Official Journal of the European Union

C 302/86

Opinion of the European Economic and Social Committee on the ‘Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions: Modernising social protection for more and better jobs - a comprehensive approach contributing to making work pay’

(COM(2003) 842 final)

(2004/C 302/18)

On 5 January 2004, the Commission decided to consult the European Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the abovementioned proposal.

The Section for Employment, Social Affairs and Citizenship, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 14 June 2004. The rapporteur was Ms St Hill.

At its 410th plenary session (meeting of 1 July 2004), the European Economic and Social Committee adopted the following opinion by 130 votes in favour, 13 votes against and 24 abstentions.

1.   Introduction


This spring, the European Council requested the current Communication and met to discuss progress on the improvement and modernisation of social protection systems with the aim of making them more ‘employment-friendly’. The aim is that this should be achieved through a greater emphasis on the effectiveness of incentives (that is, the way in which member countries' benefit systems, the reconciliation of family and work life, pensions for retired workers and subsidies to reduce poverty and social exclusion). That meeting followed the final report of the Employment Task Force (1) to the European Commission in November 2003. Communications from both milestone events highlight the main employment challenges faced by Europe and identify reforms that need to be carried out if the EU is to reach the objectives it set for itself in the Lisbon strategy.

The consensus is that the European Union is late in achieving its ambitious goal, set at the Lisbon summit in 2000, of becoming the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion by 2010. They both acknowledge that while the Lisbon objectives are ambitious Europe cannot afford to miss them and that the key prerequisite for making the Lisbon objectives a reality is the compliance for Member States in stepping up their efforts.

At this juncture, all official indicators suggest that success in creating more and better employment will depend on four key requirements:


increasing adaptability of workers and enterprises;


including in and attracting more people to the labour market;


investing more and more effectively in human capital;


ensuring effective implementation of reforms through better governance.

While these largely supply-side prerequisites are clearly in the purview of national governments, this Opinion will introduce the additional requirement for a truly public-private partnership on making work pay by including employer responsibilities in this important effort.


Underlying the recent assessments is the additional motivation to ensure that incentives to increase labour supply are effectively balanced with measures to provide adequate social protection for all while maintaining efficiency of public spending in this area. This balance is crucial if countries are to avoid a long-term potential hazard posed by the ageing of European populations, a prospect which has serious implications not only for maintaining an optimal workforce but also threatens the viability of European social systems themselves. Increasing attachment to the labour market among disadvantaged groups, especially mothers, racial minorities, disabled people and young people in precarious employment, is an important goal for the effective combination of social protection and employment expansion. This opinion singles out these groups because to list an exhaustive record of every conceivable disadvantage becomes less meaningful for policy and because these groups identified above find it difficult to transcend their disadvantage precisely because of imprecise policy traditions that continue to equate all labour market disadvantage.


At EU level, the efforts made by Member States to review social protection systems in order to make them more employment friendly are driven through strengthened coordination of economic, employment and social policies. Ambitious targets have been set at EU level for 2010: to increase the overall employment rate to 70 %, the employment rate of women to 60 % and the employment rate for people in the age range 55-64 to 50 %. These targets are supported by various guidelines and recommendations included in the Broad Economic Policy Guidelines and the Employment Guidelines, as well as in the common objectives of the Open Method of Coordination in the areas of pensions and social inclusion.

