EXECUTIVE SUMMARY

This Joint Employment Report (JER) provides the first assessment of the progress made by Member States in implementing the new Employment Strategy agreed for 2003-2006: A strategy based around the three over-arching objectives of full employment, quality and productivity in work and strengthened social cohesion and inclusion.

The report is released at a time when the goals of the Lisbon strategy are being seriously challenged by the labour market situation. Europe continued to feel the impact of the economic downturn throughout most of 2002 and 2003. Employment growth came to a standstill by the beginning of 2003 and is expected to rise only slowly over 2004-2005. Unemployment has gradually increased to 8.1% in 2003. The reforms undertaken over the past few years have made Europe's labour market more robust in adapting to shocks, but unless the economy picks up, and further labour market reforms are implemented, there is a risk of stagnation in employment, and of higher unemployment and inactivity.

Progress towards the Lisbon 2010 target of a 70% overall employment rate has come to a standstill and, at 64.3%, it is now clear that the EU will miss the intermediate employment rate target for 2005 of 67%. The employment rate for women improved in 2002 (55.6%), and remains on track towards the intermediate target for 2005 (57%). Progress towards the target for 2010 will crucially depend upon improvements in the employment rate of older workers. Although this rate has increased to just over 40% in 2002, the target of 50 % for 2010 is a considerable way off.

In the face of the economic slowdown, and reflecting a strong concern from Heads of State and Governments to intensify the momentum for structural reforms, the 2003 Spring European Council invited the Commission to establish a European Employment Taskforce, under the chairmanship of the former Prime Minister of the Netherlands Wim Kok, to report to the European Commission on practical reforms that can have the most direct and immediate impact on the implementation of the Employment Strategy. The December 2003 Brussels European Council invited the Commission and the Council to consider the Taskforce report in the preparation of the Joint Employment Report.

The Employment Taskforce concentrated on the need to increase both employment and productivity growth and identified four key conditions for success: increasing adaptability of workers and enterprises; attracting more people to the labour market; investing more and more effectively in human capital; and ensuring effective implementation of reforms through better governance. The Taskforce identified priorities for action of general relevance for Member States under each of these headings and specific messages on the reforms needed to each of the fifteen current and the ten new Member States. The Employment Taskforce's assessment and policy messages are shared by the Commission and the Council and, since they are fully consistent with the European Employment Strategy Guidelines, have been closely integrated into this Joint Employment Report.

The Three Over-arching Objectives:

In their response to the objective of full employment, some Member States have displayed a wider commitment by setting national targets, either in the form of employment rate targets or an objective of employment creation. Some of these targets reflect more ambition than in the past. The setting of targets needs to be backed up by rigorous implementation of reforms. The National Action Plans (NAPs) illustrate that the pace of labour market reform has continued, and in some cases been stepped up, especially reforms to increase participation and labour supply. However, reforms to improve the environment for job creation are more piecemeal.

The EU has also seen a worrying decline in labour productivity growth over the past decade. In contrast, the US has been able to combine a strong employment performance with acceleration in labour productivity. Productivity is predominantly illustrated within the NAPs as an objective in its own right; the link with better quality in work is not as well explored. However, recent performance concerning quality in work is encouraging “Improving quality in work: a review of recent progress” Commission Communication COM (2003) 728. Although there is scope for improvement, progress can be seen in terms of education and skills, gender gaps (except the pay gap), and safety at work.

The NAPs demonstrate that employment plays a vital role in fostering social cohesion and inclusion. Some Member States adopt a 'making work pay' approach favouring across the board social security and taxation reforms. Others focus on tailor-made measures for specific groups. Many Member States stress the importance of a multidimensional approach extending beyond labour market policies to tackle regional and social disparities.

