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Report on Employment in Europe 2005
The report on Employment in Europe 2005 takes stock of the employment situation in light of developments in economic activity in Europe. It takes a comparative approach, examining in detail the results of previous years. It also takes into account the effects of the global economy on employment in the European Union (EU). It gives an update on the European Employment Strategy and looks at possible future developments, centred on the revised Lisbon Strategy as a driving force for growth and employment.
Commission Report on Employment in Europe 2005. Recent Trends and Prospects [Not published in the Official Journal].
In the course of 2004, economic activity in the European Union (EU) followed two different trends. Galvanised in the first half of the year, it was gradually weakened in the latter half. Two major reasons for this were the increase in oil prices and the strength of the euro.
Economic growth in the EU was noteworthy (2.4 % for 2004 compared with 1.1 % in 2003). In this respect, the significant increase in world GDP and trade seem to have served as a stimulus.
In line with the economic reality in Europe, employment growth once again showed signs of stagnation, despite the structural improvements made possible by the European Employment Strategy (EES). This has implications with regard to meeting the Lisbon and Stockholm objectives for 2010. There are inequalities between Member States in terms of income, particularly between the Europe of 15 and the new Member States.
Although there are significant variations from one Member State to another, in relation to gender and level of qualifications, unemployment * remains high on the whole across Europe. Nevertheless, the current trend is towards a reduction in the non-working population. A more worrying phenomenon is that the EU as a whole is not making optimum use of its potential labour force. Indeed, in the absence of targeted policies, the heterogeneity of the non-working population makes it difficult to match job supply and demand.
In light of this, the report recommends making growth and employment two key objectives of the revised Lisbon Strategy.
Employment: mixed results
For the third year in succession, employment rose by only a little in 2004 (0.6 %, which is 0.3 % higher than in 2003). The average rate of employment for the whole of the EU rose by 0.4 % to 63.3 %. Therefore, despite a slight improvement over previous years, the results continue to be disappointing compared with the situation in the USA, where employment growth reached 1.1 %.
The report identifies several factors which explain this slight increase in the overall employment rate. The first is the continued increase in the employment rate among women (+ 0.7 % on average in the EU). The second is the 0.8 % increase in the employment * rate among older people (aged 55 to 64 years). Third is the stabilisation of unemployment figures compared with 2003, despite a slight increase in the rate of long-term unemployment (0.1 %).
Lisbon and Stockholm: difficult objectives
According to the report, one of the major consequences of the poor health of the employment market in Europe is slow progress in meeting the Lisbon and Stockholm objectives. As a guide, it is estimated that overall employment rates (63.3 % in 2004) are still 7 % lower than the objective set for 2010. With regard more particularly to women and older people, employment rates (55.7 and 41.0 % in 2004) are respectively around 4 and 9 % lower than initially expected.
In light of the mixed results of recent years and the difficulties posed by the 2010 objectives, the European Council has taken action by agreeing to revise the Lisbon Strategy and refocus its priorities on economic growth and employment.
Disparities in employment across Member States
While growth in employment was relatively low at EU-level in 2004, it was generally positive in the majority of Member States. As indicated in the report, only four countries experienced negative annual growth. This was the case particularly in the Netherlands, where employment fell by 1.3 %. The other three countries were Hungary (-1.2 %), Latvia (-0.2 %) and Slovakia (-0.2 %). In contrast, seven Member States achieved positive employment growth of over 1 % (in particular Cyprus, Greece, Ireland, Luxembourg and Spain). In Germany, positive employment growth was restored, and Poland halted its decline in this field.
Different levels of growth
As indicated in the Commission report, employment growth depends on the sector and on the status and profile of the worker. Between 2003 and 2004, the services sector continued to drive employment expansion. In contrast, employment in both the agriculture and industry sectors continued to contract in 2004. The degree of flexibility of employment is also a factor, which is why the share of part-time and fixed-term employment increased. However, the share of self-employment remained stable. Finally, since 2000, there has been a steady increase (4.4 %) in employment rates among older people aged 55-64 in almost all Member States. Young people, on the other hand, have experienced a deterioration in the labour market situation. At 18.7 %, youth unemployment in the EU is almost twice as high as the overall unemployment rate. In response to this problem, the European Council recently adopted the European Pact for Youth.
