Transcript presentation

EUROPEAN LABOUR MARKET:
PROSPECTS AND CHALLANGES
Carlo Dell’Aringa
Paper to be presented at the Cedefop Skillsnet Agora Conference: “ SKILLS FOR
EUROPE’s FUTURE”, 21-22 February 2008 , Thessaloniki, Greece
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Three challanges for the European labour
markets : globalisation, population ageing , and
the productivity “gap”.
1) Globalisation and economic integration are increasingly affecting the
way Europeans live and work.
2) The rapid ageing of the population is calling into question Europe’s
ability to remain competitive.
3) The EU has lagged behind the United States in the productivity stakes
in the last ten years.
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GLOBALISATION
Globalisation is sometimes perceived as a source of job losses and growing
labour market insecurity.
Nevertheless history demonstrates that globalisation hold the promise of
better living standard for the economy as a whole.
For example according to the OECD Growth Study, a ten percentage point
increase in the ratio of trade to GDP is associated in the long run with a 4%
increase in per capita income.
The labour market plays a crucial role in the realisation of the potential gains
from globalisation.
The ongoing process of globalisation entails job losses and job gains within
sectors, as well as between them.
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The adjustment is not painless and it may have made both employment and
wages of the workers involved , more vulnerable.
Globalisation requires mobility to ensure that workers are not trapped in jobs
which have no future. In this regard , overly-strict employment protection
legislation (EPL) may reduce mobility by constraining firms’ ability to cope with
a rapid changing environment.
However a certain degree of employment protection is needed and it may reduce
adjustment costs.
Low-skilled workers are a particularly disadvantage group in the face of
globalisation.
Improving skill development opportunities for low educated workers is strongly
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needed..
POPULATION AGEING
The second challenge that Europe must face is population ageing.
The working-age population will include an increasingly important share of
older people in the age range 55-64 in the next two decades.
At the same time the dependency ratio ( the number of people aged 65
years and older relative to those of working age) is foreseen to rise from the
current 25% to 40% by 2030, and reach 53% by 2050.
If current trends and policies remain unaltered, annual GDP growth for the
EU-25 will fall systematically from 2.4% over the period 2004-2010 to only
1.2% between 2030 and 2050.
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It is projected (UE Commission, 2006) that age-related expenditure will
rise by around 4% of GDP up to 2050, representing an increase of 10% in
public spending.
As a result , overall public finances risk becoming unsustainable in many
countries, there by compromising the future equilibrium of pensions and
social security systems in general.
The systems that currently are more successful in supporting active ageing
include good levels of general health for older people and reasonably high
standard retirement ages; relatively high spending on active labour market
policy measures and participation in lifelong learning.
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THE PRODUCTIVIT GAP
A further challenge for Europe is the “productivity gap”.
EU has lagged behind the United States in the productivity stakes since the mid1990s. In addition to that , as we have said, increasing globalisation and the rise
of major new economic powers, such as China and India, are also putting
pressure on Europe.
The table below reports annual TFP growth, which appears to be the key factor
behind the large difference between real output growth in the United States and
that in the euro area in the period 1996-2005.
The decline in euro-area TFP growth was fairly broad-based and included
manufacturing and the industrial products as well as services activities such as
distribution services and business services.
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Total factor productivity growt
(annuale average growth in percetanges)
Euro area
United States
1980-1995
1996-2005
1980-1995
1996-2005
Market economy
0.9
0.4
0.7
1.4
Electrical machinery, post and
communications
2.6
4.8
3.8
7.1
Manufactoring, excluding electrical
1.5
0.9
0.9
1.5
Other industrial production
1.6
0.2
1.2
-0.7
Distribution services
1.3
0.7
1.8
2.4
Financial and business services
-1.0
-1.3
-2.3
0.1
Personal services
-1.1
-0.9
0.6
0.7
Source: EU KLEMS database
Note: Data for the euro area exclude Greece, Ireland, Cyprus, Luxembourg, Malta, Portugal and Slovenia
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“the fact that labour and product market rigidities are a drag on euro
area labour productivity growth is a reminder that, despite a significant
progress in some areas, the implementation of market reforms has not
yet enabled a knowledge-based economy to be launched. ” (BCE, 2008,
p. 50)
Some analysts linked sluggish productivity growth over the past decade
or so with the unprecedented rise in employment levels.
