Main findings: Addressing European labour market and social challenges for a sustainable globalization

Part 1. Addressing the short- and medium-term labour market and social challenges of the current economic and financial crisis

The global financial crisis has hit European labour markets hard:

European labour markets are suffering the effects of the worst global crisis in 80 years – from rapidly increasing unemployment rates to a widespread growth in part-time work and short working hours. Weak employment creation coupled with European financial instability point to prolonged unemployment and permanently raised inactivity rates.

And past experiences suggest that the consequences are likely to be long-lasting:

Financial crises are typically much more severe than normal cyclical corrections and hit labour markets particularly hard. The overinvestment and misallocation of capital that occur in the run-up to a financial crisis causes considerable dysfunction in certain sectors of the economy, forcing a major restructuring of the labour market. Consequences of this include rapidly rising long-term unemployment and permanently reduced wages.

The financial crisis was a reaction to earlier imbalances, partly driven by income inequalities:

Swings in international capital flows have been one of the main drivers of the global imbalances that lie at the heart of the crisis. Large and permanent trade surpluses in a few countries have coincided with equally large and persistent deficits in others. Meanwhile, excess savings accumulated in some parts of the world have been absorbed by those countries that have experienced a secular decline in savings rates and continuously rising indebtedness. A key element in understanding the size and persistence of these imbalances resides in social imbalances resulting from weak wage growth, especially as experienced by lower income households.

Countries have put in place substantial spending programmes:

At the onset of the crisis, policy-makers acted swiftly and decidedly to prevent a complete breakdown of the financial system. Massive support has been provided to secure the most vulnerable banks, and aggregate demand has been propped up by tax cuts and targeted government spending measures. These policies helped limit the downfall and shorten the period before recovery set in.

Yet, target efforts are still needed for promoting quality job growth:

Spending on labour market programmes can help jobseekers to find new employment opportunities more rapidly, while at the same time sustaining disposable income and demand and providing the basis for sustainable and more stable economic growth. Increased recourse to active labour market programmes (ALMP) is an effective way to improve labour market intermediation and avoid a further deterioration in skills erosion and labour market detachment; especially given that these investments need not be costly to be effective and have a positive fiscal multiplier effect on output as a result of higher wages and employment.

Macroeconomic measures will need to be implemented in parallel:

Economic, employment and social policies must work together. Moving forward, the challenge will be establishing how to adjust the existing policy framework to reflect this new reality. Equally enduring and perhaps more intractable is the question of how to finance such measures in light of fiscal constraints.

Sustained progress depends on effectively addressing the origins of the crisis:

Countries need to rebalance the structure of global demand in order to achieve sustained growth. In addition, a sustainable recovery will be difficult to achieve unless the deficiencies in the financial market are addressed.

Part 2. Preparing European labour markets to adapt to the long-run challenge of ensuring the joint social and environmental sustainability of globalization

It is crucial to move to a greener economy in order to reduce CO2 emissions and thus mitigate climate change:

Recent research confirms the damaging effects of climate change and suggests that, to a certain extent, climate change is due to human economic activity, notably the use of carbon-intensive sources of energy. A significant reduction in the rate at which carbon dioxide and other greenhouse gases are being emitted is necessary to slow, and eventually control global warming.

This can be achieved only through significant structural change:

A greener economy will require the development and dissemination of non-fossil fuel based sources of energy and a shift to less carbon-intensive modes of production and consumption. Such a change in economic structure implies a reallocation of some resources from higher to lower carbon-intensive industries and enterprises, which will entail considerable employment and income shifts.

Market forces alone will be insufficient in bringing about a reduction in CO2 emissions:

Exorbitant global CO2 emissions are the consequence of a market failure which can only be corrected if governments implement adequate policies. Not only need CO2 emissions be allocated prices that properly account for their environmental and economic costs, but such market-based measures should also be complemented with other instruments like regulations, public investment and increased promotion of research for new technologies. In order to reduce increasing global CO2 emissions to a sustainable level, a massive economic restructuring has to occur in relative short time.

Moreover, careful consideration must be given to the employment and income dynamics of the shift to a greener economy:

Such a shift to a greener economy will entail significant changes for labour markets and incomes. And with the vast majority of emissions stemming from only 15 industries, most of the adjustment pressure will be on only a few industries. Yet, the restructuring process itself can give rise to positive employment effects – the promotion of new technologies and process innovations will lead to new products, new business opportunities and new enterprises.

Economic, social and environmental goals can be consistent with one another if, first, environmental reforms are broadened:

Existing environmental policies are often uncoordinated and address only isolated issues. Comprehensive and internationally harmonized policies can be much more effective and should take labour market impacts into account.

Second, if emphasis is placed on improving employment prospects of the most vulnerable:

In order to ensure a fair and equitable green transition, public authorities could work closely with the most vulnerable industries to examine potential skills deficiencies and develop preventative strategies to ease the process. Skills upgrading and training, coupled with adequate income support systems and well-resourced effective public employment services will help with adjustment.

Third, if strategies are developed to leverage the positive employment potential of a greener economy:

To maximize the employment benefits of a greener economy, there must be effective education and vocational training systems that can aid workers acquire the appropriate competences needed to take advantage of the new technologies. Increased research and development activities need to be complemented by support for new technical skills as well.

A fair and sustainable transition to a greener economy can only be achieved through effective social dialogue:

Tripartite social dialogue can drive a successful transition to a greener economy by ensuring that all of the key partners are working in tandem toward a common goal, operating under good communication and coordination. In fact, the success of a transition towards a green economy depends critically on its promotion by the social partners.