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Commissioner for Employment, Social Affairs and Inclusion
Investing in people: How to maintain Europe’s competitiveness
Royal Institute of International Affairs (Chatham House)
London, 16 May 2014
Ladies and gentlemen,
I want to thank the organisers for their invitation.
My subject today — maintaining Europe's competitiveness by investing in people — goes to the heart of the debate on getting a sustained recovery from the Great Recession that has dominated this Commission's term of office.
We did not achieve the ambitious goal of the Lisbon Strategy to make Europe by 2010 the most competitive and the most dynamic knowledge-based economy in the world. However, before the financial and economic crisis hit the EU, the Lisbon strategy still has helped create more than 18 million new jobs. This period was furthermore marked by the successful integration in the EU of 12 new Member States.
We all know what happened when we came to the final years of the Lisbon Strategy in 2010: what started as a real-estate bubble and a financial crisis across the Atlantic turned into an EU-wide crisis that combined a sovereign debt crisis, a banking crisis and a recession.
The 2008-9 crisis pushed up unemployment in both America and Europe. However, not in the same way. In several EU Member States, including Germany, a large number of jobs were preserved through short-time work arrangements, when it was understood that the collapse of demand was temporary. So in this period, unemployment in Europe did not increase as fast as in the US. This was clearly the right strategy that helped to preserve human capital.
However, the crisis in the EU became longer than in the US, mostly due to institutional constraints and imbalances in the Economic and Monetary Union.
Since 2012, the reconstruction of the Economic and Monetary Union has become part of our recovery strategy. This has some consensual elements, like the banking union, where progress has already been made. In the coming months, discussions will have to continue about what further elements are needed for a deep, genuine, sustainable, and legitimate Economic and Monetary Union.
What I want to stress now is that there can be no recovery in the depressed economies in the EU without a skilled workforce. This means that the core idea of the Lisbon Strategy remains valid: the main source of competitiveness in the EU is human capital and we need to invest in it.
The successor to the Lisbon Strategy, Europe 2020, also confirmed that smart and sustainable and inclusive growth, and thus our competitiveness, relies on investment in human capital.
The Europe 2020 strategy is currently under review and I am confident that the strategy will have to maintain the focus on investment in people.
Just as the economy is there for people rather than the other way around, so competitiveness is a means of fostering their well-being and prosperity.
There is no point in a country's firms making big profits if the country has high social costs due to unemployment and poverty or poor performance in terms of workers’ health and safety.
There is no point in having an apparently competitive economy if it is achieved at the expense of social cohesion, since this is just simply not sustainable.
These ideas were the basis for the Commission’s Social Investment Package, which shows that social spending is largely an investment that can bring a significant return and savings over time.
Social policy can provide activating and enabling support to people at all stages of their lives. Where it is well designed, it can have a significant impact on improving people’s skills and employability, as well as preventing hardship and reducing people’s need to call on social support.
Ladies and gentlemen,
There are two paths to achieving competitiveness on the global marketplace.
One is based on low prices and costs, while the other relies on high value added and high-quality products.
When the EU decided to put investment in innovation, research and education at the heart of the Europe 2020 Strategy, it chose the latter path that involves the high end of the market.
I believe that was the right choice and we should not go back on it.
The alternative would mean engaging in a race to the bottom in terms of labour standards and wages, weakening workers' rights and worsening labour conditions.
That would not only be detrimental to workers, but would also make little sense economically.
After all, the world's most competitive economies generally have robust social protection systems and high labour standards.
They also invest substantially in education, research and development.
EU members, including the UK, were in 11 of the top 30 in the World Economic Forum’s Global Competitiveness Index ranking.
Finland, Germany, Sweden and the Netherlands, which were third, fourth, sixth and eighth respectively, all invest a high percentage of their gross domestic product in social expenditure.
The decision to follow the path we have chosen demands we keep ahead of the game by improving our workforce’s skills, opening up to innovation and investing in new technologies. It underlines the link between smart and inclusive growth.
A good example is the initiative Commissioner Kroes and myself took on the grand coalition for digital jobs. This coalition of stakeholders and the industry addresses mismatches and fills vacancies of ICT practitioners to boost employment.
The approach we take also means continuing with action to improve occupational health and safety. It contributes to company performance and individual well-being. It reduces the cost of accidents at work and work-related ill-health, reduces absenteeism and staff turnover and brings greater job satisfaction and higher productivity.
