The Future of Work in Europe

Werner Eichhorst, IZA

Malta, 4 December 2015

Overview

1. Motivation 2. General trends of paid employment 3. Technology, polarization, structural change 4. Working conditions 5. Policy issues

2

Employment/population ratios in Europe

3

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

50

55

60

65

70

75

80

Denmark France Germany Italy Netherlands SwedenUnited Kingdom

Source: OECD.

Job tenure > 5 years

4

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 201340

45

50

55

60

65

70

75

Belgium Denmark France Germany ItalySweden United Kingdom EU28

Job

tenu

re >

5 y

ears

of 1

5-64

dep

ende

nt e

mpl

oyed

Source: OECD.

Resilience of paid employment, but constant change

Paid employment has not declined in a long-term perspective

Some countries lost jobs after the 2008/09 crisis But paid work seems to be resilient to constant change Production and societal integration via employment is

here to stay Main issue is to prepare and accomodate for continuous

renewal and change – involving governments, social partners, firms, individuals

5

Four major drivers of change

Technology Globalization Demographic change Institutional reforms

6

Globalization

Offshoring of cost-sensitive (routine) tasks that can easily be transferred

Combined effects with technological progress, reduced communication and logistics costs

Dominant shift of labor demand in developed countries towards more highly skilled workers

Premium on innovation becomes more important, only way to sustain higher prices and wages

7

Demographic change

Ageing and shrinking work force in most developed countries Longer working life Increase in female labor market participation Shift in demand for goods and services – in particular health care,

old-age care – despite some technological innovations that may reduce labor input there

Migration becomes more and more important

8

9

Male Female Male Female Male Female Male Female Male Female Male Female Male FemaleDenmark France Germany Italy Netherlands Sweden United Kingdom

54

56

58

60

62

64

66

68

Effective age of retirement of older workers

2000 2012Source: OECD

10

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 201330

35

40

45

50

55

60

65

Full time equivalent employment rates of women (FTE)

Denmark France Germany Italy Netherlands Sweden United Kingdom

Source: Eurostat

in %

Institutional reforms Flexibility increase in many European labor markets – in particular in

non-standard forms of work such as fixed-term contracts, agency work, freelance etc.

Wage flexibility within and outside collective bargaining Changes in demand and supply side due to demographic change:

Higher female labor force participation and higher employment rates of older workers in many countries due to (i) expansion of child-care and old-age care, (ii) later retirement

Expansion of education at all levels in many countries

11

The role of technology Permanent technological progress Pressure on low skilled and/or routine work in developed high-wage

countries Digitalization is expected to accelerate labor market change Challenges more complex tasks and jobs Will probably reinforce the upgrade of skill structure in European

labor markets Past experience show a general, but not uniform tendency towards

polarization – some divergence across countries and periods

12

Level and change of the share of hours worked in different occupations, 1993-2010

13Quelle: Goos/ Manning/ Salomons(2014). Explaining Job Polarization: Routine-Biased Technological Change and Offshoring, American Economic Review, 104(8): 2509-2526.

Job polarization in Europe, 1993-2010

14

Quelle: Goos/ Manning/ Salomons(2014). Drivers of recent job polarization and upgrading in Europe, S.15

Quelle: Goos/ Manning/ Salomons(2014). Explaining Job Polarization: Routine-Biased Technological Change and Offshoring, American Economic Review, 104(8): 2509-2526.

Employment change by occupations, sorted by gross wages, Germany, 1996-2011, sorted by gross wages

15

92 51 91 93 52 61 42 74 83 71 73 82 32 33 72 41 81 24 34 11 23 31 12 22 21

-40%

-20%

0%

20%

40%

60%

80%

7x: crafts, skilled workers83: drivers etc.

51: Personal/protect. services 91: sales/services elementary occupations

32: health ass. prof.33: teaching ass.

24: professionals34: assoc. professionals

81: plant operators

21: science prof. 22: health prof.

Quelle: Mikrozensus, eigene Berechnungen; Berufsgruppen nach ISCO-88 sortiert nach Medianlöhnen 2010 aus SIAB.

12: corp. managers

11: legislators, officials

Future developments

We can expect further persistent, probably accelerating change – „creative destruction“ goes on

Growth and decline of sectors and occupations with increasing need to strengthen „adaptability“ of firms and workers

Increasing diversity of the work force and employment types Growing importance of working conditions set at the company or

individual level – relation with supply and demand, and with human capital – but broad, legislated standards are essential, too

16

Growing sectors and occupations Expansion of jobs in areas where analytical and creative elements

as well as personal interaction are essential, for example1. Education2. Research and development3. Management, consulting and marketing etc. 4. Media, IT 5. Knowledge-intensive interfaces of services and manufacturing6. Health care and old-age care, wellness, tourism, leisure …7. Many private / local personal services Many new job profiles in these areas are likely to emerge Regional clusters matter Outsourcing and automatization are less critical in these areas (for

the time being) -> human interaction and local embeddedness

17

The role of policies Favorable public policies are important framework conditions for the

future of work Regulatory issues – product markets and labor markets Social investment – skill formation and support for everybody 1. Education: early childhood education, schooling, vocational training

and higher education, but also life-long learning2. Care for children and the elderly 3. Activation and ALMP

