  work  for  the  most  vulnerable  continues  to  be  a 
matter  of  huge  concern.  In  2003,  16%  of  the  EU-25  population  (approximately  72  million 
people) lived at risk of financial poverty.5 These figures underscore how difficult it is to make 
inroads  in  the  fight  against  poverty  and  exclusion:  in  fact,  since  1997,  when  these  surveys 
began, more than half the share of the population exposed to poverty have lived consistently 
(i.e.  during  three  of  the  last  four  years)  on  low  relative  income6.  While  having  an  income 
below the conventional threshold is neither a necessary nor a sufficient condition of being in a 
state  of  poverty,  being  at  risk  of  relative  poverty  entails  having  limited  access  to  the  goods 
and services that are regarded as necessary to participate fully in any given society. The risk 
of  falling  below  the  at-risk-of-poverty  threshold  is  higher  for  unemployed  persons,  inactive 
persons,  single  parents,  the  disabled  and  the  chronically  ill.  An  indeterminate  number  of 
people  may  thus  suffer  severe  forms  of  deprivation  and  social  exclusion,  such  as 
homelessness,  drug  addiction,  alcoholism,  lack  of  access  to  basic  healthcare  and  illiteracy, 
aggravated  in  certain  cases  by  ethnic  discrimination  and/or  living  in  areas  of  multiple 
disadvantage.  In  the  EU-25  in  2003,  there  were  approximately  31.7  million  people, 
representing  8.5%  of  the  population  of  working  age  (15-64),  who  could  be  counted  as 
excluded from the labour market. This number includes both the long-term unemployed and 
inactive persons who either became discouraged after repeated past job search failures or were 
willing to work but were not able to find a job, for a variety of reasons: disability or chronic 
illness, lack of basic skills, discrimination and/or family responsibilities. 

3 

4 

5 

6 

In  the  absence  of  comparable  data  for  2003  for  countries  representing  more  than  75%  of  the  EU25 
population, Eurostat does not currently publish these statistics at EU25 level. The suggested values for 
the at-risk-of-poverty rate before and after transfers (25% and 16% respectively) are however similar to 
those for the latest year for which figures are currently computed and published (2001): 24% and 15% 
respectively. Per demography statistics, average population in EU25 was 452.5m, giving an estimate of 
68m persons at risk. 
Including all forms of social assistance, family allowances and unemployment benefits, but excluding 
pensions. 
The  percentage  of  the  population  living  in  households  with  an  equivalised  income  below  60%  of  the 
national median. Given the conventional nature of the threshold, this indicator is usually referred to as a 
measure of poverty risk. 
The last year for which comparable figures currently exist for the EU15 (not EU25) is 2000, when the 
rate was 9%. 

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1.2. 

Action at Community level 

In 1992, the Council adopted two recommendations establishing as a common objective the 
guarantee  of  a  minimum  level  of  resources  and  setting  out  the  principles  and  guidelines  by 
which this objective could be achieved.7 A report from the Commission in 19998 concluded 
that  these  recommendations  had  helped  to  structure  and  to  encourage  the  debate  between 
Member States on the role and development of MI schemes, had fostered the convergence of 
such  schemes  across  Member  States  and  that  they  had  provided  a  basis  for  bringing  about 
more systematic EU cooperation efforts in fighting social exclusion and poverty. 

In  2000,  the  Nice  European  Council  adopted  common  objectives  for  the  implementation  of 
the open method of coordination (OMC) in the field of social inclusion, which incorporated 
the objectives stated in the Recommendations. The first Joint Report, adopted in March 2002, 
concluded  that  thirteen  Member  States  out  of  fifteen  had  developed  a  universal  social 
assistance  policy  aimed  at  guaranteeing  all  legal  residents  a  minimum  income.  The  second 
Joint  Report  (of  March  2004),  together  with  the  Report  on  social  inclusion  examining  the 
National  Action  Plans  of  the  10  new  Member  States,9  highlighted  the  concern  to  minimise 
employment disincentives embodied  in MI schemes10 and  noted reforms  intended  to  review 
eligibility  rules  as  well  as  to  introduce  individualised  paths  of  re-insertion  into  the  labour 
market. On the other hand, some Member States were raising or maintaining the real value of 
MI  levels,  by  setting  targets  or  adopting  some  form  of  indexation,  in  view  of  the  fact  that 
benefits  were  often  acknowledged  to  be  rather  low  or  to  miss  important  segments  of  the 
population with no alternative income. 

