Commission draft for the
JOINT EMPLOYMENT REPORT 1997
2. GROWTH AND EMPLOYMENT SITUATION AND OUTLOOK
3. EMPLOYMENT POLICIES AND BEST PRACTICES IN MEMBER STATES
3.1. MAKING POLICIES MORE EMPLOYMENT-FRIENDLY
3.1.1. Activation of Labour Market Policies
3.1.2. Reforming Taxation Systems
3.1.3. Wage Policy
3.2. TACKLING STRUCTURAL PROBLEMS IN THE LABOUR MARKET
3.2.1. Combatting Long-Term Unemployment
3.2.2. Integrating Young People into the Labour Market
3.2.3. Promoting Equal Opportunities in Employment
3.3. ADAPTING TO CHANGE
3.3.1. Education, Training and Life-long Learning
3.3.2. Work Organisation and Working Time
3.3.3. The Role of Social Partners
3.4. STRENGTHENING THE LOCAL DIMENSION
3.4.1. Job Creation Initiatives and Local Involvement
3.4.2. Increased Role and Decentralisation of Employment Services
3.5. SUPPORT FOR EMPLOYMENT PROMOTION IN MEMBER STATES PROVIDED BY THE STRUCTURAL FUNDS
The Employment Indicators
List of Examples of Best Practices Suggested by Member States
This Joint Employment Report examines recent developments in employment policies, principally on the basis of submissions made by Member States and their Multiannual employment programmes. In addition, the Report draws upon the examples of "best practice" which the Heads of Government have indicated in reply to the request formulated after the European Council of Amsterdam by Prime Minister Juncker, with a view to serving as a basis for an exchange of experience on new and successful initiatives at the European Jobs Summit in November 1997.
The integrated employment strategy was initiated by the European Council in Essen, in December 1994, as a follow up to the White Paper Growth, Competitiveness, Employment. The European Council asked Member States to establish Multiannual employment programmes (MAPs) and to report to the Commission on their implementation. The reports describe the major policy measures taken by governments to implement their Multi-Annual Programmes (MAPs) over the previous 12 months, assess in some cases the impact of such measures on the employment situation and announce major policy reviews or new initiatives.
The so-called Essen strategy was further developed by the European Council in Madrid (December 1995) and in Dublin (December 1996) each time on the basis of a Joint Report prepared by the Commission and the Council (ECOFIN and Social Affairs) and including a synthesis of the reports on the implementation of MAPs. In Florence (June 1996) and Amsterdam (June 1997), the European Council received shorter Joint Interim Reports.
The Amsterdam Treaty institutionalised this procedure (Art.  of the new Title on employment) and introduced two major innovations. Acting by a qualified majority on a proposal from the Commission, and after consulting the European Parliament, the Economic and Social Committee, the Committee of the Regions and the Employment Committee, the Council shall each year draw up guidelines on employment which shall be consistent with the broad economic policy guidelines. Acting by a qualified majority on a recommendation from the Commission, it may also make recommendations to Member States in the light of its yearly examination of their employment policies. In Amsterdam, the European Council decided to make the relevant provisions of the employment title immediately effective.
The preparation of this Joint annual Report to the European Council on the employment situation in the Community is part of the procedure instituted by Art.  of the Employment Title. The employment strategy must, of course, be part of an overall integrated approach, involving sound macroeconomic policies, a functioning Single Market and the taking of employment into account in all Community policies.
This Joint Report starts with a presentation of the employment situation and outlook (chapter 2). It then focuses on labour market reforms and highlights progress in the implementation of MAPs, based on Member States reports, and examples of best practice selected in function of their applicability in several Member States (chapter 3)
2. EMPLOYMENT AND ECONOMIC CONTEXT
The poor performance of the EU economy between 1991 and 1996 - with an average rate of real GDP growth of 1.6% per year and a cumulated loss of 4.4 million jobs -, was mainly the result of a stability conflict which lead to an overburdening of monetary policy. Indeed, the lax budgetary policies since 1988, the overheating and acceleration of inflation since 1989, and wage developments inconsistent with the objective of price stability in the early 1990s, induced strong tightening of monetary conditions with very high interest rates. The ensuing slowdown was exacerbated by currency crises reflecting the insufficient credibility of economic policies and the lack of policy co-ordination.
Recovery began in mid-1993 and strengthened in 1994. Employment increased by over 1% between the first quarter of 1994 and the third quarter of 1995. But exchange rate turbulence linked to a lack of credibility of some Member States policies aborted this recovery, affecting both the countries whose currencies appreciated and those countries whose currencies depreciated.
A gradually strengthening upturn in economic activity is now underway, based on a sound re-balancing of the macroeconomic policy-mix together with convergence progress. Progress in budget consolidation, combined with low and declining inflation rates, noticeable wage moderation in most Member States and prospects for moderate wage increases, have paved the way for a significant easing in monetary conditions. Thus economic policies have become more conducive to a soundly based and sustained expansion of output, investment and employment. Their effect has been enhanced by progress in completing the Single Market.
For the Community as a whole the pace of expansion is expected to reach 2.4% in 1997 and accelerate to 2.8% in 1998. This progressive acceleration in GDP growth above the labour productivity trend results in net employment creation, at a rate of 0.5% and 0.9% in 1997 and 1998, corresponding to a cumulated increase of about 2 million jobs. This represents only slow progress, however, in making up the 5 million job losses of the early 1990s, let alone in achieving the rate of expansion of jobs which is needed to provide employment for the increased numbers of people wanting to enter the labour force or to re-enter it after a spell of inactivity.
The decrease in unemployment will remain somewhat limited (from 11% of the labour force in 1996 to 10.3% in 1998) since labour supply is still expected to grow at about 0.5% per year due to a further rise in participation of women and fewer men withdrawing from the labour force.
But many groups find it difficult to get into jobs even when they are available. At EU level, long-term unemployment began rising in 1992 and it has reached 5.2% of the labour force in 1996. Youth entry into the labour market also remains a major issue, with an EU unemployment rate around twice the rate for adults, though it has fallen significantly from the very high levels of the early 1980s.
