4. Labour market and labour costs · LABOUR MARKET AND LABOUR COSTS 4.1 Labour market The favourable movement in employment which had begun in the last quarter of 2003 continued during

71

LABOUR MARKET AND LABOUR COSTS

4.1 Labour market

The favourable movement in employment which had begun in the last quarter of 2003 continued during the year under review, although the growth rate continued to slow down in the wake of the cyclical downturn which occurred in late 2004 and early 2005. In all, around 40,000 new jobs were created in 2005, against 24,000 the previous year. The harmonised employment rate thus increased by 0.5 percentage point to 60.9 p.c. of the population of working age.

Employment usually takes some time to react to cyclical fl uctuations, since the adjustment of production capac-ity in line with the change in the activity outlook is an expensive process which takes time. By means of various organisational arrangements, such as the adjustment of average working time, the use of temporary or part-time workers, or temporary lay-offs, enterprises can tailor their use of labour more closely to production requirements. Thus, there has been a signifi cant rise in the hours worked under temporary contracts since the end of 2003, a trend which continued in 2005. However, some of these alter-native modes of organising working time are less devel-oped in Belgium than on average in the EU countries, as illustrated in more detail by box 9.

4. Labour market and labour costs

2001 2002 2003 2004 2005

1.5

1.0

0.5

–0.5

0.0

0.75

0.5

0.25

–0.25

0.0

CHART 35 ACTIVITY AND EMPLOYMENT

(Quarterly averages, data adjusted for seasonal and calendar effects, percentage changes compared to the previous quarter)

Sources : NAI, NBB.

GDP at constant prices (left-hand scale)

Domestic employment (right-hand scale)

e

72

Box 9 – Use of alternative working arrangements as a measure of fl exibility

In recent decades there have been major changes in the allocation of working time among persons in work, in response to an increased need for fl exibility, evident on both the supply and the demand side of the labour market. On the supply side, the most frequent aim is to achieve a better work-life balance. On the demand side, employers are required to respond more quickly to their customers’ needs and have to take account of changes in the labour market. The response to these developments is refl ected in the increased diversity in working arrangements, via new types of contracts and changes to the way labour is organised. The archetypal full-time male worker is therefore becoming less and less the norm, and the use of part-time work, temporary contracts, non-standard hours, overtime, fl exible working hours and home working is becoming increasingly common.

There are various ways of studying the degree to which the Belgian labour market is open to alternative working arrangements, compared to other countries. For instance, it is possible to check whether the labour regulations are more stringent or not. In the case of night work (1), the Belgian regulations are among the strictest in the EU. The type of work for which temporary contracts are permitted, and the maximum cumulative duration of successive temporary contracts, are also subject to more stringent rules (2).

–6 –5 –4 –3 –2 –1 0 1 2 3

BELGIUM’S POSITION IN RELATION TO THE EU-15 IN TERMS OF ALTERNATIVE WORKING ARRANGEMENTS – 2004 (1)

Source : EC.(1) Since the labour force survey in Germany has hitherto only been conducted in the spring of each year, the EU average is available only for the second quarter of

2004. The Belgian figures are annual averages.(2) A plus (minus) sign indicates that the working arrangement is more (less) common in Belgium than on average in the EU-15.(3) In the case of temporary work, shift work, overtime, flexible working hours and home working, the data concern employees only.(..) Belgium’s position in the ranking of the Member States (EU-15) in descending order of flexibility. It was not possible to establish any ranking for certain working

arrangements, owing to the absence of figures relating to one or more Member States.

21.2

8.7

13.7

4.7

9.5

17.7

9.3

12.6

8.8

27.6

4.4

Part-time work (6)

Temporary work (12)

Evening work

Night work

Sunday work

Saturday work

Shift work

Flexible working hours (10)

(Predominantly) home working (4)

DEVIATION FROM THE EU-15 AVERAGE (2)

(percentage points)

BELGIUM’S RANKING(percentages of the totalnumber of workers (3))

Overtime (5)

of which : Unpaid overtime (3)

4

(1) Gevers A. and A. Peeters (2005), Flexibiliteit en / of rigiditeit van de arbeidsmarktregulering in België, Brussels, Idea Consult.

(2) OECD (2004), OECD Employment Outlook, Paris.

