COMMISSION STAFF WORKING DOCUMENT Key economic, employment and social trends behind a European Pillar of Social Rights Accompanying the document Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions Launching a consultation on a European Pillar of Social Rights
Date: 2016-03-08
Institutions: Directorate-General for Employment, Social Affairs and Inclusion, European Commission
Subjects: EU employment policy, European social policy, economic policy, economic recession, education policy, euro area, labour market, social rights, welfare

EN 

   EN 

   EUROPEAN COMMISSION  Strasbourg, 8.3.2016  SWD(2016) 51 final   COMMISSION STAFF WORKING DOCUMENT Key economic, employment and social trends behind a European Pillar of Social Rights Accompanying the document Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions Launching a consultation on a European Pillar of Social Rights {COM(2016) 127 final} {SWD(2016) 50 final}  
 
 
Table of Contents 

1. INTRODUCTION .......................................................................................................................... 3 

2. WELFARE IN EUROPE: AN OVERVIEW ........................................................................... 5 

2.1. Diverse welfare models and levels of social expenditure ........................................................................ 5 

2.2. A redistributive and cushioning role ...................................................................................................... 7 

2.3. The role of social partners ..................................................................................................................... 9 

3. LONG-TERM TRENDS, SOCIETAL TRANSFORMATIONS AND CHANGING 
NEEDS ............................................................................................................................................... 10 

3.1. An ageing continent ............................................................................................................................. 11 

3.2. More female workers and changing family structures ......................................................................... 13 

3.3. A more diverse population and workforce ........................................................................................... 14 

3.4. Rising levels of education ..................................................................................................................... 15 

4.  THE IMPACT OF THE CRISIS: A HALT TO CONVERGENCE ........................... 20 

4.1. Divergences in employment ................................................................................................................. 20 

4.2. Recent trends in income inequalities .................................................................................................... 23 

4.3. Poverty and social exclusion ................................................................................................................ 25 

4.4. Sustainability of public finances, financing public services and the turn to social innovation ............. 27 

5. THE NEW WORLD OF WORK, JOBS AND SKILLS .................................................... 27 

5.1. Technological change and sectoral shifts ............................................................................................. 27 

5.2. Changing work conditions ................................................................................................................... 28 

5.3. Skills for changing occupations ........................................................................................................... 32 

6. SPECIFIC CHALLENGES AND REQUIREMENTS OF THE EURO AREA .......... 35 

2 

 
 
1. Introduction 

This Staff Working Document presents a selection of key economic, employment and social trends of 
relevance to the discussion on the establishment of a European Pillar of Social Rights.1 The Pillar is 
targeted at the euro area, but other Member States would be allowed to join in if they wanted to. 

The  discussion  on  the  Pillar  is  an  opportunity  to  review  trends  in  the  world  of  work  and  in  society,  
to take stock of the impact of the worst economic and social crisis in decades, and also to look ahead 
and consider long-term trends that are very much relevant beyond the crisis. Such stocktaking should 
take  account  of  the  wide  diversity  of  situations  and  challenges  across  European  countries, 
of the particular needs of the euro area and also of the commonalities of European approaches from a 
global perspective. 

An important aspect of the consultation being launched today is to make sure that the principles to be 
eventually  outlined  in  the  Pillar  should  be  applicable  not  only  for  today's  but  also  for  tomorrow's 
realities.  This  is  why,  in  addition  to  the  analysis  presented  here,  a  dedicated  work  stream  for  the 
consultation is foreseen to discuss the future of work and welfare systems.2  

This Staff Working Document highlights four trends in particular.  

First, the crisis has had far-reaching social consequences, which may hamper opportunities for future 
growth and economic performance across Europe. The recovery is slowly firming up in both the EU 
and the euro area, but productivity growth remains low, affecting competitiveness and living standards 
in  many  countries.  Unemployment  is  decreasing  steadily,  but  long-term  unemployment  as  well  as  
the  share  of  of  young  people  not  in  education,  employment  or  training  (NEET)  remain  high. 
Moreover, even though Europe has one of the most comprehensive welfare systems, around a quarter 
of  the  population  in  the  EU  –  122  million  people  –  are  at  risk  of  poverty  or  social  exclusion,  
with children being among the most vulnerable.3  

The  crisis  has  aggravated  well-known  challenges  in  a  number  of  Member  States.  These  include  the 
segmentation  of  labour  markets  between  categories  of  workers,  as  well  as  between  jobseekers  and 
those  in  work,  and  the  persistence  of  job  vacancies  in  certain  sectors  and  regions  in  spite  of  high 
unemployment, as a result of large skills mismatches. 

Second,  the  current  pace  and  extent  of  change  in  the  world  of  work  are  further  transforming 
employment conditions. Global production patterns and the organisation of work across borders were 
already  affecting  the  European  economy  and  its  labour  markets  long  before  the  financial  crisis.  
New ways of working, together with technological change and the digitisation of the economy, offer 
new  opportunities,  increase  possibilities  for  self-employment  and  new  types  of  activities,  and  
make career patterns more diverse,4 yet also create new risks of "grey zones" in terms of labour rights 
and access to welfare.  

1 COM(2016) 127 of 8 March 2016 launching a consultation on a European Pillar of Social Rights. 
2  See  webpage  of  the  consultation  at:  http://ec.europa.eu/priorities/deeper-and-fairer-economic-and-monetary-
union/european-pillar-social-rights 
3 Eurostat (2015), “The risk of poverty or social exclusion affected 1 in 4 persons in the EU in 2014”; European 
Commission  (2015),  Draft  Joint  Employment  Report  from  the  Commission  and  the  Council,  accompanying  
the Communication from the Commission on the Annual Growth Survey 2016. 
4 Bundesministerium für Arbeit und Soziales (2015), Reimagining Work, Green Paper Work 4.0. 

3 

 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
These  trends  are  being  magnified  by  what  is  now  referred  to  as  the  Fourth  Industrial  Revolution,5  
a paradigm shift in how economic value is created, and working lives are structured. The opportunities 
perceived in terms of job creation go hand in hand with revived concerns about the substitution effect 
and  'hollowing  out'  of  a  growing  number  of  occupations  caused  by  automation.  Skills  and  access  
to life-long learning matter more than ever in light of the changing work realities. 

Third, demographic trends suggest that Europe's capacity to grow will increasingly rely on its ability 
to  boost  productivity,  which  means  moving  towards  high-end  sectors,  and  on  making  the  most  of 
Europe's human capital, by mobilising Europe's workforce. This includes women, whose employment 
rate is catching up but remains below that of men in most countries, and also Europe's youth and older 
workers.6 This also involves addressing obstacles to the participation of people underrepresented in the 
labour market, such as third country nationals.  

Demographic trends also put pressures on the financial sustainability of welfare systems and question 
their ability to adjust to new family structures and societal trends, such as the tendency  of people to 
live more individual lives. Over the years, welfare systems have extended their role towards providing 
services,  incentivising  labour  market  participation  and  generally  investing  in  people's  employability. 
Social services have also been geared towards child development and the needs of dual-earner families 
and  have  facilitated  the  labour  force  participation  of  women.  Yet,  the  capacity  of  social  protection 
systems  to  provide  adequate  financial  assistance  and  prevent  poverty  while  supporting  the  labour 
market integration of beneficiaries remains a challenge in several countries.   

Fourth, divergence in employment and social performances may weigh heavily on the performance of 
the  euro  area.  During  the  crisis,  the  adjustment  capacity  of  several  Member  States  of  the  euro  area 
showed  severe  limitations.  This  has  increased  employment  and  social  disparities,  and  tested  
the resilience and stability of the euro area as a whole. In recent years, euro area Member States have 
agreed on stricter coordination of economic and fiscal policies, but such deeper integration within the 
Economic and Monetary Union also necessarily includes a social dimension.  

As  highlighted  in  the  Five  Presidents'  Report  on  Completing  Europe's  Economic  and  Monetary 
Union,7 in a single currency area, there is a need to build up the shock absorption capacity and labour 
market  adjustment  mechanisms  of  Member  States.  Enhancing  convergence  towards  robust  labour 
market  institutions  and  social  infrastructure  can  facilitate  resilience,  social  cohesion  and  macro-
economic adjustment within the euro area and beyond.  

Looking  ahead,  the  challenges  are  significant.  Peoples'  working  lives  are  expected  to  be  longer  and 
less linear: they will likely be marked by numerous transitions in jobs and professions, as well as by 
changing needs, with life-cycle and work-cycle pressures requiring career interruptions or breaks for 
caring  responsibilities,  or  for  seeking  access  to  re-skilling  opportunities.  The  notion  of  work  is 
becoming  increasingly  fluid  and  blurred,  with  ongoing,  rapid  technology-driven  transformations 
presenting  both  challenges  and  opportunities.  The  capacity  of  welfare  systems  to  ensure  equity  and 
enable upwards mobility is being tested, and a lot of efforts is still required to invest in Europe's skills 
and human capital.  

Although the benefits of policy interventions in all these fields may take time to materialise, the costs 
associated with a lack of concerted action will no doubt be felt even more acutely. 

5 World Economic Forum (2016), “The Fourth Industrial Revolution: what it means, how to respond”. 
6  European  Commission  (2015),  “2015  Ageing  Report:  Economic  and  budgetary  projections  for  the  28  
EU Member States (2013–2060)”, Directorate- General Economic and Financial Affairs.  
7  "Completing  Europe's  Economic  and  Monetary  Union", Report  by  Jean-Claude  Juncker,  in  cooperation  with 
Donald Tusk, Jeroen Dijsselbloem, Mario Draghi and Martin Schulz, June 2015. 

4 

 
 
 
 
 
 
 
 
 
 
 
                                                 
2. Welfare in Europe: an overview 

intra-  and 

European  welfare  States  fulfil  the  key  objectives  of  protecting  against  life's  risks,  poverty 
alleviation, 
inter-generational  redistribution,  as  well  as  macroeconomic 
stabilisation. There is a very wide diversity of welfare and labour  market institutions across 
Europe,  including  in  the  organisation  of  social  dialogue,  which  remains  a  building  block  of 
the European social model and of a well-functioning social market economy. In recent years, 
social  protection  systems  played  their  role  in  cushioning  the  impact  of  the  economic  and 
financial crisis, but their efficiency and financial sustainability have been put to a test. 

2.1. Diverse welfare models and levels of social expenditure 

European welfare states developed primarily in the second half of the 20th century during a period of 
solid economic growth, to reconcile the often competing dynamics of solidarity and competitiveness, 
labour  and  capital,  equity  and  efficiency.  Their  key  objectives  have  been  pursued  mainly  through 
regulation,  fiscal  redistribution,  the  provision  of  public  goods  and  collective  insurance  against 
individual and socio-economic risks.8  

Instruments  have  been  developed  to  insure  against  life-course  and  labour  market  risks;  to  reduce 
poverty and income inequality; to encourage children and family protection; to promote labour force 
participation;  and  to  improve  population  health  and  skills.9  The  weight  attributed  to  the  different 
functions  varies  substantially  across  countries,  as  do  their  coverage  and  generosity10  and  their 
performance in terms of efficiency and equity.11 

The differences between Europe’s social and welfare models have led to a number of categorisations,12 
taking  into  account  the  level  of  income  support  for  those  outside  the  labour  market,  the  effects  of 
welfare policies on social mobility, and the differences in welfare providers (i.e. public or private).  