In its 1997 Recommendation on the broad economic policy guidelines, the Commission underlined the interrelationship between non-inflationary growth, consolidation of public finances and the possibility of solving the unemployment problem. It pointed out that most Member States needed to implement structural reforms since structural deficiencies continued to restrain both growth and the degree to which growth could be translated into additional employment. At the same time, it emphasised that policies to improve competitiveness and the functioning of product, services and labour markets will bear full fruit when the economy is expanding rapidly and is generating a high number of jobs and it underlined that an employment-friendly growth must be supported by higher investment, both private and public.
The single currency and a fully functioning Single Market will bring a fundamental change in the economic policy framework. Under EMU, the suppression of the risk of currency disturbances between participating countries eliminates an important obstacle to growth. At the same time, the adoption of a common, price-stability oriented, monetary policy and the budgetary discipline resulting from the respect of the Treaty provisions (Articles 104-104c and 105) and the Stability and Growth Pact will reduce the risks of conflict between budgetary and monetary policies. In such a context, wage developments should also take into account the objective of price stability and the need to preserve or strengthen - if needed - the profitability of employment-creating investment. The risk of a new stability conflict, which, in the past, repeatedly undermined the growth and employment performance of the Community, could thus be avoided in the coming years, assuming the continuation of a balanced policy-mix favourable to growth and employment. In this way also the conditions can be provided for creating more and better jobs for the citizens of Europe, while at the same time fostering social justice and an environmentally sustainable growth process.
3. EMPLOYMENT POLICIES AND BEST PRACTICES IN MEMBER STATES
In accordance with the monitoring system agreed in the European Council of Essen, and implemented by the Employment and Labour Market Committee, all Member States have reported in 1997 about the implementation of their Multi-Annual Programmes for Employment. In addition, the Heads of Government have indicated a number of policy measures that have proved particularly successful in their respective countries, in reply to Prime Minister Junckers request for examples of "best practice".
These two series of documents provide a fair amount of evidence enabling the Commission to review and assess the progress made in the European Union towards the reform of the labour markets, against the background of the policy recommendations successively adopted in the European Councils since December 1995. The present chapter:
The scope of this chapter is very broad, so as to encompass the variety of structural problems facing all Member States of the Union, and their respective policy strategies. Section 3.1. deals with reforms in three policy areas, that are crucial to increase job creation and improve the functioning of the labour market: the activation of labour market policy, tax systems and wage policy.
Section 3.2. covers the targeted structural policies identified in the Madrid Council: preventing long-term unemployment, curbing youth unemployment and implementing effective equality of opportunities in the labour market.
Section 3.3 deals with the need to adapt flexibly to current structural change in skill requirements, production systems, and individual preferences. Current reforms and initiatives in the areas of training and life-long learning as well as work organisation and working time, are dealt with in this section, which also stresses the important role of social partners in supporting policies in these areas.
Section 3.4. emphasises the increasingly important role of the local dimension in current policies to promote job creation in new services and the social economy, and in reforms to make the employment services more responsive to the local labour market needs.
In their reports all Member States recognise the importance of problems such as the lack of skills and of motivation among the unemployed, the lack of suitable jobs for those experiencing greater difficulties to get back into employment, high non-wage labour costs and too rigid rules on the organization of work and working time. Plenty of policy measures, initiatives and projects have been reported by Member States, reflecting genuine concern with the structural causes of unemployment. In many, social partners, local authorities and interest groups have been actively involved in the search for solutions.
The overall picture that emerges however, is somewhat obscure, given the insufficient integration between policy measures and the absence in many cases of any clear long-term strategy, or well defined policy goals. It is therefore difficult to assess whether the Union and each of its Member States individually is going in the right direction, and which policy changes should be brought forward in order to increase the effectiveness of the measures taken.
In some cases, the reforms and policies have been too timid considering the scale of the problem or too patchy without a comprehensive and coordinated approach. The outcome has been, in some cases, the emergence of a sort of two-tier labour market where the impact of reforms falls mainly upon marginal groups of the labour force. There remains the need to tackle the key problems in the functioning of the labour markets and to gather wide support for bold reform projects.
Morover, monitoring and evaluation remains a serious problem. For a few individual policy measures, evidence has been provided as to their positive impact in improving the employment situation. But, either because of the short time elapsed since implementation or of insufficient evaluation research, there is yet no solid ground for assessment of many policy measures. Where they exist, evaluation results suggest that there are no undisputed successes in employment policy, and that the transfer of policies between countries should be accompanied by careful examination of the institutional and economic context.
Improved co-ordination of employment and labour market policies in the Union requires more and better monitoring and evaluation of the impact of employment and labour market policies and a more active dissemination of results.
The Commission and the Member States received a mandate from the European Council in Dublin to assess the possibilities of benchmarking as an instrument for the effective monitoring and evaluation of employment and labour market policies and the identification of good pactice.
During 1997, work has been under way in the Employment and Labour Market Committee in order to arrive at an operational definition of benchmarking in the employment field and obtain some preliminary results with a view to their inclusion in the present Joint Report.
In this context, benchmarking is seen as a formalised process by which the employment performances of all Member States are compared with each other, in order to highlight the best ones, to identify which policies have been most effective in raising performances and to set desirable outcomes of policy.
Benchmarking can help to underpin the European strategy for employment, by providing national governments with a common understanding of the need for reform, a framework for diagnosis of major weaknesses in national policy, and a set of clearly understandable employment targets against which future progress can be assessed. In addition, benchmarking can contribute to greater convergence of employment performances in Europe.
Three priority areas have been agreed for the benchmarking exercise in 1997, in line with the three structural objectives identified in the European Council of Madrid: long-term unemployment, youth unemployment and equal opportunities in the labour market.