The Specific Guidelines:

Prevention and Activation

Preventative and active labour market policies are essential in order to tap the potential of the workforce and are even more crucial in periods of economic slowdown. In line with the strengthened approach in the new guidelines, progress can be seen in ensuring all the unemployed benefit from individual job search and guidance services at an early stage of unemployment, and a new start tailor-made for each unemployed person before reaching six or twelve months respectively for young people and adults. However, substantially less attention is given to the participation of inactive persons (in particular women). Member States are committed to modernising Public Employment Services, with some moving towards cooperation with the private sector. Only a minority of Member States provide data on the effectiveness of activation measures, and more effort is needed to provide comparable activation and prevention indicators to allow an assessment of progress.

Entrepreneurship

More must be done to tap the job creation potential in the EU through an improved business environment and by fostering business capacity to innovate. Most Member States aim to facilitate start-ups, lower the administrative burden, and expand business support services. Several have set up taskforces on the simplification and improvement of regulation, including bankruptcy laws. Access to funding for start-ups and existing SMEs is receiving increased attention, but remains a major bottleneck. To make entrepreneurship a career option for all, many Member States include managerial training in all levels of education, with some providing targeted action towards underrepresented groups. Stimulating innovation and R&D and spreading its results more effectively across the economy remains a challenge.

Address change and promote adaptability

Member States, social partners, enterprises and workers must increase their capacity to anticipate, trigger and absorb change. In addition to action necessary under other relevant specific guidelines, the need to strike a more effective balance as regards flexibility combined with security in the labour market is increasingly recognised. Attractive contractual arrangements must be available to meet the needs of both employers and workers and avoid the emergence of a two-tier labour market. There is evidence of a trend towards greater flexibility through changes to working time patterns and the working environment. In a number of Member States attention has shifted towards introducing flexibility into standard contracts, improving working conditions, and reducing the number of accidents at work and occupational diseases. Actions to promote geographical mobility remain underdeveloped, and tend to focus on reducing regional disparities. The management of restructuring receives insufficient attention.

Develop Human Capital

Europe needs to invest more and more efficiently in human capital. A much greater effort is needed if the EU is to have any chance of reaching the 2010 targets of 85% of 22 year-olds completing upper secondary education and 12.5% of the adult population participating in education and training. A number of Member States are making efforts to reform lifelong learning systems to deliver a more demand led system and make opportunities more adapted to individual needs. Only a few Member States show a commitment to increased and more efficient investment in human capital. Strategies to increase private investment (from the individual or firm) remain partial. Reforms to encourage individuals to invest focus on the use of financial incentives. Many initiatives target the recognition and certification of non-formal or workplace learning to recognise existing skills. Social partners are more involved in the design and delivery of training, with increasing use of collective agreements. The sharing of costs and responsibilities needs to be improved and become more transparent.

Increase labour supply and promote active ageing

Increasing the labour supply is indispensable for increasing employment and economic growth in the medium and longer-term. Reaching the 70% employment rate target depends crucially on significantly increasing the employment rate of older workers and on extending the average exit age from the labour market. A growing number of Member States are implementing national ageing strategies, applying a range of measures focusing on benefit reforms, improving the working capacity through better access to training, and better working conditions. A strong focus is placed on pension reform, including increases in standard retirement age and discouraging early retirement. However poor management of economic restructuring, voluntary early retirement schemes and existing disincentives within statutory retirement schemes are preventing the employment rates of older workers from picking up significantly. It is vital that Member States develop comprehensive strategies to increase labour force participation. Raising female participation is a critical part of the ageing challenge, and Member States cannot rely on cohort effects alone to meet the targets. Immigration is considered an important source of additional labour supply for professions or sectors encountering recruitment difficulties.

Gender Equality

Tapping the potential of female participation is both an issue of gender equality and a matter of economic effectiveness. Many Member States aim to increase female participation and reduce employment and unemployment gaps, primarily through policies to reconcile work and private life. However the underlying factors of gender gaps in employment, unemployment and pay (for example gender segregation, taxation and wages) are not well addressed. Many Member States present a range of measures which should have a positive impact in reducing the gender pay gap, but most actions are piece-meal, especially in countries with the highest gaps. Many initiatives remain voluntary with a lack of evaluation of impact. Childcare is presented as a priority in most Member States, but the approach often varies in focus and ambition, and insufficient attention is given to its quality and affordability. Gender mainstreaming continues to be non-systematic, lacking gender impact assessment of existing systems and new policies.

