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Europe

More and better jobs? – Labour market developments in the euro area since 1999
May 2008

Executive summary
In a companion report the ELNEP network has analysed in detail the labour market of the euro area since the start of monetary union in 1999. In many important senses the euro area labour market performs better than its widely held reputation would suggest. Most notably, job growth has been strong, especially for women, and unemployment, although still higher than in the US, has fallen markedly. Europe has indeed created ‘more jobs’. However, there are a number of serious issues in the area of ‘job quality’ in the broad sense. More jobs: yes. Better jobs: not really.

Specifically ELNEP finds:

• Progress has been made in raising employment rates, but the Lisbon employment targets will not be met by 2010 because of the mid-decade ‘wasted years’ of sluggish economic growth.

• Unemployment has come down to levels not seen for a generation. Yet it remains higher than in the US and the non-EMU western European countries.

• In spite of lower unemployment and higher inflation, wage setting remains moderate and consistent with price stability in EMU as a whole. But this also means that national income continues to be shifted from wage to profit income, depressing the wage share.

• At the same time, divergences between countries unit labour cost developments have led to competitive tensions within the currency union.

• The euro area has a productivity problem. Contrary to standard arguments about the productivity-enhancing effects of market-oriented structural reforms, labour productivity growth has been sluggish. While the reasons are complex, we identify the weakening of collective bargaining, which has reduced the pressure on firms to rationalise production, as an important cause.

• Regarding job quality, there are a number of important areas of concern. Involuntary part-time work and the use of fixed-term contracts have increased inexorably. In a number of countries, but not all, wage inequality has increased dramatically. Specifically the share of workers in Germany and the Netherlands earning less than two thirds of the median hourly wage is now almost as high as in the USA.

• A quantitative analysis of job quality in the EU15 using fifteen separate indicators suggests a worrying decline in the areas of non-standard employment contracts and collective interest representation since 2000. Despite the shift to services and political statements of intent, there has been no improvement in ‘physical’working conditions or in indicators of ‘work-life balance’. Comparing countries on their overall performance, the Scandinavian countries come out top, along with the Netherlands and the UK. The southern European countries perform worse. Worryingly the better-performing countries have improved their scores since 2000, whereas the laggards appear to have fallen further back.

Overall the analysis suggests a link between these developments. Returning to pay trends that are oriented towards medium-run productivity growth, particularly at the bottom end of the labour market, would be an important step towards raising workers’ living standards. It would help stop the trend to greater inequality, while serving to stimulate the rate of labour productivity growth on which, ultimately, rising living standards depend.

Financial crisis threatens employment and growth: Policy response needed (Euro area economic forecast by the European Labour Network for Economic Policy, May 2008):
Adobe Acrobat [.pdf] [size 1,037 kb]
More and better jobs? Labour market developments in the euro area since 1999 (Companion report to the ELNEP economic forecast and policy recommendations, May 2008):
Adobe Acrobat [.pdf] [size 505 kb]

Source:
ELNEP —
European Labour Network for Economic Policy
http://www.elnep.org/

Data posted: 17 June 2008.

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