The method of benchmarking has been a very useful learning tool, that builds on the variety of situations and policies within the Union, to highlight the effective role of well established policies and institutions in contributing to good employment performance in a number of Member States. The material so far produced in the context of this exercise has been introduced in the relevant analytical sections below, and will be considered as part of the quantitative rationale underpinning the Employment Guidelines.
The potential of the benchmarking method deserves to be further exploited, and to this end the Commission and the Member States will work closely together in the framework of the Employment and Labour Market Committee.
3.1. Making policies more employment-friendly
3.1.1. Activation of labour market policies
Successive European Councils have issued recommendations to re-balance public expenditure from passive to active labour market policies and regularly assess the cost efficiency of active measures.
An excessive emphasis on income protection for the unemployed to the detriment of measures providing for training and job experience creates undue desincentives to active job search and contributes to the loss of motivation and skills, thereby jeopardising the chances the unemployed have of getting back into paid jobs.
The majority of Member States devote a disproportionate share of labour market expenditure to passive income support policies, like unemployment and early retirement benefits, instead of active policies. In 1992, the ratio was of 2 to 1. Since then, the policy-mix has shown some signs of improvement, albeit slowly and in a one-sided way. For the EU 15 as a whole, standardised spending in passive policies, defined as spending as a percentage of GDP and per 5% of unemployment, declined steadily from 1.17 % in 1992 to 0.96 % in 1996, (see Chart 1) indicating that on average Member States are adopting less generous support measures and submitting them to greater control. Active policies, after declining to 0.52 % until 1994 in relative terms (as a result of the crowding-out effect linked to the rise in unemployment), have recovered slightly since then to 0.54 % in 1996. They represent now 36 % of the total amount spent on labour market policies.
These trends suggest that, instead of a resolute shift of resources from passive to active policies, the majority of Member States seems to be giving priority to budgetary consolidation and spending less in relative terms on the labour market.
Chart 1 - Active and passive policies in the EU 1992-96
(as a % of GDP per 5% of unemployment)
Assessing member States performance on the sole basis of this indicator can however, be misleading.
Re-balancing spending from passive to active measures can also be achieved by a careful design of both passive and active policies so as to increase complementarity between these two.
All Member States report on recent efforts undertaken in this direction. While some of them are linking more effectively income maintenance and participation in training or employment programmes, in order to increase the number of unemployed job-seekers actively taking part, others are reshaping or modernising the institutional arrangements for dealing with unemployment protection in order to reduce undue disincentives and fight abuse and fraud. Some Member States combine the two approaches.
Reshaping unemployment protection. In many Member States, the eligibility criteria and/or the duration and level of unemployment benefits have been tightened, while stricter definitions of availability for work and tougher sanctions on those refusing available jobs, or attendance at a training course, were introduced. Payment of benefits is becoming more dependent on the efforts made by the recipient to find suitable work. In some countries, personal registration periodically at the employment office is mandatory, in order to continue receiving benefit.
The 1994 reform in Denmark introduced profound changes in the functioning of the labour market, by shifting the focus from passive income support to active policies. The period over which the unemployment benefit is paid was reduced from 7 to 5 years, and those failing to find a job during the first two years of unemployment pass into an "activation period" during which they have both a right and duty to accept a training offer.
A number of instruments have been created for the activation of the long-term unemployed:
In general, activation seems to have had a positive impact in the sense that it lowers subsequent unemployment. This goes for both education and job-training. However, better results of job-training by the private sector are consistently found in evaluations of Danish labour market policy. For those activated early, private job-training reduces subsequent "gross" unemployment by 16 percent, while public job-training just achieves 4 percent.
These superior results of job-training with wage subsidies in private firms reflect superior quality of training in the private sector as compared to the public sector, and the fact that private firms have greater possibilities for keeping trainees after the subsidy terminates.
However, the overall positive results of the reform cannot be attributed only to the employment effects of training. The right/duty to full-time activation means that the measures during the activation period are based to a greater extent than before on systematic control of the duty to be available for work and on a motivation effect.
Individual guidance of the unemployed was given high priority in the Danish labour market reform. Each unemployed person who is considered within the special risk groups defined by the regional labour market councils is given an "individual plan of action". The plan specifies the employment goal of the individual unemployed and the kind of activation (education, job-training etc.) that the unemployed must undertake in order to regain ordinary employment. In some cases the unemployed may take the initiative to get an individual plan of action.
The recent evaluation of labour market reform has shown that individual action plans are effective as instruments for reallocating the unemployed towards new areas of employment, as three out of four of the unemployed have goals for their future employment which differ from the previous employment and educational background. Furthermore, in four out of five cases, the employment goal specified in the plan is in line with the wishes of the unemployed, which is crucial to obtain high motivation on the part of the unemployed person for any action that is proposed.
Activating the unemployment benefit. In an increasing number of countries, the unemployment benefit is now being "activated", i.e. transformed in a wage subsidy or a training allowance. In Denmark, with the 1994 labour market policy reform, the focus shifted from passive support to active policies. It is estimated that the number of persons-years spent on active generation schemes in 1997 (including unemployed persons on training leave) will amount to 87,000, or 5,000 more than in 1996. This increase is due entirely to the phasing in of the right and obligation to participate in activity generation after two years. At the same time, there was a decentralisation and individualisation of measures involving a right and duty to activation ofr unemployed persons who were insured against unemployment or receiving social assistance. (see Best Practice no. 1). Measures going in the same direction have been also reported by Austria (special integration assistance and training allowances), Belgium (occupational transition programmes and first work experience contracts), France (co-operation agreements), Netherlands (active use of unemployment benefits to promote work experience) and Germany (bridging allowance).
Topping up low income with welfare payments. In-work benefit schemes, providing for the payment of income support on top of earned income below a certain minimum level, continue to be implemented in Ireland (Family Income Supplement), UK (Family Credit) and more recently, Belgium (Guaranteed Income Allowance) with the aim of reducing the disincentive to taking up low-paid work. Ireland also maintains the Back-to-Work Allowance Scheme, which provides for the retention of reducing amounts of unemployment payments over three years. This scheme has enabled over 19 000 former long-term unemployed to re-enter the labour force. Some 50% of the scheme participants are self-employed. Despite a long history of in-work benefit schemes, evaluation findings are mixed. There is some evidence that these arrangements actually help get people into low-paid work in the short term, but may subsequently provide a strong disincentive for moving into better paid work or from part-time to full-time jobs.
