The European Semester and the European Pillar of Social Rights
by Jeroen Jutte (DG Employment, Social Affairs & Inclusion)
The last few years the EU economy performed very well. Real GDP growth is relatively high and accompanied by job creation and an important decrease in unemployment. In the first quarter of 2018, 238 million people were employed in the EU, the highest level ever recorded.
One can easily forget the crisis in such circumstances. It hit the European Union in 2008. Millions lost their jobs, unemployment soared from 7% to 11% in 2013, several Member States had to seek emergency assistance. Today the impact is still evident. Among Member States, there are very large differences. For instance, in 2017 the unemployment rate ranged from 2.9% in the Czech Republic to over 17% and 21% respectively in Spain and Greece. In many Member States, employment rates still have some way to go to recover from the crisis. And while economies grow, inequality and poverty remain, despite reductions, relatively high. Social tensions that grew during the crisis are still present today.
Although the EU is globally a front-runner in most of the employment and social areas, our society faces many pressing challenges that need to be addressed. Globalisation, digitalisation and demographic changes are important drivers for these challenges.
The intensifying demographic change will result in a growing number of older people and a shrinking working age population: the number of people aged over 65 in the EU is expected to increase from 32 to 57 per 100 people of working age between today and 2060. This raises important questions about the implications for future economic growth and the sustainability of welfare systems. The situation of young people is especially concerning, as they are likely to face an additional burden: having to pay higher contribution rates while working, receiving lower pensions after retirement, and possibly also working longer relative to the retirement period. This burden may be further reinforced by the impact of less regular working careers on retirement benefits.
Digitalisation raises questions on technology’s potential to substitute work and has opened the ground for new forms of work organisation, such as platform or gig workers: some recent estimates show that in a number of Member States more than half of current jobs could be automatable with today's technologies. However, digitalisation also entails a considerable job creation potential, especially in innovative businesses with well-educated, well skilled people. In this context, the legal framework and social protection system for these types of works is still uncertain. Such schemes need to evolve in order to better cover new forms of work.
Increasing inequalities have emerged as a consequence of the economic crisis, but also as a result of skills polarisation and more in general the strength of shareholders relative to labour representatives (which is influenced by technology, contributing in various ways to lower unionisation levels). The redistributive capacity of the tax and benefit systems is limited and can and should only address this in a moderate and prudent way, in line with national preferences. Inequality of opportunities, notably in access to quality education and training, is becoming an increasingly important issue that is being looked at in the EU: people with highly educated parents are ten times more likely to be better educated than those from families with low levels of education.
This list, incomplete in many ways, shows the importance of looking ahead. One clear conclusion does emerge. To achieve inclusive growth while remaining highly competitive in global markets, Europe needs to invest in education and training. EU Member States' average scores in literacy, science and math skills rank behind most East Asian countries, such as China, Japan and South Korea. At the same time we see that the average employment rate of persons with low education attainment arrives at some 50% while the equivalent rate for high educational attainment is above 80%. Investment in education does not only pay a high economic return in the form of higher productivity, but is also an effective way of reducing social exclusion and marginalisation, thereby contributing to social cohesion.
The European Semester and the Social Pillar
The financial crisis has shown the reach of ‘spill-over effects’ across countries and the limits of national policies. It has demonstrated the importance of fiscal, economic and social policy coordination on a continental scale. All these factors combined create the foundations for Member States’ short and medium term economic and social performance, including their economic resilience during a downturn.
The close economic integration of EU Member States, which has greatly enhanced with the introduction of the Euro, makes every country therefore a stakeholder in the policies of other Member States. Introduced in 2010, the European Semester provides the platform for the EU member countries to coordinate their economic policies throughout the year and address the economic and social challenges facing the EU.
Each year, the Commission makes a detailed analysis of each country's economic and social situation, as well as its plans for budget, macroeconomic and structural reforms. In this process, it publishes a yearly Joint Employment Report which analyses the employment and social situation in the EU. In addition, for each Member State the Commission publishes a Country Report where it presents a detailed and independent analysis of the country’s economic and social situation at the national level, and identifies the imbalances and challenges that should, according to the Commission, be addressed.
Following the publication of National Reform Programmes by Member States, it then provides EU governments with country-specific recommendations for the next 12 to 18 months. The Commission proposals are, after a short process of discussions with Member States and (relatively minor adjustments), endorsed by the European Council and formally adopted by the Council. They thus represent a shared and mutually reinforcing framework for the implementation and monitoring of national policies.
Any policy decisions in response to the country-specific recommendations are made by the national governments. They include measures whichever the Member States deem appropriate. In the Semester process the Member States learn from each other's challenges and good practices, including through very operational mutual learning programmes, and this contributes to convergence and towards a better performing European Union. Peer review of implementation among Member States is also a key part of the process. To this purpose, a Multilateral Surveillance exercise takes places within the relevant Committees during each Semester during which Member States form a collective view on policy performance or reform in any given Member State.
