A pedestrian reflected in the window of a job centre in London. In the UK, strong public/private partnership have proved resilient in difficult economic circumstances. | EPA/ANDY RAIN
Structural shifts in the economy have had significant impact on labour markets in recent years. Happily the EU employment package recognises that reforms are needed to drive job creation and competitiveness, but it will take several years before the benefits of reform begin to feed through into the economy and the EU must drive transformation now if member states are to seize the opportunity by 2020.
To be fair some reform has already taken place. In a number of markets policy makers have diversified contractual arrangements in order to support job creation and widen the use of some labour contracts (such as apprenticeships in France). In Italy, the government has reformed dismissal law, in order to better secure the risk attached to litigation for companies. Offering different forms of employment has also enabled governments to clamp down on undeclared work and to bring as many people as possible into decent, recognised work and the attendant social benefits which this affords.
I believe the most crucial component of reform is flexicurity – striking an appropriate balance between flexibility and security for both workers and employers. Employees welcome flexibility as it enables them to accommodate other life-stage priorities and find a better work/life balance. Companies need a degree of flexibility in order to cope with the fluctuations that characterise today’s economic reality. Conversely, many workers want flexibility and companies need security when it comes to hiring and dismissing workers.
Active labour market policies are also an important element of reform, and fostering strong cooperation between public and private employment services will smooth transitions by better matching supply with demand in the labour market. Today in the Netherlands workers newly looking for work are sent first to the private employment services while in the UK jobseekers who have been unemployed for more than six months can be transferred to the private sector for a more dedicated and tailored approach. Other initiatives such as the lifting of any unjustified restrictions to private employment agencies and seeking to reduce the tax burden on labour will also serve to make labour markets more agile and flexible and hence make growth and job creation easier.
It’s worth noting that those countries who took early reforms and overhauled their labour markets have weathered the economic downturn much better than those who have continued to delay. Germany for example having increased the flexibility of its labour market through reforms undertaken between 2003 and 2005 currently has an unemployment level at its lowest since 1992. In the UK, Netherlands and Scandinavia flexible labour markets and strong public/private partnership have proved resilient in difficult economic circumstances.
These markets also have a higher penetration of temporary agency work which provides user companies with the flexibility they need to react to increasing demand and drive higher revenue growth. A study undertaken in Germany 2011 demonstrated that companies using agency workers accelerate faster out of a downturn.
However this picture of reform is sadly not uniform across Europe. Those countries that have stalled reforms and continued to over-protect permanent contracts have stifled job creation and discouraged employers from recruiting new workers which particularly affects young people.
Italy, Spain, Greece and Portugal are lagging behind in terms of reaching the right balance between flexibility and security and this has led to increased labour market segmentation with effectively dual labour markets: half the employees enjoying over-protected permanent contracts while the other half are without a job.
While we can take some comfort in the knowledge that Italy has now started to implement labour market reforms, the EU Directive on Agency Work, which had its deadline for transposition almost one year ago, has still yet to be implemented fully in many markets. As long as unjustified restrictions exist such as sectoral bans or limitations on the services temporary work agencies can offer, the private employment services sector will not be able to play its full role in creating jobs and transitioning workers into growth sectors.
The case for well-functioning labour markets driving growth and jobs is supported by solid data. The OECD demonstrated how levels of unemployment are linked to the strictness of employment protection and research also shows a clear correlation between labour market efficiency and the employment rate. Most encouragingly, a study undertaken by the French Economic observatory in July 2012 estimated that the level of growth needed to create employment has gone from 1.5% to 1% which indicates that markets with flexible, well-balanced labour market structures are able to create jobs even at low levels of GDP growth.
As 2012 draws to a close and 2020 looms ever closer the EU must recognise that just as labour market reform does not happen overnight, nor are its benefits felt immediately. The EU must place pressure on those countries who have yet to restructure their labour markets in order that they can transform themselves and reap the benefits of it before the end of the decade. This should also be done for the sake of the 23 million citizens who are currently looking or a job.
1 IW consult 2011 GmbH, “Zeitarbeit in Deutschland” 2011
Denis Pennel is Managing Director of Eurociett news europe on line
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