Progress towards a more balanced policy-mix between active and passive policies has been slow. Member States still spend only 36 % of their labour market expenditure on active measures. Budget consolidation seems to have taken precedence over expenditure restructuring. More carefully designed policies, based on the activation principle, have been reported, suggesting that qualitative improvements are under way and that greater complementarity between active policies and the benefit system is being sought. Evaluation of recent policy measures is crucial in order to assess whether effectiveness of labour market policy is being enhanced.
3.1.2. Reforming taxation systems
The Dublin Declaration advocated more employment-friendly taxation and social protection systems, in line with the Essen Council recommendation to cut non-wage labour costs, with particular emphasis on unskilled workers.
Trends over the last 15 years in Member States show an increasing tax burden (i.e. taxes and social security contributions) on labour (chart 2). The implicit tax rate (i.e. tax revenues divided by the appropriate base) on labour employed has increased steadily in the EU from 34.9 % to over 42 % between 1980 and 1995, whereas the same rate for other factors of production (capital, energy, natural resources) has decreased from 45.5 % to less than 35 %. Unless this trend towards increasing taxation of labour is reversed, employment will be further discouraged, because labour becomes more costly for employers, less rewarding for workers and less advantageous relative to capital
Chart no. 2 - EU implicit tax rates - 1980-95
Of particular concern has been the increase of social security contributions payed by employers which now represent more than 20 % of total labour costs on average for the majority of Member States. This high share of contributions represents a disincentive for recruitment, particularly at the bottom range of the wage structure. The proportional or regressive structuring of contribution rates is responsible in the majority of Member States for a disproportionate share of non-wage labour costs for low-wage workers, which adds to the difficulties which in certain cases can be created in this respect by statutory as well as collectively agreed minimum wages. Another problem remains the treatment of households as a single taxation unit, which in practice acts as a disincentive for the labour supply of women and their participation rates.
Adapting taxation systems to make them more employment-friendly. Some Member States have reduced marginal income taxes in the lower brackets, so as to remove disincentives to taking up low-paid or part-time work . Others are considering more general tax reductions to encourage job creation especially among small firms. Across-the-board reductions in social contributions have been implemented recently in a few countries (Finland, Spain, Portugal). In Germany, fiscal reform has so far focused on the abolition of the wealth tax in 1997 and the local business tax on capital as from 1998, as well as the reduction of the fiscal burden of inheritance and donation taxes in cases where an enterprise is bequeathed. In Sweden, where payroll taxes have decreased during the 1990s, the reduction of the payroll tax for smaller enterprises was expanded in 1997.
Reducing taxes and social insurance charges on employers. Member States are implementing cuts in social insurance contributions targeted to low-wage workers, in order to reduce labour costs, encourage job creation and/or maintenance, and boost competitiveness in particular of labour-intensive sectors.
Belgium, France and Netherlands have implemented wide ranging reforms with the aim of reducing the level of non-wage labour cost for workers at the bottom end of the pay structure, which in these countries was far above the EU average. Ex ante evaluations have given rise to positive expectations about the job creation effects particularly among the low-skilled, and the effects on competitiveness.
In France, reductions in non wage labour cost amount to some 180 Ecus per month at minimum wage level, which means a wage cost decrease of 12.6%. A degressive reduction applies up to 1.33 times the minimum wage level. The budgeted cost of the measure for 1997 is 6 billion Ecus.
The Netherlands are also targeting reductions in non-wage labour costs at the low paid. Employers receive this reduction on the condition that the worker earns below 1.15 times the statutory minimum wage. At minimum wage level, this reduction now amounts to 830 Ecus per year and per worker, which corresponds to 28% of employers social security contributions and to 5% of the wage bill. The reductions will be doubled in 1998. Reductions are higher when the long-term unemployed are hired. The estimated budget costs of these measures are 420 million ecus in 1997 and 545 million Ecu in 1998.
The "Maribel quater" scheme in Belgium provides for a reduction in social security contributions for all firms employing manual workers. The reduction is a general measure in the form of a flat rate amount plus an additional reduction in proportion to the extent to which the firm relies on manual labour. In addition, Belgium mobilised the hiring potential of the self-employed and households by launching the "Plus-One Plan" in 1994. The programme grants persons or firms which have never employed workers, a three-year reduction (on a declining scale) in employers social security contribution for the first worker that they take on, provided that she or he is an unemployed person. In 1997, the plan was extended to the second and third workers taken on.
Low non-wage labour costs. In the UK , non- wage labour costs are low relative to those in most other EU countries. This partly reflects lower overall levels of taxation and contributions, but also the fact that health services are largely financed out of general taxation. A further important feature in the UK is that the social insurance contributions paid by employers are progressively structured, with the payments representing 10 % of gross wages for a worker employed on average earnings, falling to only 3% for a worker on 25 % of average earnings. Government policy is to keep non-wage labour costs as low as possible, particularly at the low end of the wage spectrum.
Temporary reductions in social insurance contributions as an incentive for hiring. In addition to structural reforms aimed at reducing non-wage labour costs, almost all Member States have implemented temporary reductions in social insurance contributions or opened up the possibility of paying wage cost subsidies aimed at encouraging the hiring of certain categories of job-seekers such as young people, the long-term unemployed, older workers, etc. Very little evaluation has been done on the effects of such schemes, which tend to be ad hoc in nature and vary frequently from year to year. However, it is likely that such reductions entail considerable substitution and deadweight effects, and contribute little to overall employment growth. Previous ex post evaluation of wage subsidy schemes have produced estimates of 10-25% of net employment creation effects.
