EUROPEAN UNION UNEMPLOYMENT AND SOCIAL EXCLUSION

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1 EUROPEAN UNION UNEMPLOYMENT AND SOCIAL EXCLUSION NAE Tatiana-Roxana junior teaching assistant / Ph.D. student), Faculty of Commerce, Academy of Economic Studies, Bucharest, Romania, Abstract: The paper aims to bring into attention the problem of unemployment in European Union, aspect that preoccupies today economists and economies, in order to find ways for jobless reduction but more than that to find methods of improve labour market conditions. First part represents a brief incursion in specific literature then the paper continues with establishing a specific framework, the one of social exclusion. The analysis of unemployment in EU has as goals identifying causes of unemployment, presenting the dynamics of unemployment rate and also proposes actions consisting in skills developments with benefits to society, economies, employers and individuals. Key words: labour market; unemployment, social exclusion; skills JEL classification: J01; J21; J24 1. Introduction The present paper aims to drag attention to a subject that keeps the forefront of the economic and social context, unemployment and social exclusion, in order to obtain a better understanding of labour market dynamics and structure, and problems that it confronts to. Although the picture varies across Member States of European Union, the crisis had and still has significant consequences for all of their labour markets. The most common effect is the increase of unemployment. There is great literature on the causes of unemployment in the aftermath of the oil price shocks, its subsequent persistence in the 1980s, and the different performance of the countries in the 1990s (Blanchard, 2006). Explanations relate the unemployment growth in the US to higher structural unemployment caused by stronger international competition (Groshen and Potter, 2003) and the increase in the second half of the 1990s in European employment to the effects on ongoing labour market reforms (Mourre, 2006). For a long time it had hardly been disputed among economists (Solow, 1997) that changes in unemployment were linked to changes in output by a stable linear relationship. While Europe with small growth rates experienced a pronounced acceleration in employment growth resulting in a reduction in unemployment since the mid 1990s, the US which grew at a much higher rate saw almost jobless growth. The decline in labour productivity is another issue in the growth pattern of the euro area, which has gained attention only recently. Speaking about the unemployment structure there are studies that reveals the incidence of unemployment is greater among women, youths, and persons of medium education. As in many other transition countries, the unemployment rate of women is much higher than that of men; but in Romania for example was nearly double in the 1990s. But economists (Earle and Pauna, 1996) proved that this is not due to a high rate of re-entrants among women, which accounts for very little of unemployment; rather, the differential is the result of higher layoff and new entrant rates. People with secondary and vocational education should become a special target for policy-makers, as their capacity for reemployment, likely in a job requiring new skills, is reduced by their narrow specific skills (Mello, 2008). Most of the unemployed come, not surprisingly, from mass lay-offs. The most recent and relevant paper that refers to skills problem is a report issued by European Commission that points out the necessity of upgrading, adapting and widening the skills portfolio of individuals to create and fill the jobs of the future (European Commission, 2010). In the present post-globalization era, labour market faces changes. In a number of European countries, job losses have been rather restrained to date, largely due to recourse to increased internal flexibility in the form of shorter hours or temporary partial unemployment. Historical experience shows that employment reacts to economic conditions with a certain lag; hence labour market conditions can be expected to worsen for some time even after the trough in the economic situation has been reached. Another problem is that the crisis appears to affect some groups of workers more deeply than others. 464

