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# 51995AC1167

**OPINION OF THE ECONOMIC AND SOCIAL COMMITTEE on ' the Economic Situation 1995 - Cyclical and Structural Aspects of Employment'** 
  
*Official Journal C 018 , 22/01/1996 P. 0083*

  

Opinion on 'the Economic Situation 1995 - Cyclical and Structural Aspects of Employment'

(96/C 18/16)

On 30 March 1995 the Economic and Social Committee, acting under Rule 23(2) of its Rules of Procedure, decided to draw up an Additional Opinion on 'The Economic Situation 1995 - Cyclical and Structural Aspects of Employment'.

The Section for Economic, Financial and Monetary Questions, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 27 September 1995. The Rapporteur was Mr Ramaekers.

At its 329th Plenary Session (meeting of 26 October 1995), the Economic and Social Committee adopted the following Opinion by a majority, with 23 votes against and 40 abstentions.

1. Introduction

1.1. As we approach the century's end the reduction of unemployment appears to be the principal challenge facing the European economies. Emerging in the wake of the first oil crisis in 1973, it has steadily worsened from 3 % of the European labour force to more than 11 % in 1994. Besides the under-utilization of production capacity and wastage of human resources which it represents, unemployment today threatens the cohesion of the European social model and the structural stability of democracy. Furthermore, it jeopardizes the success of the single market and, in the end, the achievement of Economic and Monetary Union.

1.2. The growth of unemployment is due to the combined influence of a whole series of socio-demographic, technological and economic factors acting on the increase in the working population and the capacity of growth to create jobs. The rationalization and modernization of production plant in many sectors has led to an under-utilization of human resources, but without compensatory creation elsewhere of the jobs necessary to absorb unemployment; however, the present situation is also due to an insufficient propensity to invest in job-creating production.

1.3. Despite the favourable economic prospects for the coming two years, there is a risk of Community unemployment stabilizing at excessively high levels: if the economic recovery progresses as predicted, the cyclical element in unemployment (estimated at 2 % of the labour force) will be absorbed within two years. In other words, in 1997 9 % of the Community labour force will still be without a job.

1.4. The economic and social strategy set out in the White Paper and reiterated in the 'Broad guidelines of the economic policies of the Member States and of the Community' is therefore still relevant. The significant reduction in unemployment between now and the year 2000 presupposes non-inflationary medium-term growth in a sound, investment-led macroeconomic framework. At the same time, structural reform aimed at boosting the endogenous growth potential of the Community economies and making the labour market more efficient will have to be implemented to generate a more employment-intensive growth mode.

1.5. The ESC welcomes the decisions taken by the European Council in Essen in December 1994, which signalled readiness to give priority to combatting unemployment by defining the major features of an employment action plan. The ESC calls on the Member States - in their multiannual action programme to combat unemployment - to give tangible expression as soon as possible to their intentions with regard to the five pillars of structural reform defined at Essen. The multilateral surveillance procedure for employment trends and policies in the Union - proposed by the Commission to the Council pursuant to Treaty Article 103 () - is calculated to enhance the effectiveness and overall cohesiveness of current policies and make employment the main plank of European economic policy. Hence the ESC endorses the Commission proposal for establishing a new approach which encourages closer cooperation between the Commission and the Member States in respect of analysis, research, cooperation and action in the field of employment ().

1.6. The reduction in unemployment will also depend on a continuation and spread of world economic growth. In this connection, the recent turbulence on the foreign exchange markets highlights the need for better international cooperation on both economic policies and trade. As far as liberalization of trade and investment flows are concerned, only international cooperation is a prerequisite for sustainable, job-creating growth. 'Non-cooperative' policies play into the hands of speculators, weaken economic policy instruments and inhibit growth.

1.6.1. The open trading system, therefore, must be strengthened and rapid solutions found within the framework of the WTO to defuse specific trade disputes. In particular, steps should be taken to counteract moves towards unilateral intervention and discriminatory bilateral trading practices - which still occur too frequently, - and open up national markets.

1.6.2. In the case of the financial markets, the multilateral surveillance system must be reinforced and more light shed on the financial situation of both private and public operators so as to forestall crises and improve the performance of financial systems. Finally, emergency financing mechanisms must be established to stabilize the economic situation in countries which are prey to financial crises. To this end the G7 meeting in Halifax from 15 to 17 June 1995 instructed the IMF to identify potential financial crises and decided to double its emergency intervention fund to 50 million dollars.

1.7. At European level the monetary upheavals have shown that the achievement of Economic and Monetary Union - while providing no guarantee against turbulence at world level is the best way of ensuring long-term strong, stable and sustainable growth in the Member States.

1.7.1. The ESC therefore urges improved monetary cooperation and calls on the Member States to implement policies aimed at achieving the preconditions for transition to the final stage of Monetary Union. However, such monetary cooperation depends on the establishment within the EMS of parities which accurately reflect the relative economic positions of the different Member States.

1.7.2. Although the single market needs to have a single currency if it is to be viable, the ESC would warn against the deflationary impact of the rigorous monetary and fiscal policies accompanying the convergence process. This impact should be counteracted by the rapid implementation of the investment programmes identified as priorities at the Essen Summit.

2. Current economic situation and macroeconomic policies

2.1. Since the publication in late 1994 of the Commission's 1995 Annual Economic Report () the international and Community economic situation has changed considerably, bearing out the ESC's forebodings. In its Opinion of 30 March 1995 on the 1995 Annual Economic Report (), the ESC tempered the Commission's optimism, pointing out that the prerequisites for sustained growth in 1995 and 1996 had not been achieved. In particular it highlighted the impact of the monetary turmoil on the external component of growth in Europe and the uncertainty over the dynamism of the internal component, especially personal consumption, which was supposed to offset the slowdown in external demand, which up to now has been the driving force of growth.

2.2. The monetary upheavals which shook the foreign exchange markets have weakened the rate of growth in Europe and are potentially capable of splitting the internal market. But even more than the monetary disorder, it is the lower than expected trend in consumer spending which the OECD mentions as the reason for revising downwards its growth forecasts.

2.3. Although the Commission and the OECD predict only a slight deceleration in economic growth in 1996, the ESC regards the present economic situation as worrying in several respects:

- Firstly, the pressure on certain currencies in the EMS seems to be linked to a decline in the markets' confidence in the economic policies pursued, in particular the lack of credibility of the budget adjustment programmes and the low inflation targets.

- Secondly, the behaviour of the foreign exchange markets has revealed the lack of coordination of economic policies at both European and international level. At European level, the Member States must treat their exchange rate policy as a matter of common interest.

