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Benchmarking
Working Europe2012
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Brussels, 2012
Publisher: ETUI aisbl, BrusselsAll rights reserved
Print: Imprimerie Bietlot s.a., B-6060 Gilly
D/2012/10.574/14
ISBN: 978-2-87452-262-8 (print version)
ISBN: 978-2-87452-263-5 (online version)
The ETUI is fnancially supported by the European Union.The European Union is not responsible or any use made o the
inormation contained in this publication.
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Benchmarking Working Europe
2012Contents
Foreword .................................................................................................. 4
Introduction ..............................................................................................5
1. Macroeconomic developments, policies and inequality ....................102. Inequality on the labour market ...................................................... 22
3. Education and inequality in Europe: a youth perspective ............... 40
4. Collective bargaining and diversity in wage developments ..............565. Social security and inequality ...........................................................72
6. Climate change and inequality .........................................................80
7. Regional inequalities in Europe ...................................................... 88
8. Do unions and worker representation bodies
make for more or less inequality? ...................................................1009. Working conditions to blame for wide gaps in workplace health ... 112
References .............................................................................................120
List of gures ........................................................................................128List of abbreviations .............................................................................130
The Benchmarking Group .................................................................... 131
List of regions (NUTS 1) codes .............................................................132
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Foreword
Foreword
As the great recession persists on itscourse and the European Union adjustsits expectations to cope with a period of at best subdued growth, governmentsare reacting by pushing for more auster-ity in the hope that such an approachwill serve the goal of a better future for
the population of Europe. Meanwhile,though inequality is rising as jobless-ness becomes the everyday reality ofmany Europeans, job creation is taintedby sub-standard conditions, and socialprotection systems are being cut back the widening gap between afuence andpoverty does not appear to constitutea major concern of the European govern-ments in the context of their efforts to re-duce debt levels and public decits.
Yet inequality was one of the rootcauses of the great recession. Over thepast decades income inequality has
slowly but steadily increased, paving theground for a growing instability withinthe economy. The stagnation in incomeaffecting some sections of the popula-tion, while other sections enjoyed a rapidincrease in especially capital income,led to a constantly expanding demandfor credit, thereby fuelling the growth ofan unsustainable credit bubble. Whileways could have been found of contain-ing this phenomenon had it developed inisolation, the simultaneous deregulationof the banking system allowed nancialinstitutions to create new instruments
their workings impenetrable to the restof the population in which those whocontinued to get richer could invest theirincreasing assets. This cocktail createda bubble-economy which burst in 2007.
This nancialisation of the econo-my is, however, far from being the onlydimension of rising inequality that givescause for concern.
Growth in inequality leads to anaccumulating sense of injustice andlack of social cohesion both within andacross countries. The fair distribution ofresources is something that matters topeople, within their own countries espe-cially, but also across borders and withinthe world at large; when gaps in incomedistribution are perceived as becomingtoo wide, the sense of injustice can gener-ate mistrust and even lead to unrest be-tween individuals and groups within so-ciety. The need to forestall such outcomesis one of the main reasons why govern-ments have put in place redistributive
inequality generated by the market, couldcome to form a positive strategy for thefuture of the European Union and ensurethat Social Europe was not merely onebrief moment in history but that, on thecontrary, it continues to represent the un-derlying foundation on which European
integration can build its future.We hope you will derive both inter-est and benet from your reading of thisyears edition ofBenchmarking WorkingEurope.
Bernadette Sgol
ETUC
General Secretary
Maria Jepsen
ETUI
Director of Research Department
Philippe Pochet
ETUI
General Director
welfare states based on progressive taxa-tion and insurance against social risks.
Yet another aspect of which it is im-portant to be aware is that inequality, inits varying manifestations, leads to a lossof human potential in its broadest senseas societies fail to provide equality, or
structures that would serve to promotegreater equality, thereby underminingthe foundations for equal opportunities.The disadvantaged groups in society, inother words, are so far from enjoying thesame opportunities as the advantagedgroups that society at large stands to missout on the development of the human po-tential present within the former groupswhile, at the same time, the negative spill-over effects of the inequality suffered en-tail widespread adverse consequences forsociety at large.
There are thus several reasons to
justify a belief that inequality should beat the heart of all concerns about the fu-ture direction of the European Union.A forward-looking approach would beone that supported and reinforced poli-cies and institutions designed to ensurethat equality and not income equalityalone is the foundation of any short,medium and long-term strategy. Build-ing a common future on austerity andderegulation, and thereby laying theground for a vicious downward spiral ofdeteriorating social and labour rights, iscertainly not the right way forward for a
prosperous and more egalitarian Europe.Benchmarking Working Europe,
which rst appeared in 2001, representsa contribution to the EU Spring summitby providing a genuine benchmarkingexercise applied to the world of labourand social affairs and grounded in ef-fective labour and social rights. It aimsat establishing what progress or lackof it has taken place in selected areasof importance to the trade unions andof signicance for a social Europe. Thisyears edition ofBenchmarking WorkingEurope, in choosing to focus on the singleissue of inequality, nonetheless takes ina wide range of areas extending far be-yond the question of income inequalityalone. While raising serious concerns asto the direction currently being taken bysocial and labour rights in the EuropeanUnion, this report points also to ways inwhich policies, institutions, and the politi-cal will to contain market inequalities andprovide ways of offsetting other forms of
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5
Crisscrossing inequalityIn Europe inequality is growing notonly within each of the EU member
states but also between one country
or group of countries and another,as shown by the chapter of this Bench-marking Working Europe devoted tomacroeconomic developments. The crisisnaturally exacerbates these trends, gener-ating economic outlooks that differ greatlyfrom one country to the next. Some havebeen much more severely affected thanothers by the debt crisis (Greece, Ireland,Italy, Spain), while growth prospects areparticularly poor in countries such as Slo-venia, Romania, Hungary, or Denmark.Others have succeeded in returning totheir pre-crisis production levels: France,The Netherlands, Belgium, Germany, andAustria. Yet others have actually achievedsome economic growth during this period(Poland, Sweden, Slovakia). Even so, in2012 the outlook is bleak for most mem-ber states; and for Greece and Portugal it
is nothing less than a nightmare.In spite of the austerity pro-
grammes now in place right across theEU, the public-debt-to-GDP ratios,far from declining, are expected to con-tinue to rise until 2013 in almost allcountries (see: Public debt crisis deepensand expands, p. 14). Attempts to combatexcessive decits form indeed only oneof the three variables for a reduction ofpublic debts, the two others being growthrates and the level of the interest ratespayable on the debt. At present growth
rates are low and the situation is madeeven worse by the austerity programmesimplemented in the member states.
In terms of income distribution,these austerity programmes havein some cases entailed regressive effects,insofar as low incomes are more
severely affected by them than high
ones. In a context of recession, the majorrisk in terms of social consequences is that
Introduction
ity to which various international or-ganizations (OECD 2011a; EuropeanCommission 2012) have already drawnattention even in European countrieswith more egalitarian traditions suchas Germany, Sweden, Finland or Den-mark. Above all, however, this exami-nation conducted by the ETUI brings tolight, unlike other studies and reports,the way in which the policy choices im-plemented in the EU weaken the mech-anisms that would facilitate the struggleagainst these forms of inequality andenable the crisis to be vanquished viathe route of cohesion and prosperity. Inother words, the message delivered byBenchmarking Working Europe 2012is that Europe is on the wrong path.
This brief introductory chapteris structured in three parts: rst of all,
how and in what areas has inequalitygot worse? The nine chapters of thisedition ofBenchmarking Working Eu-rope provide a multidimensional set ofanswers to this question: in the macro-economic sphere (Chapter I), in terms oflabour market developments (Chapter2), of education (Chapter 3), of wages(Chapter 4) and of poverty (Chapter 5),of transition to a low-carbon economicmodel (Chapter 6), of regional dispari-ties (Chapter 7), of worker participation(Chapter 8), and of health and working
conditions (Chapter 9). In its secondpart, this introduction considers thequestion of political responsibility forthe growing inequality and weakeningof the mechanisms of social cohesion.The third part, nally, seeks to exam-ine how it might be possible to modifythe non-egalitarian stance adopted bythe EU and most of its member states,in order to nd a positive way of mov-ing beyond the crisis. Such, indeed, isthe essence of the message deliveredby this report: there will be no lasting
way out of the crisis in the absence ofa reduction in inequality (Reich 2011).We should remember, after all, that, ac-cording to the Treaties, the purpose ofthe European Union is the promotionof employment, improved living andworking conditions, so as to make pos-sible their harmonization while the im-provement is being maintained (Article151 TFEU).
