Europe risks creating a generation of long-term unemployed, but actions can be taken now as a matter of urgency to avoid this scenario, writes Fabian Zuleeg.
Fabian Zuleeg is the chief executive and chief economist at European Policy Centre.
To achieve job creation, the starting point has to be growth. Without positive growth we cannot maintain a stable recovery in labour markets. The good news is that the level of growth needed is lower than before in many EU countries: the ratio between growth and job creation has shrunk. Twenty years ago economies needed growth of around 2.5-3% or more to prompt job creation.
Today, thanks in part to more flexible labour markets and a variety of different contractual arrangements, this can be as low as 1.5-2% growth. However, current growth of around 1% in the eurozone is too low, especially since it masks low growth performance in the countries with the weakest labour markets. So, we have to recognise that in many markets levels of growth fall short of what is needed to deliver sustainable recovery in the labour market.
A number of things can be done in both the short and long term to address this. Europe will need to mitigate the impact of high unemployment in some countries while also driving structural changes that will ultimately result in a sustained recovery. This is not a swift process and can take many years to produce results.
In the short term several actions should be considered: the first is to not cut public employment too quickly, taking decisions appropriate for the specific country. While reforms and a gradual reduction in the public sector may be needed, where low levels of labour demand are the fundamental problem I would guard against the rapid cutting of public jobs.
The next opportunity is to build things. The construction sector has significant excess capacity and has been badly hit. Investing in public infrastructure would create jobs quickly and some countries still have room for manoeuvre here. Certainly, public/private partnerships are an option worth exploring.
Thirdly, we must consider the European labour market as a whole and think cross border. It might not be a popular suggestion but the fact is that jobs do exist and we must support people in acquiring the skills needed to be mobile and take advantage of them.
Another controversial opportunity comes from an increase in consumption and imports in the better performing countries, thereby benefitting exports from countries in trouble. Taking advantage of this rebalancing of demand could be to the benefit of everyone.
Finally, and probably most tricky, is the importance of maintaining the human capital of those who are currently unemployed. Maintaining skills and engagement in the workplace, even on a short term basis, is crucial. We cannot afford to lose a generation from the labour market for an extended period of time as it will become increasingly difficult for them to re-enter it.
Turning to the longer term, we know what policies are needed, but in many cases we still need to implement them: we need to improve the quality of labour supply if Europe is to be competitive on the world stage. This means updating education systems and finding more effective ways to integrate vocational training and academic studies.
We must also implement structural labour market reforms in order to better match supply with demand. In particular we should create a benefits system that is centred on maintaining people in employment and supporting them in continuing to work. We must ensure that the short term crisis doesn’t mean we exclude people permanently from labour markets. It might seem an ideal quick-fix to retire older workers so that younger people can join the workforce, but we only need to look at the ageing demographics in Europe to realise that this will not be a long term solution. Employment should be maintained across all labour market groups.
A further action is to support EU countries in creating targeted growth programmes. For example, the cost of capital in many markets means that it is impossible for companies to expand and take on workers and we need to change this. Finally, we should also do more to create long term growth. There are some good initiatives in the 2020 agenda which we should revisit including actions on industrial policy, energy strategy and an emphasis on innovation. The challenge is of course to get out there and implement them.
Governance mechanisms such as the annual growth survey can provide useful guidance, but they cannot be the whole solution. This is a cross-policy problem which needs to be addressed with cooperation and coherence across a range of policy areas.
In responding to the challenge of job creation we must also acknowledge the differences across the EU28. Europe can best support its member states by ensuring that it is recommending the right remedies for the individual country circumstances. We cannot solve all the problems but we can work with members to tailor appropriate tools and lend support and guidance for their implementation.
This opinion is based on comments made during a recent European Parliament “Way to Work” breakfast sponsored by Phil Bennion MEP and supported by Eurociett, the European confederation of private employment agencies