2.4. The most worrying aspect of this monetary disarray for the European economy is that it could ensure that the growth cycle is too short to create a lasting increase in unemployment. Consequently, at this stage in the economic cycle the ESC considers that economic policy must be focused first on forestalling trends liable to compromise the pursuit of growth and job creation.

2.4.1. On the fiscal front the ESC endorses the broad guidelines of the economic policies of the Union and calls for more credible fiscal policies, in particular in those Member States whose currency has depreciated. In these countries fiscal policy will have to help reduce inflationary expectations and exchange rate instability so as to set the stage for a fall in real short and long-term interest rates and thus promote investment and jobs. The ESC is still convinced, however, that in the medium term the credibility of reform policies, and compliance with the Maastricht criteria in general, are dependent on the degree of real convergence between the Member States: improved economic performance and less unemployment would give greater credence in the eyes of the financial markets to the political determination of some Member States to undertake the adjustments needed to move on the third stage of EMU.

2.4.2. The ESC reiterates its appeal to all Member State governments to seize the opportunity presented by sustained economic growth and the fall in real long-term interest rates to undertake the necessary structural adjustments to their budgets in order to restore their indebtedness to sustainable levels in the medium term. The effort to reduce structural deficits will be all the easier to bear because it is undertaken at a time when economic activity is expanding, even though such periods automatically bring deficits down and thus lessen the incentive to take such action.

2.4.3. The ESC stresses that these reforms should be socially balanced. All income brackets must contribute to the reform drive and the worst off must be protected. Nor must levels of social protection be jeopardized. The ESC recognizes the need to adapt the operation of social protection schemes to new demographic, technological and economic realities so as to ensure a secure life for all and avoid rupturing the solidarity which is essential for social cohesion. The worsening demographic imbalance and the endemic nature of mass unemployment have highlighted the difficulty of maintaining solidarity models financed solely by payroll taxes. Alternative sources of funding will have to be found, which, in a world of European economic and monetary integration, means that social and tax policy must be better coordinated.

2.5. The ESC considers, moreover, that the economic policy mix must take account of the specific situation of each country.

2.5.1. The ESC therefore welcomes the general fall in interest rates in those countries whose currency has appreciated and where inflation is less of a risk. These countries should utilize the available room for manoeuvre to underpin growth and thus facilitate a reduction in their PSBR and unemployment. If the fall in short-term interest rates takes place in a gradual and orderly manner, the credibility of monetary policy is not called into question and the external value of the currency can even be strengthened in the process.

2.5.2. What is more, as things are now the trend in real disposable income, while keeping investments profitable, should boost personal consumption and thus underpin growth and job creation. In fact it is clear that in these countries, where long-term real interest rates have eased appreciably and firms still have considerable self-financing capacity, investment decisions will be based primarily on the probable trend in demand, especially consumer demand.

2.5.3. In the short term therefore, adoption of more expansionary policies by Member States with a stable currency should counter-balance and facilitate restrictive, rigorously anti-inflationary policies in those countries whose currency has depreciated. Of course, at this stage these countries are benefiting greatly from the devaluation of their currency (primary products - steel, manufactured goods, tourism, etc.) so it will be difficult to persuade them to change direction. Nevertheless, it is essential to accept the argument that the macroeconomic policy mix, tailored to the specific situation of each Member State, should lead to a balance which safeguards the level of European economic growth in the medium term and facilitates the adjustments needed for the transition to the third stage of EMU.

2.6. Finally, the ESC would agree with the conclusions of the report on 'A Coherent Employment Strategy for the European Union' drawn up by the EP's ad hoc Committee on Employment (Rapporteur: Mr Ken Coates), and stress the need to offset the deflationary effects of complying with Maastricht by expanding the EU's financial instruments, particularly the European Investment Fund, so as to achieve an investment policy aimed at making the European economy more competitive and creating jobs in the long term.

3. Employment in Europe: situation and outlook

3.1. During the period 1991-1994 the EU lost half of the 10 million jobs created between 1985 and 1990. Europe had never known such massive job losses since the war: thus, despite the slower growth of the working population during the same period - due to the longer time spent in the educational system, to policies to encourage early retirement and a rise in the number of 'discouraged' unemployed - the EU's unemployment rate reached a record 11,2 % of the working population in 1994.

3.2. In its Opinion on the 1995 Annual Economic Report the ESC said the employment market had plateaued despite the steady cyclical improvement since the end of 1993. The situation on the labour market stabilized in mid-1994. Since then unemployment has remained more or less constant, fluctuating between 11 % in April and 10,7 %: in July 1995 , only just below the all-time peak of spring 1994. This is partly explained by the rise in the activity rate in the months following the recovery in net job creation on the labour market. This phenomenon is accompanied by a rise in the size of the working population, which limits the impact of job creation on unemployment.

3.3. It seems in fact that the EU economy's capacity to translate economic recovery into jobs has not changed very much over the last twenty years: with an estimated annual productivity gain of 2 % and with a supposed 3 % growth in EU GDP, the Commission forecasts an increase in the number of jobs of around 1 % a year for this year and next, which represents a net creation of around 3 million jobs over the two years. As half of these new jobs would be absorbed by the increase in the working population, the recovery should enable around 1,6 million unemployed persons to get a job, which translates into a fall in unemployment from 11,2 % in 1994 to 10,1 % in 1996.

3.4. These averages mask big differences between Member States and age, sex or skill groups. Thus, the unemployment rate varies from 24 % in Spain and 18 % in Finland to less than 4 % in Austria and Luxembourg (where the pattern of unemployment is not typical), these national figures in their turn mask quite large differences between regions. 12,9 % of working women are unemployed, but only 9,7 % of men. More than 20 % of young people between the ages of 18 and 25 have no job and there are very big differences between countries: in Germany the unemployment among young people is barely higher than the national average (8,6 % compared with 8,4 %), while in Spain it is twice as high (45 % compared with 24,1 %).

3.5. The ESC is aware that comparisons between Member States must be interpreted with caution, since statistics cannot take account of national features such as the number of discouraged workers who are no longer listed as unemployed, the number of workers on compulsory part time or the dissuasive effects of the laws and tax rules in some Member States facing married women wishing to work. However, the disparity between these situations underlines the need for the States of the Community to implement measures which are adapted to the specific features of their employment system and the structure of their unemployment (sectors of activity and people affected) if they wish to help reduce unemployment substantially.

3.6. Finally, national statistics do not reflect regional differences, which are often very marked: thus, in Italy unemployment is 7 % of the working population in the north but 20 % in the south; in the new German Laender unemployment sometimes reaches 15 to 20 % of the working population.

