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MEMO/11/916

Brussels, 15 December 2011

First annual review of Employment and Social Developments in Europe

What is the labour market situation in the European Union?

Employment growth has followed the timid economic recovery of the past two years with an important lag and resulted in a gain of only 1.5 million jobs by mid-2011. This is much less than the 6 million jobs lost during the recession and a large share of the jobs created is represented by temporary contracts. In addition, employment recovery has been very uneven across Member States. Unemployment rates range from 3.9 % in Austria to 22.6 % in Spain. In the EU as a whole, the unemployment rate has been around 9.5 % for more than a year, with 23.5 million people now looking for work. Youth unemployment is particularly alarming. It has risen to more than 5 million (20 % of young people on the labour market) and is above 25% in 10 Member States, with a high of 48 % in Spain. The prospects for sustained and job-rich economic recovery have again become more distant, with a slowdown in world trade and the protracted Euro crisis. The Commission autumn forecast projects that GDP growth during 2012 and 2013 will not be sufficient to bring about a labour market improvement.

Year-on-year change in permanent, temporary, self employment, and total employment (15-64) (thousands of persons), 2006-2011

Source: Eurostat EU-LFS

A peculiarity of the current situation is that, despite the high levels of unemployment, the job vacancy rate has been picking up and is higher than one year ago. The coincident rise in job vacancies and unemployment rates suggests a risk of increased mismatches of skills post-crisis and higher so-called equilibrium unemployment1. It is therefore particularly important to invest in active labour market policies and skills so that more vacancies can be filled and employment can act as a source of growth.

What is the social impact of the crisis and what does it mean for EU's welfare systems?

High unemployment rates continue to feed into long-term unemployment. The share of the long-term unemployed as a proportion of total unemployment has increased to 40% and may climb further. This is significantly increasing the risks of long-term exclusion from the labour market and society. The negative social consequences of the recession are already acutely felt by large numbers of the EU citizens. Together with rising long-term unemployment, many citizens face important income losses, and increased risks of poverty and material deprivation. As the economic context remains difficult, governments' fiscal space will remain very tight, with little prospects of increased levels of social spending.

How has job structure evolved in the EU?

A polarisation of jobs in the EU was prevalent before the crisis. As the chart below shows, newly created jobs during the decade before the crisis were largely concentrated in relatively high and low pay levels, notably in the service sector. This trend gained a new intensity in the recession, which saw massive destruction of medium-paid jobs in manufacturing and construction. The only sector where more jobs were created than lost is the higher wage sector.

Changes in EU employment levels by wage quintile, 1998–2007 and Q2 2008—Q2 2010q (thousands)

Source: EU LFS (authors' calculations), Fernández-Macías (2010)

What is the labour market impact of these changes?

Educational and skills profiles in the new job structure are becoming more demanding. Low-skilled jobs will continue to exist, but they will require better literacy, numeracy and other basic skills. Availability of more high-skilled jobs will not guarantee that all graduates can find work unless tertiary education foresees and adapts to new needs. The analysis also highlights that younger workers, despite their ‘fresh’ human capital endowment, did not partake of any of the increase in the better paid jobs. Addressing youth unemployment and promoting ‘new skills for new jobs’ must go together.

Is there more inequality in the EU and what can be done about it?

Differences in wages (wage polarisation) are an important factor impacting on a broader social problem facing the EU, namely rising income inequalities. While some of the most unequal EU countries have somewhat reduced inequality over recent years as their social systems have matured, many traditionally egalitarian countries, the Nordic countries among them, have witnessed increasing income inequality. Despite the positive role which social systems played in the stabilisation of household incomes in most countries during the crisis, the long term trend in income inequalities remains a generally upward one.

Even in the current economic context, with little prospect of increased social spending, there are policy tools available to address growing income inequalities. Raising participation in employment, addressing wage inequalities, and facilitating upward transitions are essential. There is also room for raising the quality and efficiency of social spending, better exploiting the role of in-kind benefits or reflecting on enhanced taxation of top incomes and wealth.

What is the situation of poverty?

Poverty is an extreme result of rising inequalities. 115 million Europeans (23 % of the EU population) were at risk of poverty or social exclusion in 2010, against 114 millions in 2009. Four in ten working-age Europeans at risk of poverty or social exclusion are inactive. Europeans over 65 years of age represent 16% of the overall population, but 22% of the population at risk of poverty or social exclusion. Lone parents and their children face drastically higher risks of poverty or social exclusion. Children represent 26% of the population at risk of poverty or social exclusion. Single parents with dependent children are facing high risk of poverty or social exclusion. They represent on average 6 % of the population at risk of poverty or exclusion, while only accounting for 2 % of the overall population. These groups are clear targets for focused action.

