Getting Europe back to work - the contribution of active labour market policies

4 December 2007

Xavier Prats Monné, Director for Employment, Lisbon Strategy and International Affairs, Directorate-General for Employment and Social Affairs, European Commission, pointed to the “extraordinary diversity” in EU Member States’ labour markets and approaches to the European social model.

In some countries, employment rates among women and older workers are below 40%, in others they are over 70%; in Bulgaria temporary work constitutes 2% of employment, in the Netherlands, 35%.

Despite these differences, all Europe’s citizens seem to be attached to the European social model, although their conception of how it works differs: while EU countries’ spend an average of 25% of their budgets on social protection, Estonia only spends 13%, while Scandinavian countries spends up to 33%

Europe faces common challenges, said Mr Prats Monné. The first is demography, as women’s emancipation has led to falling birth rates (except in France, where there is strong social protection for parents). The ‘baby boomers’ who fuelled post-war economic growth will soon be retiring, and their increased life-expectancy means that by the middle of the century, there will be large numbers of retired workers.

While immigrants will help mitigate the decline in employment numbers in the short-term, this alone cannot solve the problem, for as immigrant populations pick up the habits of their host country, their birth rates will also decline.

The second challenge is globalisation, particularly the entry of China into the global system. This has increased the workforce in the global economy by 1.5 billion, depressing wages in many developing countries. Social changes also pose a challenge: firstly, the growth of a multicultural society, and secondly, the current social model is geared to the paradigm of the single-breadwinner family, which is no longer relevant.  

The most significant change has been the impact of technology on employment, said Mr Prats Monné. This has increased the added-value of human capital and created a “knowledge economy” with millions of well-paid jobs. At the same time, it has widened the gap between high- and low-skilled workers. Governments need to strike a balance between going for growth and investing in highly-skilled workers, or going for equity and investing in people at the lower end of the scale.

The European Commission’s Communication on ‘Towards Common Principles of Flexicurity: more and better jobs through flexibility and security’ tackles these conundrums by proposing the creation ofa modern EU labour market, and suggests four measures:

  • flexible but stable contractual arrangements;
  • strategies for lifelong learning;
  • effective, active labour market policies;
  • modern, safe social protection systems.

Mr Prats Monné stressed how important it is to retain older workers and buck the “short-sighted” trend of offering retirement at 50 - an age when many people are at their best - by offering financial incentives and reskilling. Without changes to current policies, there will not be enough people in work to support every retired person in Europe by 2050.

The role of private employment agencies

Denis Pennel, Managing Director of Euro-CIETT, International Confederation of Private Employment Agencies, said private employment agencies now employ 3.3 million full-time workers.

There is currently a mismatch in employment which active labour market policies must address: 50 million people - including many young people - are out of work in the EU, yet there are three million job vacancies and a labour shortage in certain skills areas.

Policies need to increase both flexibility and security, and get more women, young people and disadvantaged people into employment.

Mr Pennel introduced the new Euro-CIETT report More work opportunities for more people, which argues that millions of new jobs could be created by 2010 by lifting unnecessary employment restrictions, such as bans on agency workers in certain sectors.

According to the report, the temporary employment industry is in prime position to ease the transition from unemployment to work - particularly among students - by providing them with their first work experience. This includes offering “stepping stone” contracts to move from temporary to permanent employment in the same job, and “work-life” contracts to balance work and family life.

Euro-CIETT and UNI-Europa, the European social partners for the Temporary Agency Work sector, recently issued a joint declaration on flexicurity. This stresses that as public/private partnerships are a key element in active labour market policies, more should be done to strengthen cooperation between private and public employment agencies, particularly in the new Member States.

Lessons from Denmark’s flexicurity

Jesper Hartvig Pedersen, Director of the National Labour Directorate, Denmark, said employment is on the rise and unemployment is falling sharply in his country.

This is thanks to the “Danish Golden Flexicurity Triangle” of linking a flexible labour market with strong unemployment benefits and active labour market policies. This triangle took shape during the 1990s after an “historic compromise” between the state, employers and wage earners.

Dr Pedersen believes everyone gained from this - employers benefited from the flexible rules for hiring and firing, wages earners had a secure income and a guarantee that if they were made redundant they would be offered training and an individual job plan, and the state gained from lower unemployment and growth.

However, he admitted, it is expensive, as Denmark spends twice the EU average on its labour market policies, and, as it has grown out of the country’s historic relations between the social partners, it is not easily exportable to other countries.

This ‘Golden Triangle’ is supported by the 2006 Welfare Agreement, which is aimed at keeping older workers in the labour market for longer, lowering unemployment through active job searches, integrating immigrants more successfully, and offering more education and training. It focuses on getting unemployed people back to work, reinforces unemployment insurance funds and strengthens efforts to get young people into the labour market.

Fabian Zuleeg, EPC Senior Policy Adviser, summarised the contents of a new EPC Policy Brief High to grow old without going bust. The paper shows the importance of maintaining employment rates to cope with demographic change, and urges governments to keep people at work for longer, and help the unemployed get back to work.

Time is running out, and change is needed now, he said, but most countries, including Denmark, are postponing radical measures. It is important to get more women, ethnic minorities and young people into the labour market, and to stop older workers from leaving - currently only 50% of people between 50 and 65 are in work.

Current employment rules and labour market rigidities put obstacles in the way of people trying to enter the labour market, said Mr Zuleeg. In addition, many young people lack the necessary skills and older workers’ skills are out-dated. The paper suggests the following measures:

  • help with job searches;
  • offering caring support for families;
  • provide flexible health care, child care and care for the elderly
  • provide skills and lifelong learning linked to qualifications.

The EU must play its role in encouraging a “cross-cutting response”, bringing together the private sector, the state and the trade unions, and using the European Social Fund. Strategic targets must be set, and more research done to find examples of good practice, said Mr Zuleeg.

The overall message of the paper is that Europe cannot afford to have ineffective labour markets in the light of demographic change.