4. Structural policies for combatting unemployment

4.1. Supporting investment, boosting competitiveness, helping SMEs

4.1.1. Full utilization of idle production capacity by 1997 will, at the most, eliminate the cyclical component in unemployment, estimated at 2 % of the working population. So, while this form of growth is necessary, it will not be sufficient to achieve the goal set by the White Paper: creating the 15 million jobs necessary to halve unemployment by the year 2000. The reduction of 'classic' unemployment, estimated at 9 % of the working population, will require new jobs to be created by boosting production capacity.

4.1.2. Consequently, macroeconomic policy must provide a favourable environment for innovating and job-creating investments by seeking to guarantee profitability while permitting sufficient growth in final demand to create the climate of confidence which investment needs.

4.1.3. In the longer term, industrial policy must continue the structural reforms which seek to strengthen the endogenous growth potential of the European economy. With this in mind, the ESC considers that the priority investment programmes adopted at Essen must be implemented more rapidly. Also, innovating industries which invest in high-tech markets must be encouraged. The ESC notes here the Council's wish to push ahead with its action plan for an information society. The ESC urgently stresses the need to develop special projects enabling SMEs to access new sources of information. As part of the development of the information superhighways, the EU's action to help SMEs should fit in with the initiatives developed by the G7 countries. Since the legal aspects of disseminating information and data via the information superhighways are still unclear, the ESC approves the Commission's decision to start a debate on, for instance, intellectual property rights in the context of the information superhighways, on the basis of a recent Green Paper.

4.1.4. The ESC supports the implementation of structural measures designed to boost the EU's endogenous growth forces; but it would emphasize that technological progress, while necessary in the long term, does not by itself provide sufficient support for growth and jobs. The improved competitiveness and market flexibility necessary to permit the redistribution of productivity gains between sectors and finance job creation in low productivity sectors will have to be socially acceptable, so the strengthening of market machinery should be carried out within the framework of a social dialogue. Moreover, as the White Paper points out, one must not concentrate exclusively on how to produce. Technological progress offers opportunities for growth and employment on condition that one anticipates new needs and the new products resulting from the upheavals to social life, family life and urban civilisation.

4.1.5. Finally, SMEs have a growth and job creation potential which must be exploited, for instance through tax measures designed to make it easier to set up, develop and transfer small businesses, reduce their administrative costs and facilitate their involvement in training and research programmes. The ESC is therefore pleased that the Council has asked the Commission to draw up a report on current policies in these areas and on ways of making them effective (). The ESC would point out here that SMEs operate locally and many tax laws and administrative requirements are still the province of the Member States, so moves to promote SMEs will initially have to come from the Member States and local authorities. The Commission will have to try and publicize practices and prevent the introduction of new formalities.

4.2. Labour-market policies

4.2.1. Some of the workless do not have the skills needed for newly-created jobs. Vigorous medium-term growth backed up by investment and improved competitiveness will not reduce this structural component in traditional unemployment.

4.2.2. Consequently, and in parallel with policies to support 'tangible' investment in sectors with a high growth potential, industrial policy must also promote 'intangible' investment to improve the quality of the labour force: in other words, vocational training must focus more on eliminating specific skills' shortages. Steps must be taken to promote on-going training and improve workers' skills. With this in mind, gangways must be created between schools and business life and tax and quasi-tax incentives provided to encourage on-going training and apprenticeships in firms. Industrial apprenticeships, together with basic and on-going training in the form of sandwich courses, will also allow people immediate access to a job, whatever the skill level required.

4.2.3. Such action to enable people to fulfil their potential is a long-term matter: as the Commission says, the thing is to correct the inadequacy of current educational and training systems so as to face the challenge of competitiveness in the long term. However, unemployment is a reality right now, hence the need to implement measures which will work quickly and visibly against the destruction of jobs in order to restore citizens' confidence.

4.2.4. Measures to boost the jobs' component of growth are thus part of a shorter term approach. Here the European Council in Essen has identified three fields for action: reduction of indirect labour costs; reduction and redistribution of working time together with the expansion of part-time work; and the development of new job fields.

4.2.4.1. The Member States frequently reduce non-wage labour costs in order to encourage hiring. The policy is based on the observation that high labour costs push companies exposed to international competition to either relocate to low-wage economies or replace labour by capital. Measures to reduce labour costs generally concern unskilled workers, who are the most threatened by relocation and substitution. Unskilled labour costs are reduced through exemptions from social security contributions. While such measures are widely used today, they still give rise to certain questions:

4.2.4.1.1. First, the reduction of payroll taxes must not jeopardize social protection levels. Wage-based financing has to be replaced by a broader based system of alternative funding whose impact on competitiveness, growth and jobs will have to be assessed. The ESC notes that the general trend in the EU is to offset cuts in social security contributions by increasing indirect taxes, especially VAT. While VAT has the double advantage of being deductible on exports and easier to apply within countries because it is less noticeable than direct taxes, it has more impact on lower-income households, which are harder hit by the increased cost of essential goods. This applies even more to large families, the unemployed and those on minimum incomes. Moreover, VAT feeds through directly to prices, so there is a risk of inflation with its accompanying monetary and interest rate effects. What is more, pay claims aimed at offsetting loss of purchasing power may, in the medium term, offset falls in the cost of labour.

4.2.4.1.2. Second, it is not obvious that lower labour costs will lead to a big increase in new jobs in either the short or long term. The replacement of people by machines is a long-term trend resulting from technical progress and heightened by ever keener competition. While higher labour costs have probably helped to accelerate this process, it is not certain that lower labour costs will bring it to a halt. Moreover, in the short term, measures targeted at reducing social security contributions themselves may have a 'substitution effect' which lessens their yield in terms of net job creation.

4.2.4.2. The ESC considers that productivity gains must, as a priority, go towards creating jobs. The reduction and distribution of working hours is one way of increasing the number of jobs created by growth, provided that they bring about a real improvement in the quality of life of workers and do not involve additional costs for businesses (). With this in mind, the management of working time must be designed to achieve a better balance between on the one hand workers' desires to achieve a better balance between working, social and family life and, on the other hand, the demands of corporate competitiveness.

4.2.4.2.1. In some sectors it is conceivable that shorter working hours; a reorganization of working hours, higher capacity utilization and lower social security contributions, will provide ample scope for negotiation. The ESC feels that a policy based on shorter working hours with a compensatory increase in jobs is one way to achieve consensual results which will be beneficial to employment.

