– what advice to the next EU Commission?

The SecGen Away day May 23, 2019

It has been a real pleasure to prepare this presentation. It has given me a good reason to revisit my experience of policy making in the EU:
– from the 1990s when we brought “employment as a matter of common concern” into the Amsterdam Treaty,
– followed by the first European Employment Strategy, the Luxembourg strategy – in close cooperation with Prime Minister Juncker and the Luxembourg Presidency,
– then the Lisbon strategy in 2000 under the leadership of Prime Minister Guterres, where the open method of coordination was agreed, now the European Semester process.
– finally, a few years ago, as a senior citizen, I was brought back by President Juncker to be part of his team, preparing the European Pillar of Social Rights.

All that is history, and this is a meeting to look forward for policies for the future. Therefore, the title of my presentation is “The Future of Work – beyond the Social Pillar – what advice to the next Commission”.

I will address the following five questions:

1. The eternal question: Will there be jobs for all?
2. The next generation of digital working life: How disruptive will changes be?
3. The two speed labour market: will everyone fit in?
4. The elephant in the room: The growing inequalities
5. The future of work: what advice to the next European Commission?

I will do my best to provoke reflections and a lively debate.

1. Straight forward to my first question, the eternal question: Will there be jobs for all?

Back in 1995, when I started working in DG Employment, there were deep concerns over growth and employment. In the public debate, there were two explanations to the weak performance of EU Member States: trade and technology!

Today, 25 years later, we know more about the interaction between tech-trade and employment. Here are some facts:

– From 1995 to 2018 we have lived through a period of disruptive digital developments, a strong growth in global trade and investment and a financial crisis. In spite of this, there are 35 million more people employed in EU28 today compared to 1995 – the highest employment rate ever in the EU

– This is the net result – it includes a loss of more than 5 million jobs during and after the financial and currency crises from a top in 2008 to a bottom in 2013, before the economic recovery.

– 15 of these additional 35 million jobs have been created during the last five years

– The same goes when we look at the global development – according to the ILO, employment has increased by almost one billion jobs over 25 years, between 1991 and 2016, from 2,2 to 3,2 billion .

What conclusions can we draw for the future? Are we in for a completely new wave of technologies – Internet of Things, AI, 5G, Block chain and Big Data – with disruptive effect on total employment?

My view is that behind the introduction of Internet of Things and other new digital innovations, the same mechanism will work as it did in the past. That means that productivity gains will translate into higher real wages and salaries and/or profits, which then will be translated into consumption and investment – and new jobs.

Whether we will see a continued employment growth – or not – is more a question of macroeconomic policies than digital technologies. The heavy employment losses between 2008 and 2013, 5 million jobs in EU28, can all be explained by mismanagement of the financial system and of mistakes in macroeconomic policies, not by trade and technology.

The good employment performance during 2014-2018 can be seen as a function of more growth oriented policies – both monetary and fiscal policies, by the EU and the ECB and by Member States.

2. The next generation of digital working life: How will work change?

Let us move from the macro perspective to micro, how will work change and how will working people be affected?

Today, there is a wealth of research and policy reports – from academia and from policy organizations – from the IMF, the ILO, the OECD , the European Commission, the World Economic Forum, ETUI and many others. I am particular grateful to Michel Servoz and his team for their report “The future of work? Work of the future!”

The message is clear: there will be fundamental and disruptive changes in the world of work as a consequence of new technologies, harder competitions and new business models, as we are moving further into the new digital world of work.

Michel Servoz report gives a very good overview of Artificial Intelligence and makes the issue of digital transformation concrete – pointing out, in a provocative way, how it will work in different professions. For example: do we still need taxi drivers when we use self-driving cars? Do we need security guards when AI-based cameras better can discover threats and suspects? Do we still need lawyers when AI can be used for the discovery process of a trial process?

What can we learn more generally from these reports? Here is what I would like to share with you:

From Michel Servoz I would like to pick two conclusions. The first one is that that there is an ongoing race between a few countries to lead on artificial intelligence – on top-class computer infrastructure, recruiting the best AI researchers and supporting superstar firms in the field of AI. This process is driven by nine t big companies. None of them are European. Asia has invested three times as much as Europe, North America five times as much in research and innovation. The second one is his strong recommendations on youth education and adult education to support individuals to reap the benefits of these new technologies.

The OECD has a similar message. The organization emphasizes that the new wave of change seems set to roll on for decades, that those that can harness digitalization stands to benefit hugely, others risk being left far behind.

The European Trade Union Institute draws the conclusion that technology is less likely to replace work than to move it elsewhere – not only up or down the value chain, but also among occupations and among employment statuses. What we need to worry about is, according to the ETUI, not a world without work, but a world where employment relations have withered away .

3. The two speed labour market: will everyone fit in?

Now, let us put these two pictures together – on the one hand, employment-oriented macroeconomic policies, and on the other hand disruptive changes in the structure of jobs and the labour market.

How do we bring people, who have lost their jobs, back into gainful employment? How can workers be equipped with new skills, when their enterprises are moving to a new level of digital technologies? How can enterprise find workers with the right qualifications?

