Communication from the Commission - Key messages from the Employment in Europe 2007 Report
Date: 2007-11-20
Institutions: European Commission
Subjects: continuing vocational training, employment policy, job mobility, labour market, reassignment, remuneration of work

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 20.11.2007 
COM(2007) 733 final 

COMMUNICATION FROM THE COMMISSION 

Key messages from the Employment in Europe 2007 Report  

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COMMUNICATION FROM THE COMMISSION 

Key messages from the Employment in Europe 2007 Report  

1. INTRODUCTION AND KEY FINDINGS OF THE REPORT 

This  Communication  presents  the  main  findings  of  the  Employment  in  Europe  2007  report. 
This is the 19th edition of the report, which has become one of the main tools of the European 
Commission in supporting Member States in the analysis, formulation and implementation of 
their employment policies. 

Employment in Europe traditionally provides an overview of the employment situation in the 
EU, and focuses on a limited number of topics that are high on the EU's employment policy 
agenda.  The  overarching  themes  of  this  year's  edition  are  a  life-cycle  approach  to  work, 
flexicurity  and  the  evolution  of  labour  income  share  (i.e.  the  part  of  value  added  that  is 
allocated  to  labour).  The  report  thus  continues  to  inform  the  broad  policy  debate  on 
flexicurity,  which  resulted  in  a  Commission  Communication  on  Common  Principles  of 
Flexicurity1,  approved  on  27  June  2007,  and  also  provides  analytical  support  to  the 
Commission Communication on Youth2 of 4 September 2007. 

The key findings of the 2007 report reveal: 

–  Robust  recovery  of  EU  labour  markets  in  2006 brought  a  net  increase  in  employment  of 
over 4 million – the strongest performance since 2000. Employment expanded in all of the 
27 Member States. 

–  Youth unemployment, at over 17% in the EU, and difficulties in successfully  integrating 

young people in the labour market continue to be major challenges. 

–  Developments  in  employment  of  older  workers  are  more  encouraging;  their  employment 
rate  is  up  7  percentage  points  since  2000.  Integrated  policy  approaches  to  active  ageing 
deliver the best outcomes. 

–  Advanced forms  of flexible work arrangements within  firms are  an important element of 

successful flexicurity regimes and are also key for learning and innovation. 

–  Persisting  inefficiencies  in  the  provision  of,  and  inequalities  in  access  to  continuing 
vocational training (CVT) financed by enterprises suggest room for improved government 
intervention in this area. Carefully designed policies can help increase efficiency in CVT 
provision by securing both investment in and benefits from such training, while ensuring 
that those most in need participate more actively. 

–  Developments in the labour income share are driven by interactions between technological 
progress, labour market institutions and other factors such as openness to trade. However, 
these factors often have a varying impact on the income share of different skills categories. 

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2. OVERALL EMPLOYMENT PERFORMANCE OF THE EU IN 2006 

Against the background of accelerating economic growth, labour markets in the EU made a 
robust recovery in 2006. After modest increases in previous years, employment growth in the 
EU-27  picked  up  significantly  in  2006  and,  at  1.4%,  was  at  its  strongest  since  2000.  In 
addition,  labour  productivity  accelerated  in  comparison  with  2005,  growing  at  a  higher  rate 
than in the US, although the EU continued to underperform slightly in relation to the US in 
terms of employment growth.  

Progress towards the overall employment rate target of 70%, as well as towards the targets for 
female (60%) and older workers (50%) has been the best since 2000. The overall, female and 
older  workers'  employment  rates  reached  64.3%,  57.1%  and  43.5%,  respectively  in  2006. 
Despite  this  progress,  it  seems  increasingly  challenging  for  the  EU  to  meet  the  overall 
employment rate target and the older workers’ target within the next four years, although the 
employment rate target for women seems to be within reach. 

For the first time in at least a decade, employment expanded across the entire EU, with all 27 
Member  States  showing  a  rise  in  employment.  Particularly  high  employment  growth  was 
observed  in  a  number  of  the  new  Member  States,  namely  Estonia,  Latvia,  Poland,  Bulgaria 
and Slovakia, and in Ireland, Luxembourg and Spain. Even those Member States that had no 
increases  in  employment  in  the  previous  year,  namely  Germany,  Hungary,  the  Netherlands 
and Portugal, experienced significant employment growth in 2006.  