73


Whereas in 2004 the quickening expansion of employ-ment stemmed only from the rise in the number of employees, the labour market revival has now spread to include the self-employed, who increased in number by over 4,000 units, while their numbers had been declin-ing continuously since 1997. The break in this downward trend is due both to the expansion in the number of new entrepreneurs and to the fall in the numbers going out of business. It bears witness to a renewed interest in entrepreneurship, supported by the measures adopted in recent years by the various levels of government, aimed in particular at simplifying the administrative procedures for business start-ups, supporting potential entrepreneurs through tax concessions and advice, and raising the social status of the self-employed worker. It also partly refl ects the fact that persons originating from the new EU Member States register as self-employed workers in order to gain access to the Belgian labour market.

The expansion in paid employment is entirely due to the growth of employment in the private sector. In 2005, public sector employment recorded zero growth, whereas it had expanded by 1.2 p.c. on average over the period 2000-2004. As in the three preceding years, paid employment in industry declined ; the fall was almost 1 p.c. in 2005. From 2001 to 2005, this represents losses totalling over 63,000 jobs. During the year under review, the expansion of the private sector workforce was attributable primarily to the growth of employment in the “fi nancial activities, real estate, rental and business services” sector.

Part of that expansion refl ects the success of the legislation designed to encourage the development of local services and jobs. Since 2003, the number of workers employed in the service voucher scheme has increased steadily, reach-ing almost 18,000 persons by December 2005.

Altogether, over 17 million hours were worked in that scheme during the year under review, compared to 6 mil-lion hours in 2004. However, some of the jobs created, the majority of which concern domestic help, are the result of the regularisation of jobs already existing in the informal economy – which the national accounts already accounted for on the basis of estimates – or the conver-sion of services previously performed via the local employ-ment agencies (LEAs), so that the net impact of this new scheme on total employment is signifi cantly lower.

As well as aiming to fulfi l the existing needs for local services more effectively, the service voucher scheme also enables the low-skilled to take on declared employ-ment. According to a survey conducted in 2005 for the FPS Employment, Labour and Social Dialogue, 92 p.c. of workers taken on under the service voucher scheme held at best a certifi cate of secondary education, and 40 p.c. at best a certifi cate of lower secondary education. Furthermore, 98 p.c. of them were women.

The success of the service voucher system is largely due to the importance of public subsidies received by this programme, estimated at 16.31 euro per service voucher of 21 euro. That represents an annual average subsidy per worker of over 21,500 euro. However, this direct cost

The fl exibility of the labour market can also be measured by the greater or lesser frequency of alternative working arrangements in Belgium, compared to other countries. The 2004 labour force survey data provide an indication of the preferred way of organising labour in Belgium, by comparing the percentage of total workers employed under an alternative working arrangement with the corresponding ratio for the EU-15. Part-time work, home working and evening work are more common in Belgium, while for all other forms of alternative working arrangements, Belgium ranks below the average for the EU-15. This is particularly true of shift work (–5.4 percentage points), partly because of the relatively smaller share of industry in employment. The same applies to the use of fl exible working hours (–5 percentage points, and ranked tenth among the countries in terms of the relative success of the arrangement) and temporary work (–4.7 percentage points and twelfth in terms of the relative success of the arrangement). The amount of overtime worked is also slightly lower in Belgium, but the higher frequency of unpaid overtime is also, in itself, a sign of fl exibility.

The most common alternative working arrangements in Belgium are fl exible working hours, part-time work and Saturday work, at 27.6, 21.2 and 17.7 p.c. respectively. Some 10 p.c. of employees work overtime, in the evenings, on Sundays and in shifts. Temporary contracts are less common, at around 9 p.c., and fewer than 5 p.c. of the employed persons work at night or at home.

74

to the budget takes no account of any pay-back effects, namely in terms of social benefi ts which no longer have to be paid, and the contributions and taxes levied on these persons’ labour income. The budgetary cost of a job cre-ated in this way is therefore considerably lower.

Since 2003, this scheme has enjoyed great success in Flanders : on average, over 6,500 people were taken on by certifi ed employers in 2005, compared to almost 2,700 a year earlier. Since the second half of 2004, the employment created by the service voucher scheme has also expanded strongly in Brussels, providing jobs for around 4,000 people in 2005, or four times as many as in 2004. In Wallonia, the system made slower progress, with barely 2,500 per-sons. The data available for the fi rst half of 2005 reveal signifi cant differences between regions in the breakdown of workers by type of certifi ed fi rm. In Brussels, around 85 p.c. of workers were taken on by commercial companies or temporary employment agencies, whereas that proportion was only 58 p.c. in Flanders and 40 p.c. in Wallonia, where the system is based more on approved employers in the associative sector and public authorities.

