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ECONOMIC POLICIES FOR FULL EMPLOYMENT
IN AN ENLARGED EUROPE
25th Anniversary Conference
of the European Trade Union Institute (ETUI)
Brussels, 3 December 2003
Statement by Mrs. Brigita Schmögnerová,
Executive Secretary
1. The general context
of the European Employment Strategy (EES)
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The future EES will
face two challenges: the intensified
competition in the global economy and
the accession of 10, respectively 12/13
new Member States.
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Withstanding the
intensified competition in the global
economy is a pre-condition for achieving
sustained growth and employment. There
is no possibility for EES not to be
linked to the EU strategy for competitiveness
and growth formulated in Lisbon in 2000.
In view of this it is also appropriate
that the time frame of the EES has been
aligned with the Lisbon target date
of 2010. The Task Force on European
Employment has rightly emphasized the
need for more flexibility of labour
markets, greater adaptability of companies
and workers, strengthening investments
in human capital, etc.
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Economic policies
should promote growth that generates
jobs. Growth without employment is not
a goal. The Lisbon Strategy’s
target is “to become the most
competitive and dynamic knowledge-based
economy in the world with more and better
jobs and greater social cohesion”
by 2010. Growth does not always generate
new job opportunities. Governments’
policies should therefore promote growth
generating employment. At the same time
employment growth should not put a brake
on economic growth and competitiveness.
To better reflect the interdependencies
of economic growth and employment it
was decided to link EG to BEPG.
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Unemployment is
a social waste often associated with
social exclusion and increased risk
of poverty. It is vital to put employment
goals at the centre of social policy
as is recognised in the European Social
Agenda.
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While the importance
of extensive labour market and other
structural reforms for promoting employment
and growth is generally acknowledged,
the role of macroeconomic policy to
promote employment and particularly
to react to changes in the level of
economic activity also has to be emphasized.
We know from the experience of the Federal
Reserve of the United States of America
that monetary policy can react in a
countercyclical way to a cyclical slowdown
and the associated deteriorating labour
market conditions without endangering
the goal of price stability. Would this
imply a need to re-define the ECB targeting
and perhaps adopt that of the FED? This
deserves deep thought.
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The increased flexibility
of the Stability and Growth Pact is
induced by recognition that its rigidity
prohibits countercyclical fiscal policy,
thus deteriorating employment prospects.
We therefore need pro-employment fiscal
policy that, other things being equal,
will strengthen fiscal performance,
as employment generates consumer demand
and higher growth, increases tax revenues,
reduces social and unemployment benefits,
and reduces the general government deficit.
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The Lisbon and Stockholm
European Councils defined employment
targets in general, for women and older
workers.
These targets, if achieved,
would significantly reduce the gaps
between the EU and the employment-to-population
ratios prevailing in the United States,
which are currently at some 74 per cent
for the total employment rate and 68
per cent for the female rate.
The economic rationale
behind targets defined in terms of employment
rather than unemployment rates resides
mainly in the opportunity offered by
a broader employment base to reduce
tax rates on labour without necessarily
reducing the scope of redistributive
policies. This could induce growth.
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There is currently
a large variation in employment rates
across the European Union (chart 1).
They range from levels already exceeding
70 per cent in Denmark, Sweden, the
United Kingdom and the Netherlands,
to lows of 52 to 56 per cent in Italy,
Spain and Greece. The Mediterranean
countries of the EU face the greatest
challenge in making progress towards
the Lisbon targets. In order to reach
these, the southern countries will have
to increase their employment to population
ratios by about 2 percentage points
per year. More importantly, in many
EU countries (Belgium, France, Greece,
Ireland, Italy, Luxembourg and Spain),
convergence to the “Lisbon scenario”
will require increasing labour force
participation rather than simply absorbing
unemployment.
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The low employment
rates prevailing in many European countries
are mainly the by-product of the exclusion
from work of young people and women,
since the employment rate for the core
group of middle-aged men is more or
less the same across the EU (and not
much different from that of the United
States).
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Even if this was
not explicitly stated in Lisbon, the
attainment of the target is likely to
involve a further expansion of part-time
and temporary jobs, as well as more
low-wage/low-productivity jobs. Part-time
jobs are, in any event, needed to accommodate
the higher participation in the labour
market of women and young people.
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It has been estimated
by the European Commission that more
than 15 million new jobs need to be
created to meet the Lisbon employment
rate target for the current EU15 Member
States. This will not only require a
considerable reduction in the number
of persons registered as unemployed,
but also the reactivation of a large
proportion of the working age population
that has withdrawn from the labour force.
These amount to more than 50 million
persons, not taking into account the
15-19 year age group!
