The EU response to the economic crisis

Newsletter articles

1 Feb 2010

Employment Studies Issue 11

Kari Hadjivassiliou, Principal Research Fellow

The world financial crisis of 2008 and the ensuing recession has led the EU to rethink its approach and priorities in relation to employment and labour market policies. We review the main activities and communications from the EU institutions over the past year, as policymakers try to mitigate the employment impact of the recession and try to support EU member states in their efforts to pursue active labour market policies.

The impact of the recession is expected to be significant on EU labour markets; in general, it is widely accepted that the existence of supporting social safety nets is particularly crucial, especially for workers on flexible contracts, for young people, and for others at a high risk of experiencing long durations of unemployment. The European Commission’s 2009 Employment in Europe Report[1], published in November 2009, has shown that it is young people and those on temporary contracts, along with low-skilled and male workers, who have borne the brunt of the current employment contraction. This report estimates that, since the start of the crisis, employment in the EU has shrunk by over 4 million, while by September 2009 the unemployment rate had increased to 9.2 per cent, a rise of 2.5 percentage points compared with spring 2008. Total unemployment in the EU had increased to 22.1 million, a rise of 6.1 million (or more than one-third).

Recovery plan aims to stimulate economy

In response to this crisis, in December 2008 the EU adopted a European Economic Recovery Plan, which proposed a countercyclical response, based on:

• an immediate (but temporary) fiscal stimulus of around 1.5 per cent of EU GDP (or €200 billion), involving national budgets (around €170 billion or 1.2 per cent of GDP) and EU and European Investment Bank budgets (around €30 billion or 0.3 per cent of GDP)
• a number of priority actions, aligned with the EU’s Lisbon Strategy (aimed at creating and supporting employment in the EU). These actions included the following:

To simplify criteria for European Social Fund (ESF) support and step up advance payments from early 2009. This will enable member states to have earlier access to up to €1.8 billion in order to help them to implement labour market activation schemes, in particular for low-skilled workers. These schemes would involve actions such as personalised counselling, intensive training, retraining and upskilling, apprenticeships, subsidised employment, grants for self-employment, and business start-ups. Other actions in this area would try to improve the monitoring and matching of skills, and skills upgrading with existing and anticipated job vacancies in close cooperation with social partners, public employment services and universities.

To revise the rules of the European Globalisation Fund (EGF) so that it can intervene more rapidly in key sectors, either to co-finance training and job placements for those who are made redundant, or to keep in the labour market skilled workers who will be needed once the economy starts to recover.

To support labour demand by inviting member states to reduce employers’ social charges on lower incomes. The aim of this is to promote the employability of low-skilled workers and to consider the introduction of innovative solutions such as service cheques for household and childcare, or temporary hiring subsidies for vulnerable groups.

High-level summit on jobs

In May 2009, recognising the ongoing severity of the crisis and its impact on employment levels, the EU held a special summit in Prague, dedicated to this issue. At this summit, the governments holding the previous, current and future Presidency of the Council (the so-called Troika, which are at present Sweden, Spain and Belgium), together with President Barroso, Employment Commissioner Špidla and the social partners, discussed the consequences of the current crisis on EU labour markets and ways of lessening its impact on employment. The summit identified 10 priority actions to fight unemployment and create new jobs at both EU and national levels, including the need to maintain employment and promote job creation, identify job opportunities and skills requirements, improve skills forecasting and the matching of labour market needs, facilitate skills enhancement, and promote geographical and occupational mobility.

In June 2009, as a follow up to this Employment Summit, the Commission in its communication ‘A Shared Commitment to Employment’[2] put forward three employment-related key priorities (see A below) and ten actions (see B below). The focus here is on skills development, improving employability, encouraging business start-ups, and helping people gain access to the labour market.

Most recently, the Commission’s 2009 Employment in Europe Report, mentioned above, has stated that flexicurity, with its integrated strategy of enhancing both security for workers and labour market flexibility for employers, provides an efficient and effective toolkit for supporting labour market transitions. Flexicurity is deemed to provide a most relevant and effective approach in helping the EU and its citizens deal with the current crisis.

The EU institutions are clearly trying to get to grips with stimulating employment, which is seen as an urgent priority in the current climate. It remains to be seen whether all of these new measures and activities will be successful in stemming unemployment and ensuring that the EU’s labour markets are in a position to respond to the economic upturn, when it comes.

A : Key points of the jobs plan agreed at the Prague summit in 2009 Redirecting €19 billion of planned expenditure under the ESF to help people to stay in work or move towards new jobs, through upgrading skills, encouraging entrepreneurship and improving public employment services under the ESF. Reallocating €100 million from the existing EU budget which – when combined with funding from international financial institutions, particularly the European Investment Bank – will provide more than €500 million for the creation of a new EU microcredit facility. These microcredits will support those at risk of not obtaining funds to set up a business, such as the recently unemployed, and reinforce employment in micro-businesses facing the credit crunch. A commitment to provide at least five million apprenticeships across the EU for young people. Support for schemes to maintain viable employment through short-time work and training. Immediate help for the unemployed to avoid the risk of long-term unemployment and the loss of relevant skills, including proposals that an early opportunity for training or work should be provided to each unemployed person. Improving the efficiency of national employment services by providing intensive counselling, training and job search in the first weeks of unemployment, especially for young unemployed people. Help to get the most disadvantaged back into jobs, for example, through lower nonwage labour costs, recruitment incentives and the promotion of low-skilled job opportunities in household and care services. New online ‘match and map’ service to help jobseekers match their skills to job vacancies throughout Europe. A focus on skills upgrading and a better match with labour market needs, with a Commission sector-by-sector analysis of EU labour market needs today and for the future, including green skills. A practical toolkit to help companies, workers and their representatives better manage and anticipate business restructuring. A guide for training in small businesses to help SMEs maintain and obtain the skills they need.

B : EU key employment priorities and actions to drive European recovery 1. Maintaining employment, creating jobs, promoting mobility Proposed priority actions: promote more effective short-time working arrangements, combined with training promote better anticipation and management of restructuring, to avoid the risk of long-term unemployment support job creation and entrepreneurship, also through a new EU microfinance facility aimed at small businesses and people who have lost their jobs and want to start a new business facilitate labour mobility. 2. Upgrading skills, matching labour market needs Proposed priority actions: upgrading skills, strengthening lifelong learning helping young people to enter the labour market. 3. Increasing access to employment Proposed priority action: reinforcing activation and facilitating access to employment with the reinforcement of public employment services, helping the disadvantaged to get back to work and stimulating the demand for low skilled workers.

Footnotes [back]

[1] European Commission (2009), Employment in Europe 2009, November
[2] COM (2008), 800 final, Brussels, 26.11.2008

For more information on this work, please contact Kari Hadjivassiliou at IES.