These differences of approach and variations in the use of the service voucher systems between the three regions are an illustration of the specifi c characteristics of the regional labour markets in Belgium ; box 10 provides a

TABLE 19 LABOUR SUPPLY AND DEMAND

(Annual averages, changes in thousands of persons, year-on-year, unless otherwise stated)

2001 2002 2003 2004 2005 e 2004,level (1)

Population of working age . . . . . . . . . . . . . . . . . . . 19 31 30 30 31 6,835

Labour force . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 15 44 63 60 4,792

p.m. Harmonised activity rate (2) . . . . . . . . . . . . . . . 64.2 64.8 64.9 65.9 66.6

National employment . . . . . . . . . . . . . . . . . . . . . 59 –7 –3 24 40 4,216

p.m. Harmonised employment rate (2) . . . . . . . . 60.0 59.9 59.6 60.4 60.9

Frontier workers (balance) . . . . . . . . . . . . . . . . . . 0 0 1 1 0 51

Domestic employment . . . . . . . . . . . . . . . . . . . . . 59 –6 –3 24 40 4,165

Self-employed . . . . . . . . . . . . . . . . . . . . . . . . . . –5 –7 –6 –2 4 675

Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 1 2 26 36 3,489

Public sector . . . . . . . . . . . . . . . . . . . . . . . . . 8 17 10 7 –1 783

Private sector . . . . . . . . . . . . . . . . . . . . . . . . 56 –16 –7 19 37 2,707

Unemployed job seekers . . . . . . . . . . . . . . . . . . . –5 22 47 38 20 577

p.m. Harmonised unemployment rate (3) . . . . . . 6.6 7.6 8.2 8.4 8.8

Sources : EC, FOREM, NAI, NEMO, BREO, VDAB, NBB.(1) Thousands of persons.(2) Percentages of the population of working age, i.e. aged 15 to 64 years.(3) According to the concept of the labour force survey, as a percentage of the labour force of working age.

0

4,000

8,000

12,000

16,000

20,000

0

4,000

8,000

12,000

16,000

20,000

2003 2004 2005

CHART 36 SERVICE VOUCHERS

(Cumulative number of workers taken on (1), quarterly averages)

Sources : NEMO, NBB.(1) Estimates based on the number of service vouchers reimbursed, regional

breakdown based on the registered office of the declaring certified firm.

Flanders

Wallonia

Brussels

Belgium

75


more detailed view on the basis of an analysis of the employment rates in Brussels, Flanders and Wallonia, by comparing them with the results for Belgium and its European partners.

Box 10 – Employment rate in Belgium and in the regions

The employment rate measures the proportion of a population in work, possibly classifi ed according to various characteristics (age, sex, nationality, education, residence). The rate is traditionally measured on the basis of the results of the labour force survey which, having been harmonised, permits comparability between countries within the EU. According to this survey, all persons aged from 15 to 64 years who, during a reference period (generally the week preceding the survey), have performed at least one hour of paid work are considered to have a job. That is therefore a relatively broad defi nition of the concept of paid employment.

The concept of the employment rate has held a key position in the European employment strategy since the year 2000 when, at the Lisbon summit, the European authorities committed themselves to achieving full employment in the EU by 2010. For the EU as a whole, a target employment rate of 70 p.c. by 2010 was thus set for the total population of working age, while specifi c targets of 60 and 50 p.c. respectively were set for women and the 55-64 age group. Each Member State is expected to contribute to the attainment of these objectives. Thus, in the national reform programme for 2005-2008, adopted on 26 October 2005, the Belgian authorities have committed themselves to attaining these targets as quickly as possible.

In Belgium, the overall employment rate stood at 61 p.c. in the second quarter of 2005, only marginally higher than the 60.9 p.c. achieved in 2000. While employment increased by around 114,000 units between these two dates, it expanded only slightly faster than the population of working age. At the same time, the employment rate increased from 63.2 to 65 p.c., on average, in the EU-15.