Following  the  revision  of  the  Lisbon  strategy  and  its  renewed  focus  on  employment  and 
growth, it was agreed that the OMC on social inclusion and social protection would continue 
and that it would in particular "feed into" the Lisbon reporting process. The new Employment 
guidelines11  –  as  part  of  the  integrated  guidelines  package  for  2005-2008  –  address  the 
problem  of  integration  of  those  furthest  from  the  labour  market  by  encouraging  Member 
States  to  introduce  work  incentives  in  support  of  preventive  and  active  labour  market 
measures, including early identification of needs, job search assistance, guidance and training 
as part of personalised action plans, to provide the social services needed to support the labour 
market inclusion of disadvantaged people and to contribute to social and territorial cohesion 
and the eradication of poverty (Integrated guideline No 19). Furthermore, the above guideline 
proposes  a  continuous  review  of  tax  and  benefit  systems,  including  the  management  and 
conditionality of benefits and reduction of high marginal tax rates, in an effort to make work 
pay and to ensure adequate levels of social protection.  

The European Social Fund and the Community Initiative EQUAL support and encourage the 
Member States to make their polices more active with a budget for the period 2000-2006 of 

7 
8 
9 

10 

11 

Recommendations 92/442/EEC of 27 July 1992 and 92/441/EEC of 24 June 1992, respectively. 
COM(1998)774 of 25 January 1999. 
European  Commission  (2005):  "Report  on  social  inclusion  2005.  An  analysis  of  the  National  Action 
Plans on Social Inclusion (2004-2006) submitted by the 10 new Member States". Directorate-General 
for Employment, Social Affairs and Equal Opportunities, Luxembourg, February, 193 pp. 
The 2004 Joint Report also stressed the challenge of "linking income support systems with policies to 
increase  people's  ability  to  access  the  labour  market  and  to  end  long-term  dependency".  A  careful 
design of tax, income support and minimum wage policies was also recommended in order to ensure 
that work pays sufficiently to lift people out of poverty (p. 36). 
See 
OJ L 205 of 6.8.2005, p. 21. 

employment  policies  of 

the  Member  States 

(2005-2008)", 

"Guidelines 

the 

for 

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about €60 billion, of which 9 billion for social inclusion. In the next programming period the 
ESF  will  continue  to  promote  pathways  to  integration  into  employment  for  disadvantaged 
people while the principles of EQUAL will be "mainstreamed" into the ESF.  

1.3. 

Achievements and emerging challenges 

Despite the variety of their social security systems, all European countries face the challenge 
of adapting their policy configuration in order to make their economies more efficient. Labour 
market  integration  is  the  key  objective,  since  employment  is  for  many  people  the  main 
safeguard against social exclusion, and the only measure that will 'pay for itself' in the long 
run.  But  for  integration  truly  to  succeed,  employment  must  pay  both  for  workers  and  for 
businesses.  Successful  policies  to  make  work  pay  must  find  a  proper  balance  within  the 
"challenging  triangle"  of  increasing  work  incentives,  alleviating  poverty  and  avoiding 
unsustainable budgetary costs.12  

But it must also be borne in mind that social protection systems, beside supporting incomes, 
especially  in  times  of  recession,  can  also  –  and,  when  properly  designed  and  implemented, 
actually do – help improve the functioning of labour markets: an effective social security net 
makes  it  possible  to  implement  more  flexibility  in  employment  contracts  and  makes  job 
search more efficient. The absence of a social welfare system – or its downsizing - could lead 
to losses in allocative efficiency. 

Social protection policies need to be carefully designed, because, when the various aspects of 
social protection do not complement each other, they substitute for each other, and unintended 
consequences  may  follow.  Since  multiple  disadvantages  generate  multifaceted  exclusion,  in 
practice the lack of policy integration is likely to cause even greater efficiency losses, and the 
weakest members of society are all the likelier to bear the brunt. There is no formula that can 
be invariably applied to all countries: trade-offs are unavoidable. Means-tested benefits might 
have adverse effects on labour supply and, while in-work benefits can reduce this risk, they 
depend  on  the  availability  of  low-wage  employment  opportunities  that  cannot  be  taken  for 
granted. Universal benefits have an income effect, but are not, in themselves, distortionary as 
regards the choice of taking up work. But ultimately, for some people taking up work will not 
be a viable option. 

