to 50 employees in the euro area ( excluding luxembourg ) is estimated to have been around ten times larger than in the us 18. the immense importance of this issue is increasingly appreciated by the successive eu presidencies and european governments and several initiatives at national or eu level have started to implement actions for a “ better regulation ”. fourth, to fully exploit productivity potential, the labour and product market reforms just mentioned need to be accompanied by policies that help to diffuse innovation and technological change. this includes, inter alia, measures to support innovation by higher investment in research and development ( r & d ). in 2004, roughly 1. 9 % of euro area gdp was spent on r & d. the us spends 2. 8 % of gdp on r & d. 19 europe has set itself the target of achieving a share of 3 % of gdp by 2010. to make these measures most effective, they need to be accompanied by efforts to improve the labour force ’ s level of education and expertise. the impact of education on growth may be related to innovation, as well as the adoption of new technologies. additionally, better education and training help to reduce mismatches in the labour market and allow for a smoother reallocation of workers between sectors and firms. 20 the last decades have already brought about an enormous increase in the level of educational attainment, the so - called “ catch - up effect in education ”. in the euro area, according to oecd data for 2003, an average of 73 % of those aged 25 - 34 had attained at least upper secondary education, compared to only 46 % of persons aged 55 - 64. 21 nevertheless, meeting the challenges of technological progress and ensuring the labour force ’ s employability and flexibility, requires that human capital is continuously adjusted to labour market needs through improved education and training as well as lifelong learning. in 2005, the us annual expenditure on higher education institutions per student was 22, 234 usd, while in the euro area only about 9, 200 usd was spent. furthermore, we need more high quality scientists and researchers. in the eu we have about 5. 3 scientists and researchers per 1000 workers, which compares to the us ’ s 9 per 1000. 22 groningen database. see also ecb ( 2006 ) ” competition, productivity and prices in the euro area services sector ”, ecb occasional paper series. no. 44. see the world bank web site www. doingbusiness. org. eurostat data. see g. sc

spending. on the labour market, the unemployment rate was at a record low in july and employment growth remained resilient in the first half of the year, albeit that momentum is slowing. 1 / 4 bis - central bankers'speeches as the energy crisis fades, governments should continue to roll back the related support measures. this is essential to avoid driving up medium - term inflationary pressures, which would otherwise call for an even stronger monetary policy response. fiscal policies should be designed to make our economy more productive and to gradually bring down high public debt. policies to enhance the euro area's supply capacity, such as high - quality public investment and structural reforms, can help reduce price pressures in the medium term, while supporting the green transition. risks to the outlook continue to be tilted to the downside. growth could be slower if the effects of monetary policy turn out to be more forceful than expected, or if the world economy weakens further and geopolitical risks intensify. on the other hand, growth could also be higher than projected if the strong labour market, rising real incomes and receding uncertainty boost confidence among consumers and businesses and lead them to spend more. inflation since peaking in october 2022, euro area headline inflation has more than halved. the decline is broad - based across the main components of inflation and reflects falling energy commodity prices, the easing of supply bottlenecks and the impact of tighter monetary policy. core inflation remains at elevated levels, reflecting the fact that the fading impact of the past surge in input costs is being counterbalanced by rising labour costs. indeed, employees demanding compensation for the loss in purchasing power amid tight labour markets has resulted in historically high wage growth. we expect euro area inflation to continue to decrease, owing to easing cost pressures as well as the impact of tighter monetary policy. wage growth is expected to decline gradually, albeit remaining high over the projection horizon, driven by increases in minimum wages and inflation compensation in a context of tight, though cooling, labour markets. profit margins, which expanded notably last year, are expected to provide some buffer to the pass - through of labour costs to final prices in the medium term. inflation is expected to decline to levels close to 2 % in 2025. however, the downward path has risks in both directions. upside risks stem from renewed upward energy and food cost pressures, a de - anchoring of inflation expectations above our target, and higher than anticipated increases in wages or profit margins. the downside risks include