Within the EU-15, there are very wide variations in employment rates, ranging from 57.8 p.c. in Italy to 75.5 p.c. in Denmark. The same applies within Belgium : the employment rate is markedly higher in Flanders where it reaches 64.9 p.c., which is close to the EU-15 average, whereas in Wallonia and Brussels the rates are around 56 and 54 p.c. respectively, or some 10 percentage points below the European average. With such large overall divergences, it is not surprising that the employment rates per population group are almost systematically higher in Flanders, whatever the criterion considered.

That is the case if one examines the employment rate by sex. In Belgium, 67.7 p.c. of men and 54.1 p.c. of women are in paid employment. In Flanders, the male and female employment rates – 71.9 and 57.7 p.c. respectively – are comparable to the EU-15 averages, being slightly lower in the former case and slightly higher in the latter. Wallonia’s employment rate is around 9 percentage points below that of Flanders, for both men and women, whereas in Brussels the difference is more marked for male workers.

In the breakdown of employment rates by age groups, Belgium differs clearly from its European partners. The employment rate of 78.3 p.c. for those aged 25 to 54 years is somewhat higher than the European average, but for the other age groups the employment defi cits are considerable. In the youngest age group, only 26.6 p.c. have a job, compared to almost 40 p.c. in the EU-15, refl ecting in particular the tendency to prefer full-time study in Belgium, whereas other countries have opted to integrate young people into the labour market at an earlier stage, via sandwich courses and by combining work with studies. The employment rate for the over 55 age group of 32.1 p.c. also remains well below the EU-15 average of 43.9 p.c., and the shortfall is even greater when compared to the levels seen in Sweden, Denmark and the United Kingdom of 68.9, 59.8 and 56.8 p.c. respectively. The employment rates per age group vary greatly between the three Belgian regions. Thus, in Flanders and Wallonia,

4

76

the employment rate for those over the age of 55 is below the national average, whereas in Brussels it exceeds that fi gure by more than 8 percentage points. In contrast, Wallonia and Brussels have a large employment defi cit in the lower age groups. The difference is particularly pronounced for the employment of young people : one in three persons aged between 15 and 24 years has a job in Flanders, whereas the fi gure is only one in fi ve in Wallonia and one in six in Brussels.

The breakdown of employment rates by educational level conforms to the same strict pattern in Belgium as in the European partners. In the case of those who have obtained no more than a certifi cate of lower secondary education, fewer than one in two have a job. For those completing higher secondary education, the proportion rises to around two in three, whereas among holders of a certifi cate of higher education or a university degree, more than eight in ten people are working. In regional terms, Flanders outperforms the Belgian average for every level of education. In the case of highly educated people, however, the differences between the regions are smaller, with an employment rate of 85.4 p.c. in Flanders against 82.3 p.c. in Wallonia and 78.1 p.c. in Brussels. In this latter region, there is a very marked employment defi cit for the moderately educated, since their employment rate – standing at 49.6 p.c. – is more than 16 percentage points below the national average.

Finally, looking at nationality, the Belgian labour market seems clearly less capable of integrating foreign nationals. In that regard, the difference is striking when compared to the EU-15 average, where the employment rate for nationals is close to that for residents originating from another EU-15 country, and where over half of non-European nationals have a job. In Belgium, the differences are very marked : while almost 62 p.c. of Belgians and 59.8 p.c. of residents from other European countries (EU-15) have a job, the proportion in work falls to

EMPLOYMENT RATES IN 2005

(Percentages, second quarter data (1))

Brussels Flanders Wallonia Belgium EU-15

Total 53.9 64.9 56.1 61.0 65.0

Sex

Men . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.0 71.9 62.5 67.7 72.7

Women . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47.9 57.7 49.6 54.1 57.4

Age

15-24 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.8 31.0 21.9 26.6 39.4

24-54 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67.0 83.3 72.9 78.3 77.8

55-64 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40.2 31.3 31.4 32.1 43.9

Educational attainment

Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.9 43.8 35.7 40.0 49.3

Medium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49.6 70.9 60.8 66.0 70.6

High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78.1 85.4 82.3 83.6 82.5

Nationality

Belgian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55.4 65.4 56.8 61.9 67.0

Other EU-15 . . . . . . . . . . . . . . . . . . . . . . . . . . . 63.2 63.3 54.7 59.8 67.2

Non EU-15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.8 44.6 25.8 37.0 55.6

Source : EC.(1) The second quarter data are the only ones permitting comparison with the EU average.

