Is Europe working?

Abstract:

The study argues that with more than 14 million people out of work, unemployment is the EU's greatest economic problem. However, while EU policy-makers ponder Germany's 4.3 million unemployed, Britain's low labour productivity and Italy's greying workforce, they have missed one of Europe's key labour market challenges: eastward enlargement. If the EU's labour market statistics look bleak, those in the accession countries are desolate. Unemployment in central and eastern Europe hovers at around 15%. The key Lisbon target of raising the employment rate to 70% of the labour force by 2010 looks out of reach for most east European economies. Only the Czech Republic and Slovenia come near the current EU average of 64%. In countries such as Hungary, Poland and Slovakia, only around half of all people of working age have a job. And while EU employment has grown slowly but steadily since the mid-1990s, the trend in the accession countries is in the opposite direction. Job creation in the private sector still cannot make up for mass lay-offs in old-style industries.

Eastern Europe's jobless woes will not only play havoc with Lisbon targets; they will also put a strain on the EU's structural funds for poor regions, and most importantly, they could prevent the new members from catching up with west European income levels. The real problem of east European labour markets is a double mismatch: one geographical, one skills-related. Vibrant job markets in east European capitals co-exist with unemployment rates of up to 30% in declining industrial heartlands and rural areas. But job-seekers do not move or commute, partly because of poor transport links and ill-functioning housing markets, but also because they lack the necessary skills. Most new jobs are now being created in high-tech manufacturing and services, where professional know-how and flexibility are at a premium. Both are in short supply among laid-off coal miners or farmers. The new members therefore need to concentrate on increasing labour mobility, attracting investors to declining regions and upgrading their education and training systems. More EU money from the structural funds would help; tighter EU rules on working hours, part-time jobs, workers' participation or collective bargaining would not.