2.   General comments


It is important that this review be approached from a medium to long-term perspective as getting more people into the labour market is also associated with costs, both for the unemployed or economically inactive and for governments so that reforms could necessitate increased costs before the economic burden on government of un/under-employment is eventually reduced. Public and private investments in preparing people for a knowledge-based economy and the continuous development of human capital of people of working age, although long-term processes which take up to 20 years to fully mature, provide the biggest return on investment aimed at transforming a country's labour market. There is a need for less-skilled workers to benefit from public and private investments in higher skills, in particular, to be provided with opportunities for further training by both public institutions and by employers, in order to enable such workers to contend with the changing requirements of a knowledge-based economy. The effect of longer-term, supply-side productivity measures is that they reduce the supply of the low skilled; reduce unemployment (especially long-term unemployment); increase labour-force participation rates (especially of women); and they increase overall productivity. These are permanent results. A purely supply-side orientated approach would, however, not be sufficient. It is also essential to increase the demand for labour, i.e. to boost the supply of jobs by pursuing an active employment-friendly and employment-promoting financial policy. However, some Member States which have focussed on the quick gains of getting the low-skilled into work at the expense of human capital attainment are unlikely to find lasting solutions to the dilemma of low-pay/no pay for these types of workers at various points over their working lives. Thus the effects can occur instantly but die equally rapidly, as low skilled livelihoods are not sustainable in today's global economy. Therefore cost efficiency is as important a watchword as cost reduction in this regard.


While traditional financial incentives involved in benefit and tax systems remain the core of policies to make work pay, other incentives such as child care, access and special provisions for disabled people, education and public health assets, are increasingly accepted as having a complimentary role to play. Therefore, comprehensive national approaches involving a wide range of financial and other incentives that support employment attainment and retention are to be recommended rather than an approach that only emphasises one or the other method. Again, taking the long-term view of sustainability, these issues of care and human capital investment should be considered from the view point of the recipient (e.g. the children of working parents and not the working parents themselves) as these rights and provisions form an immutable foundation for accelerated human capital development in a labour market context in later years. Recourse should be had to the EU Structural Funds to better assist low skilled job-seekers and for essential long-term investments in human capital and social infrastructure.


While many Member States, together with the social partners, have increased investments in active measures to help those re-entering or progressing in the labour market by improving their skills and enhancing their employability, much more attention needs to be paid to demand determinants, including the use of fiscal incentives and promoting employer best practices in order to assist vulnerable groups in the economy such as older workers and disabled workers. The ESC urges the appropriate EU authorities to promote and improve demand stimulating policies that positively affect employment levels and quality, and urges the inclusion of examples and perspectives on the role of corporate social responsibility in achieving the Lisbon objectives on employment. Both employers and employees need to have a stake in ‘making work pay’. Demand-stimulating policies consequently require a balanced, ‘win-win’ approach, enabling employers to focus on their core business activities and create jobs, and enabling job-seekers to find work with pay levels that are better than they would receive on unemployment benefit or social security and which provide a living wage. As the Committee has already argued, ‘Taxation and social security systems in the Member States should be organised in such a way that it is worth their while for workers who join the labour market to stay there and to advance their careers … backed up by measures to boost the number of available jobs’ (2).


Public support for the reconciliation of work and family life aim to help families as they perform tasks which are fundamental to the very organisation and perpetuation of society. In particular, this involves supporting families as they give birth to, nurture and educate children and as they care for dependent family members, most mainly sick, disabled or elderly dependants. In the context of demographic ageing, these policies are becoming more important as a means to reverse the declining fertility rates.


However it is important that the mechanisms used to pay family benefits should not adversely affect work incentives. In some countries the separation of family supplements for dependents from unemployment benefits helps to strengthen the financial incentives to take up employment, especially among mothers and women caring for elderly relatives. The non-availability of affordable child-care, due to costs or physical accessibility is seen as a key barrier to the participation of parents, in particular women. As such, the key role of subsidised, adequate and affordable provision of childcare in promoting participation in employment, particularly of women, is to be strongly welcomed and supported. In some Member States, women of child-bearing age are losing a commitment to child bearing as the personal financial costs associated with parenting for women is simply too high, resulting in what amounts to a tax on working mothers. While these attitudes may be short-sighted from a national perspective it is even more so a false economy on the part of policy-makers who could do more to halt the continual decline of European birth-rates by ensuring that the employment rate of women increases by means of financial and non-financial incentives.