4

77


The expansion of domestic employment – corresponding to jobs in Belgium – came to 40,000 persons, or a 1 p.c. increase against 2004. As the number of frontier workers has risen only slightly since 2004, national employment broadly mirrored the movement in domestic employment during the year under review.

There has long been an exchange of labour with neigh-bouring countries. Altogether, in 2004 there were around 59,000 outbound frontier workers – i.e. resident in Belgium but working abroad – while 32,5000 non-residents had a job in Belgium. France is the only neighbouring country for which Belgium is not a net supplier of labour. In fact, there were 28,665 Belgian residents with a job in the Grand Duchy of Luxembourg, 19,875 in the Netherlands, 5,227 in France and 5,209 in Germany, whereas the number of resi-dents of those countries holding a job in Belgium amounted to 413 for Luxembourg, 6,346 for the Netherlands, 24,704 for France and 985 for Germany. In the second half of the twentieth century, Belgium became host to some interna-tional organisations such as certain European institutions and NATO, which enjoy extra- territorial status in the same way as diplomatic representations. The international organ-isations and embassies or consulates employed around 24,000 people, residing in Belgium but not necessarily holding Belgian nationality.

The expansion of national employment during the year under review was insuffi cient to offset the increase in the supply of workers on the labour market, due to the rise in the population of working age and amplifi ed by the increase in the activity rate, which reached 66.6 p.c., against 65.9 p.c. in 2004.

The number of job seekers therefore increased by an aver-age of 20,000 persons in 2005, which was signifi cantly less than in 2004, when the growth had totalled 38,000 persons, because of both the sharper expansion of the labour force and the smaller number of jobs created.

The harmonised unemployment rate increased from 8.4 to 8.8 p.c. of the labour force.

A breakdown of job seekers by age group reveals notice-ably divergent movements within the unemployed popula-tion. Thus, for the fi rst time since the beginning of 2001, there was a fall in the number of persons under 25 who are unemployed. That group, down by 3,607 persons, represented just under a quarter of the total unemployed job seekers at the end of 2005. Under the programme to encourage active job seeking, which took effect on 1 July 2004, this age group was among the fi rst to benefi t from closer follow-up, the focus being on unemployed persons under the age of 30. In addition to the decline in unem-ployment among the young, the rise in the number of job seekers aged between 25 and 50 years slowed signifi cantly. While this group had grown by around 16,000 persons in 2004, it increased by only about 2,400 persons in 2005. However, this category still represents a large majority of the unemployed population, at almost 65 p.c.

Conversely, the number of unemployed persons over the age of 50 showed a very marked increase during the year under review, totalling around 21,000 units. This rise was largely due to the change in the criteria for claiming the status of wholly unemployed, receiving benefi ts and not seeking work. Previously, unemployed persons over the age of 50 were exempt from seeking work and were there-fore not counted as job seekers, but the age limit for that exemption has been increased gradually from July 2002 onwards, and since July 2004 – apart from those already qualifying – only new unemployed persons aged at least 58 years can still claim that status. The increase in their number also refl ects the problems facing older workers in fi nding another job once they have been made redundant. At the end of 2005, Belgium had 80,767 job seekers over the age of 50. At the end of 2001 the fi gure was just 30,637, representing only 6.5 p.c. of the total number of unemployed job seekers, against 13.5 p.c. in 2005.

37 p.c. for other non EU-15 nationalities. In this respect, the situation in the three regions also reveals contrasts. Refl ecting a more buoyant labour market and the efforts undertaken to achieve integration, the employment rate for foreigners in Flanders is above the corresponding national average for all nationality groups. In Brussels, where the foreign population represents a signifi cantly higher share than in the other regions, the proportion of Europeans originating from another EU-15 Member State and having a job is comparable to that seen in Flanders, and is actually higher than the fi gure for Belgian nationals, while the employment rate of non EU-15 foreigners – at 34.8 p.c. – is situated between the fi gures for the other two regions. Clearly, the presence in Brussels of various international institutions contributes towards the better integration of foreign nationals into the labour market there.

78

As regards the geographical breakdown, the regional disparities increased in 2005 owing to a more marked increase in unemployment in the Brussels-Capital Region than in the other two entities. In the fi rst region, the harmonised unemployment rate rose to 15.8 p.c. of the labour force in the second quarter, compared to 13.5 p.c. a year earlier, whereas in Flanders it increased during the same period from 4.5 to 5.2 p.c. and, in Wallonia, from 11 to 11.5 p.c.

