labour market developments in europe, 2012 · labour market developments in europe, 2012 alessandro...
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Labour Market Developments in
Europe, 2012
Alessandro Turrini
European Commission, DG ECFIN
Unemployment rates across world macro regions
4
6
8
10
12
Jan-2
007
Oct-
2007
Jul-2
008
Apr-
2009
Jan-2
010
Oct-
2010
Jul-2
011
Apr-
2012
United States
Euro-area
EU
G7
%
The employment recovery came to a halt in 2011
-6
-5
-4
-3
-2
-1
0
1
2
3
200
8Q
1
200
9Q
1
201
0Q
1
201
1Q
1
201
2Q
1
%
GDP growth EU27 Employment growth EU27
• Increased uncertainty and banking sector deveraging amid aggravation of debt crisis
• Tightening of fiscal stance
• Worsening world economic outlook
• Reduced margins for adjusting working hours
Job finding and separation rates, euro area
0.0
0.2
0.4
0.6
0.8
1.0
5
7
9
11
13
2001Q1 2004Q1 2006Q1 2008Q1 2010Q1 2011Q4
Job finding rate Unemployment rate
Job separation rate (rhs)
Jobless for 1 year or more (% of labour force)
0
1
2
3
4
5
6
20
05q
1
20
06q
1
20
07q
1
20
08q
1
20
09q
1
20
10q
1
20
11q
1
20
11q
4
20
12q
2
%
EU Euro area US
Contributions to total increase in EU unemployment
(% of the total change between 2008 and 2011)
-10
0
10
20
30
40
ES
UK
FR
PL
EL IT PT
BG IE
RO LT
NL
HU
CZ
DK
SK
LV
SE
EE SI
FI
CY
AT
BE
MT
LU
DE
per
cen
tage
po
ints
Unemployment rates: actual and prediction from Okun’s law
-3
1
5
9
13
17
LV IE EL
SI
LT
EE IT PT
HU
RO
DK
UK
ES FI
LU
NL
FR
BG
CY
CZ
DE
BE
AT
MT
SE
SK
PL
Changes in the unemployment rate (2008Q1-2011Q4):actual and Okun's Law prediction
Predicted Actual
Pe
rce
nta
ge
po
oin
ts
-4
-2
0
2
4
6
8
LT
LV
EE
DE
BE
CZ FI
SE
MT
HU
SK
BG
DK
FR
LU
AT IE
EU
27
RO
EA
17
PL
UK
NL IT SI
ES
PT
CY
EL
Changes in the unemployment rate in 2011:actual and Okun's Law prediction
Predicted Actual
Predicted values are out-of-sample forecast based on an Okun's law estimated on a panel of 27 countries for the period 1997q1-2008q1. Country and period fixed effects are included. The Okun's coefficient is 0.28 In panel a) countries are ranked in ascending order of GDP growth.
Real unit labour costs (% change in 2011) and unemployment rates (2010)
BE
BG
CZ
DK
DE
EE
IEEL
ES
FRIT
CY
LV
LT
LU
HU
MT
NL
AT PLPT
RO
SI
SKFI
SE
UK
-7
-6
-5
-4
-3
-2
-1
0
1
2
0 5 10 15 20 25
RU
LC
UR 2010
Unit labour cost growth in EA countries with current account deficits and surpluses
-2
-1
0
1
2
3
4
5
6
199
9
200
0
200
1
200
2
200
3
200
4
200
5
2006
200
7
200
8
200
9
201
0
201
1
201
2
Deficit countries Surplus countries
Labour cost and price competitiveness adjustment
-20
-15
-10
-5
0
5
10
IE EL
ES
PL
SK
DK
PT
LT
MT SI
EE FI
NL
UK
AT IT
DE
FR
RO
LV
BE
CY
CZ
HU
BG
SE
REER based on ULC REER based on GDP deflator REER based on exports deflator
2008-2011 2008-2011 2008-2011
LABREF: Reform taxonomy
1. Labour taxation Employers’ social security contributions Employees’ social security contributions Income tax Other
2. Unemployment benefits
Net replacement rate Duration of unemployment benefits Coverage (number of people or sectors of the economy covered) Entitlement (eligibility rules, job availability requirements) Other
3. Other benefits 4. Active labour market programmes 5. Job protection 6. Pension Systems 7. Wage Setting 8. Working time 9. Immigration and mobility
One decade of labour market reforms in the EU (average per country, source LABREF)
