Speech – Labour market: Cinderella of EU recovery strategy?

László ANDOR – European Commissioner responsible for Employment, Social Affairs and Inclusion

European Trade Union Institute conference “European labour markets in (the) crisis: Is there light at the end of the tunnel?”

Brussels, 31-1-2013 — /europawire.eu/ —

Ladies and Gentlemen,

It is a privilege for me to be closing this conference, and I thank the ETUI for their invitation.

Two of your panels today have specifically addressed the link between Europe’s unemployment crisis and the crisis of the euro.

I believe it is crucial to highlight and clarify this link for several reasons.

First, much of the loss of economic output, and much of rising unemployment across Europe over the past years can be attributed to the uncertainty of investors and companies about whether, how and when the euro crisis is going to be solved.

And sadly, many of the budgetary savings achieved by governments and citizens over the past years were offset by higher interest rates related precisely to this uncertainty.

Second, workers and households have often been regarded as adjustment variables in the process of fiscal consolidation and current account rebalancing, which has been deemed essential for the survival of the common currency.

The longer-term human, social and political costs of such adjustment were either underestimated or they were not considered with the same urgency as the calming of the financial markets.

We have 26 million unemployed in Europe today but many people still assume that this has been a necessary price to pay.

And third, as the EMU crisis dragged on, many national governments have lost the ability to combat unemployment and protect household incomes through fiscal policy. The cushions of national automatic stabilisers have gone flat. Social protection systems and tax systems have lost most of their power to stabilise a national economy in a downturn.

But the problem is not just that governments are not able to sustain a broad demand-side stimulus; the problem is that many governments lack money to undertake targeted structural reforms and structural investments that would help put their economies on the path of improved productivity and competitiveness.

So what we face is indeed a systemic problem in the functioning of the monetary union. This systemic crisis has its roots in the flawed design of the EMU 20 years ago. But it has been aggravated by an emphasis over the past years on the failings of individual countries, and by focus on individual adjustments, as compared to systemic solutions.

A lot has been of course achieved through step-by-step reinforcement of EU governance and development of emergency stabilisation mechanisms.

Solidarity between Member States is slowly developing, as is the ability of EU institutions to collectively govern the monetary union.

But we still have not developed a viable long-term architecture of the EMU.

Luckily, the debate on what it takes to build a deep and genuine Economic and Monetary Union is now gaining momentum. And luckily there is growing awareness that such an EMU 2.0 also needs to collectively deal with employment and social problems.

I have outlined my views on the social dimension of a genuine EMU in Madrid on Monday at the anniversary conference of the ETUC.

I have argued that a genuine and sustainable EMU must be able to prevent and tackle social imbalances, and must pursue economic efficiency and social equity at the same time.

I have suggested that three main elements of the EMU’s social dimension could be stronger employment and social surveillance and coordination; basic social standards or policy benchmarks; and solidarity mechanisms that enable EMU Member States to address the key employment and social problems. An obvious case in point is youth unemployment.

Of course, the social dimension will only be meaningful if it is part and parcel of the reinforced EMU architecture, building on the framework of the European Semester.

But let me focus today less on EMU issues and more on what remedies to the unemployment crisis can be found in the labour market as such.

You know very well that I prefer to speak about ‘employment policy’ rather than ‘labour market policy’, because ‘labour market policy’ is sometimes associated simply with regulatory reform and does not necessarily capture demand-side issues, job creation efforts, and the need for investment in people’s skills and in the good functioning of relevant institutions.

Structural reform is sometimes wrongly understood to consist in one-off changes that can be implemented at little cost, while the reality is that real reform also involves strengthening of public sector services which are provided on a continuous basis – for instance, education and employment services.

The Youth Guarantee which the Commission proposed in December is a good example. Yes, it is a structural reform, but it requires money to pay for trainings and placements, and it requires a sustained implementation effort from job agencies, schools, businesses and unions.

The Youth Guarantee is not a one-off measure; it will take time to deliver and to maintain. And it will need a certain amount of what is current expenditure in accounting terms, but investment in the economic sense.

This is why we prefer to use the word ‘employment policy’, and why in our Employment Package, structural labour market reforms represent only a part of the agenda.

But the real issue is of course not about terminology.

It’s about what should be done in the labour market and in human capital development policies to help overcome the jobs crisis we are facing today.

It is clear that Europe’s unemployment cannot be solved simply through labour market reform; much of it is due to the dynamics of the EMU as well as to the state of the financial sector.

Even if credit seems to be returning to the peripheral countries’ banks lately, many companies in the real economy still have great difficulties with access to finance.

Another issue is competitiveness, which is about much more than the functioning of the labour market, and certainly much more than labour cost.

Some of the calls for greater competitiveness across Europe which were made in the past 10 days were highly ambiguous about what is actually meant.

And they mostly tended to overlook non-cost drivers of competitiveness, such as education, health, public sector functioning, or innovation – even if deeper analyses like those of the World Economic Forum clearly emphasize that non-cost factors are much more important for competitiveness and recovery than cutting or freezing wages or watering down health and safety rules as some seem to be pleading for.