I would like to explain the exiting mismatch by using my favorite image, “the two speed labour market”, a very simple explanation of complex interactions between supply and demand. As I see it, there are two sides of the labour market:
– On the one side, to the left, there is the economy, businesses, big and small enterprises, public organizations, entrepreneurs – a mix of organizations, employing some 240 million people ;

– On the other side, to the right, there is the labour force, 240 million employed – men and women, experienced workers and newcomers, skilled and unskilled, most of them in gainful employment, some of them entering the labour market, others in transition from one job to another. Then there are some 16 million unemployed, some of them, 6 million, long term unemployed .

What do we know about the interaction between the economy and the labour force?

– We know that the pace of change in the economy is high. Some 10-20 per cent new jobs are created in existing enterprises or in new ones, new jobs in the growing end of the economy, new jobs with new skills requirements (1).
– At the same time existing jobs will be lost in the declining end of the economy (2)
– We also now that some of those losing their jobs will soon find a new job, however, many will not. Their skills from declining enterprises or positions, does not fit the new jobs. Redundancy, loss of jobs, will turn into unemployment (3)
– Too few are given a new start in the form of skills for the digital economy, existing skills does not match the changes in the economy, there will be bottlenecks in the growing end of the economy and slower economic growth (4)

In the background document to the European Pillar of Social Rights, there are some striking facts from Member States on lack of action. As an average, only 10 per cent of those out of work, were offered a news start in the form of retraining or upskilling. Most of the jobseekers have to find a new job in the digital economy, lacking skills for this new world of work.

Michel Servoz report on AI confirms the two speed labour market – on the one hand, 90 per cent of jobs now require IT-skills – on the other hand 61 million people in the EU have insufficient basic skills.

Thus, too few springboards inside enterprises and too few bridges back to work for those who have lost their jobs. Too much of intervention comes too late, leading to long term unemployment. The message from the European employment strategies and the European Pillar of Social Rights is clear, much more has to be done. Policies have, according to the OECD, a key role to play to promote an efficient and inclusive digital transformation, by ensuring that the necessary complementary factors are in place, including enhancing initial education and training systems’ ability to provide the cognitive, technical and managerial skills that are crucial to strive in digital economies . Or, to quote World Economic Forum: “We need a reskilling revolution” .
To summarize: It is not technology and globalisation in itself that is the threat. It is the lack of supporting policies that is causing social and economic damages. And this is a big European problem of the past and it will be a bigger problem of tomorrow – unless there is fundamental change in Member States´ political priorities. It is too early to celebrate the recent progress on employment and the lowering of unemployment. There is much more to do!
4. The elephant in the room: growing income inequalities

Now, to my fourth question, which is about the elephant in the room: the growing inequalities over the last 30 years.

When we look back, we can see that income inequality decreased until the 1980s. Since then, income inequalities increased – particularly in US, UK and Canada and other Anglo-Saxon countries. It has also happened in Continental and Northern Europa – but to a lesser degree.

It is most evident in the US, where the income of the working class and the middle class have been stagnant for a long time, while income and wealth have gathered at the top at unimaginable amounts.

This was a non-issue for many years. Growing inequality was a price to be paid in order to achieve economic growth, according to the economic theories of the 1980s. It would pay off through a trickle-down process to those in need.

In recent years, this notion has been increasingly questioned, based on the fact that the outcome has been completely different from what the theoretical models promised. We have registered a slowing down of productivity in parallel to growing inequality.

There are differing views of the causes of the rising share of the top one percent. The IMF notes that some researchers emphasise the impact of globalisation and new technologies, while others highlight policy choices, such as reductions in tax rates, and others the rent-seeking behaviour of executives .

During these 30 years of globalisation, structural reform, opening up of markets through deregulation has been the foundation of all public policies. However, for such a policy process to work both in terms of growth and a fair income distribution it has to be supported by a stronger policies for pre-distribution and re-distribition.

It has not – on the contrary, the structural reform process has aimed at weakening the labour market institutions and the balance between labour and capital. Or, to quote Paul Krugman, “there is a growing, though incomplete consensus among economists, that the key factor in wage stagnation has been workers´ declining bargaining power – a decline whose roots are ultimately political”

Whatever reason for growing inequality, it will stay as one of the main challenges of public policymaking in many years to come. It will stay as a challenge to social policies, to economic policies – and to political cohesion. It will feed the public perception that “we are on the wrong path”, “we are left behind”. It will be exploited by political forces, which offers political solutions in the form av nationalism, protectionism och xenophobia.

Today, the IMF, the World Bank, the OECD and the ILO have a unified message: Growing inequality in terms of health, education, opportunities and income is not only a social problem, it is an economic problem. Growing inequality is an obstacle to economic growth and social progress. The OECD has made an estimation that the rise in inequality over 20 years have knocked almost 5 points off cumulative economic growth . That is a big thing – it is equal to 2-3 years av GDP-growth! Hard facts! As regards policies, the IMF has drawn the conclusion, contrary to the wisdoms of the 1980s, that redistribution generally is positive for economic growth .