The use of the European Pillar of Social Rights (the Pillar) as an anchor for the European Semester is an important step in this context. Fundamentally, the Pillar, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017, is a commitment to shared values. It sets out a number of key principles and rights to support fair and well-functioning labour markets and welfare systems. At the same time, the European Semester represents the key tool for monitoring the implementation of the Pillar.
The Pillar comes with a Social Scoreboard. This scoreboard is used to monitor employment and social performance and trends across the EU Member States. It provides a number of indicators along three broad dimensions: (i) equal opportunities and access to the labour market, (ii) dynamic labour markets and fair working conditions, and (iii) adequate social protection and inclusion.
Member States have agreed to use a shared methodology for identifying challenges on the headline indicators of the Social Scoreboard, in the context of the Joint Employment Report. This methodology looks jointly at levels and changes of each indicator in comparison to the respective EU averages. According to their performance, the Member States are classified in seven groups, namely: ‘best performers’, ‘better than average’, ‘good but to monitor’, ‘on average/neutral’, ‘weak but improving’, ‘to watch’ and ‘critical situations’. This classification helps to identify challenges that are pertinent both at EU and national level.
Table 1 reports the results of this analysis in the Joint Employment Report 2018. In terms of overall count of ‘weak but improving’, ‘to watch’ and ‘critical situations’, Greece, Romania and Italy present the highest number of challenges (ten or more). By contrast, Denmark is a best performer or better than average in eleven headline indicators, followed by Sweden (ten indicators).
The reading of the Scoreboard is, in any case, not mechanical. Each identified challenge leads to an in-depth analysis in the context of the country reports, which integrates additional indicators as well as qualitative considerations on the state of play of the policy area in each Member State. The aim is to give a full picture about the implementation of Social Pillar principles, with a view to identifying topics for the Country-specific Recommendations.
Table 1. Summary of 12 headline indicators of the Social Scoreboard
Note: On 19 January 2018, GDHI per capita growth not available for HR, LU and MT; individuals' level of digital skills for 2017 not available for IT.
For illustration purpose, one example of analysis is provided below concerning the first principle of the Pillar on education, skills and life-long learning together with a short description of the situation in Belgium and the conclusions drawn by the Commission, in the form of a proposal for a Country Specific Recommendation.
Skills and Life-long learning
The Pillar affirms every citizen’s right to high quality education, training and lifelong learning. Guaranteeing access to quality and inclusive education, up-skilling and re-skilling, and improving investment in national education systems are key to giving people an opportunity to become engaged and active citizens, and to allow them to freely enter and move within the labour market. Such moves include a change in employment status, a change in employer, entering or returning from a career break or moving between employment and self-employment.
Basic competences are at the basis of people’s skills package. An important indicator of the quality of initial education and training systems is how well young students perform in basic competences such as reading, mathematics and science. These are recorded in the PISA education survey undertaken by the OECD. Compared with the previous PISA survey of 2012, the 2015 survey shows that performance in the EU has weakened across all domains, though there are large variations among Member States. This means that EU countries are further away from the goal to reduce underachievement in reading, maths and science to below 15% by 2020.
There is also positive news. In 2016, the early school leaving rate further decreased in the EU. It stood at 10.7%, down 3.2 pps from 2010 (and 5.0 pps lower than in 2005). Seventeen Member States recorded rates below the EU target value of 10%. At the same time, the rate was close to 20% in Malta, Spain and Romania (which together with Portugal are flagged as ‘critical situation’ in the Scoreboard). The long-term decline of early school leaving in Europe is a positive trend that largely stems from structural reforms in education and training systems and targeted policy measures – often reforms in reaction to Semester recommendations.
Having basic skills is a starting point, but lifelong learning is equally important. While the pace at which jobs and their skills requirements are changing is accelerating, participation in lifelong learning remains relatively low and stagnant for the EU as a whole (10.9% for age group 25-64 in 2017 versus 9.6% in 2005), and continues to be biased towards those people in skilled employment. In Finland, Sweden and Denmark participation in learning among adults is above 25%, while in Bulgaria, Greece, Croatia, Poland, Romania and Slovakia it is below 5%.
Skills may need updating during the course of a person's career or new skills will be needed in order to keep up with a changing work environment. Currently, more than 70 million adults across Europe have poor reading, writing, numeracy and digital skills. At the same time, 40% of employers have difficulty finding people with the right skills.
The part of the Scoreboard related to the third principle on public support and social inclusion contains an indicator about the individuals’ level of digital skills, which is clearly relevant for the issue of equal opportunities in the labour market. In 2017, 43% of the EU population aged 16 to 74 did not have the basic digital skills to meet current needs, while 16% had none at all. The differences across Member States are substantial, with six Member States (Portugal, Croatia, Italy, Greece, Bulgaria and Romania) where at least one quarter of the population had no digital skills in 2016.