The Commission presents evidence that illustrates the multiple facets of poverty and exclusion as they prevail in different parts of the EU. Eastern Europeans are more often facing severe material deprivation, while exclusion from the labour market prevails in the Northern and Western Member States. To tackle the issue efficiently, it is vital to identify precisely the situations that lead to the greatest risk of poverty and social exclusion in different countries.

Risk of poverty or social exclusion in Europe in 2010

Source: EU SILC, * data for 2009

What about in-work poverty?

Having a job remains the best safeguard against poverty and social exclusion but it does not always ward off the risk of poverty. Over 8 % of people with a job are at risk of poverty – so called "working poor". The risk of in-work poverty is higher for individuals in temporary or part-time jobs or with low education. Workers on a temporary contract face a risk of poverty (12.9%) that is more than twice as high as the risk faced by those permanently employed (5.1%). In addition, workers on temporary contracts are paid on average 14% less than workers with similar age and skills employed on a permanent contract, and only 1/3 of them are likely to find a more secure job within 1 year.

Household circumstances also play role. Households working at only half of their potential (e.g. one-breadwinner couples) face four times higher risk of poverty (20 %) than those who realise their full potential (5 %). For low-work-intensity households, having children is a further aggravating factor - it doubles the risk of poverty in comparison with similar childless households. In that respect, reconciliation measures and quality childcare services play an important role in allowing second earners and lone parents to participate in gainful employment. In some countries, low pay is the predominant factor, leading to high risks of in-work poverty, even in households working at their full potential.

In-work poverty in the EU, 2010

What about our ageing society?

The working population in the EU is projected to age significantly in the coming decades, while the age-dependency ratio will increase sharply. In combination with low and perhaps further falling fertility rates, it will pose a major risk to fiscal sustainability. In the European Union as a whole, older people's employment rate increased from some 37 % in 2000 to over 46 % in 2010 – about 4 percentage points short of the 50% target. The average exit age from the labour force – i.e. the most probable age at which people (who are at least 49 years old) leave the labour force - rose from just under 60 years in 2001 to over 61 years in 2009 in the EU-27. The highest average exit age is seen in Sweden, at over 64 years, while the lowest is in Slovakia, at under 59 years.

Average exit age from the labour force in 2009

Source: Eurostat, EU LFS (tsdde420 )

Note: country label with* for 2008 (or earlier) latest year, country label with ** 2002 for earliest observation, country label with *** for 2002 earliest year and 2006 latest year.

Empirical evidence gathered by the Commission suggests that active ageing policies should not be limited to removing financial disincentives to work longer or discouraging early retirement, but should include supportive measures specifically targeted at older workers: stimulating learning and training to avoid skills obsolescence, the prevention of long unemployment spells, adapting working conditions to the specific characteristics of older people (e.g. by access to part time work), maintaining good health of older workers, and providing care for the elderly. By investing today in all generations and in new ways of involving older people, the economic challenges of demographic ageing can be mitigated. Increasing older workers employment is also essential to reach the EU employment rate target of 75 % by 2020.

What has been the effect of workers mobility after the 2004 enlargement?

Since 2004, the traditionally low intra-EU labour mobility has increased by around 3.6 million movers coming from EU-12 countries (that joined the EU in 2004 and 2007). Although the flows have considerably diminished since the recession, the labour market integration of newcomers has become more difficult in some of the worst-hit countries, especially in Spain. Nevertheless, for most countries, no significant impact on local unemployment or wages has been found and a recent model-based study estimates that mobility from the EU-12 countries during 2004-2009 may have boosted the aggregate GDP of the receiving EU-15 countries by almost 1% in the long term. Restricting free movement of workers cannot be the answer to high unemployment in Europe and may have negative side-effects beyond being a curb on workers' freedom to move.

For the countries of origin, the risk of brain drain seems overall limited, as the share of tertiary educated is lower among the recent movers than among the active population of the sending countries and there has been substantial increase in the tertiary education attainment rates in EU-12 countries in recent years. Finally, remittances sent by workers living abroad to EU-12 countries represent a substantial source of income in the sending country and can help to drive economic growth.

See also: IP/11/1552

MEMO/11/773 on the recently adopted Commission report on transitional arrangements regarding free movement of workers from Bulgaria and Romania

The full report is available at:

http://ec.europa.eu/social/main.jsp?catId=738&langId=en&pubId=6176

Key figures on the employment and social situation in EU Member States:

http://ec.europa.eu/social/BlobServlet?docId=7267&langId=en

1 :

The level of unemployment at which aggregate labour supply and demand are in balance at the given market level of wages.


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