2 2. Unemployment in a specific framework: social exclusion Labour force and labour market implicit confronts with problems that have great impact not only to the labour force market level but also to social level to. The present economic and social context is one which reveals the consequences of social exclusion. Social exclusion is a problem for European Union with impact on many aspects of economic life. The concept of social exclusion refers to factors that leave groups of society isolated. These include such wide ranging factors as unemployment, access to education, childcare and healthcare facilities, living conditions, as well as social participation. The persistence of large numbers of people excluded from work represents a key challenge for the objective of social cohesion. The longer a period of unemployment for an individual, the more entrenched that person generally becomes in social exclusion through their inability to afford material goods, services and housing, while their social contacts are often reduced (in part due to a lack of money for going out socially, or due to the stigma of being unemployed); this may lead to a lack of confidence and a reinforced sense of isolation. Poor housing conditions, a lack of basic facilities, overcrowding, subjection to noise, pollution and violence are likely to reinforce problems of health, educational attainment, labour prospects and integration. Where long-term difficulties in meeting mortgage and rental payments are evident this can lead to greater demands on social housing, relocation and, in extreme cases, homelessness. European Union tried and still tries to put an accent on education benefits because education can directly provide the skills, knowledge and qualifications that are important in social and labour market participation. The educational resources available in Member States and the length of compulsory education are likely to have some effect on outcomes regarding educational attainment. That was the reason for establishing the basis of the social dimension of the Bologna process to be ensuring that higher education is open to all, regardless of their social or economic background. Access to pre-primary education and/or affordable childcare can play an important role in employment participation, particularly for those facing other barriers such as low skill levels or single parenthood. Technology can be used as a means to break down integration barriers by providing widespread access to information, as well as networks. As with other areas, the development of the information society has brought risks of social exclusion for those individuals who do not possess the necessary skills, equipment or access. Computer and Internet skills are just one form of participation in today s society. In a wider sense, social participation refers to whether individuals participate in activities and organisations, or whether they keep in touch with neighbours, family and friends. 3. Unemployment analysis in European Union Characterizing the unemployment situation requires to point out the causes of unemployment. Having already established a framework in the previous part of the paper, it can be said that the causes of unemployment are complex and tend to cover a large spectrum of social and economic problems (Boni, 2000). The causes can be referred as the following, but the list is not limitative: mismatch of employee qualifications; despite efforts to improve quality and level of qualifications, the actual potential in terms of qualifications and competence is not very high. low labour mobility; the level of long-term unemployment, lack of possibilities for geographic mobility, lack of funds for programs training in active approaches and supporting mobility of many jobless on the verge of poverty due to lack of income all of this defines a large population among unemployment with a low mobility potential (correlated with low qualifications). economic modernization requirements; there is still necessary to create new jobs in services and in small and medium business. excessive cost labour; there is little chance that social security contribution rates could be reduced over the next few years, unless a decision is made to offer more employment subsidies. excessive rigidity of labour laws; labour laws lack provisions allowing for atypical forms of employment so badly needed in, for example the service sector or when hiring women or part-time employee. regional disparities; there is a need for drafting of regional policy, incentives to invest in weaker regions For the purpose of the next analysis it is necessary to take into account the following definitions of the used indicators. First of all the labour force is the total number of people employed and unemployed. Unemployed persons comprise persons aged 15 to 74 who were: a) without work during the reference week, 465

3 b) currently available for work, i.e. were available for paid employment or self-employment before the end of the two weeks following the reference week, c) actively seeking work, i.e. had taken specific steps in the four weeks period ending with the reference week to seek paid employment or self-employment or who found a job to start later, i.e. within a period of, at most, three months. For the purposes of this final point, the following are considered as specific steps in the search for a job: having been in contact with a public employment office to find work, whoever took the initiative (renewing registration for administrative reasons only is not an active step); having been in contact with a private agency (temporary work agency, firm specializing in recruitment, etc.) to find work; applying to employers directly; asking among friends, relatives, unions, etc., to find work; placing or answering job advertisements; studying job advertisements; taking a recruitment test or examination or being interviewed; looking for land, premises or equipment; applying for permits, licenses or financial resources. This definition is in accordance with the International Labour Organisation (ILO) standards and Commission Regulation (EC) No 1897/2000. According to Eurostat, the unemployment rate for the EU 27 fell from 9.0 % in 2003 to 7.0 % in 2008, but rise huge in 2009 reaching 8.9%. It is easy to observe from the table 1, that the year 2009 brought rising unemployment rates in all the countries of European Union. Table 1: Unemployment rates in period (%) Countries\Year E U (27 countries) Euro area (15 countries) Belgium Bulgaria Czech Republic Denmark Germany Estonia Ireland Greece Spain France Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kingdom Croatia : : Turkey : : : : : Norway United States Japan Source: Eurostat database, accessed on 466