In  fact,  while  public  finance  considerations  will  always  be  crucial  in  the  decision  to 
implement  or  strengthen  one  social  assistance  scheme  or  another,  it  has  to  be  also  borne  in 
mind  that  the  absence  or  insufficiency  of  income-support  and  MI  schemes  has  to  be  offset 
against  likely  increases  in  the  demand  for  other  social  programmes  (such  as  family 
allowances) that would have to take on some of the burden of poverty relief, as well as the 
social and economic costs of aggravating ill-health and criminality.13  

Comparisons across Member States show that the specific designs and delivery provisions of 
social assistance services and in particular of MI schemes are very important in determining 
their effectiveness. The existence of legal provisions is not sufficient to ensure that all people 
in real need enjoy the benefits they are entitled to receive, and particularly so in the case of 
minimum income protection and support for integration into the labour market. There is a real 
concern with the effectiveness of MI schemes, as a significant share of those targeted by such 

12 
13 

See COM(2003) 842 of 30 December 2003. 
Fouarge Didier. "The costs of non-social policy", Report for DG EMPL, 2003. 

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schemes  may  not  actually  benefit  from  them,  either  because  they  do  not  claim  their 
entitlements,  or  for  some  other  reason  (lack  of  compliance  with  eligibility  rules, 
miscalculation of amounts, payment delays, sanctions and suspensions, deductions applied to 
benefits  for  the  direct  reimbursement  of  debts).14  There  is  also  a  risk  that  social  assistance 
benefits may be paid to people who are not in need, because the scheme is poorly targeted. 
Fraud  and  abuse  raise  additional  serious  concerns  among  the  authorities  responsible  for 
delivery and justify paying increased attention to the mechanisms of prevention, verification, 
detection,  monitoring  and  control.  Such  concern  has  been  a  strong  driver  for  greater 
decentralisation of delivery.  

Considering the aim of bringing the most vulnerable into the labour market, evidence is mixed 
but still conveys the impression that progress can be achieved and much can be learned from 
good  practice.  Looking  at  the  role  of  MI  instruments,  research  shows  that  their  interaction 
with  aptly  designed  activation  policies  can  generate  positive  employment  effects,  that  job 
training in private firms or activation similar to ordinary work is the most promising approach 
and that young people and those with fewer social problems are the most likely to benefit. The 
benefits  of  such  activation  measures  should  not  be  measured  only  in  terms  of  immediate 
employment  effects.  They  may  also  help  to  make  people  fight  social  isolation  and  develop 
self-esteem and a more positive attitude to work and society. Less attention has been paid, on 
the other hand, to adequate access to social services that form a basic pre-condition for being 
available for work.  

To sum up, evidence suggests that a comprehensive policy mix combining three elements is 
justified: (i) a link to the labour market through job opportunities or vocational training; (ii) 
income support at a level that is sufficient for people to have a dignified life; and (iii) better 
access to services that may help remove some of the hurdles encountered by some individuals 
and  their  families  in  entering  mainstream  society,  thereby  supporting  their  re-insertion  into 
employment  (through,  for  instance,  counselling,  healthcare,  child-care,  lifelong  learning  to 
remedy educational disadvantages, ICT training to help would-be workers, including people 
with  disabilities,  take  advantage  of  new  technologies  and  more  flexible  work  arrangements, 
psychological and social rehabilitation). Such an approach may be termed active inclusion. To 
underpin  policies  in  this  domain  and  create  conditions  for  achieving  effective  progress  in 
curbing poverty and exclusion, it is fundamental that all these strands be interlinked. Without 
active support for labour market integration, there is the risk that MI schemes trap people in 
poverty and long-term welfare dependency. Without appropriate income support, there is the 
risk that active labour market policies or programmes fail to prevent widespread poverty and 
to  deter  people  from  seeking  immediate  means  of  subsistence  by  irregular  means.  Without 
social support measures there is a risk that activation rules will be implemented blindly and 
therefore ineffectively, without due regard for the particular needs of people at a disadvantage 
(single  mothers,  travellers  and  Roma,  people  in  poor  health  or  affected  by  psychological 
disorders). Finally, for such policies to be credible and gain public support, it is essential that 
they are carefully budgeted, that they do not put medium-term financial sustainability at risk 
and that they are shown to be cost-effective in the long term.  

