EU labour market reform 'urgent'

29.11.07 @ 17:29

  1. By Jochen Luypaert

The European Union needs to undertake far-reaching labour market reforms if it wants to be able to safeguard its social security system, experts have said.

  • European women and ethnic minorities are under-represented in the workforce (Photo: European Commission)

"Europeans tend to support – and expect – a high level of social security, but many question whether this will be affordable with fewer payers and a disproportionate rise in the number of recipients of, in particular, pensions and health care," Fabian Zuleeg, senior policy analyst at the European Policy Centre wrote in a paper released on Thursday (29 November).

According to demographic predictions, the EU's population will not only shrink by almost 20 million people by 2050, but its make-up will also change dramatically.

While there are currently about four working people of working age for each person of pension age in the EU's 27 member states, there will be fewer than two people to support every elderly person by 2050, with the population gradually ageing.

Mr Zuleeg pointed out that most EU member states have only just embarked on their road of reform, while public finances are already beginning to deteriorate in several countries - making more decisive action a matter of urgency now.

"We don't have much time left to act. We don't have twenty years anymore," he said at a briefing on the issue.

Older workers could earn less

Mr Zuleeg said that employment rates need to increase, especially among women, older people, ethnic minorities, people with disabilities and low-skilled people.

These groups that are currently under-represented in the labour markets of most EU member states, though substantial differences exist between countries.

The EPC expert proposed to get rid of early retirement schemes, raise the retirement age and introduce policies that engage older workers in the labour market.

One of the proposed ways to avoid companies laying off older workers is to make sure that their wages correspond to their productivity, even if this means that older workers are paid significantly less than is currently the case.

His view on labour market reform was largely mirrored by Xavier Prats Monné, director for employment at the European Commission, who stressed that all member states had to take into account four elements.

"First of all, protective [employment] legislation should not hamper labour market flexibility. Second, we need active labour market policies. Third, workers need to learn throughout their life in a way that helps them in their jobs. And fourth, we need to keep the social protection, because that's what citizens want."

Danish flexicurity not easy to export

One of the models that increasingly receives attention of other EU members is the Danish 'flexicurity model'.

This model makes it fairly easy for companies to hire and fire employees, but at the same time guarantees that unemployed people receive an income and spurs them to get back on the job track quickly.

As a result, Denmark has pushed down its unemployment rate to 3% in 2007, one of the lowest in the EU, and has one the highest participation rates in the union.

But Jesper Hartvig Pedersen, director of the national directorate of labour in Denmark, warned during Thursday's debate that the Danish system would not be easily transplanted to other EU member states.

"It's a very expensive system. Denmark has double the labour market expenditure in terms of percentage of GDP [Gross Domestic Product] than the EU average. It is also a system built upon for many years, and has strong historical roots. This does not make it easily exportable," he said.

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