Beyond  such  classifications,  models  have  tended  to  converge  in  this  century  to  reflect  evolving 
societal needs. However, for illustrative purposes, it is possible to categorise national welfare systems 
across clusters, mostly following Europe’s geographical regions:13 

8 Lindert, P.H. (2004), “Growing Public: Social Spending and Economic Growth since the Eighteenth Century”, 
Cambridge  University  Press;  Begg,  I.,  Draxler,  J.  and  Mortensen,  J.  (2008),  “Is  Social  Europe  Fit  for 
Globalisation?  A  study  of  the  social  impact  of  globalization  in  the  European  Union”.  Brussels:  European 
Commission, Centre for European Policy Studies. 
9 Boeri, T. (2002) “Let Social Policy Models Compete and Europe Will Win”, paper presented at a Conference 
hosted by the Kennedy School of Government, Harvard University, 11-12 April. 
10  Sapir  A.  (2005),  “Globalisation  and  the  Reform  of  European  Social  Models”,  Bruegel  Policy  Contribution; 
Begg I. et al. (2008), op.cit.; Ferrera M. (1996) “The Southern Model of Welfare in Social Europe” in Journal of 
European  Social  Policy,  6:1,  1996,  pp.17-37;  Esping-Andersen  G.(1990),  “The  Three  Worlds  of  Welfare 
Capitalism”,  New Jersey: Princeton University Press. 
11 European Commission, (2016), “Employment and Social Developments in Europe” (ESDE) 2015. 
12  European  Commission  (2016),  “Employment  and  Social  Developments  in  Europe”  (ESDE)  2015,  op.cit., 
(Chap2-3_Table-1);  Ebbinghaus,  B.  (2012),  “Comparing  Welfare  State  Regimes:  Are  Typologies  an  Ideal  or 
Realistic  Strategy?”,  ESPAnet  Conference,  Edinburgh,  UK,  September  6‐8,  2012;  Sapir  A.  (2005), 
“Globalisation and the Reform of European Social Models”, Bruegel Policy Contribution; Begg I. et al. (2008), 
op.cit.;  Ferrera  M.  (1996)  “The  Southern  Model  of  Welfare  in  Social  Europe”  in  Journal  of  European  Social 
Policy,    6:1,  pp.17-37; Esping-Andersen  G. (1990),  “The Three Worlds of Welfare  Capitalism”,    New  Jersey: 
Princeton University Press. 
13  It  should  still  be  acknowledged  that  a  great  degree  of  variation  in  terms  of  inputs  and  outcomes  of  welfare 
policies can be found within these regimes. 

5 

 
 
 
 
 
 
 
 
 
                                                 
  The  "Nordic"  cluster  features  the  highest  levels  of  social  protection  expenditures,  universal 
welfare provision and trade union density.  Intervention in labour markets is characterised by  
a mix of active labour market policies to promote integration in gainful employment. Social 
partners play a leading role in wage setting and working conditions. Social insurances include 
a combination of general provisions, income-related benefits and in-kind benefits.   

  The  "Continental  Western  European"  cluster  relies  extensively  on 

insurance-based 
unemployment  benefits  and  old-age  pensions,  traditionally  aimed  at  managing  income 
fluctuation across the life cycle. In spite of declining membership, trade unions remain strong 
as regulations extend the coverage of collective bargaining to non-unionised workers.  

  The  "Anglo-Saxon"  cluster  features  relatively  large  social  assistance  of  the  last  resort,  
with limited transfers oriented at people of working age. Activation measures are important as 
are  schemes  conditioning  access  to  benefits  to  regular  employment.  This  model  is 
characterised by relatively weak trade unions and decentralised wage bargaining. 

  The  "Mediterranean"  cluster  is  highly  state-centred.  Social  spending  may  tend  to  be  biased 
towards old-age pensions and often allows for a high segmentation of entitlements and status. 
The  cluster  is  characterised  by  a  relatively  homogeneous  wage  structure  obtained  through 
collective bargaining.  

  The  "Baltic,  Central  and  South  Eastern  European"  cluster  is  characterised  by  more  limited 
welfare provisions14 based on state-centred welfare spending, but also on family for providing 
support, with relatively fragmented bargaining systems. 

Over  the  past  decades,  the  role  of  welfare  states  has  been  extended  by  more  actively  providing 
services,  incentivising  labour  market  participation  and  generally  investing  in  people's  employability. 
Family-friendly  social  services  geared  towards  the  needs  of  dual-earner  families  have  facilitated 
labour force participation of women and child development. Childcare and long-term care for elderly 
citizens have grown in importance, as has the need for good quality preventive and curative healthcare. 
Early retirement policies have been phased out and replaced by initiatives aimed at promoting longer 
and healthier working lives. Emphasis has also been increasingly put on the inclusion of residents with 
a  migrant  background,  which  is  even  more  necessary  in  the  light  of  recent  flows  of  migrants  and 
refugees. 

As  a  result  of  these  differences,  levels  of  social  expenditure  vary  significantly  across  Europe. 
Countries such as Denmark, France, Finland and Greece spend more than 30% of GDP (not including 
education) on social expenditure whereas Estonia, Latvia, Lithuania and Romania spend less than 15% 
(Figure 1).15 

14  According  to  the  World  Bank  (2015),  “EU  Regular  Economic  Report,  Fall  2015”,  a  distinction  should  be 
made  between  (a)  Cyprus,  Croatia  and  Hungary  being  on  a  path  to  a  fully  balanced  welfare  state,  (b)  Latvia, 
Lithuania, Malta and Slovakia having implemented small  balanced welfare states; and (c) Bulgaria, the Czech 
Republic and Estonia still having rather limited welfare States.  
15  European  Commission  (2015),  “Social  protection  systems  in  the  EU:  financing  arrangements  and  the 
effectiveness and efficiency of resource allocation”. 

6 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
Figure 1: Spending on social protection, EU-28, % of GDP, 2013  

Note: data for Greece and Poland, and the EA18 and EU 28 are from 2012 
Source: Eurostat 

Old age and survivors pensions enjoy the largest share (44%) of total social expenditure, followed by 
public  expenditure  on  health  care  and  sickness  benefits  (28%)  (Figure  2).  Expenditures  related  to 
unemployment displayed the largest variation over the last decade: they fell between 2005 and 2007, 
and increased steeply as a result of the crisis between 2008 and 2009, to contract slightly afterwards, 
including during the second dip of the recession (2012-13). 

Figure 2: Structure of social protection expenditure, EU-28, % of total expenditure, 2012 

Source: Eurostat, Expenditure: main results  

2.2. A redistributive and cushioning role 

The  2008  economic  and  financial  crisis  confirmed  the  role  played  by  social  expenditure  – 
unemployment benefits in particular – as an automatic stabiliser, contributing to the resilience of the 
economy  and  society.  In  order  to  ensure  effective  macroeconomic  stabilisation,  effective  social 
spending and support to the active age population are essential.  

7 

 
 
 
 
 
 
 
 
 
 
 
 
 
Overall,  while  social  spending  had  played  a  significant  role  in  the  first  phase  of  the  crisis,  by 
sustaining incomes of households affected by unemployment or wage reductions in most countries in 
2008/2009,  this  contribution  lessened  from  2010  onwards.  This  is  partly  the  result  of  an  increasing 
share of long-term unemployed having lost access to insurance-based benefits. 

In particular, a number of Southern European countries and Baltic States, where the crisis hit hardest 
and  initial  conditions  were  more  fragile  than  in  other  parts  of  Europe,  had  to  tighten  eligibility 
conditions for cash benefits, freeze indexation and limit in-kind benefits/social services.16 

Beyond  the  level  of  spending,  the  distributional  and  stabilisation  effects  of  social  expenditure  is 
heavily  influenced  by  its  composition,17  notably  the  design  of  benefits  and  related  indexation 
mechanisms. 18  

Figure 3: Overall social protection expenditure, real growth trends in the EU, 2001-2012 

Source: European Commission (2016), Employment and Social Developments Report 2015 

In  some  cases,  the  lack  of  integrated  benefits  and  services  reduces  their  effectiveness  in  addressing 
poverty  and  supporting  labour  market  integration.  Access  to  essential  services  such  as  transport, 
energy  and  financial  services  is  also  an  issue  in  several  EU  countries,  while  the  lack  of  adequate 
housing and housing insecurity is a large concern across the EU.  

The  consequences  of  Europe's  ageing  societies,  the  need  for  more  effective  lifelong  activation  and 
protection policies, and the growing pressures on the sustainability of public finances all call for better 
performing welfare systems. In addition to their social protection function, efficient welfare systems 
with appropriate levels and mixes of social expenditure contribute to economic growth in a two-fold 
and mutually reinforcing manner.19  

16  Hemerijck  A.  (2012)  “When  Changing  Welfare  States  and  the  Eurocrisis  meet”,  Essays  in  Sociologica, 
1/2012;  Matsaganis  M.,  and  Leventi  C.  (2014),  "The  distributional  impact  of  austerity  and  the  recession  in 
Southern Europe" in South European Society and Politics 19 (3) 393-412. 
17  Stiglitz,  J.E.,  Sen,  A.,  Fitoussi,  J.-P.  (2009),  “Report  by  the  Commission  on  the  Measurement  of  Economic 
Performance and Social Progress”. 
18  Social  Protection  Committee  and  the  European  Commission  Services  (2015),  “Joint  Report  on:  Social 
protection  systems  in  the  EU:  financing  arrangements  and  the  effectiveness  and  efficiency  of  resource 
allocation.”  pp.  34-39;  European  Commission  (2014);  European  Commission  (2014),  Employment  and  Social 
Developments in Europe (ESDE) 2014. 
19  Gill,  I.  S.  and  Raiser,  M.  (2012),  “Main  Report:  Golden  Growth:  Restoring  the  Lustre  of  the  European 
Economic Model”, Washington D.C.: World Bank. 

8 

 
 
 
 
 
 
 
 
 
 
 
 
                                                 
First,  better  integrated  employment  and  social  services  and  active  labour  market  policies  can  ease 
access to the labour market, provide adequate incentives to work, support skills and employability, and 
provide  support  for  professional  transitions.  In  practice,  the  capacity  of  unemployment,  minimum 
income  and  disability  benefits  to  provide  adequate  financial  assistance  and  prevent  poverty  while 
supporting the labour market integration of beneficiaries remains a challenge in several countries.  

Second,  investment  in  human  capital  and  enabling  services,  such  as  childcare,  lifelong  learning  and 
retraining, allow more people to be part of the labour force and to develop their skills base throughout 
their  life,  to  move  society  up  the  value  and  innovation  chain,  and  thereby  contribute  to  economic 
growth.20  This  includes  good  quality  primary  and  secondary  education,  apprenticeships  for  young 
adults,  smooth  transitions  from  education  to  work,  as  well  as  training  and  lifelong  learning 
programmes  for  adults  and  older  workers  to  update  their  skills.  This,  in  turn,  allows  for  better 
employment  opportunities,  longer  working  lives  and  consequently  better  pension  prospects.  
Enabling  services  also  include  universal  and  good  quality  early  childhood  education  that  promotes 
cognitive  development  and  social  integration,  preventing  the  inter-generational  transfer  of  poverty,  
as well as robust safety nets that support life and work-related transitions.  

