Social Europe I Quarterly Review

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March 213 With Special Focus on social and employment impact of fiscal consolidation, labour market mismatches, posting of workers, Special Supplement on main demographic trends and Sectoral Focus on manufacture
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March 213 With Special Focus on social and employment impact of fiscal consolidation, labour market mismatches, posting of workers, Special Supplement on main demographic trends and Sectoral Focus on manufacture of basic metals and motor vehicles in the EU Peter Scholz (Shutterstock.com) March 213 I 1 This Quarterly Review provides in-depth analysis of recent labour market developments. It is prepared by the Employment Analysis and Social Analysis Units in DG EMPL. A wide combination of information sources have been used to produce this report, including Eurostat statistics (see [codes] mentioned under the charts, to be used with the Eurostat data search engine: reports and survey data from the Commission s Directorate-General for Economic and Financial Affairs, national and sectoral statistics and articles from respected press sources. The Review has also benefited from contributions from public and private employment services. The sections on restructuring trends, based on ERM data, were prepared by the European Foundation for the Improvement of Living and Working Conditions (Eurofound). Employment and social analysis portal: Contact: For more information on country codes used in this publication please visit Neither the European Commission nor any person acting on behalf of the Commission may be held responsible for the use that may be made of the information contained in this publication. Europe Direct is a service to help you find answers to your questions about the European Union Freephone number (*): (*) Certain mobile telephone operators do not allow access to 8 numbers or these calls may be billed. More information on the European Union is available on the Internet (http://europa.eu). Cataloguing data as well as an abstract can be found at the end of this publication. Luxembourg: Publications Office of the European Union, 213 ISBN ISSN doi: /21393 European Union, 213 Reproduction is authorised provided the source is acknowledged. March 213 I 2 Table of Contents Executive summary... 5 Introduction... 9 Macroeconomic and employment context and outlook... 9 Context... 9 Outlook...11 Recent labour market and social trends Employment...13 Employment rate...14 Box 1: Population development and employment growth challenge...15 Unemployment...16 Long-term unemployment...17 Supplementary indicators to unemployment...19 Inactivity and discouragement...2 Youth...21 Other selected groups...23 Financial situation of households...26 Box 2: Situation in Bulgaria...28 Underlying labour market and social developments Employment patterns...29 Jobs starters and leavers...29 Vacancies, labour shortages and hiring activity...31 Productivity, labour costs and hours worked...32 Special Focus: Impact of fiscal consolidation on growth, employment and living conditions...34 Special Focus: Labour market mismatches (Beveridge curves)...46 Special Focus: Latest trends in posting of workers during Sectoral trends...58 Sectoral Focus: manufacture of basic metals and motor vehicles...61 Impact of restructuring on employment...65 Annex 1: Selected statistics Annex 2: Selected research March 213 I 3 March 213 I 4 Executive summary The EU Employment and Social Situation Quarterly Review provides an overview of developments in the European labour market and the social situation in the EU, based on the latest available data. EU GDP dropped by.5 % during the fourth quarter of 212, the largest contraction since early 29. Among larger Member States, the economy continued to grow in Germany, Poland and the United Kingdom, whereas it shrank in Italy, Spain and France. Divergence continues to increase across Member States, translating into persistently growing labour market and social challenges, marked by ever higher unemployment at EU level and a deterioration of the situation of many households, and of young people in particular. Employment at EU level has been trending down since mid-211, with positive developments only noticeable in part-time work. In the fourth quarter of 212, overall employment fell by.2 % in the EU, down by.4 % compared to the fourth quarter of 211. Over the last year, it fell in thirteen Member States and grew in eight. The steep falls recorded in Greece (-6.5 %), Bulgaria (-4.9 %), Cyprus (-4.8 %), Spain (-4.5 %) and Portugal (-4.3 %) were not offset at EU level by the gains seen in Germany (+.8 %), the United Kingdom (+1.8 %), Romania (+3.5 %) and the Czech Republic (+.8 %). Over the four years to the last quarter of 212, 2.3 % of jobs disappeared in the EU across all sectors, although the intensity of net job losses varied between 7.9 % in industry and 15.1 % in construction on the one hand, and 2.2 % in the trade sector on the other (see page 58). According to