During much of the period when west-ern Europe was prosperous and highlydeveloped, the challenge representedby social inequality was regarded assecondary, insofar as this problemwould so the conventional wisdomwent ultimately be eradicated by theeffects of continuing economic growth.The question arose to a greater extentin the English-speaking countries,which were less egalitarian (Pikettiand Saez 2004), but in a manner toooften conned to the monetary aspect
alone.This edition of Benchmarking
Working Europe shows that social in-equality is now worsening everywherein Europe, and not only on account ofthe succession of nancial, economic
and debt crises. Inequality has beengrowing since long before 2008 be-cause the policies implemented overmore than twenty years in the Euro-pean Union (EU) and its member stateshave contributed to deepening socialand pay disparities. While the crisis isamplifying and accelerating this de-velopment, the structural changes inincome distribution were actually oneof the factors that triggered the crisis.It is becoming increasingly evident thatpolicy choices in relation to growth(based on competition and competi-
tiveness) and employment (based onincreasing labour market exibility and
deregulation) lead to a weakening ofsocial cohesion and greater inequalityin terms not only of income but also ofeducation, training, access to the labourmarket, social security entitlement andbenets, healthcare, etc. This evolution
is increasingly perceived, in a context ofausterity which affects the most vulner-able groups more severely, as a seriousform of injustice.
Such is the fundamental message
conveyed by this 2012 edition ofBench-marking Working Europe. Since 2001the purpose of this publication has beento assess the progress or lack of prog-ress in areas of importance for thetrade union movement: employment,unemployment, working conditions,wages, etc. This year, a meticulous ex-amination of these areas shows orrather conrms the rise in inequal-
Introduction
Characteristicsand causes of
inequality
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Introduction
austerity is likely to lengthen periods ofunemployment, leading to labour marketexclusion or marginalization of the mostvulnerable groups and growing inequality.Indeed, as shown by Chapter 3 (e.g. sec-tion on Social and educational inequali-ties), long-term unemployment levels andlow educational levels in households havean impact on poverty reproduction andsocial exclusion mechanisms. Childrenliving in households experiencing or
threatened by marginalization are
less likely to achieve or gain access
to higher levels of education.
This trend is perceived as deeplyunjust when we see the European CentralBank (ECB) deciding to subsidize the -nancial sector (by offering loans direct-ly to banks at very low interest rates) atthe same time as the debt crisis is extend-ing to include countries that seemed be-yond its reach, leading to an ever increas-ing number of austerity plans.
Another effect of the crisis is thatwe are witnessing a reversal of the trendobserved in recent years (before 2008)whereby the poorer EU countries wereexperiencing higher growth rates than thericher ones. In other words, the trendfor the poorer economies to catch
up with the richer ones, leading to
greater convergence which wouldhave led to a convergence in per capita
income has been halted and evenreversed (see Trend towards greaterequality between countries halted, p. 19).After a few years during which inequalityamong the EU member states was gradu-ally narrowing, the gulf between centreand periphery is widening once again.
What is more, this gulf is deepen-ing even within individual member statesbetween their rich(er) and their poor(er)regions. Chapter 7 on Regional inequal-ity in Europe shows, in particular, theexacerbated divisions between de-
mographically expanding areasand rural regions, the latter beingfrequently less developed and sufferingfrom the loss of their most important re-source, namely their population. Apartfrom the demographic inequality (whichnaturally also entails inequality in termsof infrastructures, mobility, environment,and so forth), this chapter brings to lightalso the growth of regional inequali-
to which such trends vary from countryto country. Collective bargaining systemsin Europe differ from one member stateto another in terms of coverage rates, thedegree of centralization, the role of thesocial partners in policy denition andimplementation, etc.
In terms of pay, developments varystrongly. Thus wages continue to rise inthe Nordic countries, in spite of the crisis,while pay restraint can be observed in thecountries of western and central Europe(Austria, Germany, Belgium, Luxem-bourg, The Netherlands, Slovenia). In theEnglish-speaking countries (the UK, Ire-land, Malta, Cyprus) wages have come tostandstill or even fallen, accompanied bya high degree of volatility and reductionsin purchasing power in the countries ofcentral and eastern Europe. Finally, wag-es have been falling in keeping with thedrop in productivity in the Mediterraneancountries (Greece, Spain, France, Italy,Portugal).As such there exists real di-vergence in wage developments be-
tween different groups of countries
since the crisis of 2008 (see Divergingreal wage developments in the EU, p. 66).
In parallel, trends in terms
of the development of unequal in-
come distribution display similar
divergence. Whereas income distribu-tion tends to be more even in the Nordic
countries and the corporatist countriesof central and western Europe, it is moreuneven in the Baltic countries, Romania,Bulgaria, the United Kingdom and somesouthern European countries.
One particularly interesting obser-vation is that, when examining the corre-lation between, on the one hand, the levelof collective bargaining coverage and, onthe other, income inequality, it becomesclearly apparent that, the greater the cov-erage, the lower the degree of inequalityand, by the same token, the lower the rate
of coverage, the wider the inequality (seeHigh bargaining coverage: an importantfactor for reducing inequality, p. 68).This factor should undoubtedly not be re-garded in isolation when gauging incomeinequality, for several other factors, suchas taxation and social security systems,also play a signicant role here.
It may, however, be concluded thatsound collective bargaining sys-
ties in terms of income, health and
lifestyle (in particular the digital dividethat is widening all the time, see Closingthe divide in a digital age, p. 93).
What we are witnessing is, accord-ingly, an aggravation of both internal andexternal inequality. It is essential to real-ize that to resolve the crisis withoutreducing these forms of inequality
would be to allow the seeds of the
next crisis to take root in the soil of
Europe. These seeds could sprout in thenot too distant future and would furtherundermine could indeed cause collapseof the legitimacy of the European inte-gration project.
Quality of work and working conditionsApart from the increasing disparities interms of income, health, or lifestyle, thedevelopment of inequality also affectsworking conditions, at least for those whoare in work. An increasing number ofworkers, in particular young work-
ers, nd themselves trapped in sub-
standard or insecure forms of em-
ployment: xed-term contracts, tempo-rary work, extended internships, etc. (seeintensication of work, p. 114-115; Chap-ter 2). Similarly, large numbers of womennd themselves exercising part-time jobs,whether or not of their own volition. Thesesituations are likely to entail worse career
prospects, an experience of job insecurityand, ultimately, a deterioration of workingconditions in general.
Chapter 9, focussing on workingconditions, shows that the crisis con-tributes also to work intensication,additional forms of constraint and an in-crease in the phenomenon of presentee-ism, that is, continuing to work duringperiods of sickness (see presenteeism isa growing concern, p. 117). It is hardlysurprising therefore that many workers(almost 60%) believe that they will be un-
able to remain in their job until the ageof 60. This observation, in the context ofthe deterioration of working conditions,is particularly striking at a time when theEU is calling for a raising of the retire-ment age in most member states.
Wages and collective bargainingIn the light of the above observations, it isparticularly interesting to note the extent
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The climate challengeFinally, in addition to and beyond the cri-sis, Europe has to deal with the extremelyurgent challenge of climate change, whichappears to be not directly linked to in-equality. And yet this transition, orthis green convergence, equally
bears the stamp of inequality, both
external and internal.
External green inequality: we knowthat within the EU the poorer memberstates emit less C02 per capita than dothe richer ones. But at the same timethe poorer countries perform less well interms of resource productivity (see Di-vided Europe: resource productivity andper capita emissions, p. 83). How can in-creased green convergence be developedand speeded up in this context?
Internal green inequalities arelinked to the questions of social exclusiontackled in Chapter 5: within the memberstates the poorest population groups en-counter more housing, heating and en-ergy problems (see The micro-dimensionof environmental inequality, p. 85-86).
The principle of a fair transition must
be based on an integrated approach that
combines in a balanced fashion the climate
issue and the industrial policies and social
and employment policies most appropriate
for accompanying this transition. Yet the
responses to the crisis currently pro-
vided in the forms of cuts and auster-ity programmes risk undermining
such an integrated approach.
According to the OECD, the most impor-tant general reasons for the exacerbationof inequality include technological chang-es that benet primarily the most highly
Introduction
dermine and disrupt social dialogue andcollective bargaining (see Crisis: a pre-text for deregulation, p. 109).
For all this, the EU bears its
share of responsibility, for the trade
unions are increasingly marginal-
ized in the new Europe 2020 strat-
egy, in which their consultation and nego-
tiation role is less recognized than previ-
ously under the Lisbon strategy.
Similarly, the remedies pre-
scribed by the EU Commission
and Council for exiting the crisis
contribute in most cases to weak-
ening the national social models:the EU calls for deregulation of labourmarkets, reform of labour codes, increas-ing exibility of work organization and
practices, reforms of social security andsocial protection, reforms of collective
bargaining mechanisms, the introduc-tion of new forms of employment con-tract, decentralization of collective bar-gaining, etc. The labour market is chang-ing: part-time work is developing, affect-ing predominantly women, whereas it isabove all young people who are affected
by xed-term and agency contracts. In
Poland, 60% of young workers employedon temporary contracts have acceptedthis form of contract because they wereunable to nd a permanent job; in Portu-gal the gure is 70%, and in Spain 80%.