An adequate balance between a social protection function and a social investment function of welfare 
systems  is  essential  to  build  resilient  economies.  Investment  in  education,  health  and  childcare 
facilities  may  have  an  important  role  in  supporting  higher  levels  of  male  and  female  labour  market 
that  
participation  over 
well-functioning welfare states open to reforms and adjustments can create an environment for growth 
and investment.22   

life-cycle,  higher  productivity  and  earnings.21  Examples  show 

the 

2.3. The role of social partners 

Social  dialogue  is  a  building  block  of  the  European  social  model  and  of  a  well-functioning  social 
market economy. It contributes to devising arrangements that better serve the employment and skills 
needs  of  both  employees  and  companies,  and  to  building  shared  understanding  and  mutual  trust,  
which are essential for addressing social challenges and modernising economies.23  

20  Organisation  for  Economic  Cooperation  and  Development  (2015),  “In  It  Together:  Why  Less  Inequality 
Benefits  Us  All”,  Paris:  OECD  Publishing;  Hemerijck,  A.  (2014),  "Social  Investment  in  'Stocks',  'Flows'  and 
“Buffers", in Politiche Sociali, 1 (1): 9-26; Hemerijck, A. and Vydra, S. (2016), "Navigating Social Investment 
Policy Analysis". 
21 See, for instance: Kenworthy L. (2008), “Jobs with equality”. Oxford: Oxford University Press; Kenworthy L. 
(2011),  “Progress  for  the  poor”.  Oxford:  Oxford  University  Press;  Pontusson,  J.  (2005),  “Inequality  and 
Prosperity: Social Europe versus Liberal America”. Ithaca, NY: Cornell University Press; Esping-Andersen G. 
(2009), “The Incomplete Revolution: Adapting to Women’s New Roles”. Cambridge: Polity Press; Bernard, P., 
and Boucher, G. (2007) “Institutional competitiveness, social investment, and welfare regimes.” In “Regulation 
and  Governance”  1:  213-229;  Begg,  I.,  Draxler,  J.  and  Mortensen,  J.  (2008),  “Is  Social  Europe  Fit  for 
Globalisation?  A  study  of  the  social  impact  of  globalization  in  the  European  Union”.  Brussels:  European 
Commission,  Centre  for  European  Policy  Studies;  Eichhorst,  W.,  and  Hemerijck,  A.  (2010),  “Welfare  and 
employment: A European dilemma?” Pp. 201-236 in “United In diversity? Comparing Social Models in Europe 
and America”, edited by J. Alber and N. Gilbert. Oxford: Oxford University Press. 
22  Leoni,  Th.  (2015),  “Welfare  state  adjustment  to  new  social  risks  in  the  post-crisis  scenario.  A  review  with 
focus on the social investment perspective”. Vienna: WIFO; Kenworthy, L.(2004), “Egalitarian Capitalism: Jobs, 
Incomes  and  Growth  in  Affluent  Countries”.  New  York:  Russell  Sage.  Boeri,  T.  and  Garibaldi,  P.  (2009), 
“Beyond  Eurosclerosis”,  in  Economic  Policy,  Jul  2009,  24  (59)  409-461;  Bertola  et  al.  (2001),  “Welfare  and 
Employment in a United Europe”, Cambridge MA: MIT Press. 
23  Business  Europe  (2014),  “Future  of  Social  Europe.  Challenges  and  the  Way  Ahead”;  Lapeyre,  J.  (2015), 
“European  Social  Dialogue:  30  Years  of  Experience  and  Progress  but  what  does  the  Future  hold?”  in  Notre 
Europe.  

9 

 
 
 
 
 
 
 
                                                 
Industrial relations cover a wide range of domains but typically include issues related to remuneration. 
Collective  bargaining  varies  significantly  between  Member  States  and  can  take  place  at  national, 
sectorial,  regional  or  company  level.24  Further  differences  are  related  to  the  degree  of  employee 
coverage25 and whether social partners are involved in the administration of unemployment benefits, 
social security or public healthcare (Figure 4). 

Central  and 
South Eastern 
Europe,  CY, 
MT 
Fragmented 
state-centred 

/ 

based 

Figure 4: Typology of welfare States and industrial relations 

Broad 
geographic 
region 

Northern 
Europe 

Continental 
Western 
Europe 

UK, Ireland 

Southern 
Europe 

Main 
characteristics 

Organised 
corporatism 

Liberal pluralism 
(Anglo-Saxon) 

State centred 

Corporatism, 
Social 
partnership 
Dual 
high coverage 

Sector 

Sector 

system, 

Union 
limited 
coverage 

Union  based, 
high coverage 

Union 
based, 
limited coverage 

Union  based, 
high 
coverage 

Employee 
representation 
at 
company 
level 
Main  level  of 
bargaining 
Bargaining 
style 
Role of state in 
IR 
Role  of  Social 
Partners 
in 
public policy 
Source: Adapted from European Commission (2016),  Employment and Social Developments Report 2015, and 
European Commission (2008) 

Conflict oriented  Conflict 
oriented 
Non-intervention  Frequent 

Limited 
(mediator) 
Institutionalise
d 

Shadow of 
hierarchy 
Institutionalise
d 

Organiser of 
transition 
Not 
on 
regular basis 

intervention 
Not 
regular basis 

Rare, 
driven 

Acquiescent 

Integrating 

Integrating 

Company 

Company 

Sector 

event 

on 

a 

a 

3. Long-term trends, societal transformations and changing needs 

Profound  long-term  changes  are  taking  place  in  the  world  of  work  and  society.  In  particular, 
demographic ageing, as well as the need for adequate activation and protection policies along the life 
cycle,  call  for  a  renewed  attention  to  the  effectiveness  and  efficiency  of  European  welfare  states.  
At the same time, the labour market participation of women is progressing and family structures are 
changing, while the workforce is getting more diverse. Moreover, levels of education are increasing, 
but challenges remain, and inequalities remain persistent. 

24  European  Commission  (2016),  “Employment  and  Social  Developments  in  Europe  (ESDE)”  2015,  Chapters  
2-3 for an in-depth account. 
25  Coverage:  share  of  employees  covered  by  collective  (wage)  bargaining  agreements  (excluding  sectors  or 
occupations that do not have the right to bargain). 

10 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
3.1. An ageing continent 

In  the  future,  Europe’s  population  will be  slightly  larger  but  significantly  older.  The  size  of  the  age 
group 65+ is expected to increase from 96 million (2015) to 148 million (2060) while the population 
of working age (20-65) is projected to decrease from 306 million to 269 million.26 The share of those 
aged 20-65 will become substantially smaller by 2060, declining from 60% to 51% of the population, 
while the share of 65+ will become much larger, rising from 18% to 28%. The group over 80 years old 
will be as numerous as children under 15 years of age (Figures 5 and 6).  

This  demographic  shift  is  the  result  of  a  lower  number  of  births,  increasing  life  expectancy  and  the 
larger  birth  cohorts  of  the  1960s  (the  so-called  baby-boom  generation)  entering  retirement  age.  
The  so-called  demographic  "old-age dependency  ratio"  of people  aged  65  or  above  relative  to  those 
aged 15-64 is projected to increase from 27.8% (in 2013) to 50.1% in the EU as a whole by 2060. 

Figure 5: Absolute change in population age 
structure, EU28, actual (2000-2014), medium  
scenario (2015 -2060) in millions              

Figure  6:  Age  structure,  EU28, 
2013 – 2060 

Source: Eurostat 

Source: Eurostat, Europop 2013 

This  implies  that  the  EU  would  move  from  having  four  working-age  people  for  every  person  aged 
over  65  years  to  about  two  working-age  persons.  This  will  pose  substantial  challenges  to  labour 
markets, the financial sustainability of welfare systems, health and elderly care and pension systems.  

This risk needs to be addressed now. Under alternative scenario assumptions, total labour supply could 
almost  stabilise  between  2013  and  2023.  Yet,  it  is  expected  to  decline  by  19  million  people  
(-8.2%) in the EU between 2023 and 2060 as larger cohorts retire and are replaced by smaller ones of 
younger workers and labour migrants from third countries.27 Increases in the employment rate as well 
as  increases  in  productivity  would  compensate  the  reduction  in  working  age  population.  
But for this to happen, it is essential to invest in people's skills and support their employability.  

Older workers have been remaining in the workforce or entering the workplace in increasing numbers, 
although  the  current  employment  rate  of  52%  among  those  aged  55-65  remains  much  lower  than  
the overall employment rate (Figure 8 below).28 Evidence suggests that it is also this age group that is 
most at risk of having obsolete skills and least likely to receive training (Figure 7).  

26 European Commission (2015), “The 2015 Ageing Report: Economic and budgetary projections for the 28 EU 
Member States” (2013 – 2060), Economic and Financial Affairs.  
27 European Commission (2015), “The 2015 Ageing Report” op. cit. 
28 European Commission (2016), “Employment and Social Developments in Europe (ESDE) 2015, op. cit. 

11 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
  
 
In recent decades, Member States have taken a variety of reforms to manage pension expenditure and 
safeguard  the  financial  sustainability  and  adequacy  of  pension  systems.29  Considering  the  future 
outlook,  pension  adequacy  will  depend,  to  a  much  higher  degree  than  before,  on  the  amount  and 
length  of  pension  contributions  resulting  from  the  career  average  wage  level  and  the  length  of  the 
working career. Low earnings, long career breaks and early retirement can therefore be identified as 
key risk  factors for pension adequacy in the future. Expenditure projections based on the legislation 
adopted  by  end  of  2014  assume  higher  effective  retirement  ages  and  employment  rates  for  older 
workers and show that, even under such assumptions, several Member States could still experience a 
significant increase in their spending.  

Due  to  high  levels  of  long-term  unemployment  and  atypical  career  paths,  poverty  among  future 
pensioners, particularly women, is at risk of increasing. In general, older people (aged 65 and more) 
are  not  currently  more  at  risk  of  poverty  than  other  age  groups.  In  most  EU  countries,  older  people 
seem so far to have been better protected against the social impact of the recession and public finance 
crisis  than  other  age  groups.  The  share  of  older  people  with  incomes  below  the  at-risk-of-poverty 
threshold  has  actually  declined  from  2009  to  2012.  However,  for  older  people,  the  risk  of  severe 
material deprivation has increased slightly over this period. Pension systems, and in particular public 
pension  schemes,  have  continued  to  ensure  that  oldest  people  in  the  majority  of  EU  countries  are 
protected against the risk of poverty and deprivation. While pensions are the main income source of 
older  Europeans,  living  standards  in  old  age  also  depend  on  other  factors,  such  as  private  assets, 
notably home ownership, access to other benefits and services, and employment opportunities.  

Figure 7: Participation rate in training and education by age in EU, %, 2002-2014 

Source: Eurostat 

At  the  same  time,  European  health  systems  are  facing  growing  common  challenges:  intensifying 
health  and  long-term  care  demands  linked  to  demographic  ageing  and  the  resulting  rise  of  chronic 
diseases  and  multi-morbidity;  shortages  and  uneven  distribution  of  health  professionals;  
health inequalities and inequities in access to healthcare.  

Ageing and medical innovation have increased health expenditure in the EU during most of the second 
half of the 20th century, and estimates expect public spending on health and long-term care to rise by 
2060.30 There is a pressing need for more efficiently managed healthcare31 to transform resources into 

29 European Commission (2015), "The 2015 Pension Adequacy Report: current and future income adequacy in 
old age in the EU”, Directorate-General for Employment, Social Affairs and Inclusion, and Social Protection 
Committee. 
30 European Commission (2015), “The 2015 Ageing Report” op. cit. 
31  Medeiros  J.  and  Schwierz,  Ch.  (2015),  “Efficiency  estimates  of  health  care  systems”,  European  Economy. 
Economic Papers 549. June 2015  

12 

 
 
 
 
 
 
                                                 
health  outcomes  (i.e.  longer  and  healthier  life  expectancy,  amenable  mortality  rates,  etc.).  
Equally  important  is  to  ensure  a  balance  between  preventive  and  curative  care,  improving  health 
security, reducing inequalities in access to quality care, and addressing growing needs for long-term 
care services and mitigating dependencies.  