4.2.4.2.2. The ESC notes that in several European countries, since the beginning of the 1980s, work sharing has been introduced almost entirely by expanding part-time work, with the daily duration of work remaining the same for those holding full-time jobs. However, part-time work is done mainly by women, concentrated in the services sector and limited to low-skilled and poorly-paid jobs. In addition, part-time work and other non-typical forms of employment, such as temporary work, are deficient in terms of social protection and are often associated with a high level of instability and flexibility and a lack of promotion prospects. The ESC wants part-time work to be freed from its 'second class' image; to do this, the social status of the part-time worker must be improved, with a view to abolishing all forms of penalization associated with the choice of part-time work. In particular, special social security regulations should be prepared for part-time workers, and unemployment benefit schemes should guarantee full-time workers who choose to work part-time a wage which is always higher than their unemployment benefit. In addition, policies to encourage work redistribution by promoting part-time work should include incentives both for the employer and for the employee, so that part-time work is really 'chosen' and not 'imposed'. Such policies should be backed up by public information campaigns.

4.2.4.2.3. Several European countries have experimented with 'career-break' schemes accompanied by compensatory hirings, especially in the public sector. The current arrangements should be expanded, particularly in the private sector, for instance by introducing new types of part-time career breaks or extending the maximum length of career breaks. However, it is important that such systems do not involve extra costs for firms. Where there is an obligation to use an unemployed person as a replacement, some of the money saved on unemployment benefit could be used to incentivize employers by offsetting the extra costs involved in hiring new workers, and encouraging this type of formula for redistributing working time.

4.2.4.2.4. Finally, schemes to phase out the end of a person's working life or phase in retirement may be used to combine work redistribution and training for young workers. Recent ILO studies stress the cost and inefficiency in job-creation terms of full-blown early retirement, because the vacancies created cannot be filled by unemployed young people who are unskilled. One way of overcoming this problem could be a scheme where access to early retirement on half-time would be tied to the hiring of a young unemployed person half-time. During the period necessary for the transfer of knowledge and know-how, the public authorities would bear the extra cost to firms of replacing one full-time worker with two half-time workers.

4.2.4.3. The development of labour-intensive services in sectors not exposed to international competition is a further attractive approach. Changes in lifestyle, demographic changes and higher participation rates, etc. have created new social needs, which have yet to be satisfied: minding of sick children, health and social service facilities for the elderly, assistance for young people who are in difficulty, daily help for pupils with their school work, protection of the environment and the natural heritage, etc. These are all services which are genuinely beneficial in economic, social and cultural terms but which have been discontinued or have never been provided. 'Social economy' (cooperative, mutual and non-profit sector) enterprises already feature significantly in these new alternative fields: by taking over and establishing community services, social economy enterprises will be able to play an active role in the overall policy of combatting social exclusion, as defined in the White Paper. It is necessary to ensure that expansion of employment in these areas does not entail social deregulation or an increase in the number of insecure jobs. These services must, first and foremost, be seen and recognized as genuine jobs and be regarded as such by the workers concerned. A solution will also have to be found to the inability of the persons requiring these services to pay for them: the cost will either have to be geared to the income of the user or reduced by lowering the social security contributions charged in respect of the service. If these services are to be developed, they will have to be structured and quality standards will have to be laid down in order to meet consumer expectations.

4.2.5. The ESC would stress the fundamental role of the public sector in creating jobs. With the prospect of the information society, intervention by the public authorities is necessary to ensure that the new forms of communication are accessible to the entire population. With this in mind, the potential for job creation in a redefined and consolidated public sector of the future is considerable.

4.2.6. Finally, the ESC thinks that the implementation of multi-year employment programmes should be accompanied in each Member State by a follow-through and evaluation procedure in order to assess the impact of the steps taken to cut unemployment and, if necessary, progressively improve employment action plans.

Done at Brussels, 25 October 1995.

The President

of the Economic and Social Committee

Carlos FERRER

() Follow-up to the Essen European Council on employment (COM(95) 74 final of 8. 3. 1995).

() COM(95) 250 final of 13. 6. 1995.

() COM(94) 615 final of 13. 12. 1994.

() OJ No C 133, 31. 5. 1995.

() European Council in Cannes, Conclusions of the Presidency (SN 211/95, point 1.3).

() The whole question of working hours is considered in greater detail in the Own-initiative Opinion CES 166/95 (Rapporteur: Mrs van den Burg, Co-Rapporteur: Mr Whitworth) adopted by the ESC at this same Plenary Session (meeting of 25. 10. 1995).

APPENDIX to the opinion of the Economic and Social Committee

Rejected amendment

The following amendment was rejected but received more than 25 % of the votes cast:

Replace the entire text by the following:

'1. Introduction

1.1. As we approach the millennium, mass unemployment in the developed nations appears to be a specifically European phenomenon. Since 1974, the first year for which statistics are available in respect of the then newly-enlarged Community of twelve, it has grown inexorably from 2,5 % of the European labour force to more than 11 % in 1994, the last year prior to the enlargement to a Community of fifteen.

These figures not only represent an appalling waste of valuable human resources but constitute a source of insupportable human misery and a potential threat to the survival of the European social model. They are an indictment of the way in which the European nations, jointly and severally, have managed or, rather, failed to manage, their economies.

1.2. Despite the favourable economic prospects for the coming two years which have been projected, unemployment in the European Union is expected to stabilize at excessively high levels and even the most optimistic targets for reducing it fail to achieve anything approaching the improvement which is required and which the citizens of Europe are entitled to expect.

1.3. The Commission is projecting an increase of about 1 % in the number of jobs for each of the years 1995 and 1996, which implies a net creation of some 3 million jobs. As the increase in the active working populating in that period is predicted to be 1,4 million, this represents a fall of just 1,6 million in the number of people unemployed.

1.4. The ESC has already pointed out, in its Opinion of 30 March 1995 on the Annual Economic Report, that the prerequisites for sustained growth in 1995 and 1996 have not been achieved and this must call into question the realism of the Commission's target for job creation.

1.5. The Commission's White Paper sets a target of creating 15 million new jobs by the year 2000; even if the net increase predicted for 1995-96 is achieved, this will still leave 12 million further jobs to be created between 1997 and the end of the century. A simple extrapolation of figures is sufficient to demonstrate that this is a demanding, and perhaps unrealistic, target which could only be achieved by a combination of exceptionally favourable economic circumstances, sustained over the whole of that period, and the implementation of effective strategies to curb unemployment.

1.6. In the unlikely even that this goal can be met, the net reduction in unemployment, after taking into account the anticipated increase in the active working population over the same period, is only 6,4 million. This would still leave some 12 million people, or 7 % of the working population, unemployed. That figure is far too high; we must aim for much more ambitious reductions in the level of unemployment if the social cohesion of Europe is to be maintained.

1.7. In reality, it is all too likely that even these inadequate targets will fail to be met. As has already been indicated, they depend, amongst other things, on sustained growth in the European economies, which in turn requires the continuation and spread of world economic growth. A growth cycle sustained over such an extended period would be an unusual, if not unprecedented, phenomenon and there is no justification for assuming that this will occur unless the right policies are adopted to ensure that it takes place.