Furthermore, growing inequality has severe consequences for our democratic systems, as indicated by professor Angus Deaton, Nobel Prize winning economist, in his new report to British Institute for Fiscal Studies. He highlights the fact that 57 per cent of the Americans believe that there is no point in voting because elections are controlled by large corporations. He draws the conclusion that globalisation and automatization are certainly among the factors that are helping promote internal division within rich countries. “Yet they are common to all rich countries, so it is policies, not unstoppable historical forces, that are behind the events in America” .

5. Beyond the social pillar: what advice to the next European Commission?

Now, let me conclude by summarizing in three points how I see the big challenges during the next five years: macro-economic policies, the climate crisis and the fight against inequalities and exclusion.

– The first one is about the macroeconomic challenge.

After five years of recovery, driven by the ECBs quantitative easing program, and an extreme interest rate policy, monetary policies are exhausted. Central banks have very little room for action, when we face the next slowdown in the economy. This is quite new situation compared to the macroeconomic situation, when the present Stability and Growth Pact was designed. What could be an effective policy response to the next downturn? Unfortunately, I have no advice, the only thing I know is that the answers are not to be find in the present SGP. Therefore, there are expectations on you and the ECB to come up with new policies for these uncharted territories – a new Growth and Stability Pact for our time.

– The second one is about Climate crisis.

I agree with Michel Barnier on the message in his article “It is time for a Green EU Deal” . He suggests that the new EU Commission prepares a Sustainability Pact, in some respects as important as the Stability and Growth Pact is for public finances.

Such a pact would require concerted action on climate, trade, tax, agriculture and innovation. Massive investment will be required, too. He also argue that where there are cost in terms of transition, these costs should not fall disproportionately on those least able to bear them.

I fully agree.

Now, there is a growing public opinion, driven by a young generation for much stronger political commitments than ever before. They ask us what a world they will be living in by 2050. We have to listen to them – and you have to prepare a good answer for the next President of the EU Commission. The movement of young climate activists will be first-time voters in national elections over the next five years – and they are not alone.

They have built their opinion on science, which make their movement strong. Furthermore, they can add support from central bankers – 34 Central Banks around the world have agreed that climate change is a threat to financial stability. That is a powerful message to governments, financial institutions and the next EU Commission.

– That leads to my final point, to economic and social polices beyond the Social Pillar, a new Economic and Social Deal to combat growing inequality.

To take this discussion forward I would use the social scientist concept “the social contract” to frame the discussion. It is about relations between individuals and society, about rights and obligations.

The social contract in EU and its Member states is the result of hundred years of social dialogue, national and European law-making and global standard setting, in several different national traditions.

It is based on a common understanding that labour is not a commodity : labour is much more than a production factor, labour as a collective entity is the main source of demand for goods and services, it is the main source of saving for investment, and the main financial basis of our welfare systems. From this follows that the labour market is different from markets for goods and services, and why there is a need for a different legal and social framework, different from the competition based concept of other markets.

The very basic element of the social contract is the handshake between a worker and an employer; without that handshake, no growing enterprises, no new jobs, no income, no sustainable growth, no prosperity. Everything rests on that handshake, confirming an agreement on what the worker has to do and what the employer has to pay. This is the social contract in its very basic form. To create a level playing field, these individual handshakes have been underpinned by collective agreements and by national, European and ILO legislation.

However, for many years, the social contract as we know it has been under pressure from two sides, from the digital transformation of the world of work and from growing imbalances between labour and capital, a result of public policies, as noted by Angus Deaton.

Over the last 30+ years Europe has played an important role in this battle between ideas and between economic and social forces – from Jacques Delors´ “social dimension” as a complement to the single market to Jean-Claude Juncker´s European Pillar of Social Rights with 20 principles guiding social and economic policies in Member States. One of the big challenges during the next five years, will be to build on these initiatives creating a better balance – and a more productive balance – between labour and capital and stronger and more pro-active safety nets in the digital transformation.

There is no quick fix, no simple solution to correct the growing imbalances, no single EU directive that will change the course. It is basically a result of national policies, based on the dominant economic policy concept of the last 30 years. It will take time.

What you have to do is to put this issue on the top of the agenda on par with Michel Barnier´s Sustainability pact and on par with a new Growth and Stability pact. In practical terms, the rebalancing between labour and capital has to be integrated in the economic policy guidelines. There is a need for commitments of the same clarity and strength as you have introduced in the climate strategy and in the stability pact.

To be more specific, you have to focus on two things,
– To reform the two speed labour market by offering mot springboards to new skills and competencies and more brigdes back to work
– To give a new direction to the ongoing digital transformation of world of work by fostering a new balance between labour on the one hand and the new employers, the digital platforms, on the other hand.
The big challenge to the EU institutions and to the Member States, that are lagging behind, to rethink their policies of the past, strengthening pre-distribution and putting resources into proactive policies for equal opportunities – recognizing social policies as a productive factor.

Let me end by quoting Michel Barnier who wrote that the best time to launch a Green EU Deal was years ago. The next-best time is now. The same goes for a new Economic and Social Deal to combat growing inequality.