4 More than this there are countries which had an unbelievable growth in rate of unemployment like Estonia (from 5.5% in 2008 to 13.8% in 2009), Ireland (from 6.3% in 2008 to 11.9% in 2009), Latvia (from 7.5% to 17.1%). In comparison to Member States, Japan has in 2009 only 5.1 % rate of unemployment representing a very good level, almost two times less than United States that is also facing problems regarding unemployment rate in the last period (9.3% in 2009 compared with 4.6 in 2007 for example). The unemployment rate is the share of unemployed persons over the total number of active persons in the labour market; active persons are those who are either employed or unemployed. Persons are considered to be long-term unemployed after 12 months of unemployment, and very long-term unemployed after 24 months. In 2008, the long-term unemployed in the EU 27 represented just over one in three of all unemployed persons. Slovakia had the highest rate of long-term unemployment and, furthermore, the long-term unemployed accounted for more than two thirds of all Slovakian unemployed. Cyprus, Denmark and Sweden all recorded relatively low rates of long-term unemployment, and in these countries only around one in seven unemployed persons were long-term unemployed. In order to improve the re-integration of the long-term unemployed into the labour market, Member States have agreed on a common benchmark for 2010: to encourage at least 25 % of the long-term unemployed into training, retraining, work practice, a job or other employability measure, combined where appropriate with on-going job search assistance (Eurostat, 2010). In a country long-term unemployment rates usually tend to have a broadly similar regional distribution to overall unemployment rates. However, there are a number of examples of regional pockets of long-term unemployment that point to inequalities for example, eastern Germany, north-western Greece, French and Spanish overseas regions, southern Italy, or eastern Slovakia. The only capital city regions with long-term unemployment rates of more than 6 % were in Belgium and Germany. In 2007, close to one in ten adults aged between 18 and 59 was living in a household where nobody was working. Particularly high rates of jobless households were reported in Belgium, Hungary and Poland, while by far the lowest proportion of people living in a jobless household was recorded in Cyprus. Unemployment also affects other household members. In 2007 a similar proportion (9.4 %) of children aged between 0 and 17 lived in a jobless household in the EU-27. More than one in seven persons in employment worked under a temporary contract in the EU-27 in 2008, with this share reaching one in five in Portugal and more than one in four in Spain and Poland. Romania and the Baltic Member States had the lowest incidences of temporary contracts. 4. The importance of skills for the future labour market For combating unemployment, poverty and social exclusion, access to pre-primary education and/or affordable childcare can play an important role in employment participation, particularly for those facing other barriers such as low skill levels or single parenthood. In every Member State, a higher unemployment rate was recorded for persons with primary and lower secondary education than for persons with tertiary education, with the smallest differences in relative terms being in Greece and Denmark. It well known that low levels of educational attainment and illiteracy are often barriers to employment and further training. Participation in education (among 15 to 24 year olds) averaged just less than 60 % in the EU-27 in The cut-off age of 24 years allows a comparison between young and adult populations, although the resulting rates are influenced by choice or students having to repeat school years and reflect national service commitments. A high proportion of students may also have already completed tertiary education before the age of 24 in a number of Member States. The importance of education in terms of acquiring skills that can be used in the labour market is underlined by the substantial differences in unemployment rates depending on the level of education attained by members of the workforce. According to Eurostat data, in the second quarter of 2009, the EU- 27 unemployment rate among persons aged 25 to 64 with primary or lower secondary education as their highest level of educational achievement was almost three times (2.9) as high as for persons who had completed tertiary education. This ratio has grown in recent years, as it was 2.4 in According ro European Commission, the beneficiares of skills improvements are: the society, the economy, individuals and employers. Ther benefits of having competitive skills are sintetized in figure

