Associaçáo Industrial Portuguesa - AIPPraça das IndústriasP-1301-965 LisboaConfederação da Indústria Portuguesa - CIPAvenida 5 de Outubro, 35-1¡P-1069-193 Lisboa

Bundesvereinigung der Deutschen Arbeitgeberverbände - BDABreite Strasse, 29D-10178 Berlin

Confederation of Danish Employers - DAVester Voldgade 113DK-1790 Kobenhavn V

Združenje Delodajalcev Slovenije - ZDS Dimiceva 9SLO-1000 Ljubljana

BDA Bundesvereinigung derDeutschen Arbeitgeberverbände

Haus der Deutschen WirtschaftBreite Straße 2910178 Berlin

Tel. +49 30 20 33-19 00Fax +49 30 20 33-19 05

E-Mail Abt_09@bda-online.dewww.bda-online.de

Stand: Mai 2007ISBN 978-3-938349-33-5

Modernising Europe‘s labour markets Flexicurity – greater security through better employment opportunities

An initiative by the employers´ and business federations in Denmark, Germany, Portugal and Slovenia

Modernising Europe‘s labour markets Flexicurity – greater security through better employment opportunities

An initiative by the employers´ and business federations in Denmark, Germany, Portugal and Slovenia

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Summary

Europeneedsmodern labour marketswhichgivepeoplegreatersecuritythrough

better employment opportunities. This implies that security based on extensive

flexibility means more than just protecting existing jobs.Rather, flexicurityentails

generating opportunities to substitute a disappearing jobasseamlesslyaspossible

withanewjob(externalflexibility). Inadditiontostrengtheningexternalflexibility,

flexicurity also involves mobility within an existing work relationship in order to

addressthethreatofjoblosses.

LabourmarketpolicylieswithintheresponsibilityoftheMemberStates.Thetask

of the EuropeanUnion is to flank and supportMember States in their efforts to

modernisetheirlabourmarkets.Inthisregard,itmuststrictlyobservetheprinciple of

subsidiarity.Harmonisationofnationallabourlawsystemswouldruncountertothe

principleofsubsidiarityandinterferewithtriedandtestedtraditionsandstructures.

TheEUshouldworkforfullimplementationofMember States’ self-commitments

within the Lisbon-Strategy, and at the same time promote the exchange of best

practicewithinandbeyondEuropeanemploymentpolicy.Inaddition,theEUmust

notthwarttheobjectiveofflexicuritywithitsowninitiatives.Member States urgently

need space tobalance thenecessaryprotection and the requisite labourmarket

flexibilityinlinewithnationalconditions.

Theconceptofflexicurityisassociatedwithfourfundamentalelements:

asimple, transparent and predictablelegalframeworkforinternalandexternal

flexicuritywhichallowscompaniestomakethenecessarymanpoweradjustments

whennewmarketopportunitiesarise,andtherebypromotesemploymentgrowth;

aneffective and efficient labour market policywhichisgearedtoearlyandadequate

activation of the unemployed and their rapid integration in the primary labour

market;

sustainable affordable social security systemswhichofferindividualsreliablebasic

protectionasandwhenneededandpreventthemfromfallingintotheabyss;

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modern and lifelong forms of trainingwhichpromotecompanies’ innovation

capacityandcompetitiveness,andworkers’employability.

Flexicurityrequires a holistic approachinwhichthesefourelementsareimplemented

inanoverallstrategy.Onlythencantheirpositiveeffectscomplementandreinforce

eachother.

Modernisationoflabourmarketsmustformpart of a comprehensive reform strategy

formoregrowthandjobs,whichgoesbeyondthelabourmarketandalsocomprises

measures in the areas of tax, education and innovation, industrial relations and

competitionpolicy,publicfinancesandbetterregulation.