For some benefi t recipients, the fi nancial incentives to work may be relatively small, owing to the structure of the system of taxes and social transfers. Since the beginning of 2000, several measures have been adopted to encour-age these persons to take a job or to increase their willing-ness to work, particularly at levels of pay relatively close to the minimum wage. This mainly concerns two types of measures : fi rst, a reduction in the fi scal and parafi scal burden on low incomes, and second, an improvement in the support and guidance provided by the public employ-ment agencies.

The fi rst type of measures includes the reform of personal income tax, introduced in 2001, more particularly the entry into force of a tax credit for the lowest incomes, a larger tax allowance for the cost of raising children, and

the reduction in personal social security contributions for low wage earners.

To increase the incentives for the low-skilled to fi nd work, a system of employment-related benefi ts was introduced, similar to that in some Anglo-Saxon countries. However, these programmes are expensive and do not increase the labour supply unless they are properly understood by those who are eligible. Thus, the tax credit mechanism was abolished in 2004 for employees, as its impact on net income went unnoticed. Not only was the tax credit indis-tinguishable from the other elements of the tax system, there was also a time lag of one or two years, in practice, between the date of fi nding employment and the receipt of the refund (at the time of the tax assessment). To enhance its effi ciency, this measure was replaced at the beginning of 2005 by the employment bonus, which in fact consists of an additional reduction in personal social security contributions on low wages. This last provi-sion, which has existed since 2000 and applies to over 500,000 employees, has been considerably reinforced. First, the amount of the maximum cut in contributions was increased in April 2005 from 113.40 to 135 euro per month for manual workers, and from 105 to 125 euro per month for non-manual workers. These amounts were raised to 151.20 and 140 euro respectively at the begin-ning of 2006. Second, the threshold beyond which no bonus is granted was raised from 1,570.16 to 1,670 euro per month. This ceiling was raised again at the beginning of 2006, to 1,996 euro. Third, the threshold below which workers receive the whole of the employment bonus was raised from 1,194.03 to 1,210 euro gross per month.

The second type of measure corresponds to the pro-gramme encouraging active job seeking ; this comprises additional training and assistance for job seekers, com-bined with more effective checks on compliance with the criteria for claiming unemployment benefi ts.

Under the unemployment insurance scheme in force in Belgium, there is no time limit on entitlement to benefi ts, other than suspension for abnormally lengthy periods of unemployment. However, to qualify for these benefi ts, the unemployed person must satisfy a number of condi-tions. In particular, he must be involuntarily unemployed and he must be available for the labour market. In prac-tice, this means that he cannot refuse a suitable job if offered one, nor refuse to attend any suitable training which is proposed, but also that he continues to actively seek employment by himself. In this respect, the federal government launched in 2004 the programme to encour-age active job seeking, permitting an assessment of the efforts undertaken by unemployed persons to return to the labour market. NEMO has a number of sources

–20,000

–10,000

0

10,000

20,000

30,000

40,000

2001

2002

2003

2004

2005

2001

2005

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

CHART 37 UNEMPLOYED JOB SEEKERS : BREAKDOWN BY AGE GROUP

(Changes in number of persons compared to the corresponding quarter of the previous year (left-hand block) and level (right-hand block))

Source : NEMO.

under 25 years

25 to under 50 years

50 years and over

Age :

79


of information available for this purpose, such as the regional employment services (FOREM, VDAB, BREO and ADG), and arranges a series of compulsory interviews with the job seeker.

The aim is to check the efforts made by the job seeker to fi nd work, taking account of his specifi c characteristics, i.e. in particular his age, level of education, skills, social and family background, ability to travel and any form of discrimination which might work against him. The labour market situation in the subregion where the unemployed person lives is also taken into account. If his efforts are deemed inadequate, an action plan is imposed which, if not respected, leads to sanctions. These consist in the suspension or reduction of benefi ts for a certain number of months.