14 

A  recent  study  covering  13  EU  Member  States,  based  on  income  data  for  the  period  1993-1997,  has 
found out that between 2 and 13% of the population in those countries have at some point lived below 
the  national,  more  or  less  guaranteed,  MIG  level  .(See  Nicaise,  I.  et  al.:  (2004)  Gaps,  traps  and 
springboards  in  European  minimum  income  systems.  HIVA  (Katholieke  Universiteit  Leuven)  and 
CRSP (Loughborough University), 134 pp.). 

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2. 

POSSIBLE GUIDELINES FOR FURTHER ACTION AT EU LEVEL 

2.1. 

The challenge 

Member  States,  with  the  active  support  of  the  European  Union  through  Council 
recommendations,  the  Open  Method  of  Coordination  on  social  inclusion,  the  European 
Employment Strategy and the European Social Fund, have made progress both in extending 
basic assistance mechanisms and in promoting the access of the most vulnerable to the labour 
market.  Nevertheless,  the  persistence  of  large  numbers  of  people  at  risk  of  poverty  and 
excluded from the labour market represents an inescapable challenge to the objective of social 
cohesion  enshrined  in  the  EU  Treaty.  Furthermore,  it  is  vital  that  people  outside  the  labour 
force, including the long-term unemployed, (re)-enter the labour market, and make the goal of 
a 70% employment rate a reality for the Union. Despite the diversity of situations and policies 
across  the  EU,  therefore,  action  at  European  level,  for  instance  in  the  form  of  common 
principles,  basic  requirements  or  other  means  of  strengthening  the  1992  recommendations, 
might  add  value  to  efforts  by  Member  States  by  providing  guidance  as  well  as  a  common 
analytical  framework  against  which  individual  achievements  and  policy  instruments  can  be 
compared and assessed. 

2.2. 

The consultation 

In  accordance  with  Article  138  of  the  Treaty,  which  sets  out  the  conditions  for  presenting 
proposals  in  the  area  of  social  policy,  this  communication  seeks to  launch  a  consultation  of 
the  social  partners  at  Community  level  on  the  guidelines  presented  in  paragraph  2.3.  Given 
the subject matter, this consultation will be widened to public authorities at all levels, because 
of their fundamental responsibility for designing, funding and administering policies aimed at 
the integration of excluded people; and to civil society organisations catering for the interest 
of persons targeted by such schemes and/or providing supplementary services to such persons. 

At the same time, the communication is addressed to the European Parliament, the Council, 
the Economic and Social Committee and the Committee of the Regions. 

2.3. 

The guidelines 

In  order  to  map  out  possible  directions  for  future  action  at  European  level  in  support  of 
national  policies  to  promote  more  effective  integration  of  people  excluded  from  the  labour 
market,  the  Commission  invites  social  partners,  public  authorities  and  other  civil  society 
stakeholders to give their opinions on the following issues: 

(1) 

(2) 

Given  the  challenge  for  Member  States  to  address  social  inclusion  and  in 
particular the integration of people furthest from the labour market, is there a 
need for further action at EU level, and if there is, what are the most useful 
ways by which the EU could complement and support the action at national 
level? 

How  should  the  Union  build  on  the  common  ground  agreed  in  the  1992 
Recommendation to promote the rights and access to services needed for the 
integration  of  excluded  people,  taking  into  account  the  relevant  policy 
innovations? 

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(3) 

Is  there  any  justification  for  action  at  EU  level,  based  upon  Article  137(1) 
(h)? In such a context, could the aspects concerning activation and access to 
the labour market be the subject of negotiation between the social partners? 

2.4. 

Next steps 

This communication constitutes the first step of the consultation process. As regards EU level 
social partners, it sets in motion the consultation process provided for in Article 138(2) of the 
Treaty.  They  are  invited  to  give  their  opinions  on  the  issues  identified  in  paragraph  2.3.  In 
order  to  involve  other  interested  institutions  and  organisations  at  EU  and  national  level,  the 
communication  will  be  made  available  on  the  Internet  site  of  the  Directorate-General  for 
Employment and Social Affairs : 
(http://europa.eu.int/comm/employment_social/consultation_en.html).  All  interested  parties 
can send their comments or suggestions by e-mail to the following address only: empl-active-
inclusion@cec.eu.int. Comments should reach us no later than [date of adoption +10 weeks]. 
The Commission will conduct a detailed examination of the contributions received and will 
make public its conclusions, on the basis of which it may proceed to the second phase of the 
consultation process, as established by Article 138(3). 

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