Draft 2004-5 joint employment report issued

The EU's draft joint employment report for 2004-5, issued by the European Commission in January 2005, states that Member States need to embrace reform more decisively to create more jobs.

On 27 January 2005, the European Commission published the draft joint employment report for 2004-5. This joint Commission/Council of Ministers report is part of the Commission’s 'implementation package', together implementation reports on the Broad Economic Policy Guidelines and the Internal Market Strategy, which will contribute to a mid-term review of the Lisbon strategy in 2005. When finalised, the joint report will be presented to the spring European Council meeting in March 2005.

The Lisbon strategy

The Lisbon strategy, which is linked to the European employment strategy (EES) launched in November 1997 (EU9711168F), was agreed at a European Council summit in Lisbon in March 2000 (EU0004241F). It aims to create 'the most dynamic and competitive knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion' by 2010, using a strategy with an economic, social and environmental dimension. The strategy contains concrete targets in several areas, including overall employment levels, female employment rates, and the employment of older workers. Since 2005 marks the mid-point in the strategy, a formal mid-term review will take place (EU0501201N).

Joint employment report

Overall, the draft joint employment report (JER) for 2004-05 observes that 'Member States need to embrace reform more decisively to create more growth and jobs.' It acknowledges that past labour market reforms have strengthened the resilience of employment to the economic slowdown and that 'catching up' factors have also played a role in raising labour productivity in some relatively poorer Member States. However, it concludes that there has been little recent progress made towards achieving the three objectives of the EES, which are: full employment; improving quality and productivity at work; and strengthening social cohesion and inclusion.

Employment targets

The JER reports that the overall average employment rate in the EU has stagnated at 63%, meaning that the intermediate target rate of 67% for 2005 has not been met. Subsequently, it is increasingly unlikely that the Lisbon target of 70% by 2010 will be achieved - in order to do this, Europe still needs to create more than 22 million jobs.

Although the employment rates for women have been improving, progress towards the target of an average 60% by 2010 has slowed, with the average rate remaining stuck at 55%. The report states that if the target is to be reached, the average increases seen in the female employment rate since 1997 must be maintained each year up until 2010.

The widest gap, however, is apparent in the employment rate for older workers, which only climbed to just above 40% in 2003, making the target of 50% by 2010 seem unattainable.

On the other hand, the JER notes that no jobs were lost in overall terms in the recent downturn within the EU 15 countries, compared with the loss of more than 3 million jobs during the 1992-3 recession.

As for the new Member States, the JER comments that they have achieved reasonably strong economic growth over the past years, but this continues to be driven by strong productivity increases, while employment growth has been very modest or negative.

Labour productivity growth

The JER states that labour productivity growth in the EU 15 countries has fallen dramatically and the EU is now under-performing in comparison with the USA. Whereas in the early 1990s, the EU outperformed the USA, the situation has reversed since the mid-1990s and, while the USA has been able to combine strong employment and productivity growth, in the EU the rise in employment has been combined with a drop in productivity growth. The report states that it is urgent to reverse this trend. It acknowledges that the entry of workers in sectors with lower levels of productivity may have played a role, but it contends that the slowdown in productivity suggests broader underlying difficulties of the EU economies to foster and absorb innovation.

Additionally, recent progress in improving 'quality' in work has been mixed. The report states that there are wide variations between Member States in the extent of undeclared work and the average gender pay gap has remained at 16% for several years. The low participation of adults in training gives cause for concern and those people most in need (those with low skills, older workers and employees in the small and medium-enterprise sector) are the least likely to receive it. The number of accidents at work remains high, although it is decreasing.

Strengthening social cohesion and inclusion

The JER states that the economic slowdown has raised the profile of social inclusion problems and enlargement has increased the complexity and diversity of situations across the EU, especially in national and regional employment and unemployment performances. Also, long-term unemployment has been increasing and there are worrying signs of deteriorating job prospects for young people, people with low skills and other vulnerable groups, such as people with disabilities, immigrants and minority groups. The latter group faces compounded disadvantages, including risks of discrimination.

The report states that around one in four people at risk of poverty in the expanded EU have a job, and stresses that promoting access to good-quality employment, including access to training and an income that enables full participation in employment and society, is key for social inclusion.

The JER reports that enlargement has made the cohesion problems more acute. Regional employment and unemployment disparities remain widespread, with very high rates of unemployment in many regions. Regions with low levels of employment also tend to be the ones with lower productivity levels.

The report states that the ability of the EU to boost employment and productivity growth simultaneously will rely on further structural reforms, not just in the labour market but also in the services, product and financial markets. It is currently constrained by low domestic demand and the macroeconomic adjustments relating to global imbalances.

The JER states that accelerating labour productivity and raising the employment level of older workers are crucial. The report confirms findings from the report issued in 2004 by the employment taskforce headed by Wim Kok (EU0412205F). This report set out four priorities for action: increasing adaptability of workers and enterprises; attracting more people to enter and remain in the labour market; investing more and more effectively in human capital and lifelong learning; and ensuring effective implementation of reforms through better governance.

Policy responses by Member States

The JER also contains an assessment of policy responses by Member States to specific employmenrt policy recommendations. It notes that these cover a range of measures, which it categorises as 'strong', 'significant' and 'weaker'.

According to this evaluation, the strongest responses relate to:

• the financial incentives element of 'making work pay';

• reforming public employment services;

• designing and reviewing lifelong learning strategies; and

• facilitating business creation and development.

The significant responses relate to:

• ensuring employment-friendly wages and other labour costs;

• promoting flexibility combined with security in the labour market, although the JER observes that risks of segmentation are still present;

• promoting childcare and other care services to increase female participation;

• strengthening active labour market policies, although the JER notes that the efforts seem insufficient, with unemployment levels rising, especially among young people; and

• addressing the situation of disadvantaged people in the labour market.

The weaker policy responses are in the areas of:

• developing active ageing strategies;

• improving the level, effectiveness and sharing of investment in human capital, which includes reducing early school-leaving and increasing participation in training of low-skilled sectors of the workforce;

• addressing the gender pay gap;

• tackling undeclared work; and

• anticipating and managing economic restructuring.

Commentary

The draft joint employment report clearly indicates that progress towards achieving the Lisbon goals is insufficient, as measured at the mid-term point in this 10-year strategy. The mid-term targets will not be met and the report emphasises that more must be done, particularly at the level of the Member States: 'the gap must be bridged between the employment priorities at EU level and implementation in the Member States'.

The report underlines how crucial it is for governments to 'share ownership' of EU objectives and to foster public conviction in the need to translate EU commitments into action at national and local level. To achieve this, partnerships for reforms, national targets and appropriate financial backing are essential. At the same time, however, the report acknowledges the positive response of many of the new Member States. Finally, it welcomes the mid-term review process as providing the opportunity to raise the profile of the Lisbon strategy at all levels, to simplify the coordination process and to achieve greater focus on implementation. This report will now feed into the formal mid-term review of the Lisbon strategy, which will take place at the March 2005 European Council. (Beatrice Harper, IRS)