Reform of the European Employment Strategy after five years: a change of course or merely of presentation?

Andrew Watt[*]

Introduction

In 1999 I conduced a study that sought to explain ‘the ineffectiveness of European employment policy’, following the establishment of the European Employment Strategy (EES) in 1997 (Watt 2000). Although the late 1990s had seen considerable employment growth, prompting some commentators to speculate on a substantial and positive role for employment policy in Europe, I cautioned that:

Although the euro-zone economy is currently enjoying stronger growth, the imminent end of the boom in the US, rising interest rates in the US and Europe, the adjustments required by global trade imbalances and inappropriate fiscal policies pose a threat to its sustainability. It seems likely that the recovery in Europe will once again be choked off before a sustained reduction in unemployment can be achieved, a feature that, alas!, has consistently characterised European labour markets in the 1980s and 1990.

Any intellectual satisfaction at seeing a prognosis confirmed is overshadowed by frustration that once again European policy failed to shield the economy from external shocks and has locked the European economy into a low-growth trajectory. Europe has continued to underperform in terms of growth and employment, with all the attendant welfare losses. Worse still, while there have been some recent changes in the macroeconomic policy regime[1], which the analysis identified as the prime cause of Europe’s long-standing labour market crisis, the debate in Europe, and particularly in high-unemployment countries such as Germany, continues to focus on neoliberal recipes of welfare-state cuts and the removal of so-called rigidities in European labour markets. Europe’s response, on finding itself in a whole seems to be to dig even faster.

One of the main focuses of the previous analysis had been on the European Employment Strategy (EES), or Luxembourg process, initiated in 1997. The year 2002 saw a major review of the process, based on the experiences of five years of its operation. Following a brief review of the EES and a general evaluation of its scope and limitations, this paper provides an overview of the five-year review conducted by the European Commission. It then examines the new form that has been given to the EES for the 2003 exercise, on the basis of the conclusions drawn from the five-year review, and attempts to draw some provisional conclusions as to whether this marks a useful change of course or merely one of presentation. To extend a well-worn metaphor: has the crew of the ‘Titanic’ European economy taken action to avoid the iceberg of permanent mass unemployment, or is it, oblivious to the danger, merely rearranging the deckchairs of procedural regulation, while dreaming of what it will do when it arrives at its destination – the US?

The EES – a short overview and evaluation[2]

The EES was launched in 1997 at a special ‘Jobs Summit’ of EU heads of state and government in Luxembourg, in parallel with the inclusion, at the Amsterdam Summit that same year, of a new Employment Title in the European Treaty. This stipulated that employment was a matter of ‘common concern’ to the member states, and laid the basis for giving the EU level a role in coordinating member states’ labour market policies. Importantly, the Treaty emphasised from the start that EU involvement with employment was subordinate to the overall coordination of economic strategy via the so-called Broad Economic Policy Guidelines (BEPGs). Having said that, the coordination method adopted under the EES in some ways reflected that of the BEPGs[3]: essentially the EU level set employment-policy guidelines (EGLs), while leaving policy design and implementation in this area to the national level. This method subsequently received the official title ‘open method of coordination’[4]. How has it worked in the employment-policy field?

The Luxembourg process is an iterative process based on an annual cycle. The Commission drew up[5], on the basis of consultations with both European and national-level actors, a set of some 20 guidelines for national labour market policy, subsequently endorsed by the European Council (heads of state and government) and adopted by the Council of labour ministers. These guidelines were divided into four pillars – employability, entrepreneurship, adaptability and gender equality, chosen so as to reflect the four main perceived weaknesses of European labour markets:

-the skills gap[6] (e.g. mismatch between the skills of the unemployed and employer requirements);

-the job creation gap (e.g. bureaucratic or tax-related barriers to establishing new businesses);

-the adjustment gap (e.g. restrictive contractual arrangements that prevent firms expanding employment opportunities);

-the gender gap (the fact that employment rates are not lower than in, say the US, among prime-age men, but particularly amongst women – and also the young and the elderly).

On the basis of the EGLs, the member states draw up so-called National Action Plans (NAPs), which describe what they have done in policy terms to implement the guidelines. A NAP might detail, for instance, what proportion of the long-term unemployed are receiving training, how much the government is spending on providing child-care facilities etc[7]. These are analysed by the Commission, which then make (since the 2000 exercise) national recommendations in a so-called Employment Package, along with proposals for a new set of overall guidelines for the following year, which were then endorsed by the European Council and formally adopted by the Council (of labour ministers). Thus the cycle recommences: in practice the changes made to the EGLs, up to the major change in 2003 described below, have been fairly minor. In 2001 six so-called ‘horizontal objectives’ were added, the most important of which was explicit reference to the overall EU employment targets agreed at the 2000 Lisbon Summit[8]. While the Commission and Council – and particularly the Council’s Employment Committee (EMCO) are the main actors at European level, the social partners are involved in consultations to assist in drawing up the EGLs and assisting with the evaluation. The European Parliament (EP) also gives an opinion. Trade unions have also been involved, to varying degrees, at national level, both in helping to draw up the NAPs and reporting on their activities, e.g. in the field of adaptability[9]. This question of institutional involvement in consultations is considered below for the 2003 exercise.