Caution still necessary
The employment prospects for 2005 and 2006 are positive overall, with an improvement which, according to the report, is in line with the pick-up in economic activity. Nevertheless, caution still needs to be exercised, especially as future progress remains largely dependent on the return of sustained business confidence, rising economic growth and the implementation of structural reforms.
Taking stock of the EES
In its report, the Commission also focuses on the EES, whose application since 1997 has made possible a number of reforms in various sectors. This has led to structural improvements in employment at EU-level, as reflected in the following:
- lower structural rates of unemployment in most Member States;
- lower long-term unemployment rates;
- shorter spells in unemployment;
- better match between job supply and demand;
- a rise in aggregate labour demand;
- a wage formation process that takes better account of prevailing conditions in the economy and competitiveness constraints;
- an increase in expenditure on labour market policies and on training.
Despite structural progress, unemployment remains high. Moreover, progress in terms of labour productivity and quality (education attainment levels, the transitions from temporary to permanent jobs and out of low-paid jobs) is mixed. Finally, while there have been some signs of improvement towards greater social cohesion (reduction of gaps related to gender and age and of inequalities), the recent economic slowdown (2001-2003) may change that.
Income: a two-speed Europe
Overall there has been no sign of an increase in earnings inequality in Europe since the 1970s. Yet the report highlights marked differences between Member States, with earnings disparities in old Member States between two and four times larger than in new Member States. There are also substantial earnings disparities within Member States, from one region to another or even from one sector to another. Moreover, as in the case of employment, income is also influenced by various factors: firms' specificities (size, organisation, structure, activity), individual characteristics of workers (skills, profession, gender, age), institutional features (bargaining schemes, type of contract).
The report therefore advocates finding the right balance between efficiency and equity in wage policies, which would help to effectively solve any dilemma between social cohesion and growth objectives.
Potential labour supply from the inactive population
As indicated in the report, in 2004, the economically inactive population of working age (15-64) for all 25 Member States totalled 92 million, corresponding to an average inactivity rate * of over 30 %. This rate varies greatly from one country to another, ranging from a low of 19.9 % in Denmark to rates of around 40 % in Hungary (39.5) and in Malta (41.7).
Overall inactivity varies according to gender and level of qualifications, but less so according to age. Inactivity is around 16 percentage points lower for men than for women. Moreover, inactivity rates are over 47 % for the low-skilled against just over 13 % for the high-skilled. However, in terms of age, the inactive population is distributed evenly with one third in each of the three main age segments - youth, prime-age and older people, despite the fact that the prime-age group is the largest one.
The report identifies five reasons for inactivity in Europe:
- participation in education and training, corresponding to around a third of the inactive population, mainly young people;
- retirement (20 %);
- family or personal responsibilities (approximately 16 %);
- illness or disability (13 %);
- not seeking employment (4.5 %).
The report also states that, in the long term, inactivity * is gradually declining as a result of two main trends:
- the entry into the labour market of increasing numbers of women aged over 25;
- older people of both sexes staying in the labour market for a longer period.
Between 2003 and 2004 around 9.5 % of the inactive population moved into employment, while a further 4 % joined the unemployed category. At the same time, 3 % of the employed and almost 22 % of the unemployed withdrew from the labour force. Figures show that the potential labour supply extends far beyond the unemployed; it also comprises a sizeable part of the inactive population. In several categories of the inactive population, the tendency to work equals even that of the unemployed.
Therefore, to use the inactive population as a potential labour supply, the report calls for more systematic use of various measures such as Active Labour Market Policies (ALMPs) and other measures supporting job creation and opportunities. More effective targeting is also a crucial factor in supporting their labour market participation.
Given the close links between economic growth and labour market performance, the slowdown in economic growth in the EU had a significant negative impact on employment creation. The report therefore recommends making growth and employment two key objectives of the revised Lisbon Strategy.
For further information see the website of the European Commission's Directorate General for Employment, Social affairs and Inclusion.