Overall,  there  was  a  net  increase  of  over  4  million  people  in  employment  in  the  EU-27  in 
2006, with women contributing slightly more to employment creation than men. With respect 
to  age,  prime-age  workers  accounted  for  almost  two-thirds  of  the  increase,  while  older 
workers  accounted  for  just  under  a  third.  Despite  the  widespread  rise  in  employment,  large 
variations persist across countries. In 2006, employment rates ranged from as low as around 
55%  in  Poland  to  more  than  77%  in  Denmark.  At  the  same  time,  employment  rates  for 
women remain substantially below those for men in most countries. There is also substantial 
variation in rates for older workers. 

3. YOUTH AND OLDER WORKERS IN THE EU: TOWARDS A LIFE-CYCLE APPROACH TO WORK 

Youth and older workers are two groups that require a special policy focus. To avoid possible 
adverse  effects  on  economic  growth  and  reduce  the  mounting  pressure  on  social  protection 
systems stemming from demographic ageing, the life-cycle approach to work promoted by the 
European Commission needs to be reinforced. An appropriate policy response must therefore 
concentrate  on  increasing  labour  market  integration  of  all  age  groups  and  facilitating 
transitions over the life-cycle.  

More efforts are needed, particularly in education and training policies, to improve labour 
market outcomes of young people 

Youth unemployment and difficulties in successfully integrating young people into the labour 
market  remain  a  key  challenge  for  many  EU  Member  States.  Despite  signs  of  some  overall 
recent improvements, a real breakthrough in reducing youth unemployment has yet to occur. 
At  17.4%,  the  average  youth  unemployment  rate  in  the  EU  remains  high  and  has  not 
improved  relative  to  the  rate  for  prime-age  adults.  Furthermore,  as  a  whole,  the  EU 
underperforms  in  an  international  context,  with  substantially  more  young  people  in 

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unemployment  and  fewer  working  than  in  other  industrialised  countries,  such  as  the  US, 
Canada or Japan.  

Young  people  frequently  face  problems  in  making  a  smooth  and  rapid  transition  from 
education to work. A small but significant share of youth remains trapped in temporary, often 
low-pay jobs from which they find it difficult to exit. Are also at particular risk young people 
who  experience  long  spells  outside  employment,  education  or  training.  Insufficient 
educational attainment is one of the main causes behind the poor labour market performance 
of  young  people.  Therefore  programmes  which  address  school  failure  early  on,  familiarise 
youth with the world of work and prepare them for the need for lifelong learning in order to 
adapt  their  qualifications  throughout  their  working  lives,  are  a  crucial  factor  to  improve  the 
labour market situation of young people. In addition, better integration of those suffering from 
long spells in unemployment or inactivity will also require more effective activation strategies 
than in the past. Moreover, young people are among the groups most likely to be negatively 
affected  by  institutional  settings  favouring  those  with  a  permanent  job  at  the  expense  of 
newcomers.  The  problems  due  to  labour  market  segmentation  could  be  partly  addressed  by 
making it easier for firms to hire young people.  

Integrated policy approaches can help increase participation of older people 

Increasing labour market participation of older people and delaying the exit from the labour 
force represent another important challenge. Currently over half of 55–64 year olds in the EU 
are inactive, mainly for reasons of retirement but also due to poor health, personal or family 
responsibilities, or the belief that no work is available.  

Recent  results  indicate  that  efforts  by  Member  States  to  implement  measures  in  support  of 
active ageing are  starting to  produce results. Employment of  older workers has been one of 
the  most  dynamic  components  of  the  EU  labour  market  in  recent  years,  with  employment 
rates for older workers up 7 percentage points since 2000.  

Much of the rise in employment rates for older workers is due to the increase in rates for older 
women, which is in turn due mainly to the knock-on effect of the increasing participation over 
time of women in general. In contrast, the increase in rates for men is a result of the delays in 
exiting the labour market, this being more due to such factors as reforms of pension and social 
protection systems, and other recent measures associated with active ageing. 

