How EU countries managed the crisis: the work done and the road ahead

Carlos Andre da Silva Gama Nogueira

Carlos Andre da Silva Gama Nogueira, ILO Economist

Seven years after the financial crisis, labour markets across the European Union are still struggling to regain lost ground. To better understand why, the ILO has analysed over 500 policy measures adopted in EU countries between 2008 and 2013. We came away with five main observations.

1. By and large, governments reacted quickly in the aftermath of the global crisis.

As economies and labour markets across the EU started to feel the impact of the crisis, governments moved swiftly to mitigate the devastating economic and social consequences of turmoil in their labour markets. We can see this simply by looking at the number and scope of labour-market policy measures implemented between 2009 and 2010.

These policy interventions were generally geared towards protecting workers, aiding job seekers or supporting troubled firms.

2. Later, however, policy efforts to help firms and workers cope with the crisis slowed or were reversed as part of budget consolidation goals.

The sharp drop in the number of policy measures adopted after 2010 was due primarily to budget constraints. This was particularly evident in the lack of increased spending on ALMPs in many countries, which marked a worrying trend. With rising levels of unemployment, public employment services were needed more than ever to avoid lasting damage from skill erosion and social exclusion.

Rising unemployment has also lead to a fall in the share of unemployed workers receiving benefits – over 10 per cent in 11 out of 28 member states between 2008 and 2013. In all but four member States, there was a similar decrease in the level of benefits as a percentage of median wages.

Budget considerations were also a main driver of policy measures affecting the public sector, where 66 per cent of new policies led to decreased spending.

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Policies to support employment services, like this jobs placement agency in France, were an important part of EU countries response to the crisis.

 3. Policies benefitting workers emphasized worker’s rights, policies to help unemployed workers find jobs and minimum wages.

EU policy makers were especially concerned with non-standard forms of employment, such as part-time, “temp” work and self-employment—which were seen to be vulnerable to exploitation. Around 70 per cent of the measures in that area were aimed at curbing abuses such as multiple renewals of fixed-term contracts and at regulating temporary employment agencies.

The crisis also accelerated the long-term trend towards nationally-defined minimum wages. Of the 20 EU member states which had statutory minimum wages, all but seven moved to increase them between 2008 and 2013.

One in four of all policy measures examined in the survey fell under the category of active labour market policies (ALMPs) intended to help the unemployed find work. Those primarily involved support for training programmes and employment-incentive schemes.

Improving public employment services, by contrast, was not a major policy focal point.

4. Policies benefitting firms focused on making the labour markets more flexible.

Facilitating the procedures for the dismissal of workers was one of the channels through which governments tried to achieve this. However, these measures were generally found to lead to greater job destruction without any discernible impact on firms’ willingness to hire new workers.

Policy makers also attempted to leverage non-standard forms of employment by making labour contracts more flexible and by making it easier for workers to be self-employed. Measures to make working time and work organisation more flexible were also adopted to help struggling firms avoid having to resort to layoffs.

Many countries also took steps towards the decentralization of collective bargaining, but this trend has not yet translated into a significantly higher number of collective agreements at the firm level. Sector-level bargaining remains an important anchor of industrial relations in the EU.

5. Much remains to be done

Bouncing back from the deepest depression in EU history will require a consolidated policy approach and the dedication of policy makers to improving labour-market institutions and programmes. Even at the cost of greater public spending, a constant and concerted effort to improving the resilience of labour markets is the only way to revitalize them from their current sluggish state.

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