Alternative sources of fiscal revenue. Overhauling the tax system in the required scale so as to make it more employment-friendly necessitates a sustained effort towards the restructuring of fiscal revenue. The proposal for an energy product tax (COM(97)30) gives member States the opportunity to shift the burden of taxation away from employed labour and towards the use of natural resources which damage the environment. The implementation of the energy product tax could create a very substantial number of jobs assuming that the revenues are used to reduce social security contributions A number of member States (Denmark, Finland, the Netherlands, Sweden and the United Kingdom) have specifically included tax shifting in the design of environmental taxes, some specifically recycling revenues to reduce the cost of employed labour.
While there is ample evidence that the high tax burden on labour has militated against recruitment of workers, particularly those with lowest skills and in low-wage sectors, few Member States have undertaken a thorough overhaul of the tax system in order to make it more employment-friendly. Instead, they have tended to adopt ad hoc and temporary cost-cutting measures. Moreover, frequent changes in policy design in this area make it more difficult to assess the effects of such measures in the longer term. In any case, non-general cost-cutting measures must be in conformity with Articles 92-94 of the EC Treaty.
3.1.3. Wage policy
The need for real wage costs per head to remain below overall productivity growth, so as to stimulate productive investment, has been repeatedly stressed by the European Council as a key condition for employment growth in the long run.
In contrast with wage behaviour in the 1970s and 1980s, when the rise in the wage share in output had been responsible for falling profitability and investment, recent trends have been more moderate. The average level of profitability is now higher than at any time since 1970 but real interest rates are also higher than in the 1960s.
Against a background of low and falling inflation, wage moderation has prevailed in most Member States over the last year. Average nominal wage growth in the EU is now forecast to remain close to the 3% level, which is consistent with the maintenance of price stability and the improvement of investment profitability. A moderate increase in real wages is expected, which will remain below real productivity growth.
Chart no.3 - Wage developments in the EU - 1961 - 1997
In many countries there are ongoing agreements between the social partners to moderate the growth of real wages to less than the growth of productivity or in comparison with wage increases of their major trading partners. These have generally proved successful in maintaining wage moderation.
The minimum wage has been raised in Greece, France and Luxembourg, but these moves are not likely to change the overall wage trend. As women are over-represented among the low-paid in the EU, this will have an impact on the wage gap between women and men.
Tripartite negotiation of wages at national level is now widespread in the European Union, and has been credited with a large share of the responsibility for generalised wage moderation and modest increases in unit labour costs over the last couple of years. The potential of tripartite agreements has been further exploited in several Member States to tackle wider problems in labour market reform, including social assistance, organisation of work and working hours, fiscal issues and active labour market policies.
An example of such an agreement is Ireland where the Programme for Competitiveness and Work, which was in force until end of 1996, has played a decisive role in promoting strong economic growth and employment creation. A new tripartite agreement for the period 1997-2000, called Partnership 2000 for Inclusion, Employment and Competitveness has been concluded. Partnership 2000 sets a medium-term ceiling for wage increases, establishes a framework for enhanced use of active labour market policies, and promotes information and participation of workers at enterprise level.
In addition, the government made a commitment to maintain the real value of welfare payments over the period of the agreement, and to make significant reductions in personal income tax.
Despite the unquestionable role of the tripartite agreements concluded in Ireland since 1987 for the economic recovery that followed, it is debatable whether this same approach can be applied with equal success in other Member States. The outcome depends significantly on the prevailing circumstances, both those that relate to cultural and social aspects within a country and also the economic situation in any particular period. In Ireland, Partnership 2000 is encountering problems : while the basic provisions are again moderate, there are increasing numbers of claims for exceptional wage increases and claims for increases in public expenditure which may weaken the discipline and coherence associated with earlier agreements.
The UK is planning to introduce a statutory minimum wage and an independent Low Pay Commission including i.a. the social partners has been charged with presenting recommendations to the government on the level at which it might be introduced. In Netherlands, the government is encouraging the social partners to lower the gap between the statutory minimum wage and the lowest collectively agreed wages.
In general, the recommendations of the European Council and the Commission as far as wage moderation is concerned have been followed. The key contribution of social partners in this process is recognised. Wages are increasing less than productivity and unit labour costs are decreasing in real terms (see list of indicators in Annex 1). Therefore, it does not seem that the present employment problems can beattributed to excessive wage growth.
3.2. Tackling structural problems in the labour market
3.2.1. Preventing long-term unemployment
Member States, together with the social partners, should engage in a more active policy for the prevention of long-term unemployment, and give to all unemployed people an opportunity of retraining or reintegration before reaching the point of long-term unemployment. In particular, the intensification of efforts regarding action in favour of groups particularly hard hit by long-term unemployment such as older and disabled workers, should be intensified.
Throughout the Community, long-term unemployment has become an increasingly difficult problem to solve. Most Member States have experienced the emergence of a hard core of unemployed with prolonged unemployment periods resulting in loss of skills and motivation. A disproportionately large share of long-term unemployed are low-skilled and older workers.
Following a decline of long-term unemployment in the late eighties, most Member States experienced in the course of the 1990s a new rise in their proportion of the labour force becoming long-term unemployed (see Chart 4). The rate of long-term unemployment in the EU-15 has stagnated since 1994, despite economic recovery since then. In 1996, it was 5.2 %.
To tackle high and persisting long-term unemployment, Member States have adopted a variety of policy measures designed to increase the employability of the long-term unemployed, through the provision of counselling and job-search assistance, training programmes, and subsidised employment. All Member States report with more or less detail on such policy measures, but the data provided do not even allow for a rough assessment of the main tendencies in this respect.
Chart no. 4
Promoting more preventive action to tackle long-term unemployment. Preventive measures involve the provision of vocational guidance, counselling services and assistance with active job seeking. There is clear evidence in the national reports, that these activities are attracting increasing attention, in relation to more traditional functions of the employment services. Some Member States have addressed the need to improve methods for early identification and early action. However, attempts to identify those at risk of becoming long-term unemployed, through statistical screening methods, have met with difficulties, which underpins the need for a greater emphasis on customised case-management within employment services.