labour force survey (LFS) data, the EU aggregate employment rate remained stable over the year to the third quarter of 212. This hides major differences across countries (major declines in Greece, Portugal, Cyprus and Spain, vs rises in Latvia, Lithuania, Malta and Luxembourg), genders (rise for women, fall for men) and age groups (fall for youth, rise for prime-age adults). Against this backdrop, the EU job-finding rate has decreased further, from an already low level, to 11.7 % in the third quarter of 212, showing that it is ever harder for an unemployed person to find a job. At the same time, the job separation rate remained relatively unchanged over the first three quarters of 212. The share of the EU population reporting their households are experiencing financial distress remains well above levels observed at any time in the previous decade, although it has eased slightly in recent months. Worryingly, the share of people running into debt continues to rise steadily. Over the last year the increase in financial distress has been particularly sharp in Italy, and also relatively strong in Bulgaria, Cyprus, Greece, Ireland, Portugal and Spain. At EU level, financial distress affects almost one-in-four low income households and has continued to edge upwards over recent months. It has remained fairly stable among upper income households since mid-212. Fiscal tightening has affected employment through both direct (public sector employment) and indirect (aggregate demand) channels (see Special focus on page 34). Changes to the tax and benefits systems and cuts in public sector wages have led to significant reductions in the level of real household incomes, putting a heavy strain on the living standards of low income households in particular. The analysis shows that the design of measures is crucial to avoid that low income households are affected disproportionately. Different fiscal consolidation packages impacted differently on high and low income households, with regressive impacts in a few countries. A significant part of fiscal consolidation efforts weighed on social protection expenditure. While social spending played a prominent role in compensating households' income losses in the early phase of the crisis (until 29), and helped stabilise the economy; this impact has been weakening since mid-21 and was negligible in 212. After an initial increase in the first year of the crisis, social expenditure levelled off in 21 and declined in 211 and 212, even in countries where unemployment kept rising. This reduction of social spending was much stronger than in past recessions, partly reflecting the exceptional need for fiscal consolidation in the context of the euro crisis. It neutralised the economic stabilisation function of social protection systems in many Member States. In the face of these increasing social challenges, at the beginning of 213, the Commission adopted a Social Investment Package which gives guidance to Member States on more efficient social policies in response to the significant challenges they currently face. The package March 213 I 5 prioritises social investment, a concrete modernisation of the welfare states and a more effective use of social budgets. Unemployment rose further in the EU in January 213, to 26.2 million in the EU. It now accounts for 1.8 % of the active population, and for 11.9 %. in the euro area (or 19 million). The increase over the last year has been more pronounced in the euro area (+1.1 pps) than in the EU (+.7 pp) as a whole though. The divergence in labour market performance accelerated in the euro area. The gap in terms of unemployment rates between the south and periphery of the euro area, and the north of it reached an unprecedented 1 pps last year. Long-term unemployment in the EU reached another historical high in the third quarter of 212 at 11.2 million. This is 86 % higher than four years earlier and represents 4.6 % of the active population. Long-term unemployment has been on the rise in most Member States and is expected to continue to increase in the coming months Youth unemployment in the EU has reached a new peak. Up by 1.2 pps over the year, 23.6 % of active young people were jobless in January 213, ranging from 15 % or less in Austria, Denmark, Germany and the Netherlands, to more than 55 % in Greece and Spain. Youth employment has fallen, with the decline observed for all forms of employment except part-time work. 7.1 % of active young people were long-term unemployed in the third quarter of 212 (+.8 pp on the third quarter of 211). This poses serious risks for the young generation, rendered even more alarming by the rising number of young people who are neither in employment nor in education or training (NEET), now accounting for roughly 8 million young people under the age of 25. The Commission put forward a Youth Employment Package on 5 December 212, which recommends to Member States to introduce a Youth Guarantee to ensure that all young people up to age 25 receive a quality offer of a job, continued education, an apprenticeship or a traineeship