The integration of the disadvantaged

A more effective integration of people facing particular difficulties in the labour market is key to increasing labour supply and reinforcing social cohesion. Most Member States present policies to reduce the numbers of early school leavers and to improve the labour market situation of people with disabilities, migrants and ethnic minorities. However significant gaps remain and effort needs to be intensified and expanded to encompass other people at a disadvantage such as the low-skilled, social benefit recipients and lone parents. Employers should be more involved in achieving the objective of increased participation of disadvantaged people.

Making work pay

In order to raise labour force participation and to promote inclusive labour markets, it is essential to reduce remaining unemployment, inactivity and poverty traps. An increasing number of Member States are pursuing reforms to make work pay by addressing the combined impact of taxes and benefits. Reforms largely focus on reducing taxes, and introducing inwork benefits, which have been introduced or are planned by a growing number of Member States. Some Member States have tightened qualifying conditions for the eligibility or duration of benefits, but reforms of benefit systems are not sufficiently comprehensive. Several Member States still need to tackle the disincentives to take up a low paid job, in particular by addressing the situation for inactive, and by considering the non-financial incentives to taking-up a job, including aspects related to quality in work. Further benefit, tax and pension reforms aiming to encourage older workers to remain longer in work is needed, particularly in Member States with low employment for older workers. Member States should pursue efforts to reduce non-wage labour costs, particularly for the low-skilled and those on a low wage.

Transforming undeclared work

Undeclared work creates unfair competition between businesses and acts against a lasting integration of the workers concerned in the labour market. The NAPs confirm the increased commitment of Member States to address undeclared work through a more integrated approach, combining the simplification of the business environment, reforms in tax and benefit systems, improved law enforcement and the application of sanctions. More needs to be done to understand the nature and extent of the problem. A number of measures are reported by Member States to simplify administrative procedures and the registration of employment and social security contributions and to improve coordination between relevant authorities. In addition, to enhance work attractiveness several report on tax measures to prevent undeclared work and make work pay. Many Member States take measures directed at foreign workers or illegal immigrants, such as better information on labour market rights and greater control of working conditions.

Address regional disparities

Employment and unemployment disparities between regions remain significant, and will increase with enlargement. Research confirms a strong correlation between investment in human capital and economic performance at national and regional level, making investment an important tool of regional cohesion policy. The role of the European Social Fund is key in this respect.

Good Governance and Partnership in the Implementation of the Guidelines

The success of employment policy depends on the quality of implementation. The 2003 NAPs are generally well developed baseline documents but only rarely constitute the central instrument for discussing and defining national employment priorities. In particular the involvement of parliamentary bodies needs to be raised in profile. Social Partners as well as regional and local authorities are seen as important partners for national governments but their involvement in the NAPs could be improved.

Member States are increasingly attempting to report on budgetary priorities in the NAPs, but the information remains patchy. Information on the implementation of the NAP and on delivery services concentrates on the role of the PES, and little consideration is given to other delivery services such as education and training, and social services.

There is a need to improve governance of employment policies at national and EU level. At national level this implies building reform partnerships, formulating ambitious employment policies with targets reflecting those fixed at EU level, and using the NAPs more effectively as central planning and monitoring documents bringing together the different elements of reform. At European level this implies strengthening the role of EU country-specific recommendations, targeting more closely EU funds to address the Lisbon agenda, encouraging strong commitment from the European Social Partners, and reinforcing dissemination and systematic and more open mutual learning through exchange of experience.

INTRODUCTION

This Joint Employment Report (JER) provides the first overview of the employment situation and an assessment of the progress made by Member States in the implementation of the new set of Employment Guidelines agreed for the period 2003-2006 with three over-arching objectives: full employment, quality and productivity in work and strengthened social cohesion and inclusion. The Joint Report contains both an analysis of progress across the EU under the major agreed objectives and guidelines, and a brief country by country review. Key and context indicators agreed by the Employment Committee underpin the analysis and are provided in the annexes.

