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Non-Standard Employment and Labour Force Participation: a Comparative View of the Recent Development in Europe

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Non-Standard Employment and Labour Force Participation: a Comparative View of the Recent Development in Europe IZA DP No. 5087 Non-Standard Employment and Labour Force Participation: A Comparative View of the Recent Development in Europe Günther Schmid July 2010 DISCUSSION PAPER SERIES Forschungsinstitut zur Zukunft der Arbeit Institute for the Study of Labor Non-Standard Employment and Labour Force Participation: A Comparative View of the Recent Development in Europe Günther Schmid Social Science Research Centre Berlin (WZB), Free University of Berlin and IZA Discussion Paper No. 5087 July 2010 IZA P.O. Box 7240 53072 Bonn Germany Phone: +49-228-3894-0 Fax: +49-228-3894-180 E-mail: [email protected] Any opinions expressed here are those of the author(s) and not those of IZA. Research published in this series may include views on policy, but the institute itself takes no institutional policy positions. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. IZA Discussion Paper No. 5087 July 2010 ABSTRACT Non-Standard Employment and Labour Force Participation: A Comparative View of the Recent Development in Europe* This paper presents – in a new way of examination and portrayal – the extent and changes of nonstandard employment relationships (part-time work, fixed-term contracts, and self- employment) in 24 EU member states at two points of time, in 1998 and 2008, on the basis of the European Labour Force Survey. Apart from a detailed statistical description by gender, skills and branches, theoretical considerations explaining the development are also examined and tested in a preliminary way. Finally, the most important results and their challenges to the future labour market policy are emphasised again and discussed. The central outcome is neither the complaint of the eroding ‘standard employment relationship’ nor of its potential ‘precariousness’; it is rather the requirement of increasing variability in employment relations due to rising employment participation of women (work-life-balance), mature aged workers, and persons with restricted work capacities. However, parallel to this development social risks are also spreading over the life course, especially the risk of great income volatility through multiple or long periods of unemployment, changing working times, obsolete skills or restricted work capacities due to ill health. In order to reduce or to avoid new social inequalities, future labour market reforms have to acknowledge this development by establishing new forms of social security or by constituting a more flexible standard employment relationship through adaptations in labour and social law. The contribution ends by providing some suggestions to such reforms. JEL Classification: J21, J38, J41, J48, J68 Keywords: non-standard employment, labour force participation, flexibility, labour market policy Corresponding author: Günther Schmid Employment Policy Research Schäferstr. 14 14109 Berlin Germany E-mail: [email protected] * I thank Paula Protsch for gathering and handling of the statistics, Ernest Berkhout and Jules Theeuwes for their kind hospitality at SEO Amsterdam, for their help and challenging suggestions, which I could not all fulfill, and Jutta Hoehne for bringing everything in format. The paper has been published in slightly reduced form in Berkhout et al., Bridging the Gap – International Data Base on Employment and Adaptable Labor, Amsterdam (2010), SEO Socioeconomic Research, pp. 119-154. 1. Introduction Despite the current crisis, which led again to mass unemployment in many countries, the long-term perspective of most EU member states is still one of labour shortage for two reasons: one quantitative related to the ageing society, one qualitative related to the rapid change of technology and global competition. Whereas migration might fill this gap to some extent, raising labour force participation of the native population is generally seen as the more sustainable solution. Furthermore, changing work preferences, especially among women traditionally tied to unpaid work in the private households, hint to unexploited potentials of endogenous factors driving labour force participation. Preferences for labour market participation might still be blocked by institutional barriers of various sorts: employment protection, tax disincentives, lack of child care or elderly care infrastructure, and wage discrimination. Other important factors slowing down the potential increase in labour force participation are all sorts of regulations that enforce outdated standards of the employment relationship. Such standards – traditionally defined as open-ended contracts in dependent full-time work, possibly further restricted to one employer and five days a week from nine o’clock in the morning to six o’clock in the evening – limit both the use of flexible labour for the employers as well as the opportunity of variable employment over the life course for the employees. The last decades, however, have seen an erosion of this – conventionally defined – “standard employment relationship” through part-time work, fixed-term contracts, temp-agency work and self-employment. Whereas many welcomed this development as a blessing for flexible labour markets, others were highly critical and hinted very early to disastrous intended or unintended side-effects such as low or volatile income, dead-end jobs instead of stepping stones, high job insecurity, and poverty in old-age. At the beginning of this century, the European Commission stepped in as a kind of broker by recommending to direct the European Employment Strategy towards a proper balance of flexibility and 3 security (Kok et el. 2004), dubbed already early by ingenious Dutch researchers as ‘flexicurity’ (Wilthagen 1998). Varying a well-known saying by Martin Luther with respect to his wife: ‘as we have got this term, we have to like it.’ All the more, since a further increase of labour force participation seems inevitably be connected with a greater variety of employment relationships. The aim of the following essay is to test this assumption in a preliminary way through systematic descriptive work and conceptual reflections: first by comparing the development of non-standard employment in EU member states from 1998 to 2008; second by relating this development to the dynamics of economic welfare and labour force participation; third by exploring some determinants to explain this development; fourth by discussing the policy consequences aimed at ensuring a complementary relationship between flexibility and security rather than trading-off one against the other; fifth by summarising the main results and concluding. 2. The Change of the Employment Relationship in the European Union The following view on the dynamics of the employment relationship is based on the European Labour Force Survey using the following definitions for labour force participation and non-standard employment: - (1) Activity rate / or labour force participation rate = (Employed + Unemployed) as per cent of working age population (age 15 to 64) 2 - (2) Part-time employment rate = employed in part-time work and in open- ended contracts or in own account work 3 as per cent of working age population; or as a share of total employment 2 Notice that “labour force participation” is measured by including the unemployed who belong – in functional terms – to the active labour force (i.e., being available to the labour market and willing to work). The downside of this measure is spoiling international comparability since the measurement of unemployment between countries varies more than the measurement of employment despite ILO or OECD standards especially at the margin of the ages and with respect to health related employability. Related to the latter, the standard for employability applied in Germany for instance is (since 2003) stricter than in Denmark or in the Netherlands. Konle-Seidl/ Eichhorst (2008) find that Dutch unemployment rates would almost double by applying the German standards. 4 - (3) Fixed-term employment rate = employed in fixed-term contracts (including temp-agency work with fixed-term contracts and part-timers in fixed-term contracts) as per cent of working age population; or as a share of total employment - (4) Self-employment rate = own account workers (self-employed without dependent employees) in full-time as per cent of working age population; or as share of total employment - (5) (Aggregate) Non-standard employment rate = sum of (2, 3 and 4) as per cent of working age population; or as share of total employment. The statistical analysis uses a special data set of EUROSTAT which allows, by using a filter, to put the three components of non-standard employment together to an aggregate figure of non-standard employment. The figures
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