The views of the actors involved and of academic commentators on the nature and value of the EES, as originally conceived differ considerably. The difficulties of coming to a verdict on the strategy are perhaps best summed up in the rhetorical question posed in the title of Berndt Keller’s evaluation: ‘Is the glass half-full or half-empty?’ (Keller 2000).

At the procedural level there is widespread recognition that institutional heterogeneity and a clear member-state prerogative in sensitive areas linked to, for example, the welfare state have always meant that an intrusive European-level employment strategy, based on a single blue-print, might well be inappropriate and is in any case a political non-starter. Thus while there has been criticism from some quarters of the lack of binding sanctions under the EES – in marked contrast to the Maastricht criteria that were to ensure nominal economic convergence – most commentators accept that this is inevitable if the issue is to be placed firmly on the European political agenda. Proponents of the methodology have emphasised the value of ‘soft’ coordination methods – benchmarking, peer-group pressure, the bringing together of different policy actors, the role of policy learning. This, it can be argued, might be undermined if governments were subjected to ‘excessive’ pressure. Others remain more sceptical, emphasising the lack of spill-overs between countries in the field of labour market policy and difficulties of transposing ‘best practices’, even if they can be unambiguously identified. Indirect support for the former view, or at least for the view that the ‘open method of coordination’ marks the least-worst of all feasible approaches at the current stage of the European integration process, comes from the fact that the same methodology has since been applied to other areas, notably social inclusion policies, pensions and even health.

A considerable question-mark hangs over the issue of the penetration of the EES to the national level and public awareness of the strategy. A study by Jacobsson/Schmid (2002) could find little evidence of institutional ‘pathways’ at national level that would indicate that the EES is actively affecting decision-making. I could find little evidence from a study of the Hartz proposals for labour market reform in Germany of an explicit influence of the strategy on national policy outcomes (Watt 2003). While many of the proposals could certainly be subsumed under the EES, there were few explicit references and these did not point to a detailed reflection on the implications of the European-level initiatives. Worse, some measures, notably on early retirement, would appear to be in contradiction to the thrust of the Strategy. Overall it seems clear that knowledge of the EES remains limited to rather restricted policy-making circles in Brussels and in Member State national civil services. The Strategy is perceived as too technical to be easily presented in the general media, a problem that has been recognised even by the Commission (see below).

Another question-mark relates to linkages between the EES and other coordination processes, and also to European-level financing under the Structural Funds. There has been repeated criticism that the EGLs and the BEPGs overlap substantively but are generated by very different processes lacking the required interrelations, and thus produce incoherent policy recommendations (see below on the change in the timing of coordination processes). Similarly, a major weakness is that the links between the EES and the European Social Fund – which is charged with helping to finance employment-related measures – at both the EU and the national level would seem to be inadequate.

At the substantive level, the fundamental point is that the EES is quite clearly not an all-encompassing strategy to achieve full employment, which would have required an explicit commitment on, in particular, macroeconomic policy makers – the ECB and national fiscal policy-makers – to work towards that aim. This is not the case[10]. The European Employment Strategy is in fact a European Labour Market Strategy. Indeed, by rights the title should be: ‘European strategy for the coordination of national labour market policies’. On the one hand, this limits from the outset its scope and reach – at least for those who believe that the macroeconomic policy regime in Europe is not optimal in this regard. Worse, commentators in the Keynesian tradition claim that the EES has served to confirm, in the minds of policymakers and the public in general, that the problems on the labour market are essentially problems of the labour market – and indeed of the individual unemployed themselves – diverting attention from the real causes, i.e. a persistent failure to manage demand and actors’ expectations in such a way as to permit full employment.

On the other, though, the limitation scope arguably also means that the EES could only be fairly judged against the yardstick of its effectiveness in diffusing effective labour market strategies. Adopting this latter yardstick, commentators have noted the emphasis on activation: avoiding ‘financing joblessness’, and rather offering the unemployed active support (training, mobility allowances, childcare) to get them into work, coupled with greater obligations on the unemployed to accept such offers, including loss of benefit for those refusing. There was also a rhetorical commitment to ‘prevention’, i.e. taking steps to avoid people becoming unemployed in the first place. Here the record is more mixed. Governments have been encouraged to prevent the unemployed sliding into long-term unemployment, but there is little sign of the EES having stimulated workplace intervention to avoid redundancies, for instance.

