Over the last few years unemployment in Europe has increased and jobs have become more unstable and precarious. At the same time, governments are pressured to cut expenditures and decide on structural reforms. However, if policy instruments are not carefully designed, they could exacerbate the employment situation and aggravate further equity concerns, with potentially long-lasting adverse consequences for both the economy and society. This is the message voiced in the ILO's World of Work Report 2012 that was published last month.
The report provides a comprehensive analysis of recent labour market and social trends, assesses risks of social unrest, and presents employment projections for the next five years. The report asks how to move out of the European and global austerity gap and presents an alternative approach aimed at better jobs for a better economy. The report also points out the need for greater consistency between macroeconomic, social and employment policies.
The employment situation is deteriorating in Europe where the unemployment rate has increased in nearly two-thirds of the countries since 2010. According to the ILO, employment recovery is not likely before the end of 2016 if the present policy trends continue.
In the EU employment rates have increased only in Austria, Germany, Luxembourg, Malta and Poland since 2007. Looking at the global picture, the long-term unemployment rate has increased most significantly in four EU countries - Spain, The UK, Ireland and Denmark - next to the United States. According to the ILO, the presence of a large proportion of long-term unemployed could result in huge economic and social costs.
In addition, the report signals that for a growing proportion of workers who do have a job, employment has become more unstable or precarious. The number of part-time workers grew in 24 EU member states while the share of involuntary part-time work increased in 22 member states, most significantly in Slovakia, Ireland, Latvia, Lithuania and Spain. Temporary work went up in 14 member states while the number of people in involuntary temporary employment increased in 21 member states, most significantly in Latvia and Ireland. Furthermore, the increase in involuntary part-time and temporary employment has been larger than the increase in unemployed and permanent jobs since the crisis. On the basis of these data, the ILO concludes that during the crisis more precarious employment was created.
Another observation of the report is that in European countries, workers on fixed-term contracts are paid less than permanent employees. The difference in wages amounts even to about 40% in Germany and Spain. Also new jobs created tend to entail relatively low wages. In the current situation, consideration could be given to a careful and coordinated increase in the minimum wage.
Job instability is, above all, a human tragedy for workers and their families, but it also entails a waste of productive capacity. More job instability therefore means weaker productivity gains in the future.
When it comes to poverty, the report points out how the overall rate has gone up since the start of the crisis in Europe. It increased in twelve member states and decreased in seven, while no significant change was noted in another seven. Joining the EU seems to have had a positive impact on the poverty level of some of the Eastern European countries, where the rates improved after becoming an EU member.
However, if poverty thresholds are calculated using an absolute measure then the situation might be different. For example, in Latvia relative poverty rates do not show any significant change in poverty between 2007 and 2010. Though, if an absolute poverty line, such as a minimum subsistence basket, is used then the poverty rate increases by 16 percentage points between 2008 and 2009. The situation in Greece and Portugal seems to be similar where the economic situation deteriorated while relative poverty rates did not change during the crisis. This is surprising given that Greece observed a decline in minimum wages by 20 per cent, which should have led to a decline in purchasing power and also increase in poverty.
The worsening situation reflects the austerity trap in Europe. Since 2010, the policy strategy has shifted its focus away from job creation and improvement and concentrated instead on cutting fiscal deficits at all costs. In countries that have pursued austerity and deregulation to the greatest extent, principally those in Southern Europe, economic and employment growth have continued to deteriorate. Austerity has, in fact, resulted in weaker economic growth and more job losses.
Taking into account all the evidence and data collected, the ILO Report calls for countries to put in place the necessary conditions for a dramatic shift to the current policy approach. It highlights the need for an approach that recognizes the importance of placing jobs at the top of the policy agenda and the need for coherence among macroeconomic, employment and social policies. This requires a significant change in governance. Steps in this direction will be rewarded with better job prospects and a more efficient economy.