5 Figure 1: The benefits of skills development Society Health improvements Increased participation Greater social cohesion and mobility Individuals Improved job entry and job sustainability, ability to move between jobs, higher rate of succesuful starts-up Increased wage return High job quality and satisfaction Skills development Employers Enhanced productivity Better business performance Greater profitability Economy Increased productivity and competitiveness Encreased employment and entrepreneurship Source: European Commission, New Skills for New Jobs: Action Now, 2010, pg. 10 Analysing the structure of unemployment (table 2), it can be observed that people with high level qualification have the smallest unemployment rates, between 6% and 5.2%, because their skills permited them to find jobs. Yet, despite the fact that it is obvious the progress in recent years (the unemployment rate for medium qualified people was in 2006 only 8.7 % compared with 10.9 % in 2004, for example) much of people in European Union are not enough skilled. Nearly one third of Europe s population aged around 77 million people have no, or low, formal qualifications and only one quarter have high level qualifications (European Commission, 2010). Tab. 2 Unemployment rates by qualification level (EU-27) Year Level of qualification Low Medium High Total Source: EU Labor Force Survey database Of course those with low qualifications are much less likely to upgrade their skills and follow lifelong learning. A problem that needs to be solved is to ensure that people have the right skills. This is not just a question of short-term employability, but of our capacity to adapt to the jobs of tomorrow. In the future, these pointed problems will still exist because fewer people will graduate from schools and universities and the only growth of the labour force is likely to be amongst those aged over 50. The older generation consist in a great number of people which soon will leave the labour market so the young generation (especially but not only this) must be encouraged to invest in skills development and to upgrade, adapt and wide the skills portfolio in order to create and fill the jobs of tomorrow. In last period education and training systems in Europe have become more relevant and responsive to the needs of society; but labour market mismatches still exist and create situations like skill shortages and skill gaps co-existing with unemployment: an economic and social exclusion. 468

6 5. Conclusions Unemployment in the framework of social exclusion may have and already had implications to economic and social level so finding solutions for diminish the unemployment rate must take into consideration the causes of this. The improvements of skills are obvious as the above analysis shows, so putting a stronger accent on developing skills is a good solution. For having a labour market to absorb employees in the future there are necessary priorities for public funding of education and training. Individuals and employers must invest more heavily in their skills development. These may minimise job losses, prevent unemployment from becoming entrenched (i.e. becoming long term unemployment), favour transitions back into employment and boost job creation, and pave the way for economic renewal and for sustainable recovery and growth. Employers, individuals and other interested persons or economic agents, the education sector, governments and other stakeholders must cooperate in order to develop and implement the right policies and actions: to preserve sustainable jobs in economic activities and help people into productive employment; to support the most vulnerable groups; and to prepare for the jobs and skills of the future. Increased global competition means that European countries will no longer be able to compete on cost and price, but need to produce higher quality and more innovative products and services, delivered by higher skilled people. Learning process is fundamental for future growth because the employment rate for those with high skill levels across the EU as a whole is approximately 85 %, for medium skill levels 70 % and for low skill levels it stands at 50. Those with low qualifications are much less likely to upgrade their skills and follow lifelong learning. The present crisis may be crossed also by accelerating the pace of economic restructuring, with a lasting structural effect on the volume and types of skills needed. 6. References Blanchard, O. (2006) European unemployment: the evolution of facts and ideas, Economic Policy, 21 (45), p Boni M. (2000) The labour market in Poland: Current Trends and Challenges, in Labor, Employment, and Social Policies in the EU Enlargement Process, World Bank, Washington D.C., p Earle J. S.; Pauna C. (1996) Incidence and duration of unemployment in Romania, European Economic Review, no. 40, p European Commission (2009) Employment in Europe. Available at European Commission (2010) New Skills for New Jobs: Action Now. Available at Eurostat (2009) Europe in figures - Eurostat Yearbook. Available at Eurostat (2010) Combating poverty and social exclusion: a statistical portrait of the European Union Groshen, E.L.; Potter, S. (2003) Has structural change contributed to a jobless recovery? Current Issues in Economics and Finance, Federal Reserve Bank of New York 9 (8), p Mello M. (2008) Skilled labor, unskilled labor, and economic growth, Economics Letters, no.100, p Mourre, G. (2006) Did the pattern of aggregate employment growth change in the euro area in the late 1990s?, Applied Economics, 38 (15), p Sianesi B. (2008) Differential effects of active labour market programs for the unemployed, Labour Economics, no. 15, p Solow, R.M. (1997) Is there a core of usable macroeconomics we should all believe in? American Economic Review, no. 87, p

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