3.2. More female workers and changing family structures  

Labour  market  participation  of  women  has  been  steadily  growing,  which,  together  with  growing 
participation of older workers, has at least partially offset the decline in workforce in many countries. 
Female workforce participation has consistently gone up, from 56.1% in 2005 to 59.6% in 2014.  

Cross-country  variation  in  the  EU,  however,  is  still  considerable  and  women  have  on  average  an 
employment rate of 11.5 percentage points lower than men. The employment gap is much bigger when 
full-time equivalent is considered. 

Figure 8: Employment rates of women and men (age group 15-64), and older adults (age group 55-65),  
EU28, %, 2003-2014 

Source: Eurostat  

Data  suggests  that,  although  employment  tends  to  increase  with  parental  age,  young  mothers  and 
particularly single mothers are more likely to engage in part-time work. As a result, not only are they 
more likely to face diminished employment opportunities over their life-time, they are also more likely 
to  rely  on  a  lower  income,  with  further  implications  for  long-term  inequality  and  human  capital  for 
themselves and their offspring.32 Due to discontinued employment patterns and fewer hours worked, 
the gender earnings gap during active years has reached 41% and leads to a very wide gender gap in 
pensions. Older women are much more at risk of poverty and social exclusion than older men, and no 
mitigating trends have been observed in recent years. 

Moreover,  while  women  are  more  likely  than  men  to  have  a  higher  education  degree,  they  remain 
underrepresented in the science, technology, mathematics and engineering sectors (STEM) and over-
represented  in  fields  of  study  that  are  linked  to  traditional  gender  roles.  Women  also  represent  the 
biggest untapped source of entrepreneurial potential, as only 29 % of today's entrepreneurs are women.  

The  increase  in  female  labour  market  participation,  the  fact  that  it  remains  well  below  that  of  men, 
particularly for mothers, as well as the growing numbers of single-parent families over past decades, 
has triggered a review of entitlements and work-life balance policies.33  

32 European Commission, (2014), “Single parents and employment in Europe”. 
33  European  Commission  (2016),  “Employment  and  Social  Developments  in  Europe  2015”;  European 
Commission  (2013)  “Evidence  on  demographic  and  social  trends:  Social  policies'  contribution  to  inclusion, 
employment and the economy”. 

13 

 
 
 
 
 
 
 
 
 
 
                                                 
Yet, gender inequalities in the labour market continue to be exacerbated by a lack of adequate work-
life  balance  arrangements  -  such  as  leaves,  flexible  working  patterns  and  access  to  formal  care 
services34.  Moreover,  lack  of  paid  leave  arrangements  for  fathers  relative  to  mothers,  or  insufficient 
incentives to make use of them, can further reinforce gender differences between work and care.  

3.3. A more diverse population and workforce 

At the beginning of 2014, there were 34.1 million foreign citizens residing in the EU Member States. 
Of these, 14.3 million citizens were nationals from another EU Member State and 19.8 million were 
non-EU  citizens.  (Figure  9).  7%  of  the  total  population  of  the  EU  is  thus  from  foreign  origin,  
of which 40% are citizens of another EU Member State.35  

Figure 9: Breakdown of EU28 population  

Source: Eurostat, LFS 

The  growing  diversity  of  immigration  flows  on  origin  and  type  has  challenged  the  capacity  of  host 
countries  to  respond  effectively  to  the  different  integration  needs  of  the  various  migrant  groups.  
The EU's diverse workforce is characterised by limited integration in terms of educational attainment 
and  participation  in  the  labour  force.  In  2014,  on  average,  some  10%  of  Europe's  labour  force  was 
unemployed,  while  the  rate  was  significantly  higher  among  third-country  nationals  (17.0%).  
Employment  rates  of  third  country  nationals  (56%)  are  indeed  below  EU  average  (69.2%).  
Recent  intakes  of  asylum  seekers  and  refugees  reinforce  these  existing  integration  challenges  in  
the short and medium term.  

At EU level, the employment rate of people with disabilities is 47.9% compared to 71.5% of persons 
without disabilities. While part of this difference is due to the fact that people with disabilities might 
be unable to enter employment, part of it also has to do with the lack of adequate support measures to 
enable people with disabilities to enter the labour market.  

34 See for instance OECD (2012) “Closing the Gender Gap” 
35 Eurostat (2015), “News release: Foreign citizens living in the EU Member States”. 

14 

 
 
 
 
 
 
 
 
 
 
 
                                                 
3.4. Rising levels of education  

Skills  and  human  capital  are  widely  considered  the  backbone  of  economic  prosperity  and  social  
well-being  in  the  21st  century.  Over  the  years,  Europe  has  achieved  high  levels  of  education. 
Participation rates in early childhood education have been rising, while numbers of early leavers from 
education and training have been decreasing over the past decades (Figures 10 and 11). 

Figure 10: Participation in early childhood education,  
(from 4 years to compulsory school age),  
EU-28, 2002-2012 

Figure 11: Early leavers from education 
and training EU-28, 2002-2015 

Source: Eurostat   

Source: Eurostat 

Nonetheless,  significant  challenges  persist.  Formal  childcare  has  positive  consequences  for  children,  
in  particular  those  from  disadvantaged  backgrounds,  whereas  lack  of  or  limited  formal  childcare 
options  can  have  negative  consequences  for  female  career  development.  As  most  parents  combine 
various reconciliation instruments between family and work lives, childcare arrangements are related 
to parents’ preferences and norms, the children age, and labour market opportunities for parents. 

Despite  steadily  decreasing  trends,  there  are  still  more  than  4.4  million  early  school  leavers  across 
Europe36,  and  about  60%  of  these  are  either  inactive  or  unemployed.  Underachievement  in 
mathematics,  reading  and  science,  in  particular  among  pupils  from  disadvantaged  backgrounds, 
underlines  persisting  vulnerabilities  in  European  societies.  Early  school  leaving  represents  a  loss  of 
potential that has effects on both social and economic scale such as reduced social cohesion and lower 
financial incomes. In the long run, early school leaving has negative effects on social development and 
economic  growth,  which  is  very  much  based  on  qualified  labour  force.  The  reduction  of  the  rate  of 
early  school  leaving  on  European  scale  would  supply  the  European  economy  with  a  substantial 
number of young people with qualifications who have better employment prospects. 

36 European Commission's 2015 Education and Training Monitor. 

15 

 
 
 
 
 
 
     
 
 
     
 
 
 
 
 
 
 
 
 
 
                                                 
The share of the population aged 30-34 that have completed tertiary or equivalent education stands at 
37.9% (2015), but the transition from school to work remains difficult, as shown by the employability 
rate  of  graduates,  which  is  stagnant  across  the  EU  and  still  below  its  2008  peak.37  Education 
attainment rates vary considerably across Member States; yet most countries face similar challenges in 
terms of broadening access to higher education. Specific challenges concern the inclusion of students 
from  disadvantaged  socio-economic  backgrounds  or  geographical  locations,  from  ethnic  groups  and 
people with a disability. Additional priorities include reducing drop-out rates and the time it takes to 
complete  a  degree;  and  improving  the  quality  of  higher  education  and  making  it  more  relevant  to 
labour market transformations. 

3.5. Persistent inequalities 

The  distribution  of  outcomes  and  opportunities  is  closely  intertwined.  Unequal  opportunities  affect 
individual  capacities  to  earn  income;  wealth  inequalities  affect  individuals'  educational  and  labour 
market choices and performance. 

The  overall  income  distribution  in  the  EU  is  generally  more  equal  than  in  other  major  economies,  
such as the USA or Japan. There is a broad trend toward rising inequality and declining labour income 
share  over  recent  decades  in  Europe,  as  well  as  in  most  other  industrialised  countries,  but  the 
developments vary across countries, and inequalities increased to a lesser extent in Europe than in the 
USA  (figure  12).38  In  many  advanced  economies,  there  is  increasing  concentration  of  income  at  the 
very top of the distribution.39 

Figure 12: Long term trends in income inequalities (mid-1980s to 2013 or latest available) (Gini Index) 

Source : OECD (2015). Note: inequality of household disposable income. "Little change" in inequality refers to 
changes  of  less  than  1.5  percentage  points.  Data  year  for  2013  or  latest  year  (2013  for  FI,  HU,  NL  and  the 
United States, 2009 for Japan, and 2012 for the other countries). 

37  Europe  2020  target:  Tertiary  Education  Attainment;  Eurostat;  2015  Joint  Report  of  the  Council  and  the 
Commission  on  the  implementation  of  the  strategic  framework  for  European  cooperation  in  education  and 
training (ET 2020) New priorities for European cooperation in education and training, (2015/C 417/04). 
38 See OECD (2015). 
39 OECD (2014); Sommeiller and Price (2015). 

16 

 
 
 
 
 
 
 
 
 
                                                 
Since  2000,  in  Europe,  inequalities  have  generally  increased  less  in  countries  with  higher  levels  of 
inequalities and more in countries with lower levels of inequalities. This trend was relatively smoothed 
during the crisis: overall inequality in the EU has been nearly constant, though some of the countries 
most  affected  by  the  crisis  such  as  Cyprus,  Italy  and  Spain  have  registered  increases  in  inequalities 
(Figure13). 

Figure 13: Trends in income inequalities (2000-2007 and 2008-2013) (Gini Index) 

Source: Eurostat  

Available evidence points to a number of key causal factors that may potentially explain these trends. 
These factors include: increasing technological change; changes in labour market institutions such as 
declining bargaining power of workers; globalisation of financial and trade flows; polarisation on the 
labour market; the changing nature of employment relationships; financial deepening; privatisation of 
state-owned enterprises; changes in the size and structure of families.40 On the contrary, higher levels 
of  education  have  been  contributing  to  curb  the  increase  in  income  inequalities.41  Tax  and  benefit 
systems also generally play a central role in reducing income inequalities.42 Minimum wages can also 
help prevent growing in-work poverty and are an important factor in ensuring decent job quality, while 
they should also preserve the incentives to seek work and not discourage hiring for those at the bottom 
end of the wage distribution.   
The  labour  income  share  has  typically  fallen  alongside  an  increase  in  market  income  inequality.43 
Intergenerational income mobility also appears to be lower in countries with higher income inequality. 
In  addition,  inequality  of opportunities  such  as  unequal  access  to  education, health  care  and  finance 
can be pervasive and exacerbate income inequality. 

Over  the  last  decades,  access  to  education  and  educational  attainment  have  improved  for  the  vast 
majority  of  the  population,  thereby  improving  opportunities  for  all  (see  section  3.4),  but  socio-
economic status remains one of the main determinants for the development of basic skills (figure 14). 
In  most  EU  Member  States,  foreign-born  students  are  under-performing  their  native  peers.  
Early school leaving is double among young people born outside of the EU compared to native born. 
Educational inequalities are also due to stereotypes. 

40 See for instance OECD, IMF, World Bank and the ILO (2015), “Income inequality and labour income share in 
G20 countries: Trends, Impacts and Causes”. 
41 See OECD (2011, 2015) 
42 Add reference to ESDE reports, DG EMPL webnote on inequalities. 
43 See for instance OECD, IMF, World Bank and the ILO (2015), “Income inequality and labour income share in 
G20 countries: Trends, Impacts and Causes”. 