Title VIII of the Treaty establishing the European Community lays down the principles and procedures for developing a co-ordinated strategy for employment. Article 128 sets out the specific steps leading to the formulation of such a strategy. This includes, on an annual basis, guidelines for Member States' employment policies; Each Member State provides the Council and the Commission with an annual National Action Plan on the principal measures taken to implement its employment policy in the light of the guidelines. The examination of the National Action Plans results in the presentation to the European Council of a Joint Employment Report of the Council and the Commission on the employment situation for the EU and on the implementation of the guidelines for employment. On the basis of this report the European Council adopts each year conclusions that, in turn, may give rise to a reformulation of the Guidelines. Moreover, on a recommendation from the Commission, the Council addresses appropriate recommendations to the Member States.

The European Employment Strategy (EES), which has been developed according to the above institutional framework, is a major contribution to the wider EU political agenda defined at the Lisbon Summit and subsequent European Councils. In the context of a streamlining decided upon in 2002, of the policy co-ordination cycle, the major areas contributing to the Lisbon agenda, this Joint Employment Report, the Implementation Report on the Broad Economic Policy Guidelines and the Implementation Report on the Internal Market Strategy are presented as part of the "Implementation Package" designed to synchronise and strengthen policy coordination and coherence.

While the National Action Plans for Employment submitted in Autumn 2003 by each Member State constitute the main contribution to this report, a major input to this year's JER is the report submitted by the Employment Taskforce constituted at the request of the Spring 2003 European Council, under the chairmanship of Mr Wim Kok, former Prime Minister of the Netherlands, who presented his report to the European Commission on 26-11-2003 “Jobs, Jobs, Jobs - Creating more Employment in Europe” Report of the Employment Taskforce chaired by Wim Kok.

On this basis, in the final section this Joint Employment Report outlines key messages for the spring 2004 European Council.

1. THE POLITICAL AND ECONOMIC CONTEXT

This Joint Employment Report is released at a time of cautious optimism for a recovery in EU labour markets. The employment policies and structural reforms undertaken over the past few years have made Europe's labour market more robust in adapting to shocks, as demonstrated by the relative resilience of employment over the recent period. We now start from a better position to ensure a resumption of growth and high employment, although it should be borne in mind that labour hoarding and the lagged effects of the economic cycle on employment will delay the increase in employment. The new European Employment Strategy provides an integrated and coherent response to the employment challenges facing the EU. This report examines the commitments made by Member States under the new European Employment Guidelines and points to areas where progress and delivery are most pressing. Action now will help underpin the recovery of the economy and employment.

1.1 EMPLOYMENT GROWTH AT A STANDSTILL

After an initial strong resilience of the EU labour market, the impact of the economic slowdown has started to be felt more strongly.

Labour market developments since the start of the recent economic slowdown indicate that EU employment now resists better than in the past to weakness in economic activity. Indeed, the reaction of employment to the recent slowdown has so far been much more moderate than in the previous slowdown of the 1990s. This reflects a path of job creation and destruction different to that of the early 1990s, with smaller declines in employment so far in agriculture and industry, while the service sector has created far more jobs.

The current resilience has essentially been a consequence of changes in the European labour market that occurred over the second half of the 1990s and which affected the mechanisms linking employment and participation with the economic cycle. Altogether, the combined effects of rising female and youth participation, the increasing skill level of the working age population and greater availability of new types of contracts facilitated the development of an employment-intensive growth pattern, which was also supported by more employmentfriendly wage setting by the social partners and cuts in non-wage labour costs.

Europe continued to feel the impact of the economic downturn throughout most of 2002 and 2003, with GDP growth under 1%. After several years of strong job creation employment growth came to a standstill by the beginning of 2003. The downward trend in unemployment reversed by mid-2001 and levels have gradually increased from the 2001 low of 7.3% to 8% in 2003. Employment is expected to rise only slowly over 2004-2005.

