We are living in a time of strong evolution, great transformations and with a labour market that is changing fast, whilst economic growth remains rather slow. An unprecedented situation that, according to Daniel Gros, German economist and Director of the Centre for European Policy Studies (CEPS), “nobody has explained yet.” For years, Gros has followed the development of European markets, of the Eurozone and of the labour market in Europe and beyond.
Why is it that the great development we have experienced in recent years has not gone hand in hand with economic growth and employment?
“There are different theories, none of which are definitive yet. Some say that investments in new technologies do not lead to tangible results in the short term: rather, they act as the pillars for a faster and stronger growth in the future. Others claim that part of our economic growth entails competitive activities that eventually level each other off. I will give you an example. Advertising, for instance: some sell more and therefore others sell less, hence where is the increase in productivity?”
It is the relationship between supply and demand. Although the economy is not working, there is constant technological progress.
“This is undoubtedly a problem of our time. We surely measure GDP with elements that do not offer added value. However, we must say that in the manufacturing sector growth continues while in the service sector - currently greatly expanding – it is difficult to measure this added value.”
Meanwhile the labour market is changing at a dizzying pace.
“Absolutely. Let me tell you something: in Italy and Greece, unemployment is the main problem and we think it is growing everywhere, but this is not the case. In the world of developed economies, in the Eurozone and in the USA, employment rates are at a record high and the participation rate in the labour market has been increasing for 20 years. Therefore, today unemployment is becoming less and less important worldwide. It is an Italian and Greek problem and it affects those economies that do not work well because their labour markets are inflexible.”
There are no problem-free labour markets. What are the issues for industrialised countries?
“Of course, the perfect labour market does not exist, but the problem is not mass unemployment. It is rather how to find a method to determine salaries. The old model counterpoising capitalists and unionised workers no longer exists. It was good for old factories, such as Fiat in Turin, but today it no longer works. Everyone is now aware of this. Therefore, it is difficult, in this new labour world to find the right method to determine wages and salaries. This is today’s underlying problem.”
And then there are robotisation and digitalisation looming. Do you think they might have devastating effect on the labour market?
“They will undoubtedly have an effect, but very gradually. It is clear that a part of the labour market will suffer and lots of jobs will be lost. But in the physical world, setting apps and new technologies that are mutating at the speed of light aside for a moment, progress is increasingly gradual and not so immediate. Robots can do many things, but they take years to be developed and to learn new tasks. So, there will be an impact, but it will be gradual.”
Is it possible that robots will eliminate millions of jobs, even the highly specialised ones?
“Undoubtedly, this is a politically important problem. But at the same time, the situation is highly unpredictable. Everybody will feel uncertain and scared by the possibility of losing their job, even though this will happen gradually and in steps. For some professions, the effect will be more disruptive, even in the short term. What jobs? It is difficult to predict. However, AI also has very positive aspects; we must not forget that it makes us stronger and more competitive.”
You said that the employment rate in the industrialised world is growing. For the future, can you see any signs indicating a further development or slowdown?
“I believe the employment rate will keep on growing, as is the case in Italy, even if at a much slower pace compared to the European average. The causes of such growth are very simple: in the 50-65 age group, there is a big gap in education levels. Amongst old workers, the education level is very low as well as the labour market participation rate; while those with a higher education level have a higher employment rate. And since the new European generation has a higher education level compared to their parents,’ the nature of our labour is progressively changing, thus increasing the propensity to work and participate in the labour market.”
But there is a share of workers that is considered “waste.” That is, low-skilled people no longer ready for a dynamic labour market and who struggle to find new jobs. How should we tackle this issue?
“I think that in 10 years’ time there will be fewer pre-retirees without pensions. Today’s stock will remain, but the number will not increase. I think the solution adopted by Germany, where we had exactly the same problem that is now affecting many countries, is a viable one. We must encourage people through state intervention, to accept even badly paid jobs, integrating their salaries with public funding, thus achieving a minimum wage.”
So far, we have talked about industrialised countries. What is the situation like in less industrialised ones?
“Even there I can see a certain degree of progress, take India for instance. This development is happening only in countries that do not rely on raw materials, unlike African countries. Those not counting on raw materials are making progress: situations vary hugely, but on average we can say that these countries are moving forward more rapidly.”
Back to Europe. How will welfare change in the coming years?
“It will be increasingly personalised. Careers are becoming more fragmented and there will be no one doing the same job for 40 years. But, this means that it will be increasingly difficult to manage a system full of different exceptions and rules. And this brings us to a very important point: to manage such a complex and fragmented system will require an efficient government and administrative apparatus. Countries without these characteristics are problematic. Italy is a case in point – in terms of GDP % – it spends as much as Sweden in social security but with clearly worse results and a higher poverty rate. So, as we move towards a fragmented system, both laws passed by Parliament and how the system is applied are equally important. This has no value for European populists, but it is paramount.”
As far as the labour market and the social expenditure are concerned, historically, unions have always played a crucial role. In this continually evolving world we are under the impression that we are lagging behind. Is this the case?
“The old model that I mentioned earlier – capitalists and unionised workers – no longer exists. Unions have lost their importance everywhere. Perhaps there has been a renaissance in some European countries in the public sector, but now the labour market is fragmenting there as well. Unions as we know them have no future, they must evolve as well. But it will not be easy.”
Let us take a look at the European economy and labour market. What do you think is needed for increasingly robust growth?
“I have the strong feeling that there is a too pessimistic vision of Europe as a whole. The impression that in the Old Continent there is little growth simply derives from its demographics. Taking a look at the evolution of the working population, pro capita income growth equals that of the USA. Fear not, figures do not suggest such a negative situation.”
Photo of Daniel Gros: www.ceps.eu