17 

 
 
 
 
 
                                                 
Figure 14: Gap in achievement in mathematics by socio-economic status, PISA 2012  

Source: OECD (PISA 2012) 
Inequalities  do  not  only  worsen  individual  chances,  they  are  also  detrimental  to  growth.44  
A  main  transmission  mechanism  between  inequality  and  growth  is  human-capital  investment,  
as people in disadvantaged households have lower access to quality education. Analysis by the OECD 
shows  that  widening  income  inequality  can  lead  to  larger  gaps  in  educational  outcomes  and  weaker 
social mobility45.  
At an early stage in life, unequal access to childcare, education and health46 are the main barriers to 
equal opportunities. They are later reflected in terms of labour market participation and productivity 
and are often reinforced by gaps in access to life long-learning.47  

Early intervention has the potential to mitigate the impact of socio-economic background on the future 
skills  of  children  and  their  future  academic  and  labour  market  outcomes.  Children  who  attend  
pre-primary education are more likely to be successful at school when they get to 15 and in the years 
beyond.48 While in Europe pre-primary education programmes are expanding (with more than 80% of 
the 4 years old are enrolled), significant differences remain as regards participation in early education 
and care according to family incomes.49 Furthermore, catching up later in life can be impaired by gaps 
in access to life-long learning. Participation in adult education and training is four times lower among 
low qualified people compared to people with tertiary education.  

In  addition,  sizeable  gaps  in  health  status  exist  within  and  between  Member  States  (see  Chart  15). 
Throughout the EU, people with lower education, a lower socio economic status or lower income tend 
to have shorter life expectancy and suffer from a higher incidence of most types of health problems. 
Inequalities  in  health  status  are  related  and  compounded  by  inequalities  in  access  to  health  care,  
by income level, as well as by regional disparities. 

44 See for instance OECD (2015) and Dabla and al (2015). 
45 OECD (2012) – PISA 2012 Results: Excellence through equity. 
46 Which are to a large extent determined by family background such as parents' education and occupation, and 
region of birth. See, for instance, Lentz and Laband (1989) and Gevreky, D. and Gevrek, E. (2008). 
47 See, for instance, Eurofound (2007). 
48 Idem. 
49 See for instance Maquet and al (2015). 

18 

 
 
 
 
 
 
                                                 
Figure 15: Development of life expectancy at 65 by socio-economic status in France and the United 
Kingdom 

Source: European Commission (2016), ESDE 2015 

Territorial  disparities  affect  the  capacity  of  individuals  to  access  essential  public  goods,  such  as 
education and health care, as well as business and employment opportunities. People living in larger 
cities  generally  have  a  lower  risk  of  poverty  or  social  exclusion,  but  there  are  exceptions  and 
significant  differences  across  countries.  Regional  disparities  in  GDP  per  head  (in  purchasing  power 
standards)  have  shrunk  substantially  between  2000  and  2009,  but  the  crisis  put  a  halt  to  this 
convergence  process.  In  addition,  regional  disparities  in  unemployment  and  employment  rates  have 
increased significantly since 2008, while there is also wide regional variation in educational outcomes 
across the EU (Figure 16). On the contrary, there are also parallel trends towards increase in tertiary 
attainment  and  a  decline  in  early  school  leaving  in  the  vast  majority  of  regions,  thus  narrowing 
regional dispersion. Such trends should contribute to reducing inequalities in the longer term.  

Figure 16: Regional dispersion of GDP per head, employment, and unemployment (2000-2014) and in 
early school leaving and tertiary education (2007-2014) 

Source: European Commission (2016) 

19 

 
 
 
 
 
 
 
 
 
4. 

The impact of the crisis: a halt to convergence  

The  economic  and  financial  crisis  has  accentuated  pre-existing  imbalances,  leading  to  very  high 
unemployment, especially long-term and youth unemployment, and increased poverty and inequality 
in many parts of Europe. Despite some renewed convergence in employment and unemployment since 
2013,  large  differences  persist.  Long-term  unemployment  and  very  long-term  unemployment  now 
make up a very large share of the unemployed. The deterioration  of unemployment  has exacerbated 
the  conditions  of  Europeans  at  risk  of  poverty  or  social  exclusion,  which  now  count  for  almost  
a quarter of EU citizens. Reduction in inequality has also stopped with the crisis. 

4.1. Divergences in employment  

A key feature of EU membership has been the long-term increase in wealth and welfare levels of its 
poorer Member States. The economic and financial crisis, however, has generally decelerated such a 
convergence process and even put some Member States on a divergent track.50 The impact of the crisis 
on employment in the euro area (EA) Southern and Eastern Member States, as well as on Ireland, has 
been significant.51 The gap in employment rates between the Central and Northern euro area Member 
States and the Southern and Eastern ones has doubled from 5 pp in 2007 to 11 pp in 2015.52   

Figure 17: Employment rates, EU28 and groups of countries, 2000-2015, % of age group 15-64 

Source: Eurostat.  
Note: 2015 based on three first quarters. 

50 For an overview of social convergence and divergence in the EU and EMU, see European Commission (2015) 
“Employment and Social Developments in Europe (ESDE) 2014”. 
51  To  illustrate  divergences,  the  following  country  groups  within  the  euro  are  used:  EA  "Centre  &  North" 
(Belgium,  Germany,  France,  Luxembourg,  Belgium,  Netherlands,  Austria,  Finland)  and  EA  "South  &  East" 
(Ireland, Greece, Spain, Italy, Portugal, Estonia, Cyprus, Latvia, Lithuania, Malta, Slovenia) 
52 In recent years, short-time working arrangements (reducing monthly working hours instead of workers), partial 
unemployment benefits, increased investment in childcare, withdrawal of early retirement schemes, an increased 
participation  in  lifelong  learning,  and  reduced  strictness  of  employment  protection  have  contributed  to 
recovering employment levels. 

20 

 
 
 
 
 
 
 
 
                                                 
Europe  is  currently  faced  with  the  challenge  of  high  unemployment,  particularly  long-term 
unemployment, while having still over 1.8 unfilled job vacancies.53 Indeed, unemployment in Europe 
has been for a long time structurally higher than that of other developed economies, such as Japan and 
the United States.  

While the three decades preceding the crisis saw overall convergence in the EU, the crisis produced a 
dramatic  rise  in  unemployment.  Unemployment  in  2014  remained  above  pre-crisis  levels  in  all  EU 
Member  States  except  Germany,  where  it  is  much  lower,  and  in  Poland  and  Malta,  where  it  is  now 
close to 2008 levels.  

Since 2008, the heterogeneity of unemployment rates has increased significantly between EU Member 
States. This is especially true in Southern and Eastern European Member States of the euro area and in 
Ireland,  where  it  more  than  doubled  from  2008  to2014  (Figure  18).  In  contrast,  in  Northern  and 
Central  Member  States  of  the  euro  area,  unemployment  rates  remained  largely  stable,  leading  to  a 
difference  of  more  than  10  pp.  in  2014  compared  to  the  other  group.  This  represents  a  substantial 
increase compared to 2007, when the difference was 0.5 pp. Germany is the euro area Member State 
with the lowest unemployment rate, currently at 5.0%, while rates in Greece stand at 26.5% (2015).  
The difference between the weakest and strongest performer within the euro area increased threefold  
during the crisis. 

Figure 18: Total unemployment, annual average, %, 2000-2015      

Source: Eurostat.  
Note: 2015 based on three first quarters. 

The strong rise in youth unemployment began in 2007, rising from 15.9% in 2007 to 22.2% in 2014.  
In the euro area, it rose from 15.6% to 23.7% (Figure 19). Deteriorating conditions are not limited to 
unemployment:  the  proportion  of  people  not  in  employment,  education  or  training  (NEET)  reached 
16.6% in 2014, against 14.2% in 2008.  

53  EURES  and  according  to  Eurostat  (2015),  “EU  Employment  and  Social  Situation”  – Quarterly  Review,  the 
vacancy rate, stood at 1.7% in Q3 2015.  Looking forward, up to up to 825,000 unfilled vacancies are estimated 
for  ICT  (Information  and  Communications  technology)  professionals  alone  by  2020  (European  Commission 
(2014) – “Mapping and Analysing Bottleneck Vacancies in EU Labour Markets”. 

21 

 
 
 
 
 
 
 
                                                 
The  annual  cost  of  the  NEETs  in  terms  of  loss  of  human  capital  has  been  estimated  at  about  1.2%  
of EU GDP (EUR 153 billion).54 Recent data show modest but encouraging developments, with youth 
unemployment decreasing, employment  increasing slightly, NEET  rates decreasing and  participation 
in  education  increasing.  Yet,  youth  unemployment  remains  very  high  and  there  are  still  very 
considerable differences across Member States. The youth unemployment rate ranges from less than 
10% in countries little affected by unemployment (e.g. Austria and Germany), to more than half of the 
active population aged 15-24 in Greece and Spain, where it has almost tripled since 2008. 

Figure 19: Youth unemployment, in %, 2015 

Source: Eurostat.  
Austria, Estonia, United Kingdom, Italy and Greece data are from 2014 

Levels  of  long-term  unemployment  reached  record  highs  during  and  in  the  aftermath  of  the  crisis:  
in 2008, 2.6% of active people were affected but the number almost doubled in the subsequent years, 
as shown in Figure 20 (5.1% the labour force and about 50% of total unemployment in 2014). For the 
very long-term unemployed, the rate rose from 1.5% in 2008 to 3.1% in 2014. Only recently, during 
2015, have numbers started to decline. One in five long-term unemployed has never worked, and three 
quarters  of  them  are  below  35  years  of  age.  Third  country  nationals  and  low-skilled  workers  are 
among the most affected by long-term unemployment. 

The crisis revealed very wide differences in the capacity of labour markets to absorb shocks. On the 
one  hand,  Sweden  and  Luxembourg  preserved  their  traditionally  low  levels  of  long-term 
unemployment since the crisis – respectively, 1.5% and 1.7% in 2014 – and Germany even reduced it 
(2.2% in 2014). On the other hand, long-term unemployment substantially worsened in Greece (19.5% 
in  2014),  Spain  (12.9%  in  2014)  and  Croatia  (10.1%  in  2014).  In  the  euro  area,  long-term 
unemployment rose from 3.3% in 2008 to 8.2% in 2014, with alarmingly high rates among the youth. 
This  creates  a  vicious  cycle,  as  being  unemployed  for  a  long  time  leads  to  low  employment 
opportunities,  skills  erosion  and  lower  earning  potential,  increasing  the  lifetime  risk  of  poverty  and 
social exclusion.  

54 Eurofound (2012), “NEETS Young people not in employment, education or training: Characteristics, costs and 
policy responses in Europe”. 

