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October 3, 2008 - Richard Donkin
The turmoil that has overtaken the global financial system in the past few weeks has begun to feed through in to financial job losses. But new economic data shows that, even before the current crisis, the worldwide credit crunch was already starting to bite.
Indicators in the Euro zone, the UK, Japan and the US all pointed to declines in manufacturing output in September. Only China among the world's biggest economies recorded gains in output during the month and that may have reflected a more confident atmosphere in the wake of the Beijing Olympics.
Unemployment rates have begun to creep up in a number of countries. The US rate hit a five year high in August, at 6.1 per cent while the Euro zone rate hit 7.5 per cent.
The European figures were not entirely gloomy. While unemployment rates in France, Spain and the UK rose, that of Germany fell back slightly. The UK and the Euro zone, however, recorded net job losses of about 50,000 in the month.
While the trends are disappointing, they are not yet calamitous, although there has been nothing in the financial news of the past three weeks to suggest a reversal in business confidence.
A few grains of comfort, however, might be drawn from the apparent resilience of working people, most of whom have proved robust enough over the past year to absorb spiralling energy, fuel and food prices. A banking crisis, in comparison, is one more trial but has not, as yet, led to losses in savings. Those with buy-to-let mortgages, stock market investments and pension funds have been hit much harder than ordinary savers.
While European employment policy makers cannot be encouraged by the economic data - there seems little prospect now of achieving the Lisbon employment rate targets of a 70 per cent average by 2010 – they must work more strenuously than ever to achieve deregulatory labour market reforms.
Before the downturn, more flexible-working policies combined with the free movement of labour appeared to be delivering some economic stability as the European Union moved steadily to shift its emphasis on job creation to one that concentrated on market demands for work.
The distinction between a focus on creating jobs and a focus on creating market conditions that allow the employment of people to meet economic demands for skills and talent, is significant. A demand-led marketplace, underpinned by effective regulation and safeguards, has to be the way forward for governments across the length and breadth of Europe.
To ensure its success, however, governments and trade unions must abandon concerns for job security that are based on outmoded assumptions surrounding the desirability of lifelong employment.
Over-regulation in some sectors has caused a chronic log jam among entry-level jobs in France in recent years. While the rump of those in employment have secure jobs, clinging to the promise of lifelong employment, inflexibility in the French employment system has created severe youth unemployment as many young people struggle, moving between internships, sometimes working for little or no pay in the hope of securing a career opening.
Europe's labour market problems in the past few years have been largely structural and nothing has happened so far in the current financial crisis to change that analysis.
It could be argued that a degree of short term pain and market fragility could accelerate the rate of employment deregulation that would help to create a genuine market for talent in some of the most over-regulated European states.
In the UK, where labour market deregulation has been more pronounced than that among its European partners, employers have learned from previous downturns that a steady throughput of skills must be maintained, even as trading conditions tighten, so that long term success and competiveness can be assured when the economic climate improves.
In the past, UK employers suffered when they imposed a standstill on graduate recruitment that led to imbalances as people worked their way through companies. Today, large employers are far less likely to turn off the recruitment tap in this way, choosing to pair back their employee numbers, if they must, at various levels.
There are powerful strategic arguments for more sophisticated employment policies since annual pay increments within an aging workforce have a cumulative effect on a pay bill leading, sometimes, to a skewing of salary rates in favour of long term employees.
The structure of long term employment creates difficulties in breaking these salary differences that underpin the persistent inequality in the pay of men and women doing similar work. One of the main reasons for pay inequality between the sexes is broken service as women move in and out of work to raise families.
Policy makers must continue to focus on such issues in spite of cyclical economic fluctuations. If the Lisbon target is not achieved there should be no recriminations for the aspirations of those who set the goal all those years ago. On the contrary there can be no better time for setting new goals in line with changing needs and conditions of today's labour markets.
Part of those changes must reflect the need for flexibility in business and this must mean concessions on job security. Flexecurity is a quaint concept but I could never describe it as marriage made in heaven.
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