Content

I.Introduction 7

II.Flexicurity:greatersecuritythroughbetteropportunities

onthelabourmarket 9

III.Detaileddiscussionofflexicurityelements 11

IV.WhatrolecantheEUplayinrelationtoflexicurity? 14

V.Flexicurityasanelementofacomprehensivereformstrategy

forimprovingcompetitiveness 1�

4

� 7

I. Introduction

Europefacesmajorchallengesintheareaofgrowthandjobs:despitethegrowthin

employment over the last year, the EU still cuts a poor figure in an international

comparisonof labourmarket developments. In 200�, the 7.9%unemployment rate

postedbytheEUwasmarkedlyhigherthaninotherregionsoftheworldsuchastheUSA

orJapanwithcorrespondingratesof4.1%and4.�%.At�%,theoverallOECDaverage

wasalsomuchbetterthanthatintheEU.Adramaticdifferencecanbeseeninthearea

oflong-termunemployment,whichin200�wasseventimesashighinEU-27asinthe

USA(EU-27=4%,USA=0.�%).

However, EU labour market figures are inadequate not only on an international

comparison,but alsomeasured against itsownobjectives. In2000 Europeanheads

ofstateandgovernmentsetthemselvesthegoalofmakingtheEuropeanUnion“the

mostcompetitiveanddynamicknowledge-basedeconomicregion in theworld”by

2010.TheEUisalongwayfrommeetingthatobjective.Thequantifiedemployment

objectivessetaspartoftheLisbonstrategyalsoseemtobebeyondreach:theoverall

targetemploymentrateof70%(EU:��.8%in200�)isprovingjustashardtoachieveas

thetargetrateforfemaleemploymentof�0%(EU:��.�%in200�)andforolderworkers

of�0%(EU:41%in200�).

Given thevarying situations inMemberStates anddifferentproblems, theneed for

actionwithin theEU issometimesverydifferent.WhereasDenmarkand Ireland, for

instance,reportedunemploymentratesof�.9%and4.4%in200�,thecorresponding

figureinGermanywas8.4%withPolandandSlovakiapostingunemploymentratesof

1�.8%and1�.4%respectively.EmploymentratesinEuropearealsohighlydivergent.

Nevertheless,thisspreadshouldnotbeallowedtoobscurethefactthatthemajority

ofEUMemberStates facemajorchallenges. In fact, theEuropeanCommissionalso

ascertained only limited progress in EU labour market reforms in its second annual

progressreportonimplementationoftheLisbonstrategy,issuedinDecember200�.

TheEuropeanCommissionhasthereforecalledonEUMemberStatestostepupthe

reformtempo.InthewordsofCommissionPresidentJoséManuelBarroso,speaking

whenthereportwaspresented:

“The improved economic outlook is a unique window of opportunity to speed up, not

an excuse to sit back and relax. There is no room for complacency“.

8 9

Europeanbusinessendorsesthisappealwithoutreservation.AsurveybyBUSINESSEUROPE

(formerlyUNICE)hasfoundthatmostnationalbusinessorganisationsaredisappointed

withtheslowspeedofreformstepsintheirhomestates.

Theneedforcompaniestoadjustinthefaceoffiercercompetitiononglobalmarkets

makes it essential to modernise labour markets. The favourable economic situation

isaparticularlygoodopportunityforpushingimportantreformprojectsforwardwith

determination.Thisopportunitymustbe seizedwithbothhands. Europe’sMember

Statesneedmodernlabourmarketswhichcombinethenecessarysocialprotectionwith

therequisitedegreeofmobilityandflexibilityonthelabourmarket.Inthisregard,the

conceptofflexicurityhasincreasinglyattractedattentionandhasbeenearmarkedasa

priorityfortheGerman,PortugueseandSlovenianEUCouncilPresidency.Inaddition,

theEuropeanCommissionplanstopresentacommunicationonflexicuritybeforethe

endofthisyear.Employerswelcomethisplanandsetoutbelowtheprincipleswhich

shouldbeatthecoreoftheflexicurityapproach.Inthisregardtheypointoutthatthe

principleofsubsidiarityhastoberespected.