1.8. There is another aspect to this situation which needs to be taken into consideration. It has been clearly demonstrated in recent years that economic growth does not always produce a commensurate increase in jobs and, in fact, the capacity of the EU's economy to translate recovery into jobs has not changed very much over the last twenty years. Although unemployment fell in the second half of 1994 it had risen again by April 1995 to a level only slightly below its historical high.

1.9. It has already been stated that mass unemployment, at least amongst the developed nations of the world, is a European phenomenon. It therefore seems logical, in seeking a cure for this chronic disease which is crippling a continent, to look to what is happening in other economies which have been more successful in combating this scourge. In particular, the example of the United States offers many lessons from which we could usefully learn.

2. Comparisons between the USA and the EU

2.1. The economies of the United States of America (USA) and the European Union (EU) are, in many respects, broadly comparable. Although the USA is slightly ahead, citizens in both the EU and the USA enjoy living standards which are amongst the highest in the world. In terms of material prosperity, the citizens of Europe can almost match their American cousins.

2.1.1. Population is also not too dissimilar. In 1994, it was about 260 million in the USA and 350 million in the EU. The population in both communities is ageing, but rather less so in the USA where the birth rate is higher than in the EU.

2.1.2. Then again, both economies have had to undergo substantial structural change in the recent past as competition, first from Japan, then from other industrializing countries on the Pacific Rim and now from China, has forced the pace.

2.2. So we can see that there are some important similarities between the two economies but there is one key aspect of their performance over the past twenty years which is marked by contrast rather than similarity; while unemployment in the EU rose from 2,5 % in 1974 to 11,5 % in 1994, unemployment in the USA fell from 5,7 % to 5,6 % in the same period.

2.2.1. In 1974, the level of unemployment in the EU was less than half that of the United States; by 1994 it was more than double; or, to put in another way, over the 20-year period unemployment in the USA showed no discernible trend because it fluctuated around the level of 6 %, whereas the EU level more than quadrupled and showed a steadily-rising long term trend.

2.2.2. Social scientists must be concerned about long-term trends in the wrong direction which show no signs of abating. These trends are charted on page 41 of the European Commission's White Paper of December 1993, 'Growth, Competitiveness, Employment'. When two economies which have so many similarities exhibit such a marked difference in performance in this one key area, the conclusion is inescapable that this must result from the differing employment policies pursued in those two economies.

2.2.3. In fact, the figures quoted understate the extent of the EU's unemployment crisis. One reason for this is that the EU employment rate, at 58 % in 1993 (according to 'Employment in Europe 1994', published by the European Commission), is considerably lower than the rates in other developed countries, including the USA where it was just over 70 %. A low employment rate implies that there are many people of working age (especially women) who would like to work but cannot do so because the opportunity does not exist. Most of these people would not appear in the unemployment statistics.

2.2.4. A second reason is that when unemployment rises, so too, in Europe, does the rate of long-term unemployment and the rate of youth unemployment. In 1992, the EU long-term unemployment rate was 43 % and the rate of youth unemployment was 21 %; in the USA the comparable figures were 11,2 % and 6,5 %.

2.2.5. A true measure of an economy's employment/unemployment situation has to be based on a combination of the percentage unemployed and the employment rate. Such a measure indicates that the EU's situation has deteriorated so seriously since 1974 that, in the 1990s, the EU is not facing an unemployment problem, it is experiencing a major employment crisis. In marked contrast, over the same period the USA had a roughly stable unemployment level, while its employment rate improved from 63 % to 71 %. We must ask ourselves how this was achieved.

2.3. Quite simply, the main reason why the USA has a much lower unemployment level today than the EU is that the American economy has created vastly more jobs. The OECD Jobs Study, published in June 1994, gives the following revealing figures:

>TABLE>

2.3.1. Thus, while both economies generated 5 million extra jobs in the public sector the USA generated 31 million additional jobs in the private sector while the EU generated zero. In other words, the EU's failure to generate extra private sector jobs during a period in which the working population was rising, was total. This suggests:

i) that serious errors of employment policy have been made in the EU, and

ii) that EU policy-makers could learn some useful lessons from their counterparts in the USA.

2.4. It will be readily understood that the acute nature of the EU's employment crisis, with its attendant misery for more than twenty million would-be workers and their dependents, a total of about 100 million European citizens, means that only the most radical changes of policy will provide an adequate remedy.

3. The labour market in the USA

3.1. A strong case could be made for saying that today the essence of the employment scene in the USA is the numerous statutory (federal and state) regulations which affect it. Others might argue, with equal force, that behind those regulations the 'hire and fire' philosophy still holds sway. Whichever of these two views is held, it must be accepted that the recent job-creating record of the US economy indicates that the labour market there is working far more effectively than in the EU.

3.2. It is an accepted fact that the primary source of job creation is the Small and Medium-sized Enterprises (SME) but the extent of the role which they play in the job-creation process has not been fully recognized. Recent research shows that, at least in the USA, they have played an even more important part than was previously imagined.

3.2.1. In late 1991, the Office of Advocacy of the Small Business Administration (SBA) contracted with the Economic Surveys Division of the Bureau of the Census to produce linked longitudinal data files on an enterprise basis to cover the non-farm, private sector economy. By the autumn of 1994, such files had been produced for the years 1989, 1990 and 1991.

3.2.2. The period 1989-91 showed a modest employment gain of 681 500 in this sector of the economy. It was made up as follows:

>TABLE>

3.3. Critics of American employment policies have sought to diminish the undeniable success of the US economy in creating jobs by stigmatizing the jobs created as 'McJobs', implying that they are low-paid, short-term, fast-food jobs. These criticisms will not stand up to investigation.

3.3.1. A paper produced by the Center for Economic Performance showed that over the ten-year period from 1983 to 1992 the percentage of the working population engaged in this type of job actually fell from 12,1 % to 11,9 %; in that period, the employment category which exhibited by far the greatest growth was 'Professional/Managerial'. This category, which includes most of the best-paid jobs, grew from 27,9 % to 31,2 %.

3.3.2. The 'Report on the American Workforce' issued by the US Department of Labor in 1994 stated that 'The vast majority of jobs being created are not the short-term, burger-flipping positions so popular in the mythology of the modern economy. Indeed, most of the overall job gains have been in relatively high-paying classifications. The occupations that have shown the most rapid growth over the past decade are those that require high levels of education, training and specialized knowledge.'

