Political uncertainties over the EU’s future direction make today’s peak in unemployment more difficult than the comparable jobs crisis of the mid-1990s, warns László Andor. He sets out the ‘robust agenda’ Europe now needs.
Europe’s job crisis is now more pressing than ever. With over 26m people unemployed (11% of the workforce), and with differences between countries continuing to widen, we are back to the grim numbers of the mid-1990s. But then the European integration project provided hope and clear political orientation for most countries. Today, the EU’s direction is much less obvious. Since 2010, with the Europe 2020 Strategy, the EU once again has a progressive vision for long-term economic and social development, but a convincing short-term recovery strategy is needed. Employment policy is an indispensable component.
In its employment package last year, the European Commission addressed the deepening job crisis while keeping in mind the Europe 2020 commitments. The Commission emphasised that labour market segmentation is a key structural problem, with too many workers having only marginal protection and so facing the real risk of in-work poverty. EU countries should therefore try to attack segmentation by reducing the overprotection of ‘insiders’, and should also use instruments like minimum wages, ideally covering the whole economy. Evidence from the crisis period shows that minimum wages have helped rather than hindered the employment of low-skilled workers.
“A major challenge for EU institutions and member states is to work out a European fiscal capacity that could ensure that even troubled countries can get a short-term economic boost by giving support to those people with a high propensity to spend”
Structural reforms are important, but we should not expect to fix the unemployment problem through labour market reforms alone. Italy, Spain and all ‘programme countries’ have profoundly reduced employment protection legislation and decentralised collective bargaining. But it’s illusory to believe that recovery will take hold simply with the removal of ‘downward rigidities’ from the labour market – in other words, when labour becomes cheap enough.
Labour markets don’t just need reform but also more investment in up-skilling and re-skilling, better-functioning public employment services and improved inclusion programmes for people at risk of dropping out of the active workforce. Much of this spending is in accounting terms “current expenditure”, but it represents investment in the economic sense by lifting production through increased employment and/or productivity and by preventing skills losses. This is why we in the Commission have been pressing for a European Social Fund budget of at least €84bn in 2014-2020.
It’s crucial that we Europeans should think of labour as an under-used source of economic recovery. Europe now has its best educated workforce ever. If we can manage this real economic potential better, without treating employment as less important than 2% inflation or 100% repayment of accumulated debt, we might make some progress towards closing the current gap in the Europe 2020 employment target of 17m workers. The past five years, and particularly the dramatic rise of unemployment since mid-2011, should teach us not to wait for jobs to spontaneously emerge once sectoral imbalances have cleared and confidence has been restored.
EU unemployment doesn’t just concern construction workers in so-called peripheral countries but also manufacturing, sales and public sector jobs right across the EU. It represents a huge waste of our production potential as well as a growing hole in domestic demand. European governments and the social partners must focus in concrete terms on how to create or maintainjobs that don’t merely consist of routine tasks that can be carried out by machines. These jobs must support resource efficiency and must reflect demographic and technological change.
“European governments and the social partners must focus in concrete terms on how to create or maintain jobs that don’t merely consist of routine tasks that can be carried out by machines”
We won’t generate growth and jobs through simplistically applying ideological concepts, which is why the Commission has been advocating a comprehensive agenda for a job-rich recovery, and promoting inclusive growth through rebuilding our human capital base and reviving the real economy. Here’s my checklist of key employment policy measures:
1. Implementing Youth Guarantees. The Commission proposed last December that all EU member states should put systems in place to ensure that everybody up to the age of 25 either gets a good-quality employment offer or the chance to continue in education, or an apprenticeship or traineeship within four months of becoming unemployed or leaving formal education. This is all about making institutions work together better and making youth employment a budgetary priority. The elusive concept of employment security (from the flexicurity doctrine) can be given real meaning in this context. But turning the Youth Guarantee into reality also requires active contributions from business, trade unions and civil society in building up apprenticeship programmes and defining training curricula that match market needs.