within four months of leaving formal education or becoming unemployed. The Council of Ministers reached political agreement on this Recommendation on 28 February 213. The Commission has also recently proposed to revise the regulations on structural funds in order to allow quick implementation of the Youth Employment Initiative proposed by the February European Council with a budget of 6 billion over seven years. Despite the continuing crisis, older people of working age (55-64) have increasingly stayed in the labour market, leading to substantially higher employment for that age group. However, the challenges of a still comparatively low employment rate (49.5 %) and a high share of long-term unemployed (nearly 6 %) remain. The employment situation for migrants deteriorated further over the year to the third quarter of 212, with their unemployment rate reaching more than double the rate for nationals and long-term unemployment is increasingly becoming more prevalent among them. On the positive side too, the inactivity rate declined by a further.7 pp over the year to the third quarter of 212 and is converging across Member States. The inactivity rate of women is declining faster (-.8 pp) than that of men (-.6 pp). The decline in inactivity was mainly driven by continued rises in female participation, translating in a further decline of the gender gap (-.2 pp). Nevertheless, there are signs of increasing labour market discouragement. Altogether, a total of 2.2 million people aged 15 to 74 were under-employed or formed part of the potential additional labour force in 212q3, equivalent to 8.3 % of the labour force (up 1.1 pps on 28q3). Labour productivity continued to weaken in most Member States of the euro area, while growth of compensation per employee remained strong in several, so that nominal unit labour cost growth continued its upward trend in several 'surplus' Member States. In Spain the real unit labour cost (i.e. the labour income share) contracted at an even sharper pace than in the past, reflecting strong productivity growth and sharp cuts in real wages. Beveridge curves (see Special Focus on page 46) illustrate the mismatch between the skills offered and the jobs available by plotting joint movements of unemployment rates and labour shortage indicators. The situation is very diverse across the EU. Since early 21, outward shifts in the curve, indicative of increased mismatching can be seen for the EU aggregate, Bulgaria, France, the Netherlands and Poland. Only Germany and, possibly also Belgium and Romania, witnessed a lower level of vacancies for a given unemployment rate, pointing to a possible structural improvement in terms of labour market matching. Finally, there March 213 I 6 is a clearly distinct group of six Member States (Greece, Spain, Italy, Cyprus, Portugal and Slovenia) where unemployment rates have increased significantly, while the labour shortage indicator remains at a low level. The number of posted workers across EU countries rose from 1 million in 29 to 1.2 million in 211 (see Special Focus on page 51). The largest sending countries are Poland, Germany and France while the largest destination country by far is Germany, followed by France, Belgium, the Netherlands and Austria. Over 29-11, the number of posted workers sent abroad has increased the most from Central and Eastern Europe Member States. In terms of destination countries, the most substantial rises have been recorded in Germany, Austria, Belgium and the Netherlands. Data available on their sectoral distribution indicate that construction was the most important sector in 211 with a share of 43% of all posted workers. As a result of GDP contraction in the last quarter of 212, essentially driven by declines in exports, private consumption and investment, the employment outlook is very bleak, with unemployment foreseen to remain at a very high level up until 214, as highlighted in the Commission's recent winter economic forecast. These prospects are, however, not fully reflected in labour market players' recorded expectations. Employment prospects in industry in the EU have remained slightly above their long-term average in recent months, showing that managers in this sector expect employment to stabilise, although prospects for services and construction remain particularly depressed. European consumers expectations of unemployment are slightly less pessimistic, but remain significantly higher than their long-term average at EU aggregate level. Demography has also been affected by the crisis. Since 29 fertility has stopped its recent recovery and stabilised at just under 1.6 children per woman for the EU. The mean age of women at childbirth has kept rising and has reached the 3-year threshold. Life expectancy continued to increase and reached 77.4 years for men and 83.1 for women. Migration has decreased from its 27 peak but even in 211 the EU posted a net increase of ½ million, that is 1 per thousand. Citizenship acquisitions are higher, at almost one million. The challenges for EU labour markets from a shrinking