For 2004 there is a risk of continuing stagnation in employment, and possibly higher unemployment, unless the economy picks up, and further labour market reforms are implemented. Even with a modest economic recovery, employment growth may be limited since it can be assumed that enterprises have hoarded labour in the recent slowdown. Growth in labour supply is essential to meet the Lisbon targets, but with labour force growth expected to exceed employment growth, unemployment may well continue to grow in the near future.

1.2 THE MEDIUM TERM EMPLOYMENT STRATEGY REMAINS VALID

Employment performances are a key component of the Lisbon goal defined in 2000, to make the EU the most competitive and dynamic knowledge - based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion. They are closely inter-related with major areas of reform in pensions, education, research and social inclusion as well as product, services and labour markets.

The new European Employment Strategy (EES) has been designed to support the Lisbon goals. The new guidelines fix the three overarching and complementary objectives: full employment; quality and productivity at work; and social cohesion and inclusion. Ten specific fields for action have been identified to support these objectives. The guidelines also cover action to improve the governance of employment policies.

In the face of the economic slowdown, the prolonged uncertainty as to the timing and scale of the recovery, and reflecting a strong concern from heads of States and Governments to keep up and intensify the momentum for structural reforms, the 2003 Spring European Council invited the Commission to establish a European Employment Taskforce, under the chairmanship of Wim Kok, former Prime Minister of the Netherlands, to help identify practical reforms that can have the most direct and immediate impact on the implementation by Member States of the Employment Strategy.

Recognising the structural improvements achieved in a number of Member States and the rise of employment from the mid-1990s to 2002 in the EU, the Taskforce warns that the European Union is at risk of failing in its ambitious goal set at Lisbon in 2000. Unless the Member States step up their efforts, it is looking increasingly unlikely that the overarching goal for 2010, and the employment objectives, will be attained.

In responding to the slowdown Europe should not lose sight of the wider, longer-term challenges it is facing. Globalisation and economic integration are increasingly affecting the way Europeans live and work and demanding for a rapid response to, and management of, change. The rapid ageing of the population is calling into question Europe's ability to remain competitive and achieve higher employment and economic growth in the future.

Rather than engaging in a process of further changes in EU guidelines the Taskforce considers that the emphasis at EU level should now be on stronger monitoring of reforms undertaken by the Member States. The present report examines the response given by Member States to the full range of the Employment Guidelines taking into account the assessment and proposals of the Employment Taskforce.

The Employment Taskforce exhorts Member States to act decisively now, so as to increase confidence and support economic growth. Beyond the need to create more jobs in the shortterm, it underlines that employment policies must raise both employment and productivity levels - the key drivers of Europe's economic growth potential and vital components of the Lisbon strategy.

The Employment Taskforce identified four key requirements to boost employment and productivity:

increasing adaptability of workers and enterprises,

attracting more people to the labour market,

investing more and more effectively in human capital,

ensuring effective implementation of reforms through better governance.

The Employment Taskforce identified priorities for action of general relevance for Member States under each of these headings. It also addresses specific messages on the reforms needed to each of the fifteen current and the ten new Member States.

The new strategy has also been designed to support employment and labour market reforms in the ten new Member States due to join the EU in 2004. Faced with major restructuring at political, economic and institutional level, the new Member States have embarked on major labour market reforms over the last decade to adjust to a market economy and prepare for membership. Through a close partnership with the European Commission, they have produced Joint Assessments of their respective employment and labour market challenges and a regular process of reporting “Progress in implementing the Joint Assessment Papers on Employment Policies in acceding countries” COM (2003) 663. They will take their full part in the co-ordinated European Employment Strategy as of 1st May 2004.

2. OVERALL ASSESSMENT WITH REGARD TO THE EU EMPLOYMENT OBJECTIVES

The 2003 National Action Plans prepared in response to the new Guidelines present an employment policy approach which is overall rather balanced across the three EES overarching objectives, although in a number of cases the quality-productivity and/or the inclusion objectives are not presented on an equal footing with the objective of full employment. Quality is not explicitly discussed in the 2003 National Action Plans for DE (only as “accompanying measures”), IT, NL, and UK. Social inclusion is not explicitly discussed in the case of DE, AT and IT. This does however not prejudge the substantive content of the National Action Plans concerned in regard of these objectives Progress across these objectives is reviewed below.