But there is no economic theory or empirical evidence that show the
existence of such a trade-off. What look like a trade-off is only
temporary processes.
Much of the US productivity growth in the last decade is due to growth
in the ITC sector itself, which is considerably larger than in the EU.
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After discussing the main features of the three challenges that
European labour markets have to face, the question is what has
been so far the responsiveness of European member countries to
globalisation, population ageing, and the productivity gap ?
The recent implementation reports of the European Employment
Strategy indicate three areas of intervention :
1) attracting and retaining more people in employment;
2) increase investment in human capital ;
3) improve adaptability of workers and firms.
Although much has been done , a better response to the ongoing
processes is still to be found . Let us briefly examine why.
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Efforts have been intensified to reach out groups and individuals at the
margin of the labour market. Despite this , policies for young people,
women and older workers are still not sufficiently developed.
Youth unemployment is a severe problem in many member countries and
labour market segmentation to the disadvantage of the young is
increasing.
The promotion of female employment and systematic gender
mainstreaming are rarely emphasised .
Currently over half of the 55-64 year olds in the EU are inactive, mainly
for reasons of retirement but also due to poor health, personal or family
responsibilities, or the belief that no work is available. Transition into
inactivity for older people is nearly always a path of no return.
Despite the recent improvement , efforts to promote active ageing must
still be pursued vigorously. The employment rate for people aged 55-64
is still 6.5 percentage points from the Stockolm target of 50% by 2010.
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Only a minority of Member States have a comprehensive strategy to invest
in human capital throughout the life cycle.
In particular the prevention of early school leaving is progressing slowly :
in 2005 6 million young people left education prematurely. Many Member
States need to increase their efforts if the EU is to reach its 2010 target of
85% of 22 years olds in the EU having completed at least upper secondary
education. Since 200 the figure has moved little from around 77%.
The situation is also worrying in terms of adult participation in lifelong
learning
Access to training remains unequal, particularly for older workers, the less
educated, those in precarious jobs and workers withy the lowest income.
This has a negative impact on the employability of these groups, and hence
increases the risk of social exclusion and income inequality.
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Finally, despite the increasing need for adaptable labour markets, improving
adaptability of workers and enterprises is the area which shows the weakest
implementation policy.
So far Governments have tended to focus on easing labour market
regulation for new entrants.. This has favoured the development of two-tier
labour markets in which the brunt of adjustment to shocks falls on
employees under atypical contractual forms .
A more comprehensive approach is necessary to combine flexibility and
security in a more integrated approach.
The EU Member States have not made any significant progress on shifting
resources from passive to active measures, despite the declared intentions of
many governments .
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In conclusions efforts have to be intensifies and policy implementation is to
improve in all three European Employment Strategy priorities: attracting and
retaining more people in employment, increasing investment in human
capital, and improving adaptability of workers and enterprises.
This is needed if we want to improve the responsiveness of European labour
markets to the three challenges they have to face: globalisation, population
ageing and the productivity gap.
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References:
Denis, C., Mc Morrow, K., Roger, W., (2006), Globalisation; Trends, Issues
and Macro Implications, European Commission, Economic papers, n. 254.
ECB, Monthly Bulletin, (2008), January 2008.
European Commission , (2006), Employment in Europe 2006
European Commission, (2007), Employment in Europe 2007
Kok Task Force, (2004) , Jobs, jobs, jobs, European Commission.
OECD, (2007), Employment Outlook.
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