18

Regulatory issues Flexible, open labor markets with adequate and more universal

(minimum) standards regarding 1. Wages2. Employment protection3. Social proction, in particular unemployment benefits Facilitating access to paid work and mobility between different types

of activities Trying to avoid segmentation and inequalities due to employment

status (priviledges and disadvantages) Role for legislation and collective bargaining

19

Labor market segmentation: employment protection and transitions

20

15 20 25 30 35 40 45 50 55 60 650

10

20

30

40

50

60

70

80

EL

PT

IT

SK

PL

SI

ES

EE

FR

CZ

HU

NL

UK

DESE

AT

FIDK

EU27

2012

transition from short-term unemployment to employment 2012-13

tran

sitio

n fr

om te

mpo

rary

to p

erm

anen

t con

trac

ts 2

011-

12

Size of bubble represents score of labour market institutions index (LMII)

Worst BestMiddle

Source: European Commission 2014.

Transitions from unemployment to employment

21

10 15 20 25 30 35 40 45 50 55 600

10

20

30

40

50

60

29.2

16.3

28.3

42.1

28.6

19.9

29.4

38.6

26.528.4

18.2

23.5

13

19.3

33

26.2

45.8

27.2

1821.4

45.8

32.6

39.4

10.6

16.7

25.5

Exit rate from short-term unemploment into employment (2012/2013)

Exit

rate

from

lon

g-te

rm u

nem

plom

ent i

nto

empl

oym

ent

(201

2/20

13)

Source: European Commission 2014.

Life-long learning

22

EL HU SK PL IT IE LT LV *BE CY *DE MT PT ES CZ EU28 EE SI *AT *LU *UK *NL *FR *FI *SE *DK0

5

10

15

20

25

30

35

40

45

2008 empl 2011 empl

2013 empl 2011 unemployed

2011 inactive

% o

f peo

ple

parti

cipa

ting

in li

felo

ng le

arni

ng b

y la

bour

sta

tus

Source: European Commission 2014.

Activation policies

23

EE MT UK RO CY LV SI SK CZ EL LT HU BG LU IT PL DE BE IE AT ES FI FR NL SE DK EA15

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Labour market services (lhs) Training (lhs)Employment incentives (lhs) Supported employment and rehabilitation (lhs)Direct job creation (lhs) Start-up incentives (lhs)Average annual change in total ALMP expenditure (rhs) Countries without breakdown for all categories (lhs)

Aver

age

annu

al c

hang

e in

ALM

P ex

pend

iture

by

cate

gory

Aver

age

annu

al c

hang

e in

tota

l ALM

P ex

pend

iture

medium spenders high spenderslow spenders

Source: European Commission 2014.

24

Working conditions and work environment• In the future, human elements will be even more important, in

particular competences, expertise, experience, but also motivation, professionalism, communication etc.

• In a world characterized by more complex analytical or interactive tasks (and skilled workers), flexible, autonomy- and learning- friendly work environments are beneficial to productive work (associated with employee wellbeing)

• Autonomy – productivity and performance • Striking differences in working cultures between sectors/occupations

and between countries

25

Work environment Firm-level practices are crucial - as are agreements via collective

bargaining Direct responsibility of management which business model and HR

strategy to choose Productive long-term employment (and internal flexibility) can (must)

well be reconciled with individual needs Use of modern technology, negotiated flexible working time/place

arrangements, more project-based task allocation with considerable autonomy essential

Avoiding job strain, overburdening, negative stress – joint responsibility of both management and employees

26

Work environment: Team members decide on distribution of tasks, in %

27

CY EL PT BG IT SK ES FR CZ RO LT HU MT PL SI UK BE EE EU27 LU LV AT IE DE NL SE FI DK HR0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Source: European Commission (2014) based on Eurofound.

Workplace not under direct control of boss

28

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Source: European Commission (2014) based on Eurofound.

Policy issues

Fairness in the labor market despite huge differences in market power of different groups of workers and increased heterogeneity in the labor market

Reconciliation of business-oriented productivity and flexibility aspects with employee preferences, work satisfaction and health

What are sustainable practical solutions at the firm level? What role for social partners/collective bargaining and legal regulation? Regulation of flexible types of contracts in the digital era – using both legal

options and collective bargaining: e.g. agency work, contract work, crowdworking and freelance; wages and remuneration, but also social benefits and funding aspects

Systematic approach at training and lifelong learning: combined efforts of governments, social partners, firms and individuals

Social partners should play a significant role in all of this!

29

Summary

No need to be afraid of the future of work Main issue: Fairness in the labor market despite

tendencies towards polarization, segmentation – „acceptable“ forms of flexibility

Core policy challenges: 1. Skill formation and life long learning2. ‚Flexicure‘ labor market institutions with positive

transitions and strong collective bargaining3. A human and productive working environment/culture 4. Sustainable public social investment

30

Werner EichhorstIZA

IZA, P.O. Box 724053072 Bonn, Germany

Phone: +49 (0) 228 - 38 94 – 531Fax: +49 (0) 228 - 38 94 - 510

E-mail: eichhorst@iza.org

http://www.iza.org