2. Boosting demand for labour.Employment policy is not only about ensuring that the unemployed are job-ready; it’s also about stimulating hiring. EU governments need to seriously lower the tax wedge on low-paid labour, say by taxing capital incomes and property more. Well-designed direct job creation schemes for workers who seem furthest from getting a job can also help. Moreover, it is crucial to maintain the automatic stabiliser function in our economies even though the present economic ‘shock’ is protracted and many national fiscal cushions have gone flat. A major challenge for EU institutions and member states is to work out a European fiscal capacity that could ensure that even troubled countries can get a short-term economic boost by giving support to those people with a high propensity to spend. A common EU scheme, partly funding unemployment benefits that are linked to re-training and being part of the active labour force could be a solution.
3. Strengthening labour mobility. The efficiency of the European labour market could be improved and many job vacancies filled if companies and jobseekers were better informed about recruitment and job opportunities beyond national borders, and were assisted better in the hiring and application process. That’s why the Commission has decided to upgrade the European Employment Services (EURES) system and turn it into a pan-European recruitment, matching and placement service. But much will depend on how member states implement this upgrade, and how they manage the funding available from the European Social Fund for supporting transnational labour mobility.
4. (Re-)employing young mothers and other vulnerable people. The dropping-out of women from the labour market, particularly after giving birth, is a waste of their skills and of the economic value they could create. Quality childcare and parental leave policies can help mothers avoid being penalised by long career breaks, or accepting employment below their qualifications, and also from reduced lifetime earnings and lower old-age benefits. As Europe’s workforce ages and shrinks, member states need to invest to make labour markets more inclusive and to help women, young people, older workers, minorities and migrants get jobs. And social partners should also help to find practical solutions for ways the labour force could be broadened.
5. Managing economic adaptation and restructuring.Europe needs to improve both employment and productivity: they are competing factors in the analytical breakdown of GDP, but they are at the same time mutually reinforcing policy objectives. The Commission has been seeking to boost them through a renewed industrial policy agenda, but governments and social partners are also responsible for working out ways for companies to adapt to change without shedding employees, and for accompanying any restructuring plans with re-training and placement programmes that create new jobs. Social partners need to ensure that workplaces are safe and age-friendly and that business adaptation and restructuring connect with digital and sustainability agendas.
6. Promoting social economy and social entrepreneurship.Europe needs broader-based ownership of capital as well as a greater development of enterprises that are primarily driven by social goals so as to prevent socio-economic class stratification and allow more people to use the skills and ideas they have. Worker-owned co-operatives and what we might more broadly term the social economy represent an alternative model in which economic opportunity is better distributed and decision-making is more democratic. These companies can be highly innovative, adaptable and resilient, so member states should actively promote the social economy, social entrepreneurship, microfinance and such practices as employee buy-outs of troubled companies, including through financial instruments supported by EU structural funds.
7. Building welfare states focused on social investment.Governments have little direct means to redress rising socio-economic inequalities, but they can and should act to improve equal opportunity. Social investment is redistribution that empowers people and enables them to contribute to the economy and participate in society. It can support employment, productivity and social cohesion in both the short and long term. Investing a few percentage points of GDP now prevents much larger socio-economic costs in the future. Good examples of this are the prevention of child poverty, better education, youth guarantees, childcare that enables parents to work, preventive healthcare and active ageing policies. Social investment is a positive-sum game and the Commission is making it a priority.
“It’s crucial that we Europeans should think of labour as an under-used source of economic recovery. If we can manage this real economic potential better, we might make some progress towards closing the current gap in the Europe 2020 employment target of 17m workers”
A robust agenda for a job-rich recovery and social investment must be at the heart of any vision for the EU’s future. Improving the use of real economic resources, and labour in particular, to maximise society’s well-being is no less important than fiscal stabilisation or price stability. Europe’s priority should be to boost economic inclusion – involving as many people as possible in economic activity – and its great hope should be restoring economic convergence. “Outsiders” must be able to contribute and “peripheries” become true parts of the whole if Europe is to regain its unity and prosperity. We need unity if we are to escape the present crisis, but we won’t recover that until we have a robust agenda in which jobs and social cohesion are core concerns not false promises.
This article first appeared in the Spring 2015 issue of Europe’s World.