and ageing workforce clearly remain. This analysis is presented in a Special Supplement attached to the main report. The particular case of Bulgaria, a country marked by alarming poverty levels and increasing social unrest (see page 28) is analysed in this report. There is also a focus on the sectors covering the manufacture of basic metals and the manufacture of motor vehicles in the EU (see page 61). Employment in these two sectors has been badly impacted by the fall in demand for their output. Together, they directly account for roughly 1.5 % of the total EU employment and 2 % of total GDP. In addition to those numbers they also generate millions of jobs and output in associated industries. March 213 I 7 Table 1: Latest labour market trends 211q4 212q1 212q2 212q3 212q4 Real GDP (% change on previous quarter, SAWA) (% change on previous year, SAWA) Employment growth (% change on previous quarter, SAWA) (% change on previous year, SAWA) Employment rate (% of w orking age population, NSA) : Job vacancy rate (% of vacant and occupied posts, NSA) Labour productivity (% change on previous year, SAWA) Nominal unit labour cost (% change on previous year, SAWA) Long-term unemployment rate (% Labour force, NSA) : 212 Sep 212 Oct 212 Nov 212 Dec 213 Jan Unemployment rate (SA) Total (% of labour force) Men Women Youth (% of labour force aged 15-24) Source: Eurostat, DG EMPL own calculations. Note: SA = seasonally adjusted; SAWA = seasonally adjusted and adjusted by working days; NSA = nonseasonally adjusted. March 213 I 8 Introduction This edition of the Quarterly Review shows growing labour market and social challenges. The unemployment rate is still at its highest in the EU 1, at 1.8 % in January 213 (11.9 % in the euro area), and the situation for young people is still very worrying (unemployment rate at 23.6 % in the EU). The outlook for the coming months remains bleak. The Quarterly Review provides an in-depth overview of developments in the European labour market and the social situation in the EU, based on the latest available data. 2 It summarises short-term trends in GDP and employment growth, changes in employment by sector and category of contracts, employment rate, unemployment, long-term unemployment and inactivity, with a focus on specific vulnerable groups, namely youth, migrants and low-skilled. The analysis also covers the latest trends in the financial situation of households, working hours, productivity and labour costs, developments in employment patterns and vacancies, the impact of restructuring, and recent changes in economic sentiment and employment expectations. Additionally, more specific topics are reported within the Special Focus sections: social and employment impact of fiscal consolidation, labour market mismatches (Beveridge curves) and posting of workers. A sectoral focus on manufacturing of basic metals and of motor vehicles in the EU is also provided, as well as recent social and employment developments in Bulgaria. Additionally, main recent demographic trends are discussed in a Special Supplement. Finally, the two annexes present the latest labour market statistics and a selection of recently published and relevant research material. Macroeconomic and employment context and outlook Context Quarterly GDP contraction driven by declines in exports, private consumption and investment (changes q-o-q) The fourth-quarter contraction in the EU's GDP was the result of decreased exports and domestic demand, with declining private consumption and gross fixed capital formation. The decline affected most sectors, with the exception of three broad services groups: information and communication, real estate and public services. Industrial activity, trade and the arts turned back to negative, while agriculture and construction continued contracting in the fourth quarter. The slowdown was particularly marked in industry and manufacturing (-1.8 % and -1.7 % respectively). Increasing number of Member States saw falling GDP, employment Among those countries with negative growth during the fourth quarter, Portugal s economy has been contracting for two years, since the last quarter of 21. Italy, Cyprus and Slovenia saw their economies shrink for the sixth quarter running, while Spain s activity contracted for the fifth consecutive quarter. The economies of Hungary and the Czech Republic contracted over the whole of last year. The growth rate turned back to negative in Belgium, Denmark, France, Finland, and the United Kingdom, while in Bulgaria and Sweden, growth stopped in the fourth quarter. The countries in which economic activity did increase in the fourth quarter were mainly those that were already growing in the third quarter. Growth rates slowed in the Baltic countries, in Slovakia and in Poland, while the economy of Romania started to grow in the three months up to December (see Chart 1). 1 EU refers to the aggregate value for the EU-27 (27 Member States). Other aggregates are clearly identified in the text, e.g. EU-15, euro area or EA-
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