22 

 
 
  
 
 
 
 
 
 
 
                                                 
Figure 20: Long-term unemployment and youth long-term unemployment, %, 2000-2014 

Source: Eurostat 

4.2. Recent trends in income inequalities 

Market income inequalities55 among European households increased in twelve EU countries between 
2008  and  2012,  as  a  result  of  both  increased  unemployment  and  increased  earnings  polarisation  for 
those in employment. Unemployment, in particular, has shown to be a key driver of rising inequality 
in overall incomes during the crisis.56  

Following  the  worsening  of  unemployment  from  2008  onwards,  the  share  of  households  with  no 
income  from  work  increased,  especially  in  Ireland,  Spain,  Lithuania  and  Greece.  The  increased 
polarisation of household market incomes can also be explained in part by the respective shares of job-
rich  and  job-poor  households.  Before  the  recession,  the  share  of  adults  living  in  very  high  work 
intensity  households  was  increasing  with  growing  labour  market  participation  of  women  as  second 
earners. During the crisis, this trend reversed, with an increase in lower job intensity households and 
reductions  in  the  number  of  high  work  intensity  households  due  to  unemployment  and  part-time 
work.57  

55 In this section Gini coefficients are used. It measures the degree of inequality of the income distribution by 
taking  all  income  distribution  into  account.  It  varies  from  0  to  100,  with  0  corresponding  to  perfect  equality 
(everyone  has  the  same  income)  and  100  to  extreme  inequality  (one  person  has  all  the  income).  Regarding 
market income, we refer here to gross earnings from work and capital before taxes and transfers. 
56  Recent  analysis  of  the  drivers  of  income  inequality  shows  that  the  Great  Recession  has  had  only  a  limited 
effect on the distribution of earnings among those who remained employed, and it is non-employment that drives 
earnings  inequality  upwards.  See:  Hellebrandt,  T.  “Income  Inequality  Developments  in  the  Great  Recession”, 
Peterson Institute for International Economics, Policy Brief 1 4-3, January 2014, and Duiella, M. and A. Turrini, 
“Poverty  developments  in  the  EU  after  the  crisis: a  look  at  main  drivers”  European  Commission,  Directorate-
General Economic and Financial Affairs, Economic Brief n. 31, May 2014. 
57 European Commission (2015) “Employment and Social Development in Europe (ESDE) 2014”; Op. Cit. pp 
56-59. 

23 

 
 
 
 
 
 
 
 
                                                 
With  regard  to  inequalities  in  disposable  income  after  social  transfers,  European  divergences  have 
widened.58  While disposable income inequality has increased in 10 Member States between 2008 and 
2012, notably in Spain, Hungary and Denmark, inequality has fallen in seven others, notably in Latvia, 
Portugal, Belgium and the Netherlands. 

The impact of social policy on inequality can be illustrated by comparing market income inequalities 
with inequalities of disposable income after transfers. The comparison shows the role of tax and trans-
fer systems in reducing market income inequality. The result clearly is a decrease of inequality after 
redistribution  (Figure  21)  and  may  be  considered  as  a  way  of  assessing  the  effectiveness  of  welfare 
systems. It also shows the importance of redistribution contributing to resilience during times of crisis.  

Figure 21: Market income versus disposable household income, level of inequality, selected EU Member 
States, 2012 (Gini index)  

Source: Eurostat, European Commission (2015), ESDE 2014.  
Note: Income data are not available for all EU Member States 

A longer-term view suggests that in the euro area South and Ireland, where initial conditions in terms 
of  income  distribution  were  more  unequal,  disposable  household  inequalities  fell  between  2005  and 
2008, and they have consistently intensified since 2011. In the euro area East, inequality was slightly 
reduced until 2012, but has since started to rise again. In the euro area North, inequalities grew until 
2008, but have remained more or less stable since.  

Figure 22: Disposable household income, level of inequality, 2005-2014 (Gini coefficient)  

Source: Eurostat 

58 Net earnings from work, capital and social transfers after taxes. 

24 

 
 
 
 
 
 
 
 
 
                                                 
4.3. Poverty and social exclusion  

The deterioration of unemployment has exacerbated the conditions of Europeans at risk of poverty or 
social exclusion, i.e. people with an income below 60% of the national median income, and of those 
suffering  from  severe  material  deprivation,  or  living  in  households  with  low  work  intensity.  
This affects almost a quarter of EU citizens, in particular in Romania, Bulgaria, Greece, Latvia, and 
Hungary (see Figure 23). Child poverty is higher than the average, especially among young children 
(less  than  6  years  old)  in  Romania,  Bulgaria,  Hungary,  Spain  and  the  United  Kingdom.  
This  perpetuates  structural  impediments  to  equitable  access  to  opportunities  and  well-being,  and 
suggests ineffectiveness of social expenditure targeting the most vulnerable groups of the population.  

Figure 23: People at risk of poverty by country, disaggregated by gender and age, 2014, % of population 

Source: Eurostat 

Older people are, at present, better protected against poverty. However, there remain clear differences 
between men and women across much of the EU. Women above age 65 face a substantially higher risk 
of poverty or social exclusion than their male counterparts. For the EU as a whole, gender differences 
in the incidence of poverty amount to more than four percentage points for women between age 65 and 
74, and increases to over six percentage points above age 75 (Figure 24).  

Figure 24: Differences between women and men (pp)  in at-risk of poverty and/or social exclusion 
(AROPE) rate, 2014 

Source: Eurostat.  Calculated as AROPE rate for women – AROPE rate for men (pps) 

25 

 
 
 
 
 
 
 
 
 
Older  women  are  more  vulnerable  to  poverty  because  of  lower  average  pension  income  across 
Member  States  (60%  of  the  average  pension  of  men  in  2012),  as  well  as  lower  likelihood  to  be 
covered  by  pensions.59  Women's  lower  pay,  greater  concentration  in  part-time  work,  lower  statutory 
retirement  age,  and  gaps  in  their  careers,  often  due  to  caring  responsibilities,  lead  to  lower  pension 
contributions  and,  ultimately,  lower  pension  entitlements.  Moreover,  family-friendly  policies 
mitigating  gender  inequalities  in  pension  entitlements,  by  allowing  workers  to  continue  to  build  up 
pension contributions during caring periods, are present to varying extent across Member States.60  

In  2014,  70%  of  the  EU  population  lived  in  owner-occupied  dwellings,  19%  were  renting 
accommodation  at  market  price  and  11%  were  tenants  in  reduced-rent  or  free  accommodation 
(Eurostat data). Limited access to affordable housing can be an obstacle to labour market adjustment 
and  job  uptake.  Faced  with  growing  demand,  particularly  cities  have  a  limited  capacity  to  supply 
additional affordable and quality housing.  New investments, particularly in new construction, slowed 
down  during the  crisis  due  to  the  adjustment  in  house  prices  from  elevated  pre-crisis  levels  and 
existing  zoning  regulations.  Mortgages  lending  activity  also  decreased  considerably.  Growing 
financial difficulties for people on low and middle incomes have resulted in more frequent arrears in 
rental and mortgage payments and a rise in evictions and foreclosures. Restricting access to housing 
assistance and creating barriers to access  to affordable social housing by the most vulnerable people 
increases  the  risk  for  homelessness.  Housing  assistance  also  performs  an  automatic  stabilisation 
function, as it grows or remains constant while market incomes decline.  

There is wide outcome heterogeneity among Members States in the effectiveness of social spending. 
Evidence  suggests  that,  on  average,  only  half  or  less  of  the  poor  are  lifted  out  of  poverty  by  social 
transfers. Overall spending may be relatively large, for instance as in the case of the welfare states of 
Southern  Europe,  but  social  assistance  coverage  of  the  poor  is  relatively  low.  In  contrast,  welfare 
states in other countries that spend less on social protection seem to achieve a better coverage of the 
poorest 20 percent of the population.61  

Figure 25: Social protection expenditure and reduction of inequality and poverty in EU Member States 

Source: Eurostat, ESSPROS and EU-SILC, DG EMPL calculations. 

59  European  Commission  and  Social  Protection  Committee  (2015),  “Pension  Adequacy  Report:  current  and 
future income adequacy in old age in the EU”.  
60 DG EMPL (2015) “Review of recent social policy reform - Report of the Social Protection Committee” 
61 Please see “Social protection systems in the EU: financing arrangements and the effectiveness and efficiency 
of resource allocation” (10/03/2015). See also “Employment and Social Developments in Europe (ESDE) 2014”, 
Chapter 6, 'Efficiency and effectiveness of social expenditure in the crisis'. 

26 

 
 
 
 
 
 
 
 
 
 
                                                 
 
4.4. Sustainability of public finances, financing public services and the turn to social innovation 

The onset of the crisis considerably worsened the fiscal position of Member States, especially within 
the euro area. However, since 2010, significant efforts have improved the fiscal outlook with deficit 
reduction and stabilisation of debt levels. From 2007 to 2009, fiscal deficits in the EU increased from 
0.9%  of  GDP  to  6.7%,  and  started  then  a  downward  trend  reaching 3%  in  2014.  There  has  been  an 
increase  of  EU's  public  debt  by  about  30  percentage  points  of  GDP  between  2007  and  2014  that 
peaked at almost 89% of GDP, but a slightly downward trend is visible since 2015. 

Over  the  years,  Member  States  have  been  pursuing  redistribution  and  anti-poverty  policies,  
to preserve social inclusion and counter the impact of the crisis, especially at its onset,62 leading to a 
large increase in expenditure on social support measures. Social protection benefits  (pensions, health 
and  disability,  unemployment,  family,  social  exclusion  and  housing)  were  the  main  contributing 
factors  to  the  stabilisation  of  household  incomes.  As  a  consequence  of  rising  unemployment,  in  the 
Southern  Member  States  of  the  euro  area  and  Ireland,  expenditure  on  social  support  measures 
increased much more significantly than in the EU as a whole or in Northern countries of the euro area, 
putting additional pressure on public finances which were already much affected by the crisis. 

In the context of mounting fiscal constraints for the financing of essential welfare and public services, 
novel models to supply social services  in a targeted and cost-effective way have emerged, under the 
umbrella  of  "social  innovation",63  mobilising  innovation  not  only  for  generating  economic  benefits, 
but  also  for  meeting  social  challenges,  and,  importantly,  anticipating  problems.  Meeting  social 
challenges  calls  for  innovative  solutions  at  all  levels.  Private  corporations,  entrepreneurs  and  civil 
society have, for instance, combined resources into new and hybrid ventures where service providers 
and  beneficiaries  work  together.  Public  authorities  have  engaged  more  thoroughly  in  the  policy 
evaluation and experimentation, building on best practices elsewhere. 

5. The new world of work, jobs and skills 

5.1. Technological change and sectoral shifts 

EU  labour  markets  have  been  undergoing  structural  transformations  in  recent  decades  and  more 
particularly since the mid-1990s. This trend accelerated during the crisis. Growing innovation, trade, 
and global value chains, propelled by digital technologies, have put a premium on service-related jobs 
and thus on high, non-routine and interpersonal skills. Such effects of technology on employment are 
likely to affect as much as 42% of existing occupations in the US by 2035.64 In other words, almost 
half of existing professions may be partly if not entirely computerised and automated in the medium 
term. Similar estimates seem to plausible in the European case, as illustrated in Figure 32.65  

62 See  “Employment and Social Developments in Europe  (ESDE)  2014”, pp. 66 for the differences in social 
protection usage during the first phase of the crisis and after 2010. 
63 Study on social innovation, Social Innovation eXchange (SIX) and The Young Foundation for the Bureau of 
European  Policy  Advisors,  (2010);  Growing  Social  Innovation:  A  guide  for  Policy  Makers,  TEPSIE  (2015); 
Powering  European  Public  Sector  Innovation:  Towards  a  New  Architecture,  DG  RTD  (2013)  ;  Social 
Innovation: A decade of changes, Bureau of European Policy Advisors (2014) 
64 Frey, C. B., Osborne, M. A. (2013), “The future of employment: how susceptible are jobs to computerisation", 
Study for the Oxford Martin Programme on the Impacts of Future Technology 
65 Bowles, J. (2014), “The Computerisation of European Jobs”, Bruegel online. 