Crucially, we will not get far in terms of recovery if we base national and European economic policies on a company-level approach preoccupied with out-competing others.

To make Europe again a dynamic economy, our main focus should be not necessarily be on out-pricing the rest of the world, producing only things that others cannot make or generating a few hi-tech companies as illustrious as those across the Atlantic.

The problem in Europe is rather that too many people, jobless but also employed, do not get to buy what they need.

Prices are held up by oligopolistic or otherwise shielded product markets and the financial sector, with profit margins rising, labour share falling in real terms, and many households’ income being simply too precarious.

And very many people simply do not get an opportunity to make a living.

So rather than trying to out-compete each other, we should focus on economic inclusion and on what is needed to make everybody’s work more productive.

The more people get a chance to contribute to value creation – in an environmentally sustainable way and with decent conditions – the better off we all are.

It is easy to call for rebalancing through pay cuts or deregulation.

It is much harder to de-fragment the financial market and get credit flowing to companies for sustainable activities.

It is much harder to ensure that every young person has a chance, or to maintain a rightly skilled and adaptable workforce.

But if we want to be competitive and to end the jobs crisis, we need to pay attention to these non-cost factors and invest in them.

Instead of shooting silver bullets, we need to implement a well-conceived comprehensive jobs plan.

And as a starting point, we need to think about labour not as an adjustment variable in the macroeconomic equation of the monetary union, but as a source of recovery and sustainable growth.

Europe now still has the best-educated workforce it ever had.

If we 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 in closing the 17 million workers gap to Europe’s 2020 employment target.

But at present, Europe is not managing this source of recovery well.

Large parts of the workforce are stuck in the role of a Cinderella, having to find their way through very difficult situations, and without a clear hope for better future.

They do not have real opportunity to improve their situation and contribute to economic recovery.

But surely if there is one lesson that we should have learned from the past five years, and particularly from the renewed rise of unemployment since mid-2011, it is that we cannot wait for jobs to spontaneously emerge when sectoral imbalances have cleared and confidence has been restored.

Governments and social partners must think in concrete terms about how to create and maintain jobs.

And we know that these jobs must not consist of routine tasks easily done by machines. On the other hand, these jobs must help make our economy more resource efficient and they must respond to demographic and technological developments.

Allow me to elaborate on seven elements that should in my view be part of a jobs plan for Europe.

All seven represent improvements in the way labour markets function. They are structural reforms focused on improving the dynamism and resilience of the labour market. They respond to the reality of the crisis, as well as to long-term trends. And they all aim to improve employment, competitiveness and social cohesion.

First, all member States should implement Youth Guarantees. In other words, all Member States should put in place systems ensuring that every person up to the age of 25 years gets a good-quality offer of employment, continued education, an apprenticeship or a traineeship within four months of becoming unemployed or leaving school.

The Youth Guarantee is all about making institutions work better together and making youth employment a budgetary priority. It is a structural reform addressing the very real problems of segmentation and lack of opportunities to start a career.

But turning the Youth Guarantee into reality also requires active contributions from business, trade unions and civil society – for instance in building up apprenticeship programmes and defining training curricula that match market needs.

Second, Europe needs to boost demand for labour.

As I said, employment policy is not only about ensuring that the unemployed are job-ready but also about stimulating hiring.

Member States need to seriously lower the tax wedge on low-paid labour, also by taxing capital incomes, property and pollution more.

This has been said many times over the past few years, but has not really been done.

Shifting taxation away from labour is a structural reform conscious of the fact that our economy and society needs more people to work and to make a living through work.

At the same time, the reform is conscious that from a certain level, inequalities are detrimental to development and that environmental pollution needs to be reduced.

Thirdly, we need to strengthen labour mobility across Europe.

The efficiency of the European labour market could be improved and many vacancies filled if companies were better informed about recruitment opportunities, and jobseekers better informed about job opportunities beyond their national borders.

Better matching across Europe would be an obvious structural improvement. But it’s not just about being informed, but also about being assisted in the hiring process.

The Commission has decided to upgrade the EURES system, so that it becomes a pan-European recruitment, matching and placement service.

But a lot will depend on how Member States implement this upgrade and how they manage funding available in the European Social Fund for supporting transnational labour mobility.

Fourth, more needs to be done to employ or re-employ young mothers and other vulnerable groups.

Dropout of women from the labour market, particularly after giving birth, is a waste of skill and economic value.

Quality childcare and parental leave policies should help to avoid that childbearing is penalised by long career breaks, employment below qualifications and reduced lifetime earnings and old-age benefits.

As Europe’s workforce ages and shrinks, governments need to invest to make labour markets more inclusive and to help more vulnerable groups, such as women, young people, older workers, minorities and migrants get into employment.

Broadening the workforce is a reform effort which we will need to sustain for many years. Social partners bear important responsibility to help find practical solutions in this respect.