The recent rise in employment of older workers has not been associated with any noticeable 
rise in the precariousness of their employment, nor is it mainly associated with an increased 
prevalence  of  part-time  work  or  self-employment.  Furthermore,  much  of  the  employment 
growth  has  been  in  relatively  highly  skilled,  knowledge-intensive  sectors,  and  with  a  shift 
away  from  the  more  manual  occupations  towards  the  non-manual  and  more  knowledge-
intensive occupations.  

Despite  the  recent  improvement,  efforts  to  promote  active  ageing  must  still  be  pursued 
vigorously.  Labour  market  participation  of  older  people  in  Europe  remains  low  by 
international standards and the employment rate for people aged 55–64 is still 6.5 percentage 
points  from  the  Stockholm  target  of  50%  by  2010.  Different  types  of  approach  to  active 
ageing  currently  exist  across  Member  States.  Features  of  the  systems  which  are  more 
successful in supporting active ageing include good levels of general health for older people 
and reasonably high standard retirement ages; efficiently designed active labour market policy 
measures and participation in lifelong learning; flexibility with regard to working hours and 

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work  organisation;  and  reduced  financial  pressures  on  older  workers  to  leave  the  labour 
market,  both  in  terms  of  the  financial  incentives  for  older  workers  to  retire  and  the  cost 
pressure on employers to hire younger rather than older workers. Certain groups of Member 
States, in particular Nordic countries, have implemented a more integrated approach to active 
ageing and have been relatively more successful in integrating and retaining older workers in 
employment compared to others. 

Increasing  the  labour  market  participation  of  older  workers  further  will  require  overcoming 
the continuing barriers and disincentives they face to employment. A broad range of factors 
needs  to  be  addressed.  Apart  from  financial  incentives  embedded  in  pension  systems,  early 
retirement schemes and other elements of the tax and benefit systems, as well as more flexible 
wage-setting that is less linked to seniority, the general challenges include changing attitudes 
towards  older  workers,  maintaining  and  promoting  the  health  and  working  capacity  of 
workers  as  they  age,  and  developing  the  skills  and  employability  of  older  workers  through 
effective lifelong learning. Suitable working conditions need to be provided, including more 
flexible  working  time  and  work-organisation  arrangements,  together  with  employment 
opportunities for an ageing workforce. It is also necessary to provide a generally supportive 
environment for active ageing. Addressing gender-related issues is also important, and further 
efforts  to  reduce  the  gap  in  activity  between  men  and  women  will  be  a  key  element  of  any 
strategy to increase the labour supply of older people.  

Addressing the challenge of demographic ageing and its impact on the workforce will require 
the  wider  implementation  of  more  integrated  strategies  than  has  been  the  case  to  date. 
Measures  are  needed  which  emphasise  the  integration  of  older  workers  and  improve  their 
employability  as  well  as  closing  off  early  exit  pathways.  In  taking  active  ageing  forward, 
particular  attention  should  be  paid  to  promoting  access  to  employment  throughout  working 
life A comprehensive active-ageing strategy must focus on the entire working lifespan and all 
age groups, not just older workers.  

4.  FOSTERING  FLEXIBILITY  WITHNIN  FIRMS  AND  SECURING  CAREER  DEVELOPMENT  FOR 

WORKERS: IMPORTANT ELEMENTS OF FLEXICURITY 

The  recently  adopted  Commission  Communication  on  flexicurity3  recognises  that  flexibility 
goes beyond the ease or difficulty to hire and fire employees (external flexibility) and can also 
be  provided  within  the  firm,  either  via  flexible  working-time  arrangements  (i.e.  internal 
flexibility) and/or different forms of work organisation, such as teamwork and work rotation 
(i.e. functional flexibility).  

Competitive  pressures  and  technological  progress  have  led  many  firms  in  advanced 
economies to adopt more flexible forms of work organisation, together with complementary 
human  resource  management  policies.  Flexible  forms  of  work  organisation  are  loosely 
characterised  by  flatter  hierarchical  structures,  a  stronger  involvement  of  employees  in 
decision making, and greater discretion of workers in the completion of their tasks, coupled 
with 
significant 
complementarities  and  are  more  effective  when  combined  with  certain  human  resource 
management practices, such as on-the-job training and contingent pay systems. However, this 
does not necessarily imply a convergence towards a single model of the flexible workplace. 

innovative  working  practices 

job  content.  These 

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Firms in EU Member States have adopted distinct national strategies of organisational change 
because  of  different  institutions,  socio-political  preferences,  economic  structures,  historical 
contexts, etc.  