2.1 FULL EMPLOYMENT: THE EU IS AT RISK OF FALLING SHORT OF THE EMPLOYMENT RATE TARGETS

Progress towards the Lisbon target of a 70% overall employment rate for the EU has come to a standstill, and it is now clear that the EU will miss the intermediate employment rate target for 2005 (67% agreed in Stockholm). The overall employment rate is stagnating in 2003 at the level reached in 2002 (64.3%). Even with economic recovery the employment rate may only reach 65 % in 2005. Some catching up has occurred in some Member States with very low employment rates (EL, ES, and IT), where employment growth continued in 2002 and 2003. Still, only four Member States reach the 70% target (DK, NL, SE and UK), whereas FI, PT and AT are close.

The protracted slowdown implies flat or very moderate employment growth for three years (2002-2004) and no or little improvement in the employment rate in this period. Therefore, as illustrated by the graph below, the EU will miss the intermediate employment targets in 2005 and a substantial acceleration of employment growth is needed in the coming years. To reach the Lisbon target of 70%, employment would need to grow on average from 2004 - 2010 by 1.6% - a break in trend from the present performance but not out of reach if compared to the performance in the 1997 - 2000 period. This would imply an increase in employment by some 15 million jobs for the EU-15. This figure would need to be close to 22 million jobs if the target was fixed for the EU25.

- For the table, please refer to the paper version -

Source: Commission services. European Labour Force Survey until 2003. For 2003-2005 employment rate updated using DG ECFIN employment forecast and Eurostat Population projections. From 2005 employment rate extrapolated assuming a constant yearly increase.

The aggregate picture hides diverging trends in employment rates by gender. The employment rate for women continued to improve in 2002, and remains, at 55.6%, on track towards the intermediate target of 57% for 2005. It exceeds the 60% EU target set for 2010 in seven Member States (DK, NL, AT, PT, FI, SE and UK). The EU average is clearly determined by the low employment rates for women in only four Member States (BE, EL, ES, and IT). To reach the 60% target, the average annual increase in the female employment rate experienced since 1997 must be maintained over the next seven years. This cannot rely on economic growth alone; the pace of reform must also be maintained.

Progress towards the Lisbon target will critically depend upon the trend in employment of older workers. Although employment rates for older workers increased more substantially to just over 40% in 2002, the target of 50 % is a considerable way off. The 50% target has only been reached by four Member States (DK, PT, SE, and UK) and is within reach in a further two (FI and IE). Progress towards the target will essentially depend on the remaining Member States (in particular BE, FR, IT LU and AT), where the employment rate of older workers is less than 33%. Urgent action is therefore required to increase the numbers of older workers in work, but also to ensure that tomorrow's older workers - the 40 to 50 age group - can remain in the labour market longer. For the EU 50% target to be reached 7 million more people in the 55-64 age bracket will need to be in work in 2010 for the EU 15.

Member States have undertaken a range of reforms to stimulate participation and labour supply, such as policies to make work pay, active labour market policies, education and training and mobility. However, reforms to improve the environment for job creation are less comprehensive. Approaches sometimes focus on job creation by reducing labour costs (BE, FR, AT); through deregulation (DE, FR, IT); by encouraging SME development and innovation (EL, IE, NL, AT, FI, SE, UK); through regional development (PT, IE) or just rely on the interaction between economic growth and flexible labour markets (DK, ES, IT). The opportunities of the knowledge-based economy for job creation do not feature prominently in the policy package.

In their response to the 2003 Employment Guidelines, Member States have displayed a wider commitment by setting of national targets; either in the form of employment rate targets or an objective of employment creation during the government term of office (see Table in Annex 2). Some of them (notably BE, FR, EL, AT and FI) reflect more ambition than in the past. However, setting of targets needs to be backed up by rigorous implementation of reforms.