What is more, short-hours contracts andother forms of sub-standard or semi-casual work are spreading in particu-lar among the relatively unskilled, theworking poor; self-employment is en-couraged but is frequently tantamount toincreased insecurity, particularly amongmigrant workers (see Developments innon-standard employment, p. 31-36).
Apart from the fact that it seems dif-cult under these conditions to advocateactive labour market policies when it isobvious that the problem is less one of de-
mand than of supply of jobs, it can be ob-served that the development of thesenon-standard forms of employment
affects the more vulnerable groupsand leads to an increase in pay inequality,to greater social insecurity and sub-stan-dard employment, and ultimately to lesscohesion and prosperity (see Outcomesof labour market inequalities in terms ofin-work poverty, p. 37-38).
tems do contribute to promoting
equal pay; and it may similarly be ob-served that the degree of centralization ofbargaining tends to reduce wage volatil-ity, while decentralization fosters greatervolatility in this respect and hence has theeffect of amplifying economic cycles anddivergences in the euro area and beyond(see Wage share stable only where bar-gaining coverage is high, p. 70).
Role of trade unions and workerparticipationContrary to the clich according to whichtrade unions defend the acquired gains ofinsiders (full-time workers on unlimitedcontract, civil servants) to the detrimentof outsiders (the self-employed, tempo-rary and part-time workers, etc.), col-lective global action may be seen to
contribute to a better overall distri-
bution of income, and hence to a re-duction in inequality.
This applies in a number of diffe rentrespects: broad collective bargaining cov-erage (Chapter 4); introduction of mini-mum wages in some countries; efforts toeliminate gender inequality (includingin worker representation bodies, Chap-ter 8); steps to counter the abusive wagepractices of certain employers (there be-ing less evidence of excessive manage-ment pay levels in companies where
European Works Councils have been setup) (see Worker participation: a way togender equality and balanced boards,p. 105). It is necessary to place also on thislist the social dialogue, both national andEuropean, insofar as it tackles aspects ofinequality as it affects the most vulner-able groups (workers with disabilities,migrants, youth, etc.); worker participa-tion; information and consultation, etc.(Chapter 8).
In all these ways, the trade unionscontribute to the ght to reduce inequal-
ity and injustice. But this contributionis made increasingly difcultby sev-eral factors: obstacles, often ideological innature, placed in the way of trade unionactivity, loopholes in European legisla-tion (the provisions of the EWC directive,for example, are worded so as to tolerateserious decits in its implementation),but also trade union membership losses,and the crisis itself, which is used to un-
Weakening ofthe mechanismsfor reducinginequalityand policyresponsibilities
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Introduction
skilled workers; working conditions (de-regulation of labour law, development ofnon-standard contracts, etc.); changesin the volume of work (development ofpart-time work, increased gap betweenhighly paid and low-paid workers); andan increasingly ineffective use of taxationfor the purpose of redistribution (OECD2011a). Even if there is no formal consen-sus on the academic level concerning therole of globalisation in widening inequal-ity, it can indeed be observed that thechanges triggered by globalization havefrequently brought much greater gains tohighly skilled than to low-skilled workers.
Since the 1980s, structural re-forms on the labour markets have beenundertaken in most EU member states,initially for the purpose of reducing un-employment. These reforms were basedon relaxation of employment protectionlegislation (EPL), deregulation of productmarkets, lowering of minimum wages,revision of wage-xing mechanisms, low-ering of the replacement rates of unem-ployment benets, reduction of tax bur-den entailed by the employment of low-skilled workers. According to the OECD,while these measures seem to have
had a positive effect on overall em-
ployment rates, they have, at the
same time, contributed to the in-
crease in wage inequality: all in all,
therefore, we have more jobs but, at thesame time, more inequality. This long-term trend the increase in the overallemployment rate does not, per se, serveto reduce either inequality in householdincomes or poverty rates (see also de Beer2012) also calls into question the Euro-pean discourse according to which a ris-ing employment rate is a means towardseliminating social exclusion and poverty:in actual fact, if it is to contribute to theaim of reducing social exclusion, this in-crease must necessarily be accompanied
by an improvement in the quality of em-ployment and by redistribution policies.
The economic paradigm underly-ing the policies implemented over the lastthirty years serves, ultimately, to wideninequality. Apart from the element of la-bour market deregulation and less redis-tributive taxation, it is important to notethe factors stressed in this report: auster-ity programmes entailing regressive ef-
employment; of improving access to em-ployment for vulnerable groups and of-fering training to persons with few skills;of recognizing also the importance ofthe role of social transfers, wage-xing
mechanisms, and workers bargainingpower. At the same time, this entailsrecognizing and encouraging the role ofsocial partners and trade unions in con-tributing to a fairer society.
It means, in a nutshell, simul-
taneously conducting both active
employment policies and redistri-
bution policies.
Since the beginning of 2012 the Europeandiscourse on the crisis has increasinglyplaced the emphasis on the post-auster-ity period, in other words, the expectedreturn of growth and employment. Thisreturn, insofar as it is expected to takeplace, is made responsible for solving themajor outstanding problems: improve-ment of public nances, convergence of
the economies, reduction in unemploy-ment and increase in the employmentrate, all of which will, according to theofcial discourse, enable salvation of theEuropean social model. According to thisapproach, the broadening of inequalitywill have been a merely temporary phe-nomenon and the return to growth willtrigger a dynamic whereby inequality inits various forms will once again be re-duced.
Yet this discourse is mistaken inthat it places the stress on growth over
and above equality, insofar as it conti-nues to believe that the former will auto-matically engender the latter. As thingscurrently stand, however, the tide is nolonger rising for the population at large:growth is no longer reducing inequality;the link between growth and equality hassnapped (Niechoj et al.2011). On the con-trary, the increase in inequality ex-perienced in the EU and its member
fects, reversal of the past trend towardsincreased convergence among memberstates and regions, increasing employ-ment insecurity, deterioration of workingconditions, calling into question of col-lective bargaining systems even thoughsuch systems contribute to the fosteringof income equality, weakening of nationalsocial models, and marginalization oftrade unions in the denition and imple-mentation of the strategic socio-economicguidelines of the European Union and itsmember states.
It is thus paradoxical, at the
very least, to seek now to assert be-
lief in the values of equality and so-
cial justice while at the same time
weakening the systems and institu-
tions that allow these values to be
fostered. Might it be that we are here inthe presence of an implicit political choicethat would allow certain forms of inequal-ity to ourish, along the lines of the Ang-lo-Saxon model so frequently lauded forits competitiveness?
In its report Employment and So-cial Developments in Europe 2011, theEuropean Commission acknowledgesthis phenomenon of increasing inequal-ity. While pointing out that equality is anunavoidable fact of life, it stresses that ahigh level of inequality, or its rapid
widening, can be both economi-
cally and socially harmful. It arguesthat increasing inequality gives rise toproblems of social cohesion (risks of so-cial unrest), threat to democracy (concen-tration of wealth and power), and nally
of economic stability (some economistsbelieve that the increase in inequalitywas a contributory factor to the crisis, butthe Commission is at pains to stress thatthere is no consensus as to this interpre-tation).
The path of an improvement ofliving and working conditions and their
harmonization while improvement isbeing maintained entails the need foraction on the social policy front butalso in redistribution policy terms. It isa question of simultaneously restoringto tax policies their redistributive roleand capacity, in particular via the taxa-tion potential offered by high and veryhigh incomes; of conducting job creationpolicies and improving the quality of
8
When the tide is
no longer risingfor all
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9
Introduction
The analysis of various forms of inequal-ity contained in this 2012 edition of
Benchmarking Working Europe leads tothe conclusion that the political remediesmust in future focus not primarily on eco-nomic growth but on a redistribution anddeconcentration of wealth.
Europe and the United States have
experienced thirty years of a winners-
take-all culture, which has enabled the
richest members of society, via a variety of
mechanisms such as tax havens (Hacker
and Pierson 2010; Chang 2011), to helpthemselves to ever larger shares of thecake. This economic model is condemnedto collapse.
The priority focus must insteadbe today, for reasons that are social butalso environmental, the need for greaterequality. A sustainable route out ofand beyond the crisis presupposes
the reconstruction and strength-
ening of the mechanisms and poli-
cies that contribute to reducing the
various forms of social inequality,
and a reversal of the tendency to-
wards the excessive concentration
of wealth.
states in recent years including dur-ing periods of economic growth is oneof the factors that led to the crisis
and not one of its consequences. Themechanisms have been brought to light:on the one hand, excessive concentrationof wealth and speculative bubbles; on theother, the struggle of the middle classssuffering from insecurity and uncertainand sub-standard labour market condi-tions to maintain their social standingand lifestyle, leading ultimately to a crisisof indebtedness.
Is it possible that a way can be found
out of the crisis without rst reducing so-
cial inequality in all its forms? There are
those answer to this question is an emphat-
ic no (Reich 2011). Is it possible that more
economic growth will improve the wellbe-
ing of the European population at large?