By the late 1990s activation and prevention were considered state-of-the-art approaches in labour market policy. In these terms the EES could be interpreted as an attempt to diffuse such practices from countries where they had a long tradition (such as Sweden) to those where such policies were less well developed. And clearly the EES can take some of the credit for the fact that ‘active’ labour market policies have increasingly been adopted in countries where they were previously unknown or infrequently used. For instance the use of early retirement as an adjustment measure has been on the decline. Ultimately, of course it is not possible to determine with any accuracy to what extent such a policy shift can be ascribed to a political strategy such as the EES. Arguably, in terms of immediate labour market outcomes, this is in any case irrelevant. It is the policies themselves that count.

The inherent ambiguity of concepts such as employability and activation (see e.g. Serrano 2003 and 2003a) meant that governments could subsume under them ‘neoliberal’ measures such as benefit withdrawal (‘sticks’) and active ‘progressive’ measures, such as mobility allowances (‘carrots’). Like so much in the Strategy, such ambiguity can itself be seen as both a strength or a weakness of this mode of governance: it is less constraining but more flexible. Thus even the conceptual ambiguity of the Strategy must be considered ambiguous in its impact!

Clearly though, if the EES is compared with the OECD Jobs Strategy (JS), for example, which, while procedurally rather different, covers similar substantive ground, the emphasis in the EES is clearly on finding ways of raising employment while modernising welfare systems so as to defend and render sustainable what can loosely be described as the European Social Model, rather than one of dismantling just that model in the belief that it was an obstacle to higher employment and because that was seen, in accordance with neo-liberal views, as an end in itself. After all, the EU countries are all members of the OECD and the Jobs Study, which launched the JS, dates from 1993. The mere fact that they launched the EES indicates that they were not satisfied with the procedure or the substance of the JS[11].

More generally, the orientation of the EES was towards raising employment rather than cutting (official) unemployment. On the one hand this can be viewed as a positive shift of emphasis, one that takes account of the risks – not least to the sustainability of the welfare state – posed by policies such as early retirement and the misuse of disability schemes. This discourages governments from manipulating the unemployment statistics and takes greater account of the findings of academic research which show that there is a ‘spectrum’ of degrees of attachment to the labour market, rather than a simple dichotomy between the employed and the unemployed. On the other hand there is a risk that, if taken too far, the effect will be to create permanent downward pressure on wages and working conditions by forcing increasingly marginal groups onto the labour market, reflecting the ideology – more prominent in the OECD Jobs Strategy – that ‘any job is better than idleness’. Once again there is an inescapable ambiguity about the EES that cannot be resolved by studying the EGLs themselves. What is decisive is what happens on the ground, in the Member States. Yet this compounds the already difficult task of tracing causal links from the EES to actual policy making.

The above evaluation of the scope and also the limitations of the EES might be summarised as follows:

  1. the EES is a procedurally innovative strategy: a good case can be made for the view that it is close to being the most stringent form of EU-level influence on national policies in this field that is politically feasible under current conditions. Substantively it is a rather limited strategy, that attempts to balance between competing objectives and interests, that contains sufficient ambiguity to act as a ‘cover’ for a wide range of policies, but whose quantitative employment impacts can be expected to be dwarfed by macroeconomic shocks and the success, or otherwise, of macro policy in coping with them.
  2. Within these constraints the raising of political pressure on national governments, the promotion of policy learning, and the diffusion of best practice could help to make European labour market more flexible and efficient. This could reduce the rate of unemployment below which inflation starts to rise (loosely: structural unemployment or, more formally, the NAIRU); this would make higher employment possible[12].
  3. Actual success in reducing unemployment and increasing employment is therefore conditional on the EES being complemented by growth and employment-oriented economic policies, and in particular a monetary policy that does not have a rigid a priori view on the sustainable rate of economic growth or the NAIRU, but is prepared to ‘test the water’ by setting monetary conditions in such a way that demand steadily expands, while keeping inflationary expectations within ‘reasonable’ limits.

The five-year review of the EES

In 2002 the European Commission conducted an evaluation of the EES. Although the Commission was certainly well aware of the academic debate on the EES that informed the analysis above[13], its evaluation was formally an internal one, although based on national reports. The institutes responsible for the national evaluations were chosen by Member States. The quality of their reports (in terms of length, structure, detail, etc.) varied considerably. The Commission did not subject these reports to outside evaluation, although all reports were made public on the Commission website.