3.3.3. A further criticism which is often levelled at the new American jobs is that they are less secure than the old jobs. In fact, the Employee Benefit Research Institute in Washington reported recently that, on average, 'American workers are staying in the same job for longer than they did 20 or 30 years ago'. This means that greater insecurity for American workers is as much a figment of the imagination as the notion that most of the new jobs are in fast-food restaurants.

3.4. Another key area in which Europe is lagging behind America is in the mobility of labour. Despite the fact that the EU has consistently sought to improve this element and notwithstanding the advent of the Single Market which was supposed to facilitate it, the position of the EU relative to the USA has actually deteriorated drastically over the period under review. Labour mobility in the EU is currently 25 % of labour migration in the USA; in the 1970s it was 50 %.

4. The need for de-regulation

4.1. Contrary to popular conception, the US labour market is highly regulated. The following are just some of the federal statutes which are currently in force in relation to private-sector employees:

>TABLE>

4.1.1. It will be seen that, firstly, some regulations go distinctly beyond those which apply within the EU and, secondly, that the regulatory process has continued in recent years. Also, it must be remembered that each of the fifty individual states can, and does, legislate in the employment field and the regulations which apply to many states are more extensive than the base position created by federal law.

4.2. The EU is rightly proud of the social protection which is given to workers in its Member States and any proposed solution to the present employment crisis which involved the dismantling or curtailment of this system would be unacceptable to a majority of people. However, the above examples show that a high measure of social protection and dynamic job-creation performance can co-exist within a single economy.

4.3. There is widespread agreement amongst European legislators, economists, politicians, scholars and businessmen about the importance of the role played by SMEs in job creation. This has been acknowledged by the European Commission, who stated in their 1993 White Paper 'Growth, Competitiveness, Employment' that 'Member States should address existing barriers to maximizing the job-creation potential of SMEs and areas of new employment growth and activity by a range of measures aimed at anticipating and accelerating SME and new jobs growth'.

4.4. Small firms in both the USA and the EU are creating jobs at a faster rate than larger firms. It is also the case that small firms are more consistent creators of jobs, in the sense of being less influenced by macro-economic conditions. The US experience suggests that it is the micro-businesses (those with less than five employees) which are the primary job-creators and, therefore, in any strategy to reduce the level of unemployment, it is essential to differentiate between these micro-businesses and the larger firms which currently fall within the European definition of an SME. It also means that research using a database which omits these micro-businesses, (as many studies do) is either irrelevant or dangerously misleading and any conclusions drawn from it must be flawed.

4.5. It is patently obvious that, while small businesses are the major source of job creation in both the USA and the EU, those in the United States have been considerably more successful in fulfilling this role than their European counterparts. The only discernible difference which would account for this disparity is the fact that in the United States almost all federal employment regulations and many state regulations have an exemption clause for small or micro-businesses.

4.5.1. One of the reasons - perhaps the main reason - why Congress has exempted all micro-businesses and some small businesses from these regulations is that it wants to stimulate job creation and economic development and has recognized the key contribution which small and very small firms are making to these desirable aims. Another reason could be the understanding that complex regulations bear far more heavily on the proprietor of a small firm than on the specialist manager of a larger organization.

4.5.2. The exemptions are quite varied. They may be based on annual turnover or the numbers employed in the business and there are different levels of exemption for different statutes. These exemptions have been granted partly because of the disproportionate contribution of small firms to job creation. Now that they exist, it seems probable that they encourage the establishment and growth of small firms. Thus, they might reasonably be seen as both the cause and the effect of small business success in the USA.

4.5.3. It could be argued that these exemptions give small firms an unfair advantage vis-à-vis their larger competitors. Certainly, the exemption limit is not just a hurdle to be crossed as the business grows; it is, rather, a dividing line between safe (regulation-free) ground and the minefield which is created by the mass of complex regulations which exist in the employment field and in other areas.

4.5.3.1. To argue that small firms have an unfair advantage is to miss the point altogether. Instead, attention should be focused on the disadvantages for larger firms which stem from excessive regulation. The real regulatory burden on US businesses may be less than that on their EU counterparts but the evidence suggests that there is scope for a considerable measure of deregulation in the USA - and a great deal more in the EU.

5. Comparison with other nations

5.1. Other nations have had considerable success in controlling the level of unemployment. Notable amongst these is Japan, where the Commission's White Paper of December 1993 showed that unemployment had not exceeded 3 % of the labour force at any time in the past 35 years. It might be argued that this outstanding record is a reason for basing European employment policies on the Japanese model but it must be acknowledged that this success has been based, at least in part, on the fact that Japan has been allowed to sustain an imbalance in its foreign trade which the EU could not expect to emulate and there are also major cultural differences between the Japanese and European peoples which would make it difficult to replicate Japanese working conditions in a European environment. For these reasons the Japanese experience is not considered to be a viable role model for European employment policies.

6. The basic objective of economic policy

6.1. The more prosperity there is, the more can be done to relieve specific social and environmental problems and to satisfy the wider aspirations of Europe's citizens. Without economic growth, even existing levels of general welfare and social provision are at risk, particularly given the adverse demographic trends facing all EU Member States.

6.2. The basic objective of economic policy, whether at national or European level, must therefore be to achieve the highest sustainable rate of real growth in the economy, in order to maximize individual welfare and facilitate the realization of wider social aims. Only in this way can the future of the Social Contract be protected.

6.3. The essential elements underpinning a sound basic framework for the economy are:

i) sound money - that is, effective, control of the money supply and low inflation.

ii) sound government finances - that is, keeping budget deficits and the level of outstanding government debt within prudent limits.

7. Current economic situation and macroeconomic policies

7.1. Since the publication, at the end of 1994, of the Commission's 1995 Annual Economic Report, the international and Community economic situation has changed considerably, bearing out the ESC's forebodings. In its Opinion of 30 March 1995 on the Annual Economic Report, the Committee tempered the Commission's optimism, pointing out that the prerequisites for sustained growth in 1995 and 1996 had not been achieved. In particular, it highlighted the impact of the monetary turmoil on the external component of growth in Europe and the uncertainty over the dynamism of the internal component, including consumption by households, which was supposed to take over from external demand as the driving force of growth in 1995 and 1996.

7.2. The monetary upheavals which shook the foreign exchange markets have weakened the European growth rate but, even more than the exchange-rate instability, it is the lower than expected trend in consumer spending which the OECD pinpoints as the reason for revising its growth forecasts downwards. This phenomenon almost certainly has its origins in the continued high level of unemployment and the consequent lack of a 'feel-good' factor in the population at large; people are not inclined to spend money if their main concern is doubt about their future job security.

7.3. Although the Commission and the OECD predict only a slight deceleration in economic growth in 1966, the ESC regards the present economic situation as worrying in several respects.