0
1
2
3
4
0
.2
.4
.6
0
.5
1
1.5
0
1
2
3
0
.5
1
1.5
2
0
.2
.4
.6
.8
1
0
.2
.4
.6
.8
0
.2
.4
.6
.8
1
20002001
20022003
20042005
20062007
20082009
20102000
20012002
20032004
20052006
20072008
20092010
20002001
20022003
20042005
20062007
20082009
2010
20002001
20022003
20042005
20062007
20082009
20102000
20012002
20032004
20052006
20072008
20092010
20002001
20022003
20042005
20062007
20082009
2010
20002001
20022003
20042005
20062007
20082009
20102000
20012002
20032004
20052006
20072008
20092010
Active Labour Market Policies Early withdrawal Job Protection (EPL)
Labour Taxation Other welfare-related benefits Unemployment benefits
Wage Setting Working Time
Nordic Continental Anglo-Saxon Southern Central and Eastern
Higher frequency of reforms in Southern countries in most domains
19%
23%
19%
24%
14%25%
20%
3%
36%
16%
7%15%
13%
37%
28%15%
20%
15%31%
19%
10%
30%
18%
27%
14%27%
17%
7%
30%
20%
14%
18%
13%29%
26% 19%
28%
17%
18%
18%
Active Labour Market Policies Early withdrawal
Job Protection (EPL) Labour Taxation
Other welfare-related benefits Unemployment benefits
Wage Setting Working Time
Nordic Continental
Anglo-Saxon Southern
Central and Eastern
Reform intensity and unemployment rates across countries
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5
10
15
Ave
rag
e u
nem
plo
ym
en
t ra
te, 2
00
0-2
01
0
0 5 10 15
Average number of reforms, 2000-2010
Reforms outcomes, and initial policy settings, are correlated across countries
Total number of
reforms
Structural factors
Tax wedge 0.5887
Unemployment benefits spending g (% GDP) 0.3782
EPL indicator, overall EPL 0.2788
Collective bargaining coverage 0.2528
Labour market outcomes
Unemployment rate 0.3138
Share of temporary employment (% total) 0.373
Share of long-term unemployment (% total) 0.0702
Other macro-fiscal variables
Real GDP per capita, euros -0.117
Real GDP growth -0.499
Government debt / GDP 0.7797
Change in primary cyclically-adjusted budget balance -0.4802
Impact of reforms on labour market outcomes
titi
j
ti
j
k
jti
L
l
lti RYY ,,
3
1
,
1
,
Impact of reforms on labour market outcomes
Share of temporary
employment, year-
on-year change
Job finding
rate
Activity rate,
year-on-year
change
Unemployment rate, year-on-
year change
Unemployment benefits
X
XEPL
X
X
X X
Labour taxation
EPL reforms addressing
segmentation
Social benefits
Looking backward
• Recommendations on labour market measures became more
prescriptive with EU semester: consistent with seriousness of
challenges
• Evidence: recommendations consistent with objective of
supporting employment
• Intensification of reform action, broadly in line with CSRs
Issues for discussion linked to EU semester
Issues for discussion linked to EU semester
Outlook
• Adjustment, rebalancing: some progress, but more to
come
• Anemic job creation, more job shedding in some
countries
• Risk of hysteresis
Issues for discussion linked to EU semester
Implications for policy priorities
•Divergence
Differentiated, coordinated response
• Momentum for reforms aimed at improving adjustment capacity (e.g., wage setting,
EPL) to be kept
•Risk of hysteresis
• Reduced tax burden on labour, compatibly with public budgets
• ALMPs: effectiveness, adequacy; choice of instruments (traineeships; targeted,
temporary hiring subsidies)
• Effective, incentive-friendly, adequate income support and social protection schemes