Occupational and geographic mobility is crucial for a high level of economic efficiency and therefore measures need to be taken to ensure that entitlements under statutory pension schemes and company pension schemes are maintained when persons change employers or place of residence within the EU. It is also important to target those who are entering the labour market or who are changing from employee to entrepreneur to ensure that they are adequately supported by social protection. There is also room for reducing last resort labour mobility by stimulating stagnant local economies through partnerships of public and private investment that maximise local employment markets. Considering that while one aspect of increased professional mobility may be loss of particular skills from one area to another, the other side of the mobility coin is that individuals are free to re-locate to where there is real demand for their skills as well as opportunities to experience the kind of technology transfer that adds value to their current skills base. Therefore mobility cannot be narrowly understood as representing a loss but a more effective allocation of relevant skills and talents where they are most in need.


Physical and mental incapacity reduces labour supply significantly, particularly among workers in their 50s and 60s who are prime targets of a European Making Work Pay strategy. In some Member States up to one fifth or even one quarter of people in the age groups 55-59 and 60-64 are on invalidity benefits. This fact reflects significant pressures in today's world of work, which can be highly detrimental to physical and mental health. This problem, which can be linked to occupational health, needs to be tackled by adopting appropriate strategies with regard to preventive employee-protection and health-protection and by improving working conditions. Persons who are not fully incapacitated but have only an impaired ability to work have little chance of finding a suitable job which takes account of their limitations. There is therefore a need to boost the supply of such jobs in order to provide opportunities also for persons who are not fully able to work. However, many people who are in this situation of disguised unemployment would prefer to pursue some gainful activity if they still have significant working capacity left. Member States must take necessary measures to ensure that employment and disability benefits do not force disabled workers into an unemployment trap, but instead raise the complementarity of different strands of social policy in the interests of disabled workers. It must, however, be recognized that disability is on a spectrum of ability and new thinking defines disability as society's response to an individual which is disabling rather than the physical or other constraint on its own determining whether or not a person is disabled. In this context, the Committee would caution against policies that inadvertently end up obscuring true levels of unemployment. While remaining protective and supportive of disabled people's needs, closer cooperation for observing and improving the exchange of best practice in invalidity policy across States is crucial. So is the need for an open coordination framework of good practice and positive action providing benefits that are related to the promotion of employment and self employment among those along the spectrum of physical and mental ability.


In terms of mature workers, the Stockholm European Council set the ambitious goal of raising the employment rate of people aged 55-64 years to 50 % (standing at 40.1 % in 2002 and as low as one quarter for people aged 60-64). The Barcelona European Council set the Member States a complementary ambitious target of introducing measures by 2010 to increase by five years the average effective age of exit from the labour market. Achieving these goals will be crucial for ensuring the future financial sustainability of social protection and notably for guaranteeing adequate level incomes for future pensioners. The Committee considers this to be a sensible objective. The Committee considers this to be a sensible objective, in principle, provided the labour market allows employment of older workers and special measures are taken to improve their long-term employability. Unless there are enough suitable jobs for older people the main result of this requirement would be rising unemployment and decreased pensions.

3.   Specific comments


Along with specific, targeted economic policies, making work pay is also about process. One area of making work pay that is ripe for reform is the situation of workers who leave paid employment before reaching pensionable age. For example, in many Member States people with long contribution records may be eligible for a pension before reaching the standard retirement age, although they often incur considerable financial penalties as a result. These workers may well still have an economic contribution to make and the decision to go ahead should be made easier, not least by establishing a labour market environment sensitive to the needs of older people. For women early exit from the workforce is not always voluntary but is often linked to workplace discrimination against females. This also has an impact on the pension rights of women, most of whom will have experienced broken employment careers due to maternity and child/elder care, occupational segregation into insecure and low paying ‘feminised’ professions and the gender pay gap all of which would reduce the length of time and quantity of contributions to retirement pension schemes and would only worsen women's economic prospects in retirement by prematurely truncating their paid employment. The feminisation of poverty has long been a cause for concern and the greying of Europe necessitates urgent policy attention to improve women's economic empowerment over the life course. For instance, the impact of discrimination against women during their active working life would be substantially mitigated in retirement if, when calculating pension rights, greater weight were given to substitute periods credited to cover spells of childcare.