7.3.1. Firstly, the pressure on certain currencies in the EMS reflects a decline in market confidence in the economic policies pursued by those countries and, in particular, the lack of credibility of their budget adjustment programmes and their low inflation targets. The risk of new pressures within the EMS will increase as the transition to the third stage approaches if the Member States do not, in the meantime, demonstrate a clear political will to undertake the necessary reforms.

7.3.2. Secondly, the behaviour of the foreign exchange markets has reflected the lack of coordination of economic policies at both the European and international levels. At European level, the Member States must treat their exchange rate policy as a problem of common interest. At international level, full and fair implementation of the agreements reached in the Uruguay Round of the GATT negotiations is necessary if the world is to realise the promise of increased trade and prosperity rather than face the spectre of regionalization, protectionism and being plunged into renewed trade wars.

7.4. The most worrying aspect of this situation for the European economy is that it could initiate a growth cycle too short to stimulate employment over the long term. Consequently, at this stage in the economic cycle, the ESC considers that economic policy must be focused first on preventing any trend which could compromise the pursuit of growth and job creation.

7.4.1. On the budgetary front, the Presidency Conclusions of the Cannes European Council stated that 'Rolling back unemployment means implementing stability-orientated monetary and budgetary policies, in line with the broad guidelines for economic policies. The European Council emphasizes that such macroeconomic policies directly benefit jobs threatened by the weight of public deficits. A rigorous budgetary policy - over and above its favourable impact on the stability of the macroeconomic framework - helps to bring down interest rates, boost investment and stimulates growth'. The ESC endorses this position; it is convinced that in the medium term the credibility of reform policies is dependent on the degree of real convergence between the Member States; improved economic performance and lower unemployment would give greater credence in the eyes of the financial markets to the political determination of some Member States to undertake the adjustments needed to progress to the next stage of EMU. The ESC reiterates its appeal to all Member State governments to seize the opportunity presented by sustained economic growth and the fall in real long-term interest rates to undertake the necessary structural adjustments to their budgets in order to restore their indebtedness to sustainable levels in the medium term.

7.4.2. The key to achieving, and sustaining, these levels of indebtedness is the reduction of public expenditure. In every country within the EU the level of public expenditure, expressed as a proportion of GDP, is currently far too high. A substantial reduction in this figure would not only reduce public indebtedness to acceptable levels but would permit tax rates to be lowered. This would stimulate economic growth by leaving a greater proportion of the national resources in the hands of the wealth-creating private sector of the economy and by increasing the spending power of consumers. This, in turn, would create jobs and produce a significant improvement in the unemployment situation. The beneficial effects of this on public sentiment and the creation of a 'feel-good' factor would act as a further stimulus to consumer spending.

7.4.3. The ESC stresses that these reforms should be socially balanced. The reductions in public expenditure which are being advocated need not, and should not, be made at the expense of the provision of essential public services and social protection. In every country the cost of administering these services is being inflated by the over-manning and time-consuming bureaucratic procedures which are inseparable from public-sector provision. The greater the percentage of GDP which is diverted to the public sector, the higher the proportion of that money which is consumed in administering it. The exemptions from current employment legislation for small businesses which the ESC proposes would, alone, contribute to a substantial reduction in public expenditure by eliminating the need to administer the statutes and monitor compliance with them. Apart from this, there is ample scope for cost reduction in any public-sector service.

7.4.4. Increases in real disposable incomes which are achieved by reductions in the rates of tax are not, in themselves, inflationary, as corresponding increases achieved by wage rises would be, but monetary policies should be aimed at controlling any inflationary tendencies by using interest rates to keep the money supply in check.

7.4.5. Experience across the world has demonstrated quite clearly that low-tax economies are high-growth economies and high-growth economies are low-unemployment economies. In other words, low tax equals low unemployment. Conversely, high tax regimes, and particularly those where excessive taxation is compounded by excessive regulation, are characterized by high levels of long-term, structural unemployment.

8. Labour market policies

8.1. The ESC advocates moves towards more flexible labour markets.

8.2. It also reiterates its insistence on the importance of the training and education element in any structured approach to labour market policy and on the encouragement of an entrepreneurial culture. Efforts to create jobs and improve the skills of the workforce must be coordinated; training without job creation will merely result in a large number of highly-skilled, unemployed workers; job creation without training will be self-defeating because of the lack of suitable labour to fill the newly-created vacancies.

8.2.1. Labour market policy must promote investments to make labour more 'employable'; in other words, the link between supply and demand in the area of vocational training must be improved in order to answer the basic needs of industry. Steps must be taken to promote on-going training and improve workers' skills. With this in mind, gangways must be created between schools and business life and incentives provided to encourage on-going training and apprenticeships in firms.

8.2.2. Such policies to up-grade human resources are a long-term measure; as the Commission says, the thing is to correct the inadequacy of current educational and training systems so as to face the challenge of competitiveness in the long term. However, unemployment is a reality right now; hence the need to implement measures which will work quickly and visibly against the destruction of jobs in order to restore the confidence of Europe's citizens in the ability of the EU to deliver and sustain the standard of living to which they aspire and to which they feel that they are entitled.

8.2.3. Measures to boost the jobs component of growth are part of a shorter-term approach. Hence, the European Council at Cannes placed particular emphasis on 'the need to foster growth of a kind that will create jobs, to step up measures to bring young people and the long-term unemployed back into the world of work and to make labour markets perform better, in particular by reducing indirect labour costs.

8.2.3.1. The ESC supports the strategy of reducing non-wage labour costs. Anything which reduces the cost of employing labour will tend to increase the amount of labour employed. Employers hire labour mainly because they expect to receive a surplus (profit) from the revenue product of that labour. The theory of wages, which is supported by practical experience, is that more labour will be hired at a lower price (wage) and less will be hired at a higher price (wage), other things being equal. Thus, in making a decision on whether to hire, an employer will take into account all the costs of his decision. These will include the cost of state taxes on employment; they could also include the cost of firing. No private sector employer can guarantee the demand for his product or service indefinitely and, if the demand declines, he will have to shed labour as an alternative to going out of business. As the OECD Jobs Study pointed out, legislation which is designed to discourage dismissals by raising the cost to employers of releasing workers 'can also make employers more reluctant to hire new workers'.

8.2.3.2. Labour market policies in the field of working time must reflect the way in which working patterns are developing, both inside and outside the EU. By the end of the century, the conventional five-day/forty-hour week is likely to be the exception rather than the rule; workers will increasingly wish to tailor their working patterns, throughout their working lives, to their changing personal circumstances and family commitments. Flexibility and adaptability will therefore be the keynote for industrial relations in the future and these qualities will need to be demonstrated by employees, employers and legislators alike. The tailoring of individual working hours to individual requirements can best be achieved by individual negotiation and by arrangements voluntarily entered into by both workers and employers.