Employment in Europe 2006 proposed a typology of EU labour markets along the dimensions 
of flexibility and security. However, flexibility referred exclusively to its external component 
as measured by OECD’s Employment Protection Legislation indicator. This year's report uses 
data from the European Survey of Working Conditions to compute country-specific indicators 
of  various  forms  of  flexibility  provided  within  the  firm  in  order  to  update  the  previously 
presented taxonomy of EU flexicurity systems. 

The  analysis  strongly  suggests  that  consideration  of  both  external  and  internal  forms  of 
flexibility  (and  their  interaction)  is  essential  to  characterise  labour  markets  and  flexicurity 
regimes across the EU. Two regimes are found to be associated with relatively ‘good’ socio-
economic  outcomes.  The  first  regime  (mainly  ‘Anglo-Saxon’  countries)  is  characterised  by 
high  external  flexibility  combined  with  average  levels  of  advanced  forms  of  internal 
flexibility.  It  displays  high  labour  mobility,  low  segmentation,  moderate  intensity  of 
vocational  training,  low  spending  in  activation  policies,  a  moderate  success  in  reducing 
poverty,  and  low  budgetary  costs.  The  second  regime  (mainly  ‘Nordic’  countries  plus  the 
Netherlands)  is  characterised  by  advanced  forms  of  internal  flexibility  (complex  tasks, 
workers’ autonomy, flexible working-time arrangements), combined with moderate levels of 
external  flexibility.  It  is  also  associated  with  good  economic  outcomes  (labour  market, 
productivity,  innovation)  and  a  strong  reduction  in  poverty  rates,  but  involves  higher 
budgetary  costs.  Everything  considered,  there  is  no  single  combination  of  policies  and 
institutions  to  achieve  and  maintain  good  socio-economic  results,  but  rather  different 
pathways  to  good  performance  that  are,  to  a  large  extent,  the  result  of  distinct  historical 
trajectories.  

The quality of working conditions depends on the form of flexible work organisation adopted 
by  the  firm.  The  advanced  internal  flexibility  (or  discretionary  learning)  model,  which 
combines  greater  demands  on  workers,  in  terms  of  responsibilities  and  problem-solving 
activities,  with  increased  autonomy  at  work,  may  represent  a  win-win  solution,  reconciling 
both employers’ and employees’ interests, particularly when combined with better support for 
workers  moving  between  jobs  and  enterprises.  In  fact,  it  is  simultaneously  characterised  by 
firms’  enhanced  performance  and  better  working  conditions  compared  to  more  traditional 
forms  of  work  organisation.  On  the  other  hand,  more  basic  forms  of  functional  flexibility, 
such  as  task  rotation,  teamwork  and  strict  production  norms,  may  be  detrimental  to  job 
satisfaction, work-life balance and work-related health outcomes.  

The  way  work  is  organised  plays  a  key  role  in  the  absorption  and  creation  of  knowledge. 
Models  characterised  by  discretion  at  work  combined  with  complex  problem-solving 
activities  are  the  best  performing  with  regard  to  the  development  of  in-house  innovation, 
while  the  so-called  ‘lean’  model,  characterised  by  a  low  degree  of  autonomy  and  a  large 
emphasis put on task rotation and teamwork, tends to be associated with the adoption and/or 
modification  of  existing  technologies.  Workers’  involvement  in  understanding  and  solving 
production-related  problems  seem,  therefore,  to  be  a  key  factor  for  learning  and  innovation 
activities, in addition to completion of ‘standard’ education (i.e. secondary education) and/or 
participation in continuing vocational training. 

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Continuing vocational training is an important component of flexicurity as it enhances job-
to-job mobility both within and across firms, and secures workers' career trajectories 

Developed  economies  have  experienced  important  long-term  structural  changes  over  recent 
decades. These included a transition from a model of production based on mass production to 
a new paradigm driven by quality and innovation, accompanied by major sectoral shifts in the 
economy  and  a  significant  increase  in  the  level  of  educational  attainment  of  the  workforce. 
This has strengthened the need for continuing vocational training (CVT) in order to guarantee 
that  workers  who  entered  the  workforce  several  decades  ago  have  the  skills  required  to 
participate effectively in today’s economy. These trends also put increasing pressure on new 
generations  of  workers  who  have  to  continuously  acquire  the  necessary  skills  to  learn  and 
innovate in a new era characterised by rapid change. 