II. Flexicurity: greater security through better opportunities on the labour market

In the first instance, security based on extensive flexibility means more than just

protectingexistingjobs.Rather,flexicurityentailsgeneratingopportunitiestosubstitute

adisappearingjobasseamlesslyaspossiblewithanewjob(externalflexibility).Surveys

(“EmploymentinEurope200�”report)showthatcountrieswiththemostrigidprovisions

againstdismissalhavedisproportionatelyhighlong-termunemployment,andworkers

thereforefeelthegreatestfearaboutunemployment.Incountrieswithlabourmarket

rules which encourage employers to create employment relationships immediately

whentheyareneeded,because terminating those relationshipsposesnoproblems,

workersfeelmuchlessfearaboutunemployment.

Inthisregard,flexicurityhasparticularrelevanceforthe“problemgroups”onthelabour

market.Attemptstoprotectjobsthroughextensiveregulationmeanthatitisprecisely

thepoorlyqualifiedorotherwisedisadvantagedgroupswhichfareworstwhenseeking

ajob.AccordingtotheEuropeanCommission’sreport“EmploymentinEurope200�”,

strictemploymentprotectionisparticularlydetrimentalforintegrationofyoungpeople,

womenandlong-termunemployedonthelabourmarket.ItisnoticeablethatitisGreat

Britain,IrelandandDenmark–countrieswithflexiblelabourlaw–whichhavethelowest

long-termunemploymentratesintheEU.

Inadditiontostrengtheningexternalflexibility,flexicurityalsoinvolvesmobilitywithin

anexistingworkrelationshipinordertoaddressthethreatofjoblosses.Theunderlying

ideahereisthateverybusinessandeveryemployeehasaninterestinabalancedwork

situationandversatileworkers,andthatnoemployerishappytodismissworkers.Tothat

end,itshouldbeeasiertoconcludealliancesforjobsatcompanylevel.Iftermination

ofaworkcontractisunavoidable,thisshouldbepossiblerapidlyandinapredictable

manner,wheneverpossiblehandinhandwithnewprospectsfortheworker.

TheEuropeandebateonflexicuritymusttakeaccountofthefactthatlabourmarket

constellations within the European Union sometimes differ widely from each other

and that the competences of the EU are limited. Over the last centuries different

approachesinsocialpolicyinEuropehavedeveloped,withtheconsequencethatindividual

Member States are approaching flexicurity from very different starting positions.

Furthermore, there are also considerable socio-cultural differences between

MemberStates.Hence,therecanbenoquestionofa“one-size-fits-all”approachto

10 11

shaping flexicurity.Statesmustchoose theirownroutewhich takesaccountof their

own circumstances. The concept of flexicurity is associated with four fundamental

elements:

a simple, transparent and predictable legal framework for internal and external

flexicuritywhichallowscompaniestomakethenecessarymanpoweradjustments

whennewmarketopportunitiesarise,andtherebypromotesemploymentgrowth;

an effective and efficient labour market policy which is geared to early and

adequateactivationof theunemployedandtheir rapid integration in theprimary

labourmarket;

sustainableaffordablesocial securitysystemswhichoffer individuals reliablebasic

protectionasandwhenneededandpreventthemfromfallingintotheabyss;

modernandlifelongformsoftrainingwhichpromotecompanies’innovationcapacity

andcompetitiveness,andworkers’employability.

Flexicurityrequiresaholisticapproachinwhichthesefourelementsareimplemented

inanoverallstrategy.Onlythencantheirpositiveeffectscomplementandreinforce

eachother.

III. Detailed discussion of flexicurity elements

Labour legislation

Many layersof regulation,over-regulation and confusion in labour legislation create

uncertainty forcompaniesandpromptcautionwhen itcomes tonewrecruitments.

The opportunities for additional employment are particularly marked in small and

medium-sized enterprises (SMEs), which account for 99% of all businesses in the

EU. And it is precisely SMEs that do not have a separate department to deal

with labour legislation issues. Hence, what is needed is easy-to-understand,

employmentfrienlylabourlawwithprovisionsthatgivelegalcertaintyandpredictability

fortheestablishmentandterminationofworkcontracts,basedonbusinesspractice.