Given the large number of persons concerned, and in order to enable the regions and communities to develop an adequate support service, the programme monitoring the efforts made to fi nd work was implemented gradually. As mentioned earlier, the fi rst phase covered only unem-ployed persons under the age of 30. Since July 2005, it has been extended to unemployed persons under 40. As from July 2006, those under 50 will also be covered. The current suspension procedure for the long-term unem-ployed (Article 80 of the Royal Decree of 25 November 1991) is being suspended as the monitoring scheme comes into effect. Also, as from 15 December 2005, the wholly unemployed have ceased to be subject to the “stamp” check conducted at the municipal level.

Full appraisal of the programme is scheduled in 2007. One of the main problems will be to separate the impact of the tighter checks from that of the increased gui-dance and support offered by the regional employment services. This evaluation will show whether the introduc-tion of the follow-up procedure and the publicity which it received have infl uenced the job seeking behaviour of the unemployed. At this stage, there are some initial indications of how the unemployed have responded to this new scheme. According to the statistics available on 30 September 2005, on a total of 32,231 persons inter-viewed, 70 p.c. were making an adequate effort to fi nd a job, whereas for the other 30 p.c. the efforts were consid-ered inadequate and a personal action plan was arranged. In all, over the fi rst nine months of the year under review, sanctions were imposed on 460 persons, namely 178 in the Flemish Region, 219 in the Walloon Region and 63 in the Brussels-Capital Region.

Belgium has a very low proportion of persons over the age of 55 years in work. Taking all sections of the population of working age, i.e. persons resident in Belgium and aged between 15 and 64 years, the distribution is bell-shaped. Very few persons between the ages of 15 and 24 years – in fact only about a quarter – have a job ; this is due to compulsory education up to the age of 18 and the low fi nancial incentive for working while studying, in view of the parafi scal treatment of incomes earned by this group and the consequences for the parents in terms of taxation and eligibility for family allowances. However, since 1 July 2005, the number of days for which students qualify for special parafi scal treatment, more advantageous than the general social security regime, has been doubled, subject to certain conditions.

The proportion of persons in work rises rapidly in the sub-sequent age groups, peaking at around 80 p.c. for those aged 35 to 44 years. It then declines to two-thirds in the 50 to 55 age group and falls below 50 p.c. after the age of 55. Highly symptomatic of the general attitude towards the end of the career, barely one person in ten over the age of 60 has a job in Belgium. However, around 22,000 people over the age of 65, or 2.3 p.c. of that age group, still practise a profession. These are mainly self-employed persons and pensioners, the latter performing paid work to top up their pension benefi t within the limits allowed by law.

0-4

5-9

10-1

415

-19

20-2

425

-29

30-3

435

-39

40-4

445

-49

50-5

455

-59

60-6

465

-69

70-7

475

-79

>79

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

CHART 38 TOTAL POPULATION AND POPULATION IN WORK IN 2004

(Number of persons per age group)

Sources : EC, NIS.

Non-working populationTotal

Population in work

80

The fact that the vast majority of older workers leave the labour market early, i.e. before the age of 65, deprives the economy of an important source of labour, leaving a smaller number of workers to provide funding for the social protection of the population in general, and partic-ularly the elderly who – all other things being equal – are set to represent a growing percentage in view of the longer life expectancy and the fall in the birth rate.

This low level of labour market participation among the oldest age group is due partly to the widespread use of various schemes for early withdrawal, such as the scheme for older unemployed workers, early retirement and time credits. During the year under review, the number of persons taking conventional full-time early retirement pensions remained relatively stable, as did the number of older unemployed persons exempt from job search requirements, at least if one considers the 55 to 64 age group, since this system is no longer available for persons under the age of 58 years, which explains the decline in the total numbers eligible. The use of the time credit remains marginal compared to the two preceding schemes, but is enjoying growing success.

This is the background to the reforms pursued by the federal government during the past few years in order to prepare the country for the population ageing expected in the coming decades, and with the aim of maintaining a growth potential compatible with the current standard

of living and ensuring the survival of the social protec-tion system. After consultation with the social partners, the federal government adopted a new reform plan for the career end, the so-called solidarity pact between the generations, the principal provisions of which were passed by parliament at the end of the year under review. It aims mainly to restrict access to certain early retirement systems, and – in addition to measures to reduce unem-ployment among the young – offers various provisions to encourage labour demand, particularly for older workers, on the part of fi rms.