The Skills Guarantee initiative, which focuses on up-skilling, could contribute to the employability of the long-term unemployed. The Skills Agenda for Europe aims to make sure that people have the right skills for the labour market and society of the 21st century. The labour-market relevance of education is a crucial determinant of young people's ability to find work and contribute effectively to economic growth.
The Belgian example
In Belgium, we see evidence of a high level of skills mismatch, observed in high inactivity rate in parallel with a high vacancy rate. Belgium's inactivity rate, at 26.3 % in 2017, is higher than that of its neighbours (France: 22.3 %; Germany: 17.7 % and the Netherlands: 18.4 %, for 20-64 year olds). In the Social Scoreboard this challenge is supported by two flagging indicators (indicating at performance ‘to watch’) on employment rate and the gender employment gap.
When it comes to life-long learning in Belgium, only 8.5 % of the 25-64 population engages in life-long learning activities. This is lower than the EU average (10.9 %) and considerably below top performers such as Sweden, Denmark and Finland. To prevent skills obsolescence and to enable people to handle transitions, more commitment by individuals and employers to continuous adult learning is important. Belgium has taken some measures in this sense, such as the March 2017 law on 'workable and feasible work' that also aims at encouraging firms to make efforts to provide training.
In the 2018 Semester cycle the Commission recommended that Belgium pursues education and training reforms. It calls for special attention to such aspects as equal opportunities in education and training and increasing the proportion of graduates in science, technology, engineering and mathematics.
Times are changing. People have concerns. They see society impacted by technology, by globalisation and sense increased insecurity. The benefits are often unclear – somewhat higher income levels are hard to identify (they are unspecific, ‘anywhere’) whilst those losing out, for example from new productivity enhancing services, feel the pain (and hence they are specific, ‘somewhere’). Steering this process of change, staying connected not only with global developments but notably also national, regional and local concerns is difficult. It is a challenge. And it is something that must be dealt with, notably through active engagement with all stakeholders.
With its employment, social and equal opportunities policies, the EU aims to improve living conditions by promoting employment, sustainable growth and greater social cohesion. EU-wide, it seeks to increase employment and worker mobility, improve the quality of jobs and working conditions, combat poverty and social exclusion, promote equal opportunities and combat discrimination, as well as modernise social protection systems.
The Pillar provides a reference tool for the implementation of employment and social policies in Member States. It is a compass for upward social convergence in the EU: improving the functioning of national labour markets and welfare systems can lead to positive spill-overs and therefore will be mutually beneficial for Member States. The Pillar fits in the overall economic agenda of the European Commission on promoting structural reforms, investment and responsible fiscal policies, by putting social policies at their heart.
The European Semester represents the most appropriate tool for monitoring action in these key areas and pursuing a high level of commitment by Member States to deliver on them. In addition, it is the natural forum for enhancing dialogue with stakeholders, exchanging experience and strengthening mutual learning.
The recent picture of the EU painted by the Social Scoreboard is that of an improving labour market and social situation, though the individual situations of Member States remain scattered and the severity of challenges varies widely across Member States.
In this process, the performance of Belgium is relatively good as most indicators score close to or above the EU average. Still, a number of important challenges remain. The employment rate including for specific groups and notably the gender employment gap remain issues to watch. Participation in adult learning is quite low, and educational and employment outcomes show considerable variations linked to socio-economic status. People in vulnerable groups experience one of the largest gaps in terms of risk of poverty or social exclusion. On the upside, Belgium scores well, among others, on participation in childcare, as well as on the degree of overall income inequality. Moreover, the effectiveness of social transfers in reducing poverty and promoting social inclusion is comparatively high.
Traveling on the path towards economic and social convergence is a joint endeavour of the European Union and Member States. The measures and the undertaken reforms should entail full respect of subsidiarity and the division of competences within the Union, as well as respect of the role of social partners in delivering employment and social policies. The European Pillar of Social Rights will support this process in the years to come. Reinforcing social rights is a key priority to improve people's well-being in the short and medium term, and strengthen the foundations of the European construction. It is vital for a common and prosperous future ready to resist new downturns, and thereby crucially important on the European level but especially also on national, regional and local level.
[Jeroen Jutte is a civil servant working on economic and social policy and governance as Head of Unit at the European Commission DG Employment, Social Affairs and Inclusion. He has written this piece in a personal capacity.]
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 European Commission (2018). Employment and Social Developments in Europe. Annual Review 2018., Ch. 4.
 European Commission (2018). Employment and Social Developments in Europe. Annual Review 2018., Ch. 5.
 European Commission (2017). Labour Market and Wage Developments in Europe. Annual review 2017, Part II.
 European Commission (2018). Employment and Social Developments in Europe. Annual Review 2018., Ch. 3.
 It also monitors EU countries' efforts towards the "Europe 2020" targets.
 Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee on "Monitoring the implementation of the European Pillar of Social Rights", COM(2018) 130 final.
 The Digital Economy and Society Index, European Commission.