2.2 QUALITY AND PRODUCTIVITY AT WORK: MIXED PROGRESS ACROSS THE VARIOUS DIMENSIONS

The positive interactions between quality in work, productivity, employment and social inclusion have been underlined in the Commission report prepared at the request of the Brussels Spring European Council See Communication COM(2003) 728 of 16.11.2003 “Improving Quality in work - a recent review of progress”. This report contains a full review of progress towards quality in work, following the multi-dimensional approach defined in the Employment Guidelines.

The decline in labour productivity growth over the last decade is particularly worrying for the EU. Labour productivity growth has further slowed over recent years, contrasting with the rise in employment. Compared with the first half of the 1990s the period 1996 to 2002 has witnessed a significant increase in the contribution of employment growth to GDP growth. By comparison, up until the recent downturn, the US has been able to combine a strong employment performance with acceleration in labour productivity, resulting in GDP growth 1 percentage point higher in the US than in the EU over period 1996-2002. It is worth mentioning that some smaller EU Member States have performed well above the EU average and even above that of the US.

In the short term actual labour productivity growth may deviate from the longer term path, in particular in a period of economic slowdown when lower productivity growth may partially result from adjustment in hours rather than in number of people. Also, although labour market reforms encouraging a more labour intensive growth pattern may lead to actual productivity growth below the longer term potential this should not be regarded as a trade-off. A higher employment rate implies an unambiguous increase in GDP per capita with no negative implications for the long-run productivity growth of the existing work force.

There is, therefore a need for acting simultaneously on employment growth and to increase efforts to improve long-term productivity growth where recent trends are clearly less than encouraging. Key to this is the existence of a well-educated, skilled and adaptable workforce and the EU must invest more, and more cost-effectively, in its human capital, within the framework of a sound budgetary policy. The EU also needs to speed up the diffusion of ICT in particular in the services sector and to increase investment in R&D and infrastructure, act on improving the entrepreneurial culture and speed up reforms of goods and services markets. As some of the sectors which created a high number of jobs showed a rather dismal productivity growth performance efforts to increase quality in work including upgrading of skills and more adequate work organisation in these sectors should also contribute to meet the productivity challenge For a more detail analysis of Productivity trends and performance please see Chapter 2 of “Employment in EUROPE 2003” and the Annual Economic Reviw 2003.

Productivity is predominantly considered within the NAPs as an objective in its own right, independently from the link with quality. It is also to be noted that most countries with a high employment rate (UK, NL, SE and FI) see productivity increases as a means to compensate for expected labour supply tightness in the medium term. In most Member States, there is thus ample scope for a more comprehensive approach, recognising the positive interactions between quality in work, productivity and employment growth and social inclusion.

Recent trends and performances around the various dimensions of quality are encouraging in some respects. Consistent improvements can be seen in the EU in terms of education and skills, in terms of gender gaps (except the pay gap), and for safety at the workplace. However, there is scope for considerable improvement under each dimension of quality. The employment rate of older workers, while slowly increasing, is still far from the Stockholm target of 50%. Young people face increasing difficulties in several Member States to find jobs with reasonable career prospects. Non EU-nationals are at a clear disadvantage in terms of employment and unemployment, and the integration of disabled persons in the labour market remains problematic, especially for people with severe disabilities. As regards gender equality, the lack of adequate facilities for childcare and care for other dependants is a constraint to higher women participation; gender pay gaps have shown little tendency to decline, and sectoral and occupational gender segregation remain. Last but not least, as indicated above, the trend in productivity growth is disappointing.

Only few Member States attempt to address each individual dimension of quality in a comprehensive approach. Rather, there is identification in each Member State of its own specific critical dimensions as a priority for action. For example, the balance between flexibility and security and gender equality are highlighted as key issues in IT, ES, EL and PT. Training is highlighted in PT and ES, as well as in Member States with high productivity (DK, FR, FI, SE). Health and safety emerges as an important priority in many countries, with five (DK, EL, FR, PT and the UK) having set targets for the reduction of accidents. Also working time, which is only indirectly covered by the ten dimensions, is mentioned as an issue (BE, LU, FI).