Training programmes targeted at the long-term unemployed. All Member States have well-established programmes to encourage active job search and promote employability through training. There is a great variety of programmes depending on the age, educational level and professional background of the unemployed. Also, the moment in the unemployment spell when these programmes are offered as well as the extent to which attendance is compulsory vary a great deal.
Evaluation results suggest that the most closely targeted programmes tend to be the most effective, with broadly targeted schemes consisting of class-room training showing no significant positive results upon the employment prospects of trainees. However, and despite the variety of schemes in force in all Member States, there are indications that only a small percentage of the long-term unemployed is given an actual chance to participate in training programmes.
Subsidised employment. Most Member States provide some kind of subsidised employment enabling long-term unemployed to acquire work experience. These programmes can be in the form of recruitment subsidies, targeted reduction in social security contributions or temporary job programmes.
Evaluations of such schemes have yielded mixed results partly depending on the specific target group being offered subsidised employment and the type of work that has been carried out. They show that the substitution effect and the dead-weight effects of such programmes can be high, which draws attention to the need to supervise their overall impact. In most cases, continued use of such programmes can only be justified by their giving more equal chances to disadvantaged groups in the labour market.
Tackling the social consequences of industrial restructuring to prevent unemployment. In some Member States, measures have been implemented in the context of sectoral restructuring programmes to avoid that workers affected by collective dismissals drift into unemployment. In most cases, lack of adaptable skills and old age make re-employment difficult and risks of long-term unemployment are high. Austria, through the Labour Foundations, and Greece, through the recently implemented Integrated Programme of Intervention, are examples of this approach (see Best Practice Example no. 3). But this policy approach has older traditions in Europe and has been implemented also in France and in Spain, with support from the ESF.
Keeping elderly workers in work and making efforts towards their re-integration. In view of demographic trends and the costs incurred to finance early retirement schemes, many Member States increase their efforts to keep older workers in work and/or to reintegrate them into the labour market once they have been dismissed.
The situation of older unemployed persons is perceived as a major government concern in several countries, where measures range from the reimbursement of social security contributions when recruiting the older unemployed (Luxembourg and Finland), the activation of unemployment benefits of older unemployed when working outside the ordinary service in the public sector (Sweden), measures with regard to extending working life (Finland) and more generally, fighting age discrimination (Netherlands, UK). Part-time work is being offered to older workers in combination with financial incentives for recruitment of substitutes. In Germany, the Act on Old-Age Prt-Time Work has made it possible that on the basis of corresponding agreements between the social partners, elderly workers may gradually retire from working life.
Promoting the employment of disabled people. Specific measures to promote the employment of disabled people and improve their conditions in work are provided in all Member States. Employment subsidies are widely used. In many, a more intensive use of the available mainstream support instruments and/or the relaxation of general eligibility criteria in favour of this target group are also encouraged. ESF mainstream financing as well as support from the Horizon strand of the Community Initiative on Employment are additional means which are often used in this context.
In Austria, work and project assistance as well as skill training measures in sheltered workshops and job coaching for young disabled have been introduced in order to foster the occupational integration of disabled persons. In the Netherlands, a bill will be introduced in Parliament concerning the reintegration of disabled workers, as an alternative to income support, an objective also shared by the social partners. The occupational integration of disabled people by training and employment incentives, notably in sheltered workshops, is common to many Member States, and has been reinforced recently in Luxembourg and the Netherlands.
Benchmarking. The work carried out in the context of the benchmarking exercise in 1997 confirmed wide discrepancies within the Union as to the severity of the long-term unemployment problem, as measured by the proportion of the stock of people unemployed for more than 12 months in the total labour force (see Chart 5).
Four countries show rates of long-term unemployment below 2%: Luxembourg, Austria, Denmark and Sweden. On the other side of the range, Spain, Ireland and Italy have the most severe long-term unemployment problem, with rates well above 6%. Although countries with low levels of long-term unemployment tend to be characterised by lower overall unemployment, and vice-versa, this relationship is by no means systematic across the EU nor has it remained unchanged over time. There is considerable scope for explaining inter-country differences in long-term unemployment on the basis of policies and institutional features.
Rates of long-term unemployment - 1996
On the basis of the evidence provided, it is possible to conclude that well-resourced employment services and an extended use of active labour market policies are the best documented factors accounting for best performance. Other factors playing an important role are the articulation between the unemployment protection system and the use of active policies and the effectiveness of the delivery system.
Evidence also shows that the chances of getting a job fall significantly with the duration of unemployment. This confirms the importance of preventive policies in breaking long spells of unemployment with participation in labour market programmes in order to maintain employability and increase the chances of re-entering the labour market.
Austria has launched in 1987 the Arbeitsstiftungen (Labour foundations) offering a menu of measures to those affected by collective dismissals, industrial restructuring and company insolvency. The main objective is to provide a bridge between the previous and the future job without going through a period of open unemployment. The package consists of career guidance, active job search, occupational placements, traineeships, training, and support in the creation of new businesses. Labour foundations are not limited to the company level, but can also be set up at regional and sectoral level, covering several companies affected by similar restructuring problems due to industrial change.
The foundations are funded by the companies, the employees, the Labour Market Service, Länder and communes, and receive ESF support. Participants in the foundations receive unemployment benefits in the form of training allowances for a maximum of 3 years, in exceptional cases up to 4 years, as well as a "foundation scholarship" of 1 000 to 1 500 AS per month on average.
In 1995, 43 different foundations existed at all levels. Notably two sectoral foundations, in the foodstuff and transportation sectors, directly address structural problems resulting from joining the EU. The first one, the largest of its kind, plans to retrain 6,000 participants over three years. The foundation in transportation is designed to help 1 000 participants. The first foundation, set up in the iron and steel industry in 1987, is currently preparing 400 participants for new jobs.