There are those who believe the answer to
this question is also no (Wilkinson andPicket 2009). To put the same questiononce again but in positive form: is it pos-sible that more equality might pro-
vide an alternative route to auster-
ity in moving beyond the crisis and
nding a way back to sustainable
prosperity?
In response to this question, in-creasing numbers of people are answer-ing yes.
Wilkinson and Pickett have shown
that the developed societies displayingthe widest inequalities perform particu-larly badly when it comes to dealing withsocial and health problems. But above all,these authors observe that, in our societ-ies, more economic growth serves to im-prove neither health nor wellbeing. Fora better quality of life what we need
is not so much stronger growth
as more equality. In societies thatstrengthen social cohesion and report thesmallest income gaps between rich andpoor, the population has a better quality
of life, levels of trust are higher, and thereis less violence. Is this not what the EUmember states need today? According toEurobarometer, 88% of Europeans be-lieve or tend to believe that gaps inincome are today too large (EuropeanCommission 2012: 67). This opinion wellindicates that too much inequality hasnow come to be regarded as prejudicial tosociety as a whole.
Conclusion
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Macroeconomic developments,policies and inequalityIntroduction
In 2011 we witnessed the spread of the public debt crisis within the euro area.
The central principle of the policy response to this crisis has been the escalation of
scal austerity programmes in those member states that received nancial support
from the EU and the IMF and in those that have been facing increasing difculties
in the nancial markets in other words, pretty much everywhere. These scal
policies, in combination with the European Central Banks tightening of monetary
policy, have aborted the recovery that had been forecast for the area. The prospectof a recession in the euro area in 2012 and, given the close economic inter-
dependence among member states, in the EU as a whole is now highly realistic.
The irony has been that the depressed demand conditions induced by scal austerity
in the euro zone have been making the task of consolidating public debts and
government decits ever more difcult and costly.
This chapter, while reviewing these macroeconomic developments and policy
responses, also investigates their implications for income inequality between
EU member states. Is there any likelihood that the catching-up process in terms
of per capita output between poorer and richer EU member states will, under the
current and currently foreseeable macroeconomic conditions, continue?
Topics
> Economic developments the crisis is not over 11
> Decits, debts and austerity 14
> Macroeconomic policy responses 16
> Monetary policy 18
> Output growth and cross-country inequality 19
> Conclusions 21
10
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1.Macroeconomic developments, policies and inequality
11
During 2010 and at the start of 2011, theEuropean economy appeared to havebounced back although considerablyless strongly than the US from the
Great Recession (see Figure 1.1). In thecourse of 2011, however, the recoveryvirtually came to a standstill. For 2012,the current ofcial forecasts are bleak.The prospects in the US are only mar-ginally better. Growth at such rates isactually below the historical trend of theEuropean economy, which means thatno progress can be expected in closingthe output gap that has been opened upby the crisis and in reducing the sharplyincreased unemployment. Growth fore-casts were repeatedly revised downward
during 2011, as the debt crisis escalatedin the euro area. With employment andunemployment gures deteriorating(see Chapter 2) and credit stagnatingor even shrinking, the risk of a double-dip recession has increased markedly.The most recent forecasts are morepessimistic still with the Institut frMakrokonomie und Konjunkturforsc-hung (IMK 2011), for instance, forecasting
a second and substantial contraction(-0.6% for real GDP in the euro area in2012). Moreover, all forecasts are subjectto substantial downside risks; the pro-longed sovereign debt crisis and a possi-ble second banking crisis in Europe, withtheir potential for another credit crunch,pose a major threat to the Europeaneconomy, with macroeconomic policyalready so stretched (see below). Thiswould almost inevitably have an adverseeffect on the US economy and the globaleconomy more generally, where there
are already worrying signs of a slow-down in until recently resilient emergingeconomies.
Recovery aborted risk of double-diprecession
-5
-4
-3
-2
-1
0
1
2
3
4
2008 2009 2010 2011 2012 2013
EU27
US
Figure 1.1 Real GDP growth EU27-US, annual data
Source: AMECO (2011).
Economic developments the crisis is not over
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12
After three years of supposed recov-ery from the crisis, EU27 output stillremains almost 2% below its high pointin the summer of 2008. Even if a renewedrecession is avoided which looksunlikely Europe will at best experi-
ence a lost half-decade ve years withno net increase in output. In this respect,the USA appears to have turned the cor-ner, with output growth stabilising andemployment expanding.
Behind the EU average gures wesee substantial variation between mem-ber states. Output losses since the onsetof the crisis in the second quarter of2008 have yet to be reversed in all but sixmember states, most of these small ones(see Figure 1.2). As was documented inthe last edition ofBenchmarking Work-
ing Europe (ETUC and ETUI 2011), thelosses have been greatest in the Balticstates, in countries which have beenfacing a debt crisis in the nancial mar-kets, such as Greece and Ireland, Italyand Spain, but also in member statessuch as Slovenia, Romania, Hungaryand Denmark. Countries such as France,the Netherlands, Germany, Austria andBelgium have more or less clawed their
way back to the pre-crisis output level,whereas Sweden, Slovakia and, spectac-ularly, Poland even grew over the periodas a whole.
A lost half-decade at least
1.Macroeconomic developments, policies and inequality
-18,0-16,0-14,0-12,0-10,0-8,0-6,0-4,0-2,00,02,04,06,08,0
10,0
PT PL GR EE HU UK IT DK FI EU27
ES SK EA CY SI MT RO CZ LU BG NL FR AT IE DE BE SE LT LV
Figure 1.2 Change in real GDP, 2008Q2-2011Q2
Source: Eurostat (2011c).
Economic developments the crisis is not over
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The forecasts for the next two years andespecially for 2012 are not positive, inparticular for large European econo-mies several of which, such as Franceand Germany, have so far fared relativelywell Poland being an exception. Some
of the member states which are projectedto grow most robustly are those bounc-ing back from the biggest losses; thisis especially the case of the Baltics (seeETUC and ETUI 2010 and Figure 1.3above). At the same time, what can onlybe described as the economic nightmarein Greece and Portugal is set to continuenext year: the Commission is forecast-ing, almost certainly over-optimistically,a further loss of output in the region of3% for these two countries.
Normally economies can be
expected to accelerate as they emergefrom a long and deep recession. In muchof Europe, however, there seems to bea serious risk that an initial recoveryhas been snuffed out before it has hada chance to signicantly improve thelabour market situation and enable the(public) debts accumulated during thecrisis to be brought down. To some extent,this reects the special difculties of an
economic and nancial crisis in whichboth households and the governmentare trying to repair their balance sheetsat the same time and the banking sectoris fragile. The comparison with the US,though, suggests that policy mistakeshave played an important role, an issuewe examine further below.
Recovery on therocks?
1.Macroeconomic developments, policies and inequality
-6
-4
-2
0
2
4
6
8
GR PT CY IT UK ES SI IE DK HU EA EU27
LU FR RO CZ NL MT BE BG DE SK AT FI SE PL LV LT EE
2011 2012 2013
Figure 1.3 Forecasted real GDP change, EU member states, 2011-2013
Source: AMECO (2011).
Economic developments the crisis is not over
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14
Government debt-to-GDP ratios rosesharply on the EU average by almost 25percentage points of GDP in the wakeof the crisis, as output plunged and gov-
ernments ran decits, partly automatic,partly discretionary, to cushion the cri-sis (see Figure 1.4). What is, on the faceof it, more surprising is that, in spite ofthe austerity programmes implementedacross the EU, starting at the latest in2011, in some cases earlier (see below andTheodoropoulou and Watt 2011), grossdebt-to-GDP ratios, far from declining,are projected to increase slightly in theyears 2011, 2012 and 2013, from theirelevated post-crisis levels, in virtually allcountries.
These gures are a stark reminderthat success in reducing governmentdebt depends on three variables. In addi-tion to the primary government bal-ance (the governments surplus or decitbefore interest payments), these are thenominal growth rate and the interest ratepaid on the debt. As a result of the crisis,nominal growth has been depressed, andausterity policies, by reducing demand in
a context where the private sector is alsotrying to rebuild its balance sheets, haveworsened the situation. Meanwhile, thefailure to resolve the government debtcrisis has led to investors, concernedabout possible losses (defaults and vol-untary haircuts, as imposed in the caseof Greece), demanding ever higher inter-est rates on the debt of countries seen asvulnerable (see Figure 1.8).
Public debt crisisdeepens andexpands
1.Macroeconomic developments, policies and inequality
0
20
40
60
80
100
120
140
160
180
200
GR IT IE PT BE EA17
FR UK EU27
DE HU AT MT ES CY NL PL FI SI LV SK DK CZ LT SE RO LU BG EE
2007 2011 2012 2013
Figure 1.4 Gross public debt/GDP, 2007, 2011-2013
Notes: 1) The forecasts were finalised before the European Union Summit of 26 October 2011. Thus, they have not been updated to reflect the decisions taken at this summit whichwill have a direct impact on the debt, the interest and the deficit projections as of 2012. 2) Euro area 3) Non-consolidated for intergovernmental loans amounting to 0.9 bn EUR in
2009 and 21.2 bn EUR in 2010
Source: AMECO (2011).
