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1 EUROPEAN LABOUR MARKET: PROSPECTS AND CHALLANGES Carlo DellAringa Paper to be presented at the Cedefop Skillsnet Agora Conference: SKILLS FOR EUROPEs.

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Presentation on theme: "1 EUROPEAN LABOUR MARKET: PROSPECTS AND CHALLANGES Carlo DellAringa Paper to be presented at the Cedefop Skillsnet Agora Conference: SKILLS FOR EUROPEs."— Presentation transcript:

1 1 EUROPEAN LABOUR MARKET: PROSPECTS AND CHALLANGES Carlo DellAringa Paper to be presented at the Cedefop Skillsnet Agora Conference: SKILLS FOR EUROPEs FUTURE, 21-22 February 2008, Thessaloniki, Greece

2 2 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 Europes ability to remain competitive. 3) The EU has lagged behind the United States in the productivity stakes in the last ten years.

3 3 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.

4 4 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 needed..

5 5 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.

6 6 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.

7 7 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 mid- 1990s. 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.

8 8 Total factor productivity growt (annuale average growth in percetanges) Euro areaUnited States 1980-19951996-20051980-19951996-2005 Market economy0. Electrical machinery, post and communications Manufactoring, excluding electrical1.50.9 1.5 Other industrial production1.60.21.2-0.7 Distribution services1. Financial and business services-1.3-2.30.1 Personal services-1.1- Source: EU KLEMS database Note: Data for the euro area exclude Greece, Ireland, Cyprus, Luxembourg, Malta, Portugal and Slovenia

9 9 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.

10 10 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.

11 11 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.

12 12 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.

13 13 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.

14 14 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.

15 15 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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