It must not be complicated to arrange fixed-term work contracts. Furthermore, it is

importanttoimprovemobilitywithintheframeworkofaworkcontract,forinstance

through working time corridors or working time accounts in order to allow flexible

organisationofthevolumeofworkingtimetoreflectactualrequirementswithinthe

business.Theaimmustbe:

toenhancethewillingnessofcompaniestocreatenewjobsasearlyandasrapidlyas

possible,andthustoincreasetheopportunitiesforjob-seekersonthelabourmarket;

toimprovethepossibilityforcompaniestoidentifyandtakeadvantageofmarket

opportunities.Inthisregard,theprimefactorisspeed.Flexibilityisasinequanonfor

seizingmarketopportunitiestothebenefitofthebusinessanditsemployees.

According to a representative Eurobarometer study in 200�, seven out of ten EU

citizensagreewiththestatementthat“workcontractsshouldbecomemoreflexibleto

encouragejobcreation”.Policy-makersmustnotbeafraidofmakingdecisivechanges

ofcourse,giventhatEUcitizenshaverecognisedthatemploymentgrowthwillonlybe

possibleifnewrecruitmentsarenotanincalculableriskfortheemployer.Inaddition,a

widevarietyofdifferentanddifferentlyshapedformsofemploymenthavedeveloped

tobecometheengineofemploymentinEurope.Itisimportanttosupportthediversity

ofnewdevelopments,whichenableemployersandemployeestocometogripswitha

widerangeofmodelsforlifeandbusinessandtherequirementsofgrowingcompetition

againstthebackgroundofglobalisation.

1�

Labour market policy

Labourmarketpolicymustconsciouslycreateabridgeintoemployment.Itwillthen

help to prevent the development of long-term unemployment with all its negative

consequences.Flexicuritymeansactivatingandmobilisingjob-seekersatanearlystage,

and using a “carrot and stick” approach to encourage individual initiative, but also

providing sufficient support – not least through rapid and customised placement

assistance.Thisneedsanunbureaucraticandtransparentlegalframeworkaswellasa

concentrationoflabourmarketpolicyinstrumentsonmeasureswhosesuccesshasbeen

proven.Measurestakenintheframeworkoflabourmarketpolicymustbegearedto

effectandcost-effectiveness.Theaimmustbe:

to provide the unemployed with rapid assistance and additional targeted

encouragementtopreventorcurblong-termunemployment;

toputinplacestreamlinedandeffectiveinstrumentsanduseresourcesefficiently.

Social protection

Unemployment must not become a threat to economic existence. Reliable and

guaranteed basic protection against unemployment as an expression of social

solidarityisafixedcomponentofEuropeansocialsystems.Moreover,variousformsof

unemployment insurance protect from dependence on assistance from the state

duringperiodsoftemporaryunemployment.Inthisregard,transferpaymentsmustbe

structuredoverallinsuchawaythattherearesufficientincentivesfortheunemployed

to look for and, above all, accept new employment. The aim of systems is not to

administerunemploymentwithbenefitpaymentsbuttopreventordealsuccessfullyand

rapidlywithunemployment.OECD’semploymentstrategy200�pointstothenegative

consequencesofhighandlong-termsupportpaymentsonthelabourmarket.Theaim

mustbe:

to provide workers with the necessary social protection against and during

unemploymentinaflexiblelabourmarket;

tostructureunemploymentinsurancewithsufficientincentivesforrapidinclusionin

theworldofworkinordertopromoteintegrationinthelabourmarketandhence

alsotohelpplaceaceilingonsocialcontributions.

