Study on behalf of DG EMPLOYMENT

by

ÖIR - Österreichisches Institut für Raumplanung (AT)

in association with IfS Institut für Stadtforschung und Strukturpolitik (DE),

RWI - Rheinisch-Westfälisches Institut für Wirtschaftsforschung (DE)

Sosiaalikehitys Oy (FI)

Impact of Economic and Social Integration on Employment

in the Context of Enlargement

The Study

1. Sectoral Case Studies:

• Automotive Industry• Financial Services

2. Regional Case Studies:

• Finland - Baltic Sea Area• Saxony - Czech Republic• Wien - Bratislava - Brno - Györ Region

3. Literature Survey

4. Research Needs

Contents of my presentation

1. Impact of Integration on Employment

2. The Context of Enlargement - the Acquis

3. The Employment situation in Europe on the Eve of Accession

4. Accession related Labour Market Issues

5. Impacts of Accession on the Labour Markets

6. Conclusions - Contribution of Enlargement to the solution of Employment Problems

1. Impact of Integration on Employment

• Product and capital markets dominant

Accession will not induce substantial changes to

conditions for trade and capital movements

• European labour markets lag far behind in the degree of integration

Low transnational labour mobility

Different tax and social security systems

Qualification mismatch similar in all MS

Institutional, cultural, language barriers

Impact of Integration on Employment/2

• Integration and positive effects on income and productivity low returns on employment

• Even more so

– in advanced economies

– under sluggish demand conditions

– in the production sector

– under conditions of fast structural change

• Econometric analysis:

– positive, though small long-term overall effect of integration on employment

• Enlargement - a process and not as an event

• Take account of diversity of the AC (8) size

– economic structure

– development path during transition

– geographical position

– labour market system

• EES (in the AC)

– JAP

– JIM

– agricultural sector

2. The Context of Enlargement

Single Market

Europe Agreements

Accession AT, FI, SE

Agenda 2000

Euro (WWU) for 12 MS

Accession of 10

Access.: RO, BG, HR?

Lisabon Strategie

JAP/JIM

Reform SF

1992199319941995199619971998199920002001200220032004200520062007200820092010

3. Cohesion report

Steps of European Integration

EES

The Acquis and the Labour Markets

• Enlargement as threat to labour market (eg A, D)

• Transitional regulations - free movement of persons

– treatment of workers from new MS like other foreign workers

– 2 years + 3 years (review) + 2yrs (serious problems)

• Relief of pressure on governments

• Gateway to co-operation and mutual information

• No transitional regulations in DK, UK

3. The Employment Situation in Europe on the Eve of Accession

30354045505560657075808590

1 2 3 4 5 6EU (15) AC (10)

Lisbon Strategy Target

total

total

m m

f f

Employment rates 2001

Max. (by country)

average

Min. (by country)

Legend:

Employment rates 2001

0

5

10

15

20

25

1 2 3 4 5 6EU (15) AC (10)

total

total

m

mf

f

Unemployment rates 2001Unemployment rates 2001

0

1

2

3

4

5

6

7

30 40 50 60 70 80 90 100 110 120 130 140

EU(15)

PL

AC(8)

CR

HU

SK

ES

LALI

SI

UK

DK

FIN

ATIT

IRL

Real growth

2001/2003 in % p.a.

GDP/employed person

EU(25)=100

DE

Labour Productivity and Growth

The Employment Situation in Europe on the Eve of Accession

• Major differences between MS and AC

• Levels of indicators • Gender differences• Economic growth pattern

• Labour Market Policy

• Liberal vs.welfare state approach• Active labour market policy still little developed• Expenditure levels much lower (about 1/5 relative to GDP)

• Employment Strategy

• Jobless growth• Problem groups (young, old, unskilled, minorities)• More of the same challenges in AC

4. Accession Related Labour Market Issues

A) Migration & Commuting

B) Wages, Productivity and Qualification

C) The Role of FDI

D) Regional differentiation

A: Migration

• Migration between the AC (10) and EU (15) does not seem to be an issue

– not in the past and even less so in the future

– neither for MS nor for the AC

• Predictions are hard to make, especially if they concern the future.....

– Brücker: 318.000 p.a., 154.000 - 217.000 to Germany

– UK expect 200.000 p.a. because of openness

– Motives? Destination?

A: Cross-border Commuting

• Cross-border commuting already observable

• Figures are fiction!!

• Commuting potential already partly utilised

• Future commuting depends on

• transport infrastructure and transport cost• short term fluctuations in labour demand • handling of the transitory regulations• the progress of real wage convergence

B: Wages, Productivity and Qualification of Labour Force

AC - compared to EU(15)

Wages (nom) 20-40%,

Productivity much lower

Unit costs comparable

Qualification largely equivalent (esp. Manuf.)

Employment - due to qualification upgrading

Striking: growth of wages for skilled employees

shortages of high skilled employees

For mobile/highly skilled AC labour forceneighbouring labour markets are no moreparticularly attractive

C: The Role of FDI

• Contribution to the restructuring processes

• Market access• non-tradable sector• manufacturing with low labour cost relevant (1/5)

• Increase in volume expected

• Crucial for convergence

• technology • wages• employment (more jobs in foreign owned companies,

domestic companies cutting back employment)

The Role of FDI/2

• Locational strategies of AC are

– heading for high tech in all AC

– not for low wage/labour intensive investment -

– match with entrepreneurial behaviour

• (Small scale) FDI across the border have helped SME to enhance or maintain their competitiveness on the global and local markets

D: Regional Differentiation

• Need for regional differentiation

• within the AC• concerning the different border section

• Challenge for cohesion policy on national but also European level

• Prosperity edge “moves” into the individual AC

• more visible/pronounced in the employment figure than in economic performance/GDP

5. Impacts of Accession on the Labour Markets

in trade (declining transaction cost)

Cross-border market integration will benefit most

• through arbitrage processes• leading to speedier convergence in the AC border regions

of structural change within AC

regional disparities on the nat. labour markets

necessity for cross-border co-operation of labour market institutions

6. Conclusions

• Challenges for LM similar in AC and MS

• Employment challenges remain on national level - impact predominant in border regions

• Transitional arrangements are politically important but economically meaningless

• Regional differentiated approach is needed for employment policies

• Integration+enlargement is part of the solution, not the problem

The Contribution of Enlargement to the Solution of Employment Problems

• Effects on the macro level

• Opportunities on the micro level

• The contribution of European Employment Policy

• Cross-border labour markets emerging

30

35

40

45

50

55

60

65

70

75

30 40 50 60 70 80 90

LA

LI

ES

PL

HU

SK

CRSI

CY

GDP/employed person,

EU(25)=100

Employ-

ment

rate

Employment rate and productivity