Another example of where appropriate administrative reforms must take precedence over public inertia is ensuring that efforts to make work pay are gender equitable. While some new Member States are lumbered with social and employment policies that restrict women's access to employment, others have complementary tax and social policies that promote high levels of workforce participation among females. These previously outstandingly high employment rates have been declining during the transition to a market economy. It is important that the gains women workers made towards full employment should not be sacrificed in a gender-blind effort to restructure the economies of the accession countries. National policy-makers must be encouraged to prioritise those workers for whom making work pay presents the greatest challenge rather than continue to act as though all un/under-employed groups are equally disadvantaged.

4.   Specific comments on some of the Commission's seven policy lessons


First policy lesson: The Committee considers that the idea of creating new social protection instruments as well as making better use of existing ones should not be rejected, but rather developed and made mutually complementary. For example, the highly fragmented and diverse forms of aid and services aimed at young people are no longer appropriate, given the unprecedented extension of this phase of people's lives. The absence of social protection instruments specifically targeted at this age group causes some young people to opt hastily for low-skill forms of training and employment, with very serious consequences for them throughout their lives, and with a corresponding positive impact on public social spending. Similarly, the lack of new instruments providing lifelong occupational social protection – making it possible to alternate periods of training, work and caring responsibilities – without risking poverty or social exclusion considerably impedes labour-market mobility and flexibility (sixth policy lesson).


The EESC considers it extremely important to pay close attention to the medium-term effects of the many initiatives adopted by Member States in an attempt to ‘activate’ social benefits.


The EESC considers that the time has come for strong European incentives (in particular incentives aimed at and implemented in cooperation with the social partners) to promote the coordination of supplementary social protection schemes, which, as the Commission points out, are becoming an important element of social protection (seventh policy lesson).

5.   Conclusions and recommendations


The Committee calls for convergence in European Member States efforts to make work pay by making employment truly an economically attractive option to unemployment or welfare by targeting the full range of barriers to paid work. Domestic policies need to enable the low-paid and low-skilled to escape poverty and unemployment through work. Hence the key issue facing Member States in making work pay is to design a common and reasonable level of in-and-out-of-employment supports which maintain people's incentives for labour-market attachment. The Committee has distinguished between the contributions of quick-gain policies to provide short but terminal benefits for the low-skilled, and the more long-term human capital investments which are the key to making work pay, especially for those most vulnerable, in the sustainable long term.


The Committee highlights the substantial scope for the contribution of private firms and employers in meeting European employment objectives. Effort should be made to identify feasible demand policies that target changing employer behaviour in ways that promote the achievement of Lisbon objectives of more quality, sustainable employment throughout Europe. The Commission should provide and disseminate evidence and experience on where good corporate behaviour has improved the quantity and quality of jobs and look for ways to replicate the successes.


In addition to supporting good practice, sanctions on inappropriate employer behaviour including discrimination on the basis of gender, race, sexual orientation, religion or age must be enforced to support innovation, increased labour supply and the possibility of having longer working lives in European economies. Employment discrimination drives talented people into the underground or informal sector where productivity is low, incentives to train and invest are weak and social protection non-existent. Such irrational economic behaviour not only deprives Europe of economic competitiveness but it robs national economies of much needed tax revenue.


Thus a range of instruments and benefit schemes need to be applied in Member States backed by strong national coordination which balances labour supply and demand instruments. The combined household effects of benefits or tax levels on income must be carefully balanced and anticipated, paying particular attention to the incentive structures these create for poor households. Other measures such as the provision of childcare, flexible working times, job security, job mobility and training opportunities have been highlighted as essential to a comprehensive policy framework for making work pay.

Brussels, 1 July 2004.

The President

of the European Economic and Social Committee


(1)  ‘Jobs, Jobs, Jobs, Creating more employment in Europe’. Report of the Employment Task Force chaired by Wim Kok (November 2003). Also see EESC Opinion on Employment support measures- OJ C 110 of 30-4-2004

(2)  See EESC Opinion on Employment support measures OJ C 110 of 30/4/2004 point 4.1.