The challenge is enormous
and progress towards meeting the targets
has been lower than expected. In 2001,
the actual average EU15 employment rate
was only 64.5 per cent, the female employment
rate was 55 per cent and the older workers
employment rate was somewhat below 40
per cent. On current trends both the
interim targets for 2005 and the final
targets for 2010 will not be achieved.
It is also clear that achieving these
targets will become even more difficult
for the enlarged EU given that the (enlarged)
EU statistical average for employment
rates will be lowered relative to the
EU15 statistical average.
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These quantitative
targets should not lead us to ignore
the fact that the quality of jobs also
counts. Jobs should be of good quality,
for example they should be safe for
workers’ health and provide an
acceptable minimum level of pay that
ensures a sustainable livelihood for
workers.
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The formulation
and implementation of economic, employment
and social policies cannot be left only
to governments. Success requires the
close collaboration of all concerned,
involving central and local governments
and the social partners (trade unions
and business) to ensure that different
interests are reconciled and the benefits
fairly shared. Is the existing legislative
framework of industrial relations in
the EU satisfactory? Does it respond
to new challenges? Should it be complemented
by other legal rules such as on Corporate
Social Responsibility? How can PPP be
better developed in generating jobs?
These are some of the questions to be
responded to in future.
2. The employment challenges in
the acceding countries
- Enlargement will significantly deteriorate
indicators like unemployment rate, long-term
unemployment, youth and women unemployment,
employment, etc. in the EU. It will
represent a new challenge for achieving
the Lisbon targets by 2010. The transformation
from CPE to market economy has led to
a marked rise in unemployment in the
acceding countries. The restructuring
process is still not complete and further
significant job losses in declining
sectors (notably agriculture and mining)
can be anticipated.
- To illustrate this: in the 1990s
the labour force shrank considerably
in all acceding and candidate countries;
in some cases the employment and activity
rates dropped by some 10 to 15 percentage
points. Employment rates were still
on a declining tendency in many countries
in recent years. Recent data show that
total employment rates were close to
the EU average (of 64 per cent) in the
Czech Republic, Romania and Slovenia,
but significantly lower in the other
countries.
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In the late 1990s
there were some positive employment
developments; in some countries the
female labour force increased (Hungary,
Poland, Slovakia), or stopped falling
(the Czech Republic), while in others
the decline continued but at a much
slower rate than in the first half
of the 1990s (Estonia, Latvia, Lithuania).
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With the start of
output recovery, labour demand in the
acceding countries has obviously grown,
contributing to some recovery in employment
and the lowering of unemployment rates.
However, the positive labour market
effect of growth during the transition
has been far below expectations: thus
while a number of acceding countries
have already surpassed their 1989 GDP
levels (the Czech Republic, Estonia,
Hungary, Poland, Slovakia, Slovenia),
employment is still far below its pre-transition
levels. This outcome reflects the rapid
productivity growth in the acceding
countries. But it is also indicative
of the specific nature of labour demand
(in terms of skills and sectors) during
the transition and of some major structural
and institutional problems (in particular
in the labour market), some of which
are noted above.
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Foreign direct investment
has been a major factor of successful
transition, and in particular of new
job creation. In the countries with
large inflows of FDI, the greatest job
creation has occurred in the multinational
companies. However, there are clear
limits to this FDI job creation. Since
multinationals in manufacturing sectors
frequently use highly productive capital-intensive
technologies, their labour demand is
limited. They will usually only employ
highly skilled, preferably young, people.
It is also unlikely that multinational
companies will bring jobs to rural areas.
FDI may also have negative spillover
effects on employment in other domestic
firms, because often FDI firms drive
local competitors out of the market.
It is therefore important to design
strategic economic policies that aim
at maximising the potential positive
spillover effects of FDI on domestic
firms.
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The small and medium-sized
enterprise sector has been identified
as another main source of new jobs.
It has developed partly in the wake
of the restructuring of large enterprises.
Many new firms also emerged as a consequence
of the opening of new market opportunities,
creating jobs not only for their owners
but also for wage earners. At the same
time, many of the de novo small private
firms are basically family businesses
for self-employment of the owners plus
a limited number of “external”
employees. Such firms often only contribute
to a one-off job-creation when they
are established, as they do not seek
substantial growth of their business.
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Will EU accession
have any implications for the labour
market in the acceding countries? Will
it increase unemployment or the opposite?
The effects will be mixed. On the one
hand, new members will have to withstand
higher market competition and further
increase productivity with job implications.
The expectation of higher GDP growth
can eliminate the first type of effects.
At any rate targeted policies will be
unavoidable.