A recent evaluation of the foundations in the foodstuff and transportation sectors shows a high reemployment rate. After leaving the measures, 83% in the foodstuff industry foundation and 73% in the transport sector foundation were reemployed. After 6 months, the reemployment rate continues high at 75 %. Almost 60% of participants succeeded in maintaining or improving their former wage income .
Greece is implementing a programme with similar characteristics, which addresses the needs of workers affected by collective dismissals in areas of industrial restructuring. The "Integrated Programme of Intervention" consists of a menu of measures aimed at the re-integration of dismissed workers through active support for a period of 37 months. It includes training allowances, subsidised jobs and start-up grants for the creation of own business. In contrast with passive income support, that in the past had been widely used to deal with similar problems, the new programme attempts to create the right conditions for the re-integration of those dismissed into active life. It is expected to play an important role in underpinning the current privatisation process.
The programme, the implementation of which involves the OAED (public employment service), local authorities and the social partners, has already been applied to 400 workers affected by the restructuring of the "Piraiki-Patraiki" company, and is currently being applied in other industrial companies
Coming to grips with long-term unemployment involves both policies preventing the short-term unemployed from drifting into long-term unemployment and adopting measures that aim at re-integrainge the long-term unemployed into the regular labour market. According to the Eurostat Labour Force Survey, only 10 % of the unemployed in 1996 took part in some kind of training in the EU as a whole. A more ambitious effort to tackle long-term unemployment in Europe is clearly warranted.
3.2.2. Integrating young people into the labour market
In addition to greater investment in vocational training, the European Councils have recommended that Member States should direct their efforts towardsschool leavers with little or no qualifications or training, by offering them employment or training.
Integrating young people into working and social life and avoiding their drifting into exclusion is a major challenge for Europe. 4.8 million young people are without jobs, which represent about 10 % of the total population aged between 15 and 24. Almost 2 million young people have been out of work for over 12 months.
Despite a steady decline in the size of the young population, and a structural upwards trend in the levels of participation in education and training, the unemployment of young people has not improved over the last decade, as the number of jobs taken up by young people continue to decrease (see Chart 6). Still to a large extent, this is caused by insufficient qualifications of a sizeable share of the young population. It is estimated that about 10 % of students leave school without any qualifications. Moreover, 45 % of the young people aged between 15 and 24 leave school before having completed upper secondary education. Supply-side factors do not explain however why, having in average higher skills than adult workers, there are twice as much young unemployed persons. Specific difficulties on the demand side have also to be taken into account.
Policy measures reported by member states reflect this two-fold concern with supply and demand-side causes of the youth unemployment problem.
Supply-side policies. Improving and extending initial education and training and adapting it to the needs of working life appear to be the guiding principles of the policies and actions implemented by Member States (see below section 3.3.1.). In addition, activation policies have been targeted towards unemployed young people with low qualifications, who have often left school prematurely.
Following on from earlier experiences in other countries that have known considerable success (see Best Practice example no. 4), Belgium (P.E.P. Première Expérience Professionnelle) and the UK (New Deal for the Young Unemployed) are also considering or starting to implement ambitious programmes to tackle the problem at an early stage (3 to 6 months of registered unemployment) and replace the right to unemployment benefit or other form of social protection by the right to a job and/or a training offer.
Chart 6 - Young people by status in the EU-12 - 1986-96
Specific schemes developed by Ireland, Spain and Portugal are based on integrated approaches combining education and training, educational and occupational counselling, support during the transition process and assistance with access to a first work experience. They are targeted to youth with particular difficulties of integration and early school leavers. Workshop Schools have been quite popular in Spain as a measure for unskilled youth and have now been introduced in Portugal in the context of the development of traditional crafts and local development (see Best Practice example no. 5). In Ireland, the Youth Reach Programme is designed specifically for early school leavers. Having been identified as high priority in the recent mid-term review of the ESF, this measure will be refinanced in 1998-99, which will allow for an increase of over 1400 places. The renewed scheme will offer advice and counselling, a bridging facility, a preventive package focused on young people at risk and a "Preparation for Youthreach" pathway.
In countries where unemployment of university graduates is rising (Portugal, Greece), new programmes have been designed to facilitate access to the labour market through acquisition of a first work experience.
Many cities and regions have expressed interest in the setting up of "second chance schools" which aim at combating exclusion and unemployment by education and training. The target groups are young unemployed people beyond the age of obligatory schooling (between 15/16 and 25) with no qualifications and who are subject to social exclusion. The second chance schools are based on the use of individualised teaching methods, the application of new computer and multimedia technologies, and on close involvement with local employers. To date, 12 such schools are planned as European pilot projects in agreement with the relevant national education authorities (France, the UK, Germany, Spain, Italy, Finland, Portugal, Greece and the Netherlands). The first 6 "second chance schools" should be open before the end of 1997 with a planned total capacity of some 1,500 students.
New pathways to facilitate the transition from school to work have been introduced in some Member States. They combine specific counselling facilities with traineeships and guidance in the process of searching a first job. In France, local missions and special facilities for information and guidance (PAIO) targeted to youngsters with particular difficulties, have been created. The local missions and the special facilities, which now number 650, are set up and financed by the State and the local authorities. These structures play an important role in the integration of young persons, including in social aspects like health, training or housing, and provide a follow-up of their early professional pathway.
The activation of labour market policies seeks to reduce the number of unemployed people living on welfare benefits by offering them subsidised jobs, participation in training programmes and temporary jobs in socially useful activities. It normally involves some form of conditionality related to continued elegibility for welfare payments.
For young people with low qualifications searching for a job and living on welfare payments, the intervention of public authorities should start soon enough to avoid discouragement and minimize the risk of social exclusion.