There  are  four  main  reasons  for  the  strengthening  of  CVT  in  the  context  of  the  Lisbon 
Strategy.  First,  CVT  policies  can  reduce  social  exclusion  and  income  inequality  caused  by 
insufficient human capital by raising the skills and employability of workers at risk. Second, 
they can assist in retaining older workers longer in the labour market, thereby helping support 
the financial sustainability of social protection systems. Third, policies targeted towards CVT 
are  a  crucial  ingredient  for  the  implementation  of  flexicurity  policies  by  making  internal 
labour markets more dynamic in the context of economic changes, and workers’ skills more 
transferable  among  employers,  while  making  workers'  careers  more  secure.  Finally,  these 
policies  can  help  ensure  that  workers  acquire  and  upgrade  the  skills  necessary  in  an  era 
characterised by rapid change and learning, making European enterprises more competitive in 
a knowledge-based and globalised economy. 

There are some indications that the free market cannot provide an efficient level of investment 
in  CVT  because  of  possible  market  failures,  in  particular  in  relation  to  the  poaching  of 
workers.  This  refers  to  the  possibility  that  workers  leave  their  current  employers  who 
provided  the  training  in  order  to  join  other  employers  who  did  not  pay  for  the  training,  but 
gain  part  of  the  rewards.  In  many  circumstances,  such  market  failure  does  not  provide 
adequate incentives for employers to invest in CVT.  

Empirical  findings  indicate  that  some  groups  of  employees  have  a  lower  likelihood  of 
participating in employer-sponsored training than others in the EU, particularly older workers, 
the  less  educated,  those  in  precarious  jobs  and  those  in  the  lowest  part  of  the  income 
distribution.  This  has  a  negative  impact  on  the  employability  of  these  groups,  and  hence 
increases  the  risk  of  social  exclusion  and  income  inequality.  It  also  undermines  the 
sustainability of social protection systems by increasing the probability of workers retiring at 
an  early  age.  Furthermore,  the  likelihood  of  participation  in  training  remains  quite  low  in 
small enterprises, which has a potentially negative effect on the innovation activities of this 
important business segment. 

For  these  reasons,  government  intervention  in  the  form  of  provision,  regulation  or  funding 
may  be  required  to  ensure  progress  toward  the  two  traditional  objectives  of  education  and 
training,  efficiency  and  equity4.  However,  when 
instruments, 
governments  have  to  find  the  right  balance  among  these  forms  of  intervention  in  order  to 
achieve both efficiency and equity. 

implementing  policy 

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Efficiency and equity in European education and training systems; COM 2006 (481) 

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Specially  designed  policies  may  contribute  to  reducing  under-investment  in  CVT  at  the 
initiative  of  the  enterprise,  while,  in  certain  circumstances,  improving  equality  of  access  to 
training  for  all  workers.  These  policies  include  fiscal  incentives  and  subsidies,  collective 
labour agreements and compulsory agreements through levy-based schemes. When designing 
such policies, governments should, nevertheless, be careful to avoid possible adverse effects 
on the efficiency of resource allocation. 

Supply-side  policies  may  also  help  secure  the  benefits  of  CVT.  Reforms  aimed  at  aligning 
productivity  and  wages  should  be  considered  with  caution  because  they  may  reduce  the 
benefits from CVT that accrue to the employers providing such training to their employees, 
even  though  they  may  have  positive  effects  on  the  demand  side.  On  the  contrary,  policy 
instruments aiming at reducing turnover, such as payback clauses, may be useful since, to a 
certain extent; they allow employers to secure the benefits of their investment in CVT. Lastly, 
policies  promoting  quality  assurance,  accreditation  and  certification  of  training  may  have 
differentiated  effects.  Whilst  accreditation  contributes  to  improving  the  information  on  the 
quality  and  nature  of  training,  thereby  helping  employers  to  take  training  decisions, 
certification of training may reduce firms' incentive to provide CVT to their employees, as it 
increases  the  transferability  of  their  skills.  On  balance,  however,  these  policies  are  socially 
desirable,  as  they  can  ease  job  mobility,  thus  contributing  towards  implementing  flexicurity 
policies. 