3. Policies for
increasing employment in the acceding countries
and the EES
- The European Employment Strategy
(EES) remains the key instrument for
achieving the Lisbon targets in the
enlarged EU. The candidate countries
were integrated in the EU coordination
on employment, which is an important
part of the acquis communautaire,
as early as 1999. In “Joint Assessment
Papers” they have in the meantime
analysed the key labour market challenges
and are in the process of implementing
measures designed to foster employment
and lower unemployment.
- The EES initiated an open method
of coordination as a new working method
including the development of National
Action Plans (NAPs) for the EES targets
and the EU wide surveillance of progress
achieved. However employment policy
remains within the domain of each EU
Member State. The acceding countries
have developed administrative capacities
to efficiently participate in the Open
Method of Coordination (OMC), they have
already developed NAPs which have been
incorporated into the surveillance procedure.
But if measured by achievements there
is no remarkable progress. Even if this
is not explicitly admitted there is
often little political will and commitment
of governments to participate in the
process and the OMC is considered as
an extra burden. To increase
the role of OMC in fighting
unemployment and increasing employment
in new Member States is a challenge.
One way to achieve it is strengthening
linkages of the EES and EG to other
EU strategies and policies
as noted earlier, and to develop an
integrated approach to employment strategy.
Employment will have to be a key agenda
for governments, in partnership with
the private sector and civil society.
The OMC in employment should provide
more opportunity to learn from exchange
of experience, best practices,
etc.
- In view of the above discussion,
what is needed are policies addressing
the two aspects of the employment-output
growth dichotomy: on the one hand, policy
should support employment-generating-growth;
on the other hand, specific policy measures
should target the increase in participation
and activity rates, thus raising labour
input. In the field of employment-generating
growth policies much attention should
be given to SME, FDI and education.
As FDI are and will remain an important
factor of new job opportunities in the
acceding countries, acceding governments
tend to compete for the FDI by providing
preferential treatment for FDI. This
generates “race to bottom”
in taxation with likely detrimental
impacts on fiscal developments, non-compliance
with the EU labour and environmental
standards, and thus provokes criticism
from the EU and also domestic investors.
A more balanced policy to attract FDI
is therefore needed, like providing
more predictability, better regulatory
environment, good infrastructure, skilled
labour force, etc.
- Employability and participation in
the labour force depend to a great extent
on the knowledge and skill characteristics
of each individual and more generally
on human capital formation. Human capital
formation will be key for coping with
the intensified competitive pressures
in the enlarged Europe and the global
economy at large. Here governments have
a key responsibility: to reform their
provision of education and training,
both for youth and adults, so as to
meet labour demand and enable workers
to maintain and improve their employability
through lifelong learning. Enterprises
should be encouraged to invest
in the education and training
of their workforce and to build on the
functional rather than numerical flexibility
of labour.
- Geographic mobility
of workers needs to be promoted to cope
with mismatches between regional labour
supply and demand. This will not be
possible without improving the public
infrastructure and housing supply. Employment
policies should therefore be linked
to the policy of use of the EU structural
funds.
- An important role is to be played
by the social partners, either within
the framework of a bipartite
dialogue or within the context
of an institutionalised tripartite
dialogue involving also the
government. Relevant areas for dialogue
and negotiations are for example the
development of a vocational education
system; fostering the adaptative capacity
of firms, including by training of workers;
developing an efficient wage bargaining
system, which allows for an adequate
wage differentiation.
The recent report
on industrial relations in the candidate
countries published by the EIRO (European
Industrial Relations Observatory)
concludes that the collective bargaining
and worker participation in the candidate
countries is not very developed. The
acquis communautaire is very
limited on the subject. A recent Directive
on worker participation is being implemented
gradually. In general the level
of regulation of “industrial
relations” in the EU is low.
In the absence of a EU regulatory
framework, the role of the
ETUC (European Trade Union
Confederation) and UNICE
(European Employers Organisation)
to promote adequate industrial relations
in the new EU members is key.
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Employment protection
legislation (EPL) has an important
role to play in the set of policies
aiming at higher employment. Very
strict EPL tends to contribute to
lower rates of labour turnover. It
does not lead to longer job tenure,
but it is strongly associated with
smaller flows into, and longer spells
of, unemployment. Besides income support
in unemployment, early retirement
and disability pensions, the level
of social benefits and assistance
may also have an important effect
on the decision to withdraw from or
return to the labour market. So far,
the impact of EPL on labour market
developments in the acceding countries
has tended to be somewhat limited
but not insignificant, especially
as regards the speed of transition
between employment, unemployment and
inactivity. Hence more effort is needed
in better coordination with
other policies in order to increase
the efficiency of EPL measures.
Thank you.
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