8.2.3.3. The development of new job fields is the product of an expanding economy and this can only be achieved if governments ensure that they pursue macroeconomic policies which are conducive to economic growth and, in particular, create a climate which is favourable to the establishment and development of micro-businesses.

8.2.3.3.1. It is necessary to remember that governments, whether national or European, do not, and cannot, create jobs; neither can they 'protect' jobs; both of these activities are exclusively the function of business. Job creation is the natural product of successful commercial operations conducted in an Enterprise Culture which is conducive to entrepreneurial activity and the best contribution which governments at all levels can make to job creation is to foster an Enterprise Culture. Attempts by governments to intervene in this process by the introduction of well-meaning legislation designed to create jobs, discourage job losses or rectify perceived inequalities between specific groups or categories of workers have been invariably counter-productive.

8.2.3.3.2. Advancing technology brings with it the promise of new jobs as well as posing a threat to the continuance of old ones. It is important that labour market policies should take a positive attitude to new technologies, which are only inimical to net job creation if they are viewed in the context of old-fashioned and rigid concepts of social organization. Attempts to prolong the life of 'sunset' industries because they are seen as being an accepted part of the existing social pattern can only hasten their decline and lead to further rises in unemployment. The future role of the EU should be to open the doors to opportunity.

9. The Organization for Economic Cooperation and Development

9.1. The OECD in its paper, 'Jobs Study - Facts, Analysis Strategies' published in mid-1994, made nine key policy recommendations. These were:

- Set macro-economic policy such that it will encourage growth and, in conjunction with good structural policies, make it sustainable.

- Enhance the creation and diffusion of technological know-how by improving frameworks for its development.

- Increase flexibility of working time (both short-term and lifetime) voluntarily sought by workers and employers.

- Nurture an entrepreneurial climate by eliminating impediments to, and restrictions on, the creation and expansion of enterprises.

- Make wage and labour costs more flexible by removing restrictions that prevent wages from reflecting local conditions and individual skill levels, in particular of younger workers.

- Reform employment security provisions that inhibit the expansion of employment in the private sector.

- Strengthen the emphasis on active labour market policies and reinforce their effectiveness.

- Improve labour force skills and competencies thorough wide-ranging changes in education and training systems.

- Reform unemployment and related benefit systems - and their inter-action with the tax system - such that societies' fundamental equity goals are achieved in ways that impinge far less on the efficient functioning of labour markets.

9.2. The ESC explicitly endorses these recommendations.

10. Summary

10.1. This summary can be relatively brief because all that is needed here is a drawing together of the existing threads into a coherent policy for the return to work of a significant proportion of Europe's army of unemployed.

10.2. First, the policy objective has to be plainly stated. It is quite simple: the EU should create, over the business cycle, an average of two million additional jobs (full-time or part-time) each year - not just for the next five years, or for the next decade, but well into the twenty-first century. Nothing less will remedy the very serious employment crisis which now exists and which, as well as creating economic and social problems, threatens the political stability of the EU.

10.2.1. A prerequisite for this is the maintenance of sound money and sound government finances at national and European level.

10.2.2. Budgetary deficits must be tackled by reducing public expenditure; in many Member States this is the only way in which they can be reduced to the necessary convergence levels within the time-scale set for European Monetary Union.

10.2.3. Consumer spending must be stimulated by increasing disposable incomes. There are only two ways of doing this; by increasing wages or by cutting taxes. The former would be inflationary because it would increase the overall money supply; if it were not matched by commensurate increases in productivity, it would also reduce the competitiveness of European firms and, by increasing the cost of their products, would tend to be self-defeating because the additional money in people's pockets would be offset by higher prices and there would be little or no increase in their effective spending power; alternatively, the additional income would be spent on lower-priced products from more competitive nations and would therefore tend to suck in imports, to the detriment of the European trade balance. Cutting taxes, by contrast, is not inflationary because it does not increase the total money supply but simply redistributes it from the wealth-consuming public sector to the wealth-creating private sector, to the advantage of economic growth.

10.2.4. Taxes on labour which, whether levied on the employee or the employer, are taxes on employment, must be reduced.

10.3. The over-riding policy aim must be to create a climate in which small firms can thrive and grow. Governments are over-spent and many large firms (even when they are profitable) are shedding jobs. It follows that most of the jobs to be produced will have to be created by small firms and micro-businesses.

10.3.1. These organizations have a growth and job-creation potential which must be exploited. The European Council at Cannes emphasized that 'small and medium-sized enterprises (SMEs) play a decisive role in job creation and, more generally, act as a factor of social stability and economic drive. It calls upon the Commission to submit a report to it on policies currently being conducted in this field and on ways of improving their effectiveness through measures, particularly of a fiscal nature, aimed at promoting the creation of SMEs, reducing the administrative burden on them and facilitating their participation in training and research programmes. The European Council emphasizes the importance of developing investment in research, development and education at national and Community level. It likewise emphasizes that, in order to stimulate employment, competitiveness and innovation, it is important to combat excessive regulation'.

10.3.1.1. The ESC supports this strategy of the European Council and calls for active measures to assist SMEs, and particularly those which may be defined as micro-businesses. It believes that, in order to achieve this, it is necessary to introduce tax measures designed to make it easier to set up a small business, reduce red tape and facilitate their involvement in training and research programmes; in short, to create an Enterprise Economy. An Enterprise Economy is a low-tax, de-regulated economy, which means that existing entrepreneurs are free to expand and potential entrepreneurs are encouraged to enter the market with a reasonable chance of achieving business success.

10.3.2. Central to this strategy is the effective de-regulation of SMEs and micro-businesses. They should be set free from most of the numerous employment obligations with which they have been burdened in recent years; job creation must be given priority over job protection. This programme should be concentrated initially on firms with less than 50 employees and, within that limit, there might well be differing scales of exemption, with the highest level of de-regulation being reserved for those with less than five employees.

10.4. The European Council at Cannes concluded that 'the proper functioning of the internal market is fundamental to a dynamic economy and thus to job creation. The Community and its Member States must therefore give priority to the effective working of the internal market'. The ESC agrees with this conclusion.

10.5. The recommendations set out in the OECD report, 'Jobs Study - Facts, Analysis, Strategies' should be implemented.

10.6. Europe's unemployment problem is not insoluble but unless radical policy changes are adopted in place of the tired and discredited 'remedies' which have so signally failed to provide a solution to date, it will not be solved. One thing must be clearly understood: if the EU cannot produce a solution to this problem it will not survive - and it will not deserve to.

Voting

For: 51, against: 105, abstentions: 8.

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