5. LABOUR INCOME SHARE: TECHNOLOGICAL CHANGE, GLOBALISATION AND SKILLS 

The labour income share, which measures the part of value added that is allocated to labour, 
started  to  decline  in  most  EU  Member  States  shortly  after  the  first  oil  price  shock  and  is 
currently  below  levels  attained  in  the  1960s.  The  available  data  also  shows  that  the  share 
allocated  to  skilled  workers  rose  steadily  since  the  1980s  while  that  allocated  to  unskilled 
workers declined progressively.  

The  socio-economic  importance  of  these  developments  can  hardly  be  underestimated  as  the 
labour income share has an impact on personal income distribution and social cohesion, the 
direction  of  the  adjustment  in  wages  and  employment,  and  the  composition  of  aggregate 
demand,  touching  thus  upon  important  issues  of  equity,  economic  efficiency  and  macro-
economic stability.  

The  evolution  of  the  labour  income  share  itself  is  the  outcome  of  the  complex  interaction 
between  technological  progress,  labour  market  institutions,  and,  to  a  lesser  extent,  other 
drivers, such as openness to trade. Moreover, depending on the degree of substitution between 
the production factors, changes in one of these drivers may have a significant different impact 
on the income share of the different skill categories. 

Econometric analysis shows that technological progress made the largest contribution to the 
fall in the aggregate labour income share in recent decades. However, this loss was unevenly 
spread over the different skill-types as high-skilled workers increased their share while low-
skilled workers saw their income share fall. Trade openness also had a negative impact on the 
aggregate labour income share but to a lesser extent than technological progress. 

In  order  to  contribute  to  rebalancing  of  the  distribution  of  value  added  between  capital  and 
labour  and  between  the  different  skill  categories  of  labour,  policy-makers  need  to  pursue 
macro-economic polices oriented to stability and growth, creating an economic environment 

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that contributes to further capital and technological progress. However, in order to realise this 
potential, it is imperative that these policies are complemented by labour market polices that 
take into account the varying responses of the different skill categories to these drivers and, 
most importantly, by policies that allow the low-skilled to progress to a higher skill level so 
that the adverse effects, which stem from their high degree of substitutability with capital, can 
be mitigated. Some degree of employment flexibility within a secure context should facilitate 
the  creation  of  new  jobs  and  the  destruction  of  those  that  become  unproductive,  as  well  as 
facilitate  the  swift  progression  of  workers  to  more  rewarding  jobs  rather  than  keeping  them 
trapped  in  low-skilled  jobs,  the  income  share  of  which  is  adversely  impacted  by  capital 
deepening and technological progress. 

6. CONCLUSIONS 

The  analysis  presented  in  this  report  demonstrates  how  a  strategic  and  integrated  policy 
approach towards key priority areas - such as flexicurity and a life-cycle approach to work - 
can  make  a  difference  to  the  labour  market  performance  of  the  Member  States.  This  has  a 
particular relevance for both young people and older workers. 

Life-long  learning  remains  a  necessary  ingredient  of  successful  policy  packages,  and  this 
year’s  report  highlights  the  policy  solutions  that  improve  both  efficiency  and  equity  in 
vocational training. The report also examines the much-debated issue of developments in the 
labour income share in the EU and suggests some policy responses aiming to mitigate their 
possible adverse effects. Overall, the findings of the report support the general direction of the 
main  policy  initiatives  at  EU  level  within  the  employment  pillar  of  the  re-launched  Lisbon 
Agenda. 

The improved economic climate of 2006 should by no means deflect attention from the urgent 
need  for  a  continued  labour  market  reform  across  the  EU.  On  the  contrary,  this  cyclical 
improvement should provide an opportunity to design and implement the structural changes 
needed  to  achieve  a  breakthrough  towards  the  overarching  Lisbon  objectives  of  full 
employment, quality and productivity at work, and social and territorial cohesion. 

The "Employment in Europe 2007" report is published under the following website: 
http://ec.europa.eu/employment_social/employment_analysis/employ_2007_en.htm 

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