12

Lifelong learning

Intimesofrapidtechnologicalprogress,educationandqualificationbecomesevermore

important,withtheemphasisonearly,sustainableandlifelongprovision.Anindividual’s

skills andcompetencearedeterminant forhis chancesandupwardmobilityon the

labourmarket.Athoroughpre-schoolandschooleducationmustlaythefoundations

andprovidethenecessarytoolsforvocationaltraining.Vocationaltraining(atwork,at

school,infurther/highereducation)mustbeconsistentlyalignedonlabourmarketneeds

andpracticalrequirements,ensuringthatstudentsareemployablewhentheycomplete

theircourses.Bearinginmindthediminishing‘half-lifeofknowledge’,lifelonglearning

has also assumed central importance. For companies, trainingmeans an increase in

theirinnovationcapacityandcompetitiveness;forworkers,itmeansanincreaseintheir

employability.Aslongagoas1999Europeanemployerswerespending100billionEuro

onvocationaltrainingfortheiremployees.Inparallel,individualresponsibilityandthe

worker’sowncommitmenttotrainingandqualification–reflectingthepotentialbenefit

totheindividual–mustalsobeboosted.Inordertopromotelifelonglearning,training

systemsneedtobestructuredtoallowtransferability.Inparticular,thismeansthatthe

areasof vocational training andhigher education shoulddovetailmore closely, and

designeachqualificationinsuchawaythatitautomaticallyleadstonewemployment.

Theaimmustbe:

to make lifelong learning self-evident for an individual in order to enhance his

employability and hence create opportunities on the labour market, as well

as to enable companies constantly to improve their innovation capacity and

competitiveness;

tostructureeducationandtrainingsystemssoastoenhancetransferabilityandhence

openupnewtrainingandcareerpathwaysandexploitallavailablepotential.

14 1�

IV. What role can the EU play in relation to flexicurity?

LabourmarketpolicylieswithintheresponsibilityoftheMemberStates.Thetaskof

theEuropeanUnion is to flankandsupportMemberStates in theirefforts tomod-

ernise their labour markets. In this regard, it must strictly observe the principle of

subsidiarity.Harmonisationofnational labour lawsystemswould runcounter to the

principleof subsidiarity and interferewith tried and tested traditions and structures.

ThemainchallengesfortheEUareasfollows:

The EU promotes cooperation between Member States on national labour

market policies via the European employment strategy which has been

integratedinthesteeringmechanismfortherenewedLisbonstrategysince200�.In

employment policy guideline 21, Member States agree to promote flexibility

combinedwithemploymentsecurityinabalancedrelationship.TheEUshouldwork

forfullimplementationofMemberStates’self-commitments,andatthesametime

promotetheexchangeofbestpracticewithinandbeyondEuropeanemployment

policy.

Inaddition,theEUmustnotthwarttheobjectiveofflexicuritywithitsowninitiatives.

MemberStatesurgentlyneedspacetobalancethenecessaryprotectionandthe

requisite labourmarket flexibility in line with national conditions.New European

socialpolicyruleswithadditionalburdensforcompanieswouldmoveEuropeeven

further fromachieving thisobjective. Inparticular, thegreenpaperon labour law

comprisesapproacheswhichruncountertothegoalofflexicurityatseveralpoints,

andsuggestyetmorerules.

The flexicurity approach is closely linked with the goal of better regulation, a

comprehensive dismantling of bureaucracy and the right environment for more

competitive jobs in Europe. Accordingly, the EU should push ahead with its

betterregulationinitiatives,completetheinternalmarketandimprovetheEuropean

frameworkconditionsforapplicationoftheresultsofscientificresearch.

V. Flexicurity as an element of a comprehensive reform strategy for improving competitiveness

Modernisation of labour markets must form part of a comprehensive reform

strategy for more growth and jobs, which goes beyond the labour market and

also comprises measures in the areas of tax, education and innovation, industrial

relations and competition policy, public finances and better regulation. The OECD

employmentstrategyunderlinesthelinkbetweenmacro-economicpolicyandlabourmarket

development. Economic growth continues to be a central engine for more and

betterjobs.DespitethecurrentfavourableeconomicsituationinEurope,Europeisstill

laggingbehindimportantcompetitors.Overthelasttenyearsaverageannualgrowth

intheUSAhasbeen1%aheadofgrowthintheEUandproductivityintheUSAhas

grownmorequicklythanintheEU,thusfurtherwideningtheUSA’slead.Companies’

competitivenessmustbestrengthenedthroughappropriateframeworkconditions.Only

thenwillitbepossibletoachievesustainablegrowthinemployment.