Labour Market Prospects and Policies to Soften the Impact of the Financial Crisis

The global downturn is now strongly affecting EU labour markets. In light of the downward revision to the growth projections and the uncertainty created by the financial meltdown, the outlook for employment has deteriorated considerably. This would also be consistent with the experience from previous downturns, where the full labour market impact only materialised after 2-3 quarters. On current policies, the Commission projects employment growth to turn negative during the next two years, accompanied by a steep rise in unemployment, which would be around 11.5% in 2010 in the euro area. However, labour market outcomes depend crucially on policy responses. The good news here is that our assessment shows that measures undertaken so far within the framework of the European Economic Recovery Plan are promising. The in-built capacities of the social safety nets are fully playing their role and a number of new innovative policies are also keeping people in employment. However, given the spillovers that many of these policies create on other Member States labour market measures could be more effective if co-ordination at the European level was strengthened. A stronger more co-ordinated response would also help to soften the impact of much higher unemployment levels on Europe's potential rate of growth in the future