Decits, debts and austerity
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The combination of these factors meansthat enforced scal consolidation is prov-ing self-defeating in terms of reducingscal positions (as foreseen in Theodoro-
poulou and Watt 2011).As can be seen in Figure 1.5, the
discrepancy between total and primary(i.e. excluding interest payments) gov-ernment budget decits has been par-ticularly pronounced in member stateswhich received nancial support fromthe EU and the IMF, because of the largeinterest payments. The primary budgetdecit in countries such as Greece andPortugal has been spectacularly reduced,even in the face of deep recession in theireconomies, yet their total budget decits
remained high and off-target, while theirpublic-debt-to-GDP ratio also increased.
Austerity draggingdown publicnances
1.Macroeconomic developments, policies and inequality
Figure 1.5 Government total and primary budget deficit, 2010-2011
Source: AMECO (2011).
-35
-30
-25
-20
-15
-10-5
0
5
10
IE GR UK PT ES LV PL SK FR LT RO EU27
EA SI CY NL CZ IT AT HU DE BE MT BG DK FI LU SE EE
total 2010 total 2011 primary 2010 primary 2011
Decits, debts and austerity
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16
In spite of the deteriorating macroeco-nomic conditions, apart from a briefupturn in early 2011, scal policies havebeen contractionary since 2011 at thelatest in almost all countries. Figures1.6 and 1.7 show the evolution of the
structural government budget balance(excluding interest payments), an indica-tor of the stance of discretionary scalpolicy (as changes in government rev-enues and expenditures due to the busi-ness cycle are netted out) on the y-axisand that of the output gap (i.e. the dif-ference between potential and actualoutput) in the EU member states on thex-axis. Figure 1.6 shows the situationin the years 2009 and 2010. We mightrefer to this as a Keynesian period. Fig-ure 1.7 repeats the exercise for 2011 and
2012, the austerity period, on the basisof Commission forecasts. In both cases,there is an association between the twoin that countries with higher negativeoutput gaps (i.e. more severe recessions)are more likely to have experienced adiscretionary tightening of scal policy,Overall, this means that governments inthe EU have been pursuing a tighteningin the discretionary part of their scal
policies in spite of a deterioration in thedemand for the output of their econo-mies. Particularly crass examples are theBaltic States in 2009/10 and Greece andPortugal in 2011/2012.
Procyclical policyresponse
1.Macroeconomic developments, policies and inequality
Figure 1.6 Counter-cyclicalfiscal policy2009-2010
BEBG
CZ
DKDE
EE
IE
GR
ESFR
IT
CY
LV
LT
LU
HU MT
NL
AT
PL
PT
RO
SI
SKFI
SE
UK EA17
EU27
y = -0,2967x - 1,5179R = 0,3024 -4
-3
-2
-1
0
1
2
3
-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0s
tructuralgovt.balanceex
cl.interest
output gap (% potential GDP)
Source: AMECO (2011).
Macroeconomi
c policy responses
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More importantly, there are major differ-
ences between the two periods (2009-10
and 2011-12). In the rst Keynesian period
most countries actively steered against the
crisis with expansionary discretionary s-
cal policy (as reected in a negative move-
ment in the primary structural balance).
In the austerity period (Figure 1.7), on
the other hand, all but a few countriesimplemented discretionary contraction-ary policies. This is despite the fact thatthe negative output gaps had closed toonly a limited extent in most cases. Por-tugal is a striking example of the change.In the rst period it sought to stimulateits economy, but was forced rst by thenancial markets and then by the EU/
IMF conditionality in 2011 to adopt a radi-cal austerity package, deepening and pro-longing its recession.
In terms of the effects of these aus-terity programmes on income distribu-tion, the rst indications are that theyhave in several cases been regressive,affecting those at the lower ends of theincome distribution more adversely thanthose at the top (see Theodoropoulou and
Watt 2011). Even when this has not beenthe case though, the recession is likely toreduce the intended progressivity in thestructure of austerity packages (see forexample Matsaganis and Leventi 2011for the case of Greece). To the extent thatausterity is likely to lead to prolongedunemployment spells and labour marketmarginalisation, increases in inequalitywould appear inevitable.
Inequalityexpected toincreases further
1.Macroeconomic developments, policies and inequality
Figure 1.7 Procyclical fiscal policy2011-2012
BE
BGCZ
DK
DE
EE
IE
GR
ES
FR
IT
CYLV LT
LU
HU MTNL
AT
PL
PT
RO
SI
SK
FISE
UK EA17EU27y = -0,3711x + 0,1331
R = 0,3242
-2
-1
0
1
2
3
4
5
-9 -8 -7 -6 -5 -4 -3 -2 -1 0structuralgovt.balanceex
cl.interest
output gap (% potential GDP)
Source: AMECO (2011).
Macroeconomi
c policy responses
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18
During 2011, the European CentralBank raised its main renancing rate
by 25 basis points (0.25 p.p.) twice, inApril and July. It claimed that this pol-icy tightening was justied by increases
in headline ination, despite the fact
that core ination (prices excluding
volatile items such as energy and food)remained contained, and by its expecta-tion that the economic recovery in early2011 was set to continue and strengthen.On both occasions, the increase in thespreads in the 10-year bond yields ofGreece, Portugal, Ireland, Spain andItaly increased sharply (see Figure 1.8).This reected the market sentiment
that the prospects for successful debtrestructuring in these countries haddeclined because of the higher nanc-
ing costs imposed by the ECB and/orthat the interest-rate hikes were moregenerally premature and would hit theperipheral countries particularly hard.This monetary tightening was reversedin November and December, after MarioDraghi had replaced Trichet as ECBPresident, and as alarming gures over
the growth prospects of the Europeaneconomies emerged.
At the same time the ECB has con-tinued half-heartedly to pursue its Secu-rities Markets Programme, buying outItalian and Spanish government bondsin order to stabilise their markets, whilethe debate among its governing councilmembers over whether it should inter-vene more dynamically in the marketscontinued publicly and as the calls forthe ECB to step in and act as the gov-ernments lender of last resort in theeuro area intensied. At the very end of2011, it offered low-interest loans not to
governments but to the banking sector.At the time of writing, it was not clearwhether some of these funds would ndtheir way into the sovereign debt market;in any case, this indirect approach raisesserious normative issues (subsidisingbanks at the expense of taxpayers). Thefailure to undertake a full governmentbanker role so far, along with other fail-ures of economic governance, has led to aspreading of the debt crisis even to mem-ber states with fundamentally soundpublic nances whose governments then
promptly planned and started imple-menting further scal austerity meas-ures, further stiing economic growth(see previous section).
ECB helps quellthe recovery
1.Macroeconomic developments, policies and inequality
0
1
2
3
02468
10121416182022242628303234
201001
201001
201002
201003
201003
201004
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201007
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201107
201107
201108
201109
201109
201110
201111
201111
ECB MRR(right-hand scale)GR
PT
IE
IT
ES
FR
Figure 1.8 Spreads of selected countries 10-year government bonds over German bonds in p.p. and ECB main refinancing rate
Source: IMK (2011: 8) and ECB.
Monetary policy
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The dismal output growth conditionsthat have prevailed in the European
economy since the onset of the crisis in2008 have not only dampened prospectsfor the European economy as a wholebut also halted or reversed the previousrelative output growth developments,under which poorer EU member statesgrew faster than richer ones. As can beseen in Figure 1.9, during the period1999-2007, there was a relatively cleardistinction between the new memberstates with relatively low GDP per capitaand the old member states with relativelyhigh GDP per capita. (We use purchasing
power standards here to allow for pricelevel differences and illustrate real liv-ing standards.) The former grew faster,reducing East-West inequality in Europein a process that would eventually, hadit continued, have led to the conver-gence of real per capita incomes. Overall,there was a very strong negative correla-tion between income levels and rates ofchange, implying a strong convergence
trend. Partial exceptions were Ireland,which grew rapidly in spite of its highinitial level and Poland where, along withHungary, per capita incomes grew ratherslowly despite their relatively low start-ing point.
Trend towardsgreater equality
between EUcountries halted
1.Macroeconomic developments, policies and inequality
Figure 1.9 GDP per capita growth rates 2000-2007 by level of GDP per capita 2000
Source: Eurostat (2011c).