27 

 
 
 
 
 
 
 
 
 
                                                 
Figure 32: Share of jobs at risk of automatisation (%) 

Source: Bruegel calculations based on Frey & Osborne (2013), ILO, EU Labour Force Survey 
* Data not available for Cyprus 

Such developments are related to the ability to accurately translate a task into a series of codified steps 
that  can  be  automated  which  explains  the  higher  job  vulnerability  of  routine  tasks.  These 
transformations will thus particularly affect production lines in the manufacturing sector, a particularly 
relevant point for Europe's industrial core, but they may also affect specific high-skilled occupations. 
For  instance,  "hollowing  out"  effects  are  already  tangible  in  higher-skill  professions  such  as 
journalism,  accounting,  tax  and  management  consultancy,  legal  and  other  advisory,  eventually  even 
education (Figure 26). At the same time, new activities and sources of jobs are likely to emerge. 

Figure  26:  "Winners"  and  "losers"  among  professions.  Cumulative  growth  rate  of  distribution  of 
population by occupation 

Source: Eurostat 

28 

 
 
 
 
 
 
 
 
 
 
 
These changes have provided opportunities for increased productivity in knowledge-intensive sectors, 
leading to additional labour re-allocation and employment growth  in certain sectors. Manual work  –  
in particular in manufacturing and agriculture – has in part been losing ground in recent years, which 
is more than the effect of the crisis and certainly also reflects the process of automation (Figure 27).66 
But skills mismatches and limits to up-skilling remain significant barriers to a smooth re-allocation of 
labour across and within sectors.67 

Figure 27: Change in total employment by sector in EU28, 2010-14, absolute numbers 

Source: OECD, 2015 

By 2020,68 more job losses are predicted in administration, manufacturing, management, agriculture, 
than  additional  jobs  gains  in  science,  engineering,  transportation,  and  logistics  (Figure  28).  
The  welfare  gains  and  losses  of  such  industrial  and  labour  market  developments  are  still  unclear, 
depending on how smooth the re-allocation of labour across sectors may be.69  

Figure 28:  Expected impact of technology (thousands of jobs gained/lost) by 2020, France, Germany, Italy 
and the UK 

Source:  World  Economic  Forum  (2016),  Future  of  Work  Report.  Based  on  Survey  of  CHROs  of  largest 
employers by industry. Focus countries: France, Germany, Italy, UK. 

66 Organisation for Economic Cooperation and Development (2015), “OECD Science, Technology and Industry 
Scoreboard 2015: Innovation for growth and society”, Paris: OECD Publishing 
67  United  Nations  Development  Programme  (2015),  “Human  Development  Report  2015.  Work  for  Human 
Development;  World  Economic  Forum  (2016)”,  “The  Future  of  Jobs,  Employment,  Skills  and  Workforce 
Strategy for the Fourth Industrial Revolution”; International Labour Organisation, (2015), “The future of work 
centenary initiative”. 
68  World  Economic  Forum  (2016),  “The  Future  of  Jobs:  Employment,  Skills  and  Workforce  Strategy  for  the 
Fourth Industrial Revolution”. 
69 Eden, M., Gaggl, P. (2015), “On the Welfare Implications of Automation”, Washington D.C.: World Bank. 

29 

 
 
 
 
 
 
 
 
 
 
                                                 
5.2. Changing work conditions 

Structural  changes  in  employment  have  been  reflected  in  the  increase  in  temporary  types  of 
employment  contracts  across  Member  States.  At  the  same  time,  transitions  from  unemployment  to 
self-employment  have  decreased  and  the  share  of  self-employed  has  slightly  receded  during  the  last 
decade.70  

Decentralised,  self-organised  forms  of  work  can  increase  workers'  autonomy  and  boost  business 
development, but it may also blur the notion of work and  limit awareness of or access to rights, such 
as unclear information requirements for employers, new challenges for health and safety at work and 
in the organisation of social dialogue. New forms of flexible employment thus put the question of the 
nature,  volume  or  duration  of  work,  the  capacity  to  identify  the  employers  as  well  as  the  associated 
level of social protection, notably in terms sickness, unemployment and pension benefits. 

There is still a sizeable employment protection "gap",71 i.e. a large difference in protection levels 
between types of contracts, in many countries, which has led to some form of labour market duality.  
A wide gap is hindering the conversion of temporary into permanent contracts, perpetuating the 
segmentation of labour markets (Figures 29 and 30). However, several recent crisis-induced reforms 
have sought to address this,72 and such reforms may take time to produce their effect. 

Figure 29: Change in permanent, temporary employment and self-employment, EU 28 

Source: Eurostat  

70  France  Stratégie  (2015),  “Le  compte  personnel  d’activité,  de  l’utopie  au  concret”,  Report,  Commission 
Compte personnel d’activité présidée par Selma Mahfouz. 
71  Dolado,  J.,  Lalé,  E.  and  Siassi,  N.  (2016),  “Replacing  dual  employment  protection  with  a  single  labour 
contract”, Vox, 30 January 2016. 
72  This  is a  indicate  conclusion,  as  the OECD  indexes for temporary  and permanent protection  are  not strictly 
comparable. 

30 

 
 
 
 
 
 
 
 
                                                 
Figure 30: Share of temporary contracts and transitions from temporary to permanent  

Source: Eurostat. Data on transitions for BG, EL, PT, HR refer to 2012, for AT to 2014. Data on transitions are 
not available for IE and SE. 

Existing regulations do not always fit well with new business models and the new realities of the 
workplace. The current labour law acquis unevenly covers changing employment patterns, resulting in 
precarious working conditions, risks of circumvention or abuses, and potentially hindering innovation 
as well as skilling opportunities. Flexibility in conditions of employment may offer more opportunities 
for workers, including in part-time work, self-employment and entrepreneurship, but it may also 
expose them to greater insecurity and vulnerability. For instance, independent and temporary workers 
are generally unable to access the same level of benefits enjoyed by company workers when it comes 
to unemployment benefits, health insurance, pensions, maternity leave, to mention some, or would 
access them only at very high costs.  

Figure 31: Part-time workers in % of total employment 

Source: Eurostat.  

31 

 
 
 
 
 
 
 
 
 
 
 
 
The  tension  between  emerging  types  of  occupation  and  business  models  and  existing  contractual 
arrangements  poses  questions  on  the  definition  of  workers,  statistically,  economically  and  legally.  
For instance, the distinction between "worker" and "self-employed", and between "self-employed" and 
"entrepreneur" is sometimes blurred. The case of the collaborative economy is particularly illustrative 
as it is based on a business model which allows individuals to capitalise on their own assets such as 
cars or houses, while these companies provide tasks rather than fully-fledged services, making it hard 
to account for work and workers under current standards. In addition, it is still unclear how to account 
for the value generated by work – and employment – produced by car- or house-sharing, to mention a 
few,  which  raises  the  question  of  who  is  eligible  to  social  benefits  and  under  which  conditions.  
This  situation  shows  the  need  to  reconsider  the  identity  and  responsibilities  of  the  employer  in 
triangular relationships with the employee and the customer, and raises the question of the definitions 
of contracts and relationships, and their impact on undeclared labour. At the same time, collaborative 
economy platforms create jobs and new opportunities for (self-)employment by lowering entry barriers 
to  service  provision  and  to  new  forms  of  employment  or  activities  as  an  alternative  to  traditional 
employment,  including  for  those  at  the  margins  of  society.73  They  may  also  offer  opportunities  for  
on-the-side earning which supplements family income. Online platforms can also facilitate the keeping 
of records for administrative and tax purposes.   

The  fundamentals  on  which  the  concept  of  'flexicurity'  is  based,  namely  flexible  and  reliable 
contractual  arrangements,  comprehensive  lifelong  learning  strategies,  active  labour  market  policies 
and  modern  social  security  systems,  are  particularly  pertinent  in  view  of  the  aforementioned  trends, 
but would need to rediscovered in a new light. The presence of dual labour markets in several Member 
States has aggravated the position of young generations. Tackling this duality by reviewing contractual 
arrangements is a priority for many countries, as well as investment in skills. This offers workers the 
human capital they need to be secure and to be able to manage the adaptation challenges that will be 
increasingly required in the future world of work; and it offers employers the security that they will be 
able to find and retain the skills they need for growth and innovation.  

5.3. Skills for changing occupations  

Prioritising skills acquisition and retention is essential to building more resilient economic structures 
and to boosting job creation in the knowledge economy. Gains from improving educational standards 
have  been  shown  to  lead  to  average  increases  in  GDP.74  To  be  effective,  however,  education  and 
training need to provide quality outputs and respond to the fast-changing needs of the economy and 
society. Research shows that the skills most in demand in advanced economies are “non-routine and 
interpersonal”75 while most Europeans are still trained in more traditional “routine and manual” skills.  

The  employment  share  of  non-routine  jobs,  such  as  design-related  occupations,  grew  from  28%  to 
38%  between  1995  and  2010,  whereas  traditional  routine  jobs  fell  from  53%  to  41%.  A  targeted 
investment  in  human  capital,  which  addresses  the  skills  shortage  while  anticipating  future 
developments in the job market, is particularly relevant for low-skilled workers who have been most 
strongly  affected  by  the  crisis,  and  typically  would  need  some  retraining  to  take  up  work  again.  
This  challenge  is  compounded  by  the  fact  that  some  contract  types  do  not  encourage  investment  in 
lifelong  learning.  In  effect,  access  to  in-work  training  remains  highly  dependent  on  the  type  of 
contract: almost one in two employees on permanent contracts received training compared to 32% of 
employees with fixed-term contracts and 19% of self-employed.  

73 Employment and Social Developments in Europe 2015. 
74 Hanushek, E. A. and Woessmann, L., (2012), “The Economic Benefit of Educational Reform in the European 
Union”, CESifo Economic Studies, vol. 58, 1 
75 Organisation for Economic Cooperation and Development, (2013), OECD Skills Outlook 2013 

32 

 
 
 
 
 
 
 
                                                 
For  people  out  of  work,  only  9.5%  of  the  unemployed  participate  in  education  and  training,  
even though these opportunities provide the best chances of return to employment, particularly from 
situations of long-term unemployment. Individuals doing undeclared work are  most  vulnerable from 
this perspective.76  

A significant explanation for the polarisation and mismatches in employment are gaps and divergence 
in  skills  levels,  particularly  ICT-related  skills.77  There  seems  to  be  a  generally  positive  relationship 
between employment and the ICT intensity of industries, with the notable exception of jobs in high-
routine  occupations,  where  ICT  seemingly  displaces  workers.  It  is  not  coincidental,  therefore,  that 
from  the  mid-1990s  to  2010,  the  demand  for  ICT-related  skills  vis-à-vis  routine  skills  has  become 
polarised in the EU: the former increased by 20%, while the latter decreased by 20%.78   

At present, just half of the EU labour force considers that their level of computer and/or internet skills 
is sufficient if they were to look for a job or change job within a year. On average 14% of Europeans 
have low level computer skills, 25% have medium level skills and 27% have high level skills. At the 
same time, 30% of Europeans have low level internet skills, 32% have medium level skills and 11% 
have high level skills.79 Low digital and internet skills constitute significant challenges to be addressed 
given that up to 90% of jobs, across all sectors, increasingly require ICT literacy.80 

Figure 33: Evolution of employment in occupational groups defined by problem-solving skills 

Source: OECD Skills Outlook 

If  skill  levels  largely  determine  access  to  opportunities,  they  also  explain  a  sizeable  part  of  the 
employment-wage gap. Permanent employment – associated with high skill levels – remains the best 
paid, the most secure and the fastest growing in Europe. During and immediately after the economic 
and  financial  crisis,  employment  only  grew  in  jobs  accounting  for  the  lowest  and  highest  job-wage 
quintile (Figure 34).  