2.3 SOCIAL COHESION AND INCLUSION: INCREASING ATTENTION GIVEN TO INCLUSIVE LABOUR MARKETS

In addition to the registered unemployed, in 2002, 4.5% of the EU working age population (a slight increase compared to 2001) was inactive but wanting to work. Recent increases in unemployment are worrying as they might pre-curse an increase in long term unemployment, which is a major risk of social exclusion. This would also make it increasingly difficult for people at a disadvantage to access the labour market. In this context, the already precarious labour market position of people with disabilities, migrants and ethnic minorities, single parents, early school leavers and older workers may be even more difficult (see GL 7).

Following the presentation of National Action Plans on inclusion Joint Inclusion Report 2003 which present national approaches for combating poverty and social exclusion across various policy fields, Member States' Action Plans on employment try to set out in more detail the contribution of employment policies to social inclusion. However, there is still considerable scope for improvement in the extent to which the majority of Member States addressed the objectives laid down in the third overarching guideline on social inclusion.

There is a common thread in the employment plans in considering that participation in employment plays a very important role in fostering social inclusion. However, there are differences in emphasis as to the extent to which labour market policy can be considered as largely sufficient to tackle the problem of social exclusion. Some Member States (Netherlands, Finland) tend to focus on the removal of obstacles to participation in employment. This 'making work pay' approach favours across the board social security and taxation reforms (tax credits for low income earners, removal of disincentives to work, in combination with support measures such as childcare provision). Other Member States (France, Portugal, Sweden, Austria, Greece), while recognizing the key role of employment policy in the fight against social exclusion, tend to focus more on the difficult situation of specific groups and favour tailor-made measures taking into account the individual needs of the persons concerned. Member States For example DK uses the concept of “negative social inheritance”, and EL recognizes factors like family composition and education also explicitly recognise the limits of employment policies and stress the need for increased synergy with policies in other fields such as education, healthcare or housing, within a truly multidimensional approach.

Member States had been invited by the Barcelona European Council to set national targets for the reduction of poverty by 2010. Most used the opportunity provided by the NAPs/inclusion and the NAPs/employment to set such targets. Relevant examples include EL (bringing down by 2010 the percentage of people at risk of poverty to the EU 15 average), NL (target to increase the employment rate amongst ethnic minorities to 54% by 2005), SE (to halve the number of persons in need of social assistance between 1999 and 2004), FR (to increase the outflow from unemployment of social minima recipients during the period 2003-2005. The UK aims to increase to 70% the proportion of lone parents in work, to reduce the proportion of children in workless households and to increase the employment rate of disadvantaged areas and groups.

The focus on regional disparities is less prominent (with the exception of PT, EL, BE and UK), although regional differences in labour market performance remain considerable. The disparities in labour market participation, between regions, especially as concerns unemployment, and the high levels of inequalities between the different social groups, result in pockets of deprivation and social exclusion even in the wealthier regions of the EU. Addressing these imbalances requires a balanced mix of productive and human capital investment, and labour market reforms such as wage setting that take account of regional and local conditions.

In order to meet the Lisbon objectives, a trend break will be needed over the coming years. Both employment growth and labour productivity growth must accelerate strongly. Recent labour market reforms have demonstrated their worth by increasing the resilience of employment to the economic downturn. Stronger support to entrepreneurship, research and the diffusion of innovation, and increased and more effective investment in human capital are all equally important to bring about this change. Such reforms need to be pursued forcefully together with reforms in product, services and capital markets.

Member States should confirm their commitment to such reforms by setting national employment rate targets as proposed by the Employment Taskforce, and building up synergies between employment, quality and productivity and social inclusion policies in pursuing reforms. By implementing the ten specific guidelines Member States will contribute to the promotion of adaptability of workers and enterprises, foster labour supply and improve levels of human capital that have been identified by the Taskforce as key conditions for success.

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