EU27EU15EA
BE
BG
CZ
DK
DE
EE
IEGR ES
FRIT
CY
LVLT
HU
MT
NL
AT
PL
PT
RO
SI
SK
FISE
UK
y = -0,0035x + 106R = 0,7228
0
20
40
60
80
100
120
4.000 6.000 8.000 10.000 12.000 14.000 16.000 18.000 20.000 22.000 24.000 26.000
%c
hangeinGDPpercap
ita2000-2007
GDP per capita 2000 (euros PPS)
Out
put growth and cross-country inequality
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As Figure 1.10 illustrates, however, af ter2008, the GDP per capita growth rates
converged between rich and poorermember states, turning very negative forsome of the poorest central and easternEuropean countries, such as Latvia andEstonia, while some wealthy countries(Belgium, Germany) performed com-paratively well. Overall, for this periodthere is no relation whatsoever betweenincome levels and their rate of growth.These gures clearly suggest that theconvergence process in real per capitaincome that is, a clear trend towardsfalling inequality between national
populations across Europe has cometo a halt. What is unclear is whether theconvergence process will continue oncemore if and when the European economyas a whole emerges from crisis. Whilethis does not necessarily affect the issueof within-country inequality (see alsoChapter 7), the combination of sluggishgrowth, mass unemployment and cut-backs in welfare spending is unlikely to
be conducive to the Europe2020 goals ofreducing relative poverty within coun-tries (see Leschke et al. 2012).Austerity and
unemploymentthreatening povertyheadline target
1.Macroeconomic developments, policies and inequality
Figure 1.10 GDP per capita growth rates 2008-2010 by level of GDP per capita 2008
Source: Eurostat (2011c).
EU27 EU15
EA
BE
BG
CZ
DKDE
EE
IEGR
ES
FR
IT
CY
LV
LT
HU
MT
NLAT
PL
PT
RO
SI
SK
FISEUK
y = 3E-05x - 3,7911R = 0,0029
-10
-8
-6
-4
-2
0
2
4
6
8
10
8.000 13.000 18.000 23.000 28.000 33.000
%c
hangeinGDPpercapita2008-2010
GDP per capita 2008 (euros PPS)
Output growth and cross-country inequality
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1.Macroeconomic developments, policies and inequality
21
What is needed instead are poli-cies that are consistent with the percep-tion of the euro area and the EU as thelarge, integrated and relatively closedeconomy that it has become. Generalizedscal austerity alone, and the insistenceby Germany and other core economiesthat current account imbalances arecorrected unilaterally by those mem-ber states in decit, are bound to makerecession deeper and more widespread.Policy changes are needed to, amongother things, ensure that capital ows donot grind to a sudden halt in the presenceof current account imbalances while thedecit countries commit to bringing theirpublic nances on to a sustainable path;and, at the same time, there is a need formeasures to protect member states fromthe sometimes irrational attacks of nan-cial markets.
The analysis of the trends presented inthis chapter leaves little doubt that theEU is currently at a very critical juncturein its history. Essential objectives, such aspromoting economic progress, strength-ening economic and social cohesion, andestablishing and maintaining an eco-nomic and monetary union, are in jeop-ardy. The persistent misdiagnosis of thecurrent crisis in the euro area as rootedin earlier scal imprudence, and thepolitical unwillingness to put into placeall the mechanisms necessary to secureits smooth functioning, have increasedthe risk that the euro area may break upwith unpredictable, but almost certainlyhugely damaging consequences for Euro-pean integration. Meanwhile, the reces-sion that these policy responses havegenerated has halted the process of con-vergence in per capita income betweenpoorer and richer member states. For aslong as the current account imbalanceswithin the euro area are not resolved in
a symmetric fashion, the divide betweenthe core and the periphery will persist oreven widen further.
However, growing inequalityamong member states is not just theoutcome of this crisis and the way it hasbeen handled. Just as in the run-up to theGreat Depression of the 1930s, the rise inincome inequality, especially at the topof the income distribution, had reachedunprecedented levels immediately beforethe economic crisis broke out. While theunderlying causalities are controver-
sial and have yet to be fully understood,resolving the current crisis withouttaking care to reduce income inequal-ity is likely to leave in place the seedsfor another crisis in the not-so-distantfuture, and also to damage the legitimacyof the European integration project. Yetin many countries the austerity policieshave served to exacerbate existing formsof inequality.
Crisis andinequality
inextricably linked
Conclusions
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Inequality on the labour marketIntroduction
Labour market opportunities are unequally distributed not only among European
countries, but also over different sub-groups. This is true of access to the labour market
i.e. employment, but applies also to the types of jobs people get, including aspects such
as the accompanying form of contract, working hours, and benets entailed, in terms of
earnings in particular, but also of social security and fringe benets. Inequalities also per-
sist when looking at unemployment rather than employment, with specic groups being
more likely to enter and remain in unemployment.
The new Europe 2020 strategy drawn up by the EU as a follow-up to the Lisbonstrategy which ended in 2010 formulates some new ambitious headline targets (see
ETUC and ETUI 2011). Both the employment rate target (75% for 20-64 year olds) and the
new poverty headline target (lifting 20 million people out of poverty) relate directly to
inequality. Whether these targets are realistic in terms of the current economic and labour
market situation remains questionable.
This chapter will, in the rst section, illustrate how employment (including non-
standard forms of employment) developed over the Lisbon period for the EU27 as a whole.
In order to give an encompassing picture of forms of inequality on the labour market, the
main section describes developments in terms of employment, unemployment, part-time
and temporary employment and analyses these for single countries. Subgroups affected to
differing degrees by the various forms of inequality are taken into account. This applies,
in particular, to young people who face difculties in entering and staying in work with
potential longer-term impacts on their wellbeing and welfare; and also to women who still
have much lower employment rates and work fewer hours than men in most countries, a
situation that is problematic with regard not only to earnings but also to social security
benets and, in particular, pensions. Some analysis is also carried out on the basis of
educational and occupational groups. Finally, in-work poverty is shown for different sub-
groups in order to highlight the material outcomes of inequality on the labour market.
Topics
> Overview o labour market developments over the Lisbon period 23
> Recent developments in employment 25
> Developments in non-standard employment 31
> Outcomes o labour market inequalities in terms o in-work poverty 37
> Conclusions 39
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2.Inequality on the labour market
23
The rst half of the Lisbon period sawemployment rates rising and unemploy-ment decreasing (Figure 2.1). However,much of the employment growth was
accounted for by non-standard forms ofemployment involving one or more ele-ments of precariousness. What is more,the EU remained far from the ambitious70% employment rate target set by theLisbon strategy for 2010. The averageemployment rate, having risen to onlyabout 66% by 2008, with the crisis fellback down to 64.1% in 2010 (Figure 2.1).Differences between male and femaleemployment rates remain pronouncedwith, on average, 70% of men but onlyabout 58% of women in employment. It
is important to note, what is more, thatthe basis commonly used by the Euro-stat labour force survey for denition ofthe employment rate is one hour of workin the reference week (http://epp.euro-stat.ec.europa.eu/portal/page/portal/employment_unemployment_lfs/meth-odology/denitions). In other words,employment rates fail to take accountof the volume of employment and thus,
that workers on xed-term contract or intemporary agency work were the rst tobecome unemployed as their contractswere due to expire or easier to end thanthose of permanent workers. During therecent crisis period temporary employ-ment is again on the increase and, at 14%,has returned to close to its pre-crisislevel. Own-account self-employment isanother form of non-standard employ-ment often connected with precarious-ness. It has, however, been increasingonly slightly over the last decade, albeit
more rapidly during the crisis. Somecountries, notably Germany, have, in thecontext of active labour market policies,actually devised incentives designed topromote own-account self-employment.
among other things, of the fact thatwomen are very likely and everywheremore likely than men to work part-time(see below). Employment rates basedon full-time equivalents according towhich, for example, the Netherlands, withone of the highest employment rates forwomen as measured by the LFS, comesclose to the bottom (compare ETUC andETUI 2011: Figure 2.3) are not com-monly used. The simple employment ratetarget as formulated in the Lisbon strat-egy, and now again in the Europe 2020
strategy, might thus be, to some extent atleast, misleading.