76 Data from the Special Eurobarometer Survey (2014: 402) on Undeclared Work in the EU suggests that one in 
nine Europeans declare to have purchased goods or services involving undeclared work. 
77  Marcolin,  L.,  Miroudot  S.  and  Squicciarini,  M. (2016), “Routine  jobs,  employment  and  technological 
innovation  in  global  value  chains”,  OECD  Science,  Technology  and  Industry  Working  Papers,  No.  2016/01, 
Paris: OECD Publishing. 
78 Skill gaps and needs for upskilling of workers need to be addressed for a successful transition towards a green 
and  resource  and  energy  efficient  economy,  as  highlighted  in  the  circular  economy  package,  which  has  great 
potential  for  job  creation.  For  example,  improving  waste  prevention  and  management  in  the  EU  could  create 
more  than  400,000  new  jobs.    See:  European  Commission  Communication  COM(2014)446  final  “Green 
Employment Initiative: Tapping into the job creation potential of the green economy”. 
79 European Commission (2011), "Chapter 4: Digital Competences in the Digital Agenda".  
80 European Commission (2015), "Skills and Jobs" Article online, published on 02/03/2015. 

33 

 
 
 
 
 
 
 
 
 
 
 
                                                 
Figure 34: Net Employment Change (in thousands) by job-wage quintile, EU27, 1998-2014  

Source: European Commission (2016), Employment and Social Developments in Europe (ESDE) 2015 

Avoiding lower employment and job polarisation hinges on the provision of skills that fit the demands 
of evolving labour markets, and this puts a premium on “non-routine and interpersonal” abilities and 
problem-solving 
to  be 
"overqualified  but  under-skilled".81  The  provision  of  effective  training  throughout  one's  educational 
and  professional  development  from  job  entry  level  to  retirement,  are  unevenly  distributed  –  both 
within and among Member States. In only a third of Member States, more than 10% of all working, 
unemployed and inactive adults participate in adult education and training annually (Figure 35).  

technology-rich  environments.  at  present,  many  Europeans 

tend 

in 

Figure 35: Participation in adult education and training by labour status, %, 2014 

Source: Eurostat  

81 Institute for the Future for University of Phoenix Research Institute (2011), “Future Work Skills 2020”.  

34 

 
 
 
 
 
 
 
 
 
                                                 
6. Specific challenges and requirements of the euro area  

there 

is  one  monetary  policy  and  fiscal  stabilisation 

Economic  performance  depends  in  sizeable  measure  on  the  effectiveness  of  employment  and  social 
systems  and  on  the  functioning  of  labour  markets.  This  is  particularly  true  for  a  currency  union,  
instruments  are  constrained.  
where 
Given  the  strong  interdependence  and  possibilities  of  spill-overs  between  economies,  the  lack  of 
convergence  in  socio-economic  performances  to  support  more  resilient  economic  structures  may 
hamper the functioning and stability of the euro area. While the crisis and its aftermath triggered large 
differences in socio-economic situations across the euro area,82 in the Member States most affected by 
the crisis, the convergence process had already stalled ahead of the sovereign debt crisis, together with 
the  building-up  of  imbalances.83  The  crisis  revealed  and  accentuated  a  number  of  pre-existing 
weaknesses, which had not been tackled.84  

In particular,  before 2008, in several  countries, domestic demand  booms and  foreign capital inflows 
led  to  the  expansion  of  non-tradable  (less  productive)  sectors  of  the  economy,  rather  than  to  the 
financing  of  sustainable  growth  enhancing  investments.  The  global  financial  crisis  brought  a 
reassessment of credit risks in line with the potential growth prospects of individual countries, the lack 
of growth enhancing structural reforms, and the uncertainties of an incomplete EMU. The sudden stop 
of  foreign  capital  inflows  was  accompanied  by  a  drop  of  domestic  credit,  income  and  consumption. 
This  reversal  in  the  direction  of  these  flows  was  a  major  driver  of  the  recessions  in  some  Member 
States in the East and South of the euro area. The decline in consumption (imports) occurred initially 
through  an  increase  of  unemployment  rather  than  through  an  adjustment  of  real  wages  (lower 
incomes).  Thus,  the  divergences  in  unemployment  rates  accumulated  during  the  crisis  derive  from 
current account imbalances built up before 2008 (Figure 36).85  

Figure 36: Current account balances crisis hit countries vs. surplus countries, 2000-2015 

Source: Eurostat. Estimates for 2015 

82 With the return to growth in 2014, a limited resumption of convergence was also observed, both in 2014 and 
2015, but it is unclear if this reflects a mere temporary recovery or a resumption of the previous long-term trend. 
83 See for instance ESDE 2014, chapter 4 for a review. 
84 With the return to growth in 2014, a limited resumption of convergence was also observed, both in 2014 and 
2015, but it is unclear if this reflects a mere temporary recovery or a resumption of the previous long-term trend. 
85Surplus countries are those which posted a current account surplus over the 2000s'. A current account surplus 
indicates  that  a  nation  is  a  net  lender  to  the  rest  of  the  world,  in  contrast  to  a  current  account  deficit,  which 
indicates that it is a net borrower. The current account is the sum of the trade balance (exports less imports), net 
income from abroad and net current transfers; as the trade balance is generally the largest of these components, a 
current account surplus usually implies that the nation is a large exporter and has a positive trade balance. See 
also EPSC Strategic Note no.3, (2015) “The Euro Plus Pact: How Integration into the EU Framework can Give 
New Momentum for Structural Reforms in the Euro Area”. 

35 

 
 
 
 
 
 
 
                                                 
In  several  countries,  rigidities  have  contributed  to  wage  increases  above  productivity  levels  in  the 
years  preceding  the  crisis  (while  in  other  Member  States  unit  labour  costs  developed  significantly 
below the euro average) and it took some time for wages to start to adjust once the crisis had hit. In the 
meantime,  the  current  accounts  reversals  (i.e.  the  reversal  of  capital  inflows)  had  exerted  their 
disruptive effects on unemployment (Figure 37). 

Figure 37: Nominal unit labour cost, EA north vs.  EA south+Ireland, 2000 to 2013 

Source: Eurostat. Note: Estimates for 2015. 

As  is  shown  in  the  literature,  the  labour  market  response  to  shocks  may  occur  through  "price" 
adjustment,  i.e.  through  changes  in  wages/labour  costs,  and  "quantity"  adjustment,  i.e.  through 
changes  in  the  total  number  of  hours  worked  (i.e.  either  the  number  of  people  employed  or  in  the 
average hours worked), and/or ensuing geographical and occupational labour mobility. This is all the 
more relevant in a currency union.  

As underlined in the Five Presidents' Report and the Communication on steps towards completing the 
Economic and Monetary Union,86 more resilient labour markets and well-functioning welfare systems 
are  essential  to  strengthen  the  Economic  and  Monetary  Union,87  and  thus  strengthen  the  positive 
effects  expected  from  a  deeper  economic  integration.  For  instance,  it  is  estimated  that  in  the  US,  
not only greater labour mobility,88 but also fiscal transfers and more integrated private capital markets 
with diversified investment portfolios, are key to cushion economic shocks, and these factors play a 
much larger role than in the euro area.89  

86 COM(2015) 600 final. 
87  EPSC  Strategic  Note  No.  5,  (2015)  “The  Social  Dimension  of  Economic  and  Monetary  Union:  Towards 
Convergence and Resilience”. 
88  Evidence  suggests  that  labour  mobility  has  been  of  similar  magnitude  in  Europe  and  the  USA  in  the  crisis  
(see for instance ESDE 2014). 
89 See for instance Allard and al. (2013), IMF SDN/13/09. 

36 

 
 
 
 
 
 
 
 
 
 
                                                 
Enhancing convergence between national employment and social performances within the euro area, 
including along the principles of flexicurity,90 should go hand-in-hand with a greater capacity to adjust 
in  case  of  adverse  shocks.91  Significant  reforms  to  allow  smoother  transitions  on  the  labour  market 
have already taken place across the euro  area, notably in those countries long characterised  by rigid 
job  protection  legislation  and  a  significant  regulatory  gap  between  open-ended  and  the  so-called 
atypical contracts.92 While time may be needed for the effects of those reforms to materialise, changes 
in  policy  fields  such  as  unemployment  benefits,  employment  services  and  active  labour  market 
policies,  as  well  as  access  to  skills  and  vocation  training,  can  also  strengthen  resilience  and 
convergence  towards  the  best  performing  labour  markets  in  euro  area.93  Since  2008  in  particular, 
reforms to reduce stringent employment protection legislation for permanent contracts and/or increase 
protection for temporary workers have attempted to reduce labour market segmentation, especially in 
the  Southern  euro  area  Member  States.  The  'employment  protection  gap'  between  open-ended  and 
temporary labour contracts, however, remains significant in many countries. 

Greater  labour  mobility  can  also  be  an  important  instrument  to  cushion  the  impact  of  economic 
shocks,  help  address  unemployment  disparities  between  the  Member  States,  contribute  to  a  more 
efficient  allocation  of  human  resources,  assist  the  reduction  of  skills  mismatches  and  also  lessen 
budgetary  pressures.  As  underlined  by  optimum  currency  areas  theory,  labour  mobility  can  also 
contribute to support the function of stabilisation. At the same time, national concerns about a possible 
drain  of  productive  labour  and  the  reinforcement  of  labour  market  segmentation  should  not  be 
discarded.94  

More responsive labour markets increase the sensitivity of employment to the economic cycle, since 
more  jobs  can  be  created  in  an  upswing,  and,  symmetrically,  more  lost  in  a  contraction.  This  also 
increases the importance of both re-training for new types of jobs as well as adequate social protection 
during  labour  transitions.  It  also  emphasises  the  importance  of  the  portability  of  social  rights  and 
benefits so that workers are able to seamlessly carry all their pension, health care and other rights from 
one employer to another, regardless of the geographical location of this employer. 95 

Social protection systems provide for the major component of automatic stabilisation of the economy 
in bad economic times, since expenditure generally increases (partly compensating for the decline in 
market  incomes)  and  tax  revenues  decline.  This  stabilisation  function  is  mainly  fulfilled  by 
unemployment benefits, means-tested benefits (such as social exclusion or housing benefits), as well 
as for pension or health care expenditure, since those generally continue to grow or remain constant 
while market incomes decline.96 

90 Including striking the right balance between flexible and secure labour contracts; avoiding the divide between 
‘insiders’ with high protection and wages and ‘outsiders’;  shifting taxes away from labour; delivering tailored 
support for the unemployed to re-enter the labour market, improving education and lifelong learning. 
91 See also European Commission (2015, 2016), Employment and Social Developments in Europe (ESDE), 2014 
and 2015, chapter 4 Op.Cit 
92 ECB, (2014), “The Impact of the Economic Crisis in Euro Area Labour Markets”, Monthly Bulletin, October 
2014, pp 49-68. 
93 An exception is provided by the so-called 'tax wedge', or the difference between the salary costs of a “average 
worker” to their employer and the amount of the “take-home-pay” that the worker receives: while this is very 
high in the euro area, on average 43% of the salary (compared with a OECD average of 38%), it is considerably 
lower in the Southern euro area members, averaging 40% (compared to a 46% Northern euro area average). 
94 For a discussion on the role of labour mobility as an adjustment channel see: European Commission (2015), 
“Labour mobility and labour market adjustment in the EU”, Labour Market and Wage Developments in Europe 
2015 Report, Chapter II.1. 
95 France Stratégie (2015), op cit. 
96 See for instance Employment and Social Developments in Europe (ESDE) 2012 and 2013, and Bontout and 
Lokajickova (2013). 

37