Fifth, Europe’s economies need active and cooperative management of economic adaptation and restructuring.

To maintain prosperity, we need to improve both employment and productivity: these two are competing factors in the analytical breakdown of GDP, but mutually reinforcing policy objectives.

The Commission has been seeking to boost employment and productivity through a renewed industrial policy agenda, but governments and social partners have key responsibilities in working out ways for companies to adapt to change without shedding labour.

Reduced working hours coupled with training are a well-known example. Wage moderation coupled with training can also be an option.

Through company adaptation and re-skilling of workers, we need to make the economy greener and reap the opportunities of digitalization.

At the same time, companies also need to adapt to the demographic reality. Social partners should ensure that workplaces are safe and age-friendly, and we need greater awareness across business that workplace wellness is an investment that pays off.

And where external flexibility is the only option for company survival, restructuring must be accompanied by re-training and placement programmes so that new jobs are created.

Measures that boost internal flexibility, adaptability and improve the quality of restructuring are a key structural reform if resilience, competitiveness and employment are our goals.

Sixth, governments should promote social economy and social entrepreneurship, and mainstream business should learn from these alternative models.

Inequality in the possession of productive and financial assets has been rising, largely as a result of technological change.

At the same time, capital movements are increasingly driven by short-term considerations.

Taken together, this undermines prospects for a durable recovery. Europe needs broader-based ownership of capital.

Steps in this direction are a structural reform, and governments should use all available tools to support business models that are participatory, responsible and focused on the long term.

Worker-owned cooperatives and the social economy at large represent a model where economic opportunity is better distributed and decision-making is more democratic.

This example is more relevant for mainstream business than it may seem, because evidence from the crisis shows that companies co-owned by employees are also highly innovative and more adaptable and resilient.

Member States should therefore actively promote the social economy, social business, microfinance and practices such as employee buy-outs of troubled companies, including through financial instruments supported by EU structural funds.

The seventh and final point of my jobs plan is building modern welfare states focused on social investment.

Governments have little means to directly redress rising inequalities of socio-economic outcomes, but they can and must intervene to improve equality of opportunity.

Redistribution that empowers and enables people to contribute to the economy and participate in society is social investment.

It supports employment, productivity and social cohesion today as well as in the long term. Investing a few per cent of GDP now prevents much larger socio-economic costs in the future.

Prevention of child poverty, quality education, Youth Guarantee, quality childcare enabling parents to work, health prevention or active ageing policies all represent social investment. They are a positive-sum game.

Turning social investments into priority items in public budgets is clearly a structural reform that can improve both efficiency and effectiveness of expenditure.

Focus on social investment is indeed a necessity if we speak about smart fiscal consolidation.

Ladies and Gentlemen,

To conclude, it is not inevitable that the labour market should be a Cinderella in our crisis response. Recovery is not just about adjustment. More positive dynamics are possible.

But we must not wait for a miracle to happen. The labour market can be a source of recovery, and a renewed source of legitimacy for the European project, if we invest in it.

If we deploy the effort and resources needed to achieve those structural improvements I have outlined.

For this to happen, the EU, and the monetary union in particular, must be able to detect key social and employment imbalances and act on them – either in preventive or remedial way.

The reinforced architecture of the Economic and Monetary Union must be able to address employment and social problems, including through a common fiscal capacity and through employment and social policy standards.

This means that EU and EMU governance should focus more than today on quality:

• Quality of fiscal consolidation and structural reform.
• Prioritization of social investment in the context of fiscal consolidation.
• And greater understanding of the non-cost drivers of competitiveness: Well-functioning public administration and judiciary; well-performing education systems; strong youth employment policies; innovation and access to finance, et cetera.

It also means that the EU’s multi-annual budget should foresee sufficient investment in human capital.

The European Social Fund should not be a Cinderella, dependent on whatever is left after other priorities have been satisfied.

The ESF is a fund that enables the implementation of key structural reforms, and a fund whose targeting is very closely linked to the European Semester.

A minimum share for the ESF within Cohesion Policy and thus in the EU budget is therefore the only way to ensure that Member States actually make the necessary investments in their workforce – in Europe’s workforce.

Ladies and Gentlemen,

I have described a set of structural reforms and investments which I consider crucial to boost jobs and competitiveness across Europe.

But I would like to underline that Europe needs to pay particular attention to the periphery, and to restoring growth potential in each of the peripheral countries.

A monetary union cannot function if some of its Member States – and their people – do not have viable economic future.

For this, every Member State must face up to its responsibilities and undertake reforms, but collective action and solidarity are also needed.

Only if ‘outsiders’ are able to contribute and if ‘peripheries’ develop as true parts of the whole, will Europe regain unity and prosperity.

Because to exit this crisis, Europe needs unity.

But it will not rebuild unity without embarking on a robust agenda for a job-rich recovery, where employment and social cohesion are core concerns rather than false promises.

Thank you.