The incidence of non-standardforms of employment increased overthe Lisbon period and up to the begin-ning of the crisis. Part-time employmentas a percentage of total employment isnow around 19%, and thus 3 percentagepoints up from 2000 (see also Chapter 8).It continued to grow during the economiccrisis, a fact attributable at least in part toshort-time working insofar as part-timework in the labour force survey is self-
assessed. Indeed, part-time work grew,proportionally, more among men (whowere also more likely to be short-timeworkers) than among women, and yetthe gap remains huge with, on average,32% of women working part-time in theEU27 and only about 9% of men. Tempo-rary employment, i.e. all employment ofxed duration, also grew over the Lisbonperiod and up till 2008, with the result
Labour marketoutlook remains
bleak
0
5
10
15
20
25
30
35
40
45
0
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20
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40
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60
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80
90
employmentrate
(total)
employmentrate
(men)
employmentrate
(women)
part-time(total)
part-time(men)
part-time(women)
temporaryemployment
own-accountself-employed
unemployment
2000 2008 2010
Figure 2.1 Developments in important labour market indicators over the Lisbon period, EU27, 2000, 2008, 2010, annual averages
Source: Eurostat (2011j).
left-hand scale right-hand scale
Overview o labour market developments over the Lisbonperiod
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24
While employment was growing overmost of the Lisbon period, unemploy-ment was, on average, declining. In 2008it had reached its lowest point of 7.1 per
cent on average but, with the economiccrisis kicking in and some sectors beingstrongly affected, it increased dramati-cally over the last two years of the Lisbonperiod by 2.6 percentage points to anannual average of 9.7% in 2010. Figure2.2 illustrates the development of unem-ployment over the last decade. The steepincrease between 2008 and 2009 is evi-dent for all groups. Between 2009 and2010 unemployment is still increasing forall groups, but at a slower pace. It is obvi-ous that unemployment is not equally
spread over sub-populations. Youth here dened as those aged between 15and 24, in spite of the fact that the 25-29age group also often still struggles onthe labour market (compare Chapter 3) have had the highest unemploymentrates, close to 21% in 2010. They arefollowed closely by non-EU27 migrantworkers who have an average unemploy-ment rate of close to 20%. Differences in
the Lisbon period women were invariablymore likely to be unemployed on averageand in the majority of countries. Indeed,the initial crisis period saw employmentlosses particularly but not exclusively in male-dominated sectors such asconstruction and manufacturing. How-ever, women have been more affected inthe more recent period as the crisis hasspilled over to other sectors and austeritymeasures have focussed on female-dom-inated public-sector employment.
Long-term unemployment (>12
months) currently stands at close to 40%as a percentage of total unemployment. Itwas at a relatively stable high level duringthe rst period of Lisbon and decreasedsignicantly as the crisis set in, a factthat can be easily explained by the largenumbers of newly unemployed enter-ing the pool of unemployed. In the lastyear it has increased strongly by about 7percentage points as the unemploymentgenerated by the crisis has become morepermanent. Those countries that were hitparticularly hard and early by unemploy-
ment (Spain, Ireland, Baltic countries)saw their long-term unemployment ratesincrease markedly by as much as 20percentage points between 2008 and2010 (not shown).
this area become apparent when com-pared with an unemployment rate ofaround 12% among EU27 migrant work-ers who, in principle, have free access toEU labour markets, with the exceptionof the transition measures that are stillin place in several countries for Roma-nia and Bulgaria and have only recentlybeen fully lifted for the central andeastern European countries that gainedEU accession in 2004. Migrant workerswork, to a considerable extent, in sectorssuch as construction or manufacturing
that were seriously affected by the eco-nomic crisis and were, as such, dispro-portionally affected by unemployment(Galgoczi et al. forthcoming). It shouldbe borne in mind that the labour marketsituation of migrant workers is difcultto capture insofar as they are prone toreturning home, or to moving furtheraeld, in times of crisis. They are, whatis more, commonly underrepresented insurvey (and administrative) data, par-ticularly if they are working in the infor-mal economy. Another group with higher
than average unemployment rates arethose with the lowest educational level(ISCED 0-2: pre-primary, primary andlower secondary education). Unemploy-ment among this group has increaseddisproportionally and is currently about16%. This said, the group also has verylow employment rates (see next section).In 2010 women and men had, on average,the same unemployment rates, while over
Labour marketoutlook remains
bleak
2.Inequality on the labour market
5,0
10,0
15,0
20,0
25,0
30,0
35,0
40,0
45,0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
long-term unemployment as % of unemployment
youth (15-24)migrant (non-EU27)
lowest education (ISCED 0-2)
migrant (EU27)
total
men
women
Figure 2.2 Development of unemployment over Lisbon period for sub-groups, annual averages 2000-2010, EU27
Note: if not stated otherwise age: 15-64 year.Source: Eurostat (2011j).
Overview o labour market developments over the Lisbonperiod
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The following section will look at recentlabour market developments not on thebasis of the EU27 aggregate but sepa-rately by country. Figure 2.3 illustrates
that most countries replicated the EU27trends in terms of decreasing employ-ment rates between the second quarter of2008 (2008Q2) and the second quarterof 2011 (2011Q2). Drops in employmentwere steepest in the rst two years of thecrisis. Employment decreased markedlyin some countries, namely, Spain, Ire-land, the Baltics, Greece and Bulgaria,and also albeit from an initially veryhigh level Denmark, in some cases byas much as 10 percentage points. OnlyGermany, Poland and Malta saw a steady
increase in employment rates over thisperiod. In the Polish case this can beexplained, at least in part, by the fact thatPoland was the only country not to expe-rience output decline. Germany, on theother hand, managed, in spite of a largeoutput shock, to keep people in employ-ment through the use of working timeaccounts and short-time working meas-ures (compare e.g. Leschke and Watt
2010). Several countries have seen theiremployment rates rising again duringthe most recent period (2010Q2-2011Q2),most markedly in the cases of Lithuaniaand Estonia. Overall, national employ-ment rates within Europe using thesuboptimal labour force survey meas-ure differ by as much as 20 percent-age points: the Netherlands and Swedenhave employment rates of close to 75%(i.e. have already achieved the Europe2020 targets), while Hungary and Greecebarely exceed 55%. In terms of country
rankings, southern with the exceptionof Portugal and a number of centraland eastern European member states,but also Ireland, are doing poorly withregard to employment rates, whereasthe Nordic countries, but also Germany,Austria and the Netherlands, are doingwell with regard to employment. Thesecountries, however, make substantial useof part-time work, particularly amongwomen. In fact, the decisive reason forthe large overall differences in employ-ment rates is the large country differ-
ences in the labour market participa-tion of women and particularly olderwomen (see below).
Employment ratesslowly stabilising,
but at low levels
2.Inequality on the labour market
0
10
20
30
40
50
60
70
80
90
HU GR IT MT BG ES RO IE SK PL LT LV BE LU FR EE SI EU27
PT CZ CY UK FI AT DE DK SE NL
2008Q2 2010Q2 2011Q2
Figure 2.3 Developments in total employment, 2008Q2, 2010Q2, 2011Q2
Note: 15-64 years.Source: Eurostat (2011j).
Recent developments in employment
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In contrast to previous crises, olderworkers (55-64 years) were not used as
buffers in times of increasing unemploy-ment through, for example, the steppingup of early retirement schemes. Indeed,recent trends of increasing labour mar-ket participation among older workers that were strengthened by the gradualwithdrawal of early retirement schemes,increases in the pensionable age and, atleast in some countries, improvements inthe work environment for older workers continued during the crisis. Employ-ment rates increased on average by morethan 1.5 percentage points, between
2008Q2 and 2011Q2, to the current47.5% at a time when employment forother age groups, and particularly youth(from 37.3% in20008Q2 to 33.6% in2011Q2) (not shown), was falling (see alsoChapter 3). Employment among olderworkers is still relatively low, however,compared to prime-age workers (25-54)who, in 2011Q2, had an average employ-ment rate of close to 78%. It is important
to note the huge degree of country vari-ation, with countries such as Sloveniaand Malta having less than one third ofolder workers in employment and others,including Germany and Denmark, hav-ing close to 60%, and Sweden more than70%, of older workers in employment(Figure 2.4). Here the shortcomings ofthe LFS employment measures haveto be emphasised, however, since, par-ticularly in Germany with its so-calledmini-jobs arrangement, many olderworkers (a majority of them women) are
in sub-standard employment, includingpart-time work with very low hours andreduced access to social security benets(see, for example, Minijobzentrale 2011).An important point particularly withregard to older workers is the large differ-ence in employment rates between menand women: on EU27 average only 40.2%of older female workers were employed,comparing with 55.2% of male workers.The best performer, Sweden, has highemployment rates for both women andmen with a difference between the two
of only about 7 percentage points. Hav-ing said this, older workers, and particu-larly women, have largely contributedto employment growth over the Lisbonperiod their relative situation has thusimproved.
Older workershave faredrelatively wellduring the crisis
2.Inequality on the labour market
0
10
20
30
40
50
60
70
80
SI MT HU PL IT LU BE RO GR SK FR AT BG ES EU27
PT CZ LT IE LV NL EE CY UK FI DK DE SE
2008Q2 2010Q2 2011Q2
Figure 2.4 Developments in employment of older workers (55-64 years), 2008Q2, 2010Q2, 2011Q2
Source: Eurostat (2011j).