The EU has already world-class legislation on health and safety at work but we need to continue adapting our approaches for instance to the ageing workforce and technological developments. Therefore I will present early June a new EU Strategic Framework on Health and Safety at Work for the period until 2020.
Focusing on investing in people also means tackling unemployment, under-employment, poverty, including in-work poverty, and the gender gap on the labour market.
Unemployment and under-employment represent a waste of skills that drags down a nation’s competitiveness.
That is also true of undeclared work, which clearly represents a no- win situation. It deprives workers of social protection, puts their health and safety at risk, lowers labour standards, undermines fair competition for businesses and endangers the sustainability of public finances and social security systems.
That is why the Commission put forward a proposal in April for a European Platform to enhance the fight against undeclared work.
Ladies and gentlemen,
If there is one group for whom increased social investment makes sense, it is young people — because they hold the key to Europe's future and they are paying a high price as a result of the economic crisis.
Across the EU, 7.5 million young people in the 15-to-24 age bracket are neither in employment, nor in education or training (NEETs), and the same applies to another 6.5 million of those aged 25 to 29.
That means we have 14 million NEETs under the age of 30 in the Union, which is about the same as the combined population of Austria and Denmark.
A related problem is the persistent difficulty of filling vacancies, which points to a labour-market mismatch and shows that many young people do not have the right skills for the jobs out there.
The job vacancy rate for the EU is about 1.5%, which means roughly 2.5 million vacant posts.
Our economy is clearly not generating enough work opportunities for all the unemployed people. But we also have a problem in the sense that the job vacancy rate has been quite stable in the past few years, even though unemployment has continued to rise.
Overall, the situation is therefore very serious. Clearly, what young people need is focused, effective assistance to ease the impact of the crisis on their lives.
If we don't help this generation to get a foothold on the labour market now, their employability, productivity and life-time prospects will be damaged for years and decades to come.
The key measure to combat youth unemployment is the Youth Guarantee scheme set up by the Commission and European Heads of State and Government.
The Youth Guarantee means ensuring that every young person up to 25 receives a high-quality offer of a job, an apprenticeship, a traineeship or the chance to continue his or her education within four months of becoming unemployed or leaving formal education.
Of course, the Youth Guarantee costs public money, but doing nothing has been calculated to cost far more.
The ILO puts the total cost of establishing Youth Guarantee schemes in the euro area at 21 billion euros — that’s 0.22% of euro-area GDP.
But the European Foundation for the Improvement of Living and Working Conditions has estimated that if you add up the cost of benefits paid out to unemployed young people — and especially the loss of earnings and tax revenue — the economic cost of young people's disengagement from the labour market is equal to 1.21% of EU GDP.
That amounts to a collective annual loss to the Member States of 153 billion euro at 2011 figures!
Ladies and gentlemen,
Let me in conclusion shortly discuss the important topic of wages.
A competitive economy is one with high productivity and low costs relative to the value of the goods and services it produces — in other words, the added value it generates.
Those costs include fiscal, administrative, social-welfare, debt-servicing and other costs, and not the cost of labour alone.
Measuring competitiveness means taking a country's overall costs into account, and not just the labour and non-labour costs relative to the price of goods and services produced.
If the question is where Europe needs to find ways to reduce costs, energy comes to mind for sure. Energy efficiency, energy security, and energy independence require investments. This was already important before the Ukraine crisis, and it is even more important now. This has to be a real priority of the EU.
As regard wages, it is important to see that wages are not only a cost but also a factor that helps working people to stay out of poverty and supports aggregate demand.
I can therefore only welcome the fact that the UK has a minimum wage. It is striking that Germany only very recently came to this conclusion.
On the other hand the UK, but also the US, can learn from Germany and other Member States where it comes to the role of social dialogue. It is no coincidence that some of Europe’s most dynamic economies have a longstanding history of consensual and elaborate industrial relations.
Social dialogue is not a drag on competitiveness, but an asset in dealing with labour market issues, such as new, more flexible working conditions, restructuring and company relocation.
We need to adapt to technological change, move to a low-carbon economy, address workforce decline and population ageing. All these challenges are more easily tackled via social dialogue to foster a consensual approach.
Ladies and gentlemen,
Europe’s people are our most important asset.
Developing their skills and enabling Europeans to use them to the full are our best way of improving our competitive position on the world market and ensure smart, sustainable as well as inclusive growth.