The Netherlands initiated this type of policy in 1992 with the Youth Guarantee Act (JWG) which is still in force. Under the JWG, the municipal organisation hires young people who are threatened with long-term unemployment and places them in temporary jobs. Explicit purpose of this scheme is the placement of young unemployed in regular jobs when they have gained sufficient work experience. The group that qualifies for JWG has been expanded, in view of the success of the scheme, and now the age limit is 27 years. However, the JWG is not comprehensive. At the end of 1994, 82 % of the target group was reached, but a considerable share of those having a JWG contract did not have a JWG job (38 % in 1994).
Almost half of those under the JWG had not completed secondary education, and 70 % would have found severe difficulties in finding a regular job without specific support in the form of work experience. Evaluation results show that 30% of those entering the JWG transfered to regular work in two years.
Since 1996 Denmark has developed a new scheme targeted on young people between 18 and 25 years of age, without formal qualifications, who have been unemployed for at least 6 months within the last 9 months, and receive unemployment benefits. The youth measures include a right and a duty to undergo education or training of at least 18 months duration. Beneficiaries are expected to be activated no later than 5 weeks after the qualifying period.
Training allowances corresponding to 50% of the maximum rate of unemployment benefit are paid to participants. If a young person refuses to accept a reasonable offer of training or education he or she will forfeit the right to unemployment benefit.
Until the summer of 1997 a total number of 9,000 claimant unemployed persons have been covered by the special measures for the youth, of which 5,000 have ceased to be unemployed before concrete activation measures were taken and 4,000 have actually been activated in connection with the special youth package. The results of preliminary evaluation show that about 70% of the participants have on their own initiative taken a job or resumed education after completion of the programme and that only 25% remained unemployed.
Young persons on social assistance also have a duty to accept an activation offer at the latest after having received social assistance for 13 weeks. The offer must have a duration of at least 18 months and 30 hours per week, and its extent will be decided by the municipal authoritites.
In Luxembourg, the Temporary Auxiliaries Division (DAT) aims at creating temporary jobs for the young unemployed in work of public interest and in response to real collective needs. DAT members are liable to be assigned temporarily to work on public or cultural-interest tasks under the auspices of a central or local government body or an institution. Registered unemployed of 30 years or less are eligible for the DAT. An allowance is due, varying between 46 000 and 55 000 francs per month (corresponding to minimum wage for unskilled and skilled workers respectively).
In 1996, 762 contracts were concluded representing a 37% increase over 1995. Job assignments are for one month minimum and can be extended for two 6 month periods and one final 3 month period. Evaluation has shown that more than 90 % of the participants in DAT find a job before this final extension.
In Sweden, the municipalities have (since October 1995), on a voluntary basis, the responsibility for young people aged less than 20 years of age. These are entitled to complete education on upper secondary school level, and should be given first priority. In addition, the municipalities can develop local measures corresponding to the needs of the youth and the requirements of the local labour market. Evaluation of these measures has shown positive results in curbing the number and duration of unemployment for young people.
In Finland, since the beginning of 1996, the qualifying conditions for labour market support were tightened. Except for those under active measures, young people without any training beyond basic education are not eligible for support before the age of 20 (25 since 1997). Therefore, young people are encouraged to look actively for a job or accept a training offer. Some 11,000 young people between 20-24 transferred from passive receipt of support to training or trainee work. At the same time, apprenticeship and other vocational training has been considerably expanded, and priority was given to people under 20 with no previous vocational training. The number of students in post-comprehensive training increased by about 14,000, most of them young people. Partly as a result of these measures, youth unemployment as declined substantially in Finland ( from 31% in July 1995 to 25 % in July 1997).
Most of these activation schemes are consistent with and have extensively benefited from ESF support under Objective 3.
Demand-side policies. Some Member States have attempted to intervene on the demand side by facilitating access to employment, notably through the reduction of starting-wages and social insurance contributions.
The reduction of indirect labour costs to encourage young peoples recruitment has been implemented by several Member States. Despite continuing controversy about their actual impact on employment, targeted reductions in social security contributions are now widespread and cover young unemployed people or first job-seekers in most cases.
A more global approach to youth employment has recently been conceived in France with the new scheme "Programme 700 000 jeunes" the first part of which will be based on the development of new activities addressing emergent or unsatisfied needs in social, environmental and household services. These new activities are to be developed mainly by local associations and authorities and projects will receive funding in the form of a subsidy to the operating expenses. In a second phase, the scheme will address private companies. The subsidised new activities are expected to create durable jobs for young people and not just temporary placement.
Actions to improve the integration of youth addressed to demand, be it through the traditional policies of labour cost reduction, or the development of new activities, should be carefully assessed in terms of their possible discrimination effect upon other hard-to-place groups among the unemployed.
Benchmarking. Integration of young people into the labour market follows very divergent paths in the different Member States, reflecting the differences in their respective education systems, labour market institutions and socio-cultural characteristics. Four groups of countries can be identified in this respect:
Germany, Austria and Luxembourg - low rate of youth unemployment, little difference between youth/adult unemployment rates, close and systematic relationship between training and initial work experience, little use of part-time working as an insertion path;
Denmark, Sweden, U.K. and the Netherlands - low/average youth unemployment, short duration of unemployment, strong links between employment and training generally through part-time working combined with continued study;
France, Belgium, Portugal and Ireland - average unemployment levels, marked difference between youth and adult unemployment rates, tendency towards lengthy unemployment spells;
Greece, Italy and Spain - very high youth unemployment including long-term unemployment, great difference between youth/adult levels, little use of part-time working.
Chart no. 7
Young persons 20-24 by status - 1995
These different types of integration are reflected in very divergent performances as regards the ratio of unemployment to the youth population, which are particularly revealing for the 20-24 age group where difficulties in finding stable employment on completion of the education cycle are accentuated (see Chart 7 ) In the best performing countries in this respect (Luxembourg, Austria and Germany) rates vary between 4 and 6% while the European average is 13.7%. Above the European average, are France, Finland, Greece, Italy and Spain.
The analysis allows for the following explanations of the differences observed across the Union:
Continue to the Chapter 3.2.3. Promoting Equal Opportunities in Employment
This report is online: http://www.europa.eu.int
Globalization and Workers' Rights