Recent developments in employment
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The economic crisis has, on average, con-tributed to reducing the gap in employ-ment rates between men and women,insofar as men were more likely to losetheir employment, particularly in therst two years of the crisis (Figure 2.5).While the difference in employment rateswas 14 percentage points in 2008Q2(72.9% for men and 58.9% for women), ithad fallen to 11.5% in 2011Q2 (70.2% formen and 58.7% for women). Employment
gaps between men and women have nar-rowed in all countries and very substan-tially so in a number of countries, such asSpain, Lithuania and Latvia, as a resultof the disproportional losses in employ-ment for men due to the uneven affected-ness of sectors and the remaining largegender segregation in terms of sectorsand occupations. In Lithuania femaleemployment rates are now slightly higher
measures such as exible working hoursand more equal participation of menin care and household work, do play animportant role here as the example of theNordic countries shows (OECD 2007;for country differences in institutionalsetting such as childcare see www.oecd.org/els/social/family/database; see alsoChapter 5). Corporatist countries, such asBelgium and France, with encompassingchild care but comparatively low femaleemployment rates show that it is an inter-action of different institutions at the state
and rm level, but also values and normswith regard to the participation of menin care work (Leschke and Jepsen 2011),that contribute to closing the gap betweenmale and female employment rates. Pub-lic policy decisions such as reserved part-ner months in parental leave schemes,but also awareness campaigns, can con-tribute to a change albeit slow in val-ues and norms.
than male ones. Relatively small employ-ment rate gaps are also evident in Latvia,Estonia, Finland, Denmark and Swe-den. Huge employment rate gaps exist inMalta, Greece, Italy, Luxembourg and theCzech Republic. Greater gender equalityin terms of employment is attributable,however, merely to disproportionatedeterioration in the situation of men.
Overall, countries vary hugely interms of female employment rates witha gap of more than 30 percentage pointsbetween the worst performer, Malta, and
the best performer, Sweden; even whenusing the full-time-equivalent methodol-ogy, these differences remain great (seeETUC and ETUI 2011: 23). Three coun-tries have female employment rates ofless than 50% (more than 10 percentagepoints below the Lisbon female employ-ment rate target of 60%), namely, Malta,Greece and Italy, while the countries atthe top with employment rates of close to70% or more are the Netherlands, Swe-den and Denmark. Looking at countrygroupings, with regard to female employ-
ment rates, the Nordic countries, but alsothe Netherlands and some corporatistcountries Germany and Austria aredoing well, whereas particularly South-ern European countries (Malta, Greece,Italy, Spain), but also the majority of Cen-tral and Eastern European countries, aredoing badly. Publicly supported work-lifebalance measures, particularly encom-passing and all-day childcare, rm-level
Some reduction ingender employmentrate gaps during thecrisis but largegender inequalityremains
2.Inequality on the labour market
Figure 2.5 Developments in employment rates by gender, 2008Q2 and 2011Q2
0102030405060708090
women 2008Q2 2011Q2
0102030405060708090
MT GR IT HU RO ES SK PL BG IE LU CZ BEEU27 FR LT LV SI PT EE CY UK AT DE FI NL DK SE
men 2008Q2 2011Q2Note: 15-64 years.Source: Eurostat (2011j).
Recent developments in employment
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Another important subgroup withinwhich large inequalities in employmentrates persist, and have indeed widenedduring the crisis, are persons with dif fer-ing levels of education. Between 2008Q2and 2011Q2 employment rates of personswith at most pre-primary, primar y andlower secondary education (ISCED 0-2)decreased by 3.4 percentage points to thecurrent level of 44.7% at the EU27 aver-age. For persons with at most upper sec-
ondary and post-secondary non-tertiaryeducation (ISCED 3 and 4) employmentrates have decreased by 2 percentagepoints and now stand at 68.8%. For themost highly educated, with a rst or sec-ond stage of tertiary education (ISCED5 and 6), employment rates now standat 82.4%, down by 1.5 percentage points(not shown). Figure 2.6 illustrates thehuge differences in employment rates by
as job-related training and incentives toemployers to hire low-skilled workers asa means of enabling them to gain work-place experience. Whether the ambitiousEU2020 target of increasing the share of30-34 year olds with tertiary educationto 40% is the right way forward remainsquestionable (see also Chapter 3; com-pare ETUC and ETUI 2011).
educational level. Portugal, Denmark andthe Netherlands stand out with relativelyhigh employment rates of close to 60%even among those with the lowest levelsof educational achievement. At the otherend of the spectrum we have Hungary,Bulgaria, Slovakia, Poland, Lithuaniaand the Czech Republic with one quarteror fewer of this group in employment. Ithas to be noted, however, that all of thesecountries have substantially lower thanthe EU-average shares of the popula-tion with the lowest educational attain-
ment (not shown). And they are, indeed,experiencing a situation that has beentermed brain overow which refers tolarge shares of young people with highqualications and unable to nd a suit-able job, one response to which has been,in some cases, emigration (e.g. Fihel etal. 2009). Particularly Malta and Por-tugal but also Italy and Spain still havevery large shares of the population withonly the lowest educational attainment.Among these countries only Portugal hassubstantially higher than EU-average
employment rates among this group.Integration into employment of workerswith low levels of educational at tainmentremains one of the biggest challenges inEurope. Decreasing the rate of schooldrop-outs, as specied in the Europe2020targets, is but one way forward. Whatis urgently needed is improved employ-ment prospects for those already in thelabour market including measures such
Employmentsituation oflow educatedhas furtherdeterioratedduring the crisis
2.Inequality on the labour market
0
10
20
30
40
5060
70
80
90
HU GR MT IT BG ES RO IE SK PL LT LV BE LU FR EE SI EU27
PT CZ CY UK FI AT DE DK SE NL
low (ISCED 0-2) medium (ISCED 3-4) high (ISCED 5-6) total
Figure 2.6 Employment rates by education level, 2011Q2
Note: 15-64 years.Source: Eurostat (2011j).
Recent developments in employment
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With an unemployment rate of 20.8% in2011Q2, young people (15 to 24 years) in
the EU27 have an extremely high levelof unemployment compared to prime-age (25-54 years) and older workers(55-64) total unemployment stood at9.4% in 2011Q2 (Figure 2.7). The unem-ployment gures used here are basedon the LFS data and thus refer to self-assessed unemployment. This differsfrom the national gures that are oftenbased on administrative data and thustake account of people registered asunemployed at the Public EmploymentService. Over the last three years, youth
unemployment increased by more than 5percentage points, whereas total unem-ployment increased by 2.5 percentagepoints between 2008Q2 and 2011Q2.Though the relative change was similar,in absolute levels youth are clearly one ofthe most disadvantaged groups in termsof labour market outcomes, particularlywhen we also take account of the largedecreases in employment rates (see also
only at the recent changes 2010Q2-2011Q2
(not shown), quite a number of countriessee some stabilisation of youth unem-ployment albeit at a higher than pre-crisis level or even a decline, mostnotably the Netherlands, Slovenia, Bel-gium and Estonia. Portugal and Greece,on the other hand, have seen very largeincreases in the course of the last year.All these developments show, quite une-quivocally, that young workers have beenone of the groups most vulnerable to ine-quality, a situation that has been fur ther
aggravated by the crisis.
Chapter 3). The large incidence of unem-ployment among youth is particularlyvisible when the issue is viewed countryby country. Indeed, in roughly half of allcountries one quarter or more of youngpeople are unemployed. In Greece andSpain, two of the countries most affectedby the economic crisis, youth unemploy-ment rates are as high as 43.1% and 46.1%,respectively. They have approximatelydoubled in a three-year period which hasled to, among other things, protest move-ments fuelled predominantly by youth.
Other countries that have seen a strongincrease in their youth unemploymentrates during this period are the Balticcountries, Ireland, Bulgaria and frominitially rather low levels the CzechRepublic, Denmark and Cyprus. Onlythree countries have youth unemploy-ment rates below 10% in 2011Q2, namely,the Netherlands, Austria and Germany,the latter two benetting from the exist-ence of strong dual-education systemsthat are known to improve transitionsfrom school to work by providing youth
with specic skil ls that they acquiredirectly in the work place. Those rmsthat offer apprenticeship training can atthe same time use this phase as screen-ing for recruiting their future workers(Germany is indeed the only country thathas seen youth unemployment declineover the 3-year period, and declines intotal unemployment were even slightlymore marked in this country). Looking
Bleak labourmarket situationfor youth and onlyslow improvements
2.Inequality on the labour market
0
5
10
15
20
25
30
35
40
45
50
NL AT DE SI DK MT BE CZ LU UK CY EU27
FR RO EE HU PL BG FI SE PT IT IE SK LV LT GR ES
youth 2008Q2 youth 2011Q2 total 2008Q2 total 2011Q2
Figure 2.7 Developments in unemployment for youth and adults, 2008Q2 and 2011Q2
Note: youth: 15-24 years, adults: 25-64 years.Source: Eurostat (2011j).
Recent developments in employment
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Inequality in labour market outcomesis also evident with regard to migrantworkers. Compared to nationals (declar-ing country) with an EU27 average unem-ployment rate of 8.9%, EU27 migrantshad unemployment rates of 11.2% andmigrants from outside the EU27 unem-ployment rates as high as 19.6% (Fig-ure 2.8). A rst point to note is that thedata situation with regard to migrants isdecient. Important groups of migrantworkers, such as seasonal workers andundeclared workers, are hard to capture
in survey and administrative data.
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