The solidarity pact between the generations, of which the IMF stated, in its preliminary conclusions following the ‘Article IV’ consultation conducted in Belgium in November, that it represented an important step in the essential retire-ment reforms, aims in particular to eliminate the use of ‘Canada Dry’ arrangements. These agreements, negotiated within fi rms or sectors, allow early exit from the labour market, regardless of the statutory early retirement provi-sions. Use of such agreements, funded out of unemploy-ment benefi ts or time-credit allowances and supplemented by a payment made by the employer, is now heavily penal-ised via special taxes on the supplementary payment.

Access to the ordinary early retirement scheme has also been restricted. The conventional early retirement age, previously set at 58 years subject to 25 years’ seniority, will be raised to 60 years in 2008, subject to 30 years’

TABLE 20 OLDER UNEMPLOYED PERSONS, EARLY RETIREMENT AND TIME CREDITS

(Number of beneficiaries, annual averages)

Older unemployed, exempt from seeking work

Full-time early retirement Full-time time credit (1)

50-64 years 50-64 years 50-64 years

of which :55-64 years



1996 . . . . . . . . . . . . . . . . . . . . . 99,554 64,741 134,811 126,417 2,233 1,082

1997 . . . . . . . . . . . . . . . . . . . . . 115,952 70,770 130,636 122,685 2,384 1,036

1998 . . . . . . . . . . . . . . . . . . . . . 124,248 74,415 123,743 115,495 2,576 1,068

1999 . . . . . . . . . . . . . . . . . . . . . 132,816 79,748 118,575 109,516 2,761 1,137

2000 . . . . . . . . . . . . . . . . . . . . . 140,763 85,558 114,478 105,759 3,258 1,432

2001 . . . . . . . . . . . . . . . . . . . . . 147,919 92,561 109,950 102,793 3,800 1,773

2002 . . . . . . . . . . . . . . . . . . . . . 152,309 99,132 106,482 100,403 4,175 2,150

2003 . . . . . . . . . . . . . . . . . . . . . 146,417 105,285 107,915 101,462 4,935 2,934

2004 . . . . . . . . . . . . . . . . . . . . . 136,907 108,749 109,869 102,630 5,922 3,974

2005 . . . . . . . . . . . . . . . . . . . . . 125,683 108,885 109,018 102,914 6,983 5,071

Source : NEMO.(1) These figures include those taking a career break and, from 2003 onwards, those receiving a time credit.

81


seniority for men. From 2012 onwards, the required seniority will be increased to 35 years. For women, it will be 26 years in 2008 and will then be increased by two years every four years until it reaches the level applicable to men. Allowance for certain equivalent periods in the calculation of seniority is subject to negotiation with the social partners. There are some exemptions from the new legal early retirement age, particularly for arduous occu-pations and certain non-standard working arrangements. In addition, the new rules will be phased in over a longer period for the metal, glass and chemical sectors.

The defi nition of an enterprise undergoing restructuring has also been changed to limit the use of early retirement schemes in the event of mass redundancies.

More generally, the pact establishes a framework which encourages persons reaching the end of their career to keep their job or return to work. Financial incentives have been introduced, such as new cuts in employers’ contribu-tions for fi rms employing or recruiting older workers, the greater scope for combining a pension with an earned income, a new bonus system granting a pension sup-plement for persons continuing to work after the age of 62 years, and more generous tax treatment of second pillar incomes under pension systems in the case of per-sons resuming work or remaining in employment up to the statutory retirement age. The social partners have also been asked to consider a reform of the pay scales which link pay increases to age or seniority, in order to limit the pressure caused by pay differentials between young and

old workers, which can result in a preference for making older workers redundant during restructuring, and curb the recruitment of older people.

The positive measures in favour of older workers are not confi ned to the fi nancial aspects : working conditions and training opportunities will be improved, particularly via the use of time credit ; this law also regulates the increase in resources allocated to training, in agreement with the social partners, the certifi cation of acquired skills and the right to a career statement every fi ve years from the age of 40 onwards.

Among the measures included in the solidarity pact between the generations and intended to boost employ-ment of young people are the introduction of fi nancial incentives for apprenticeships in fi rms or for establishing a self-employed activity, a doubling of the number of fi rst job contracts in the federal administration, and a targeted increase in the cuts in employers’ contributions.

4.2 Labour costs in the private sector

Wage moderation is not only important in terms of inter-national competition. Both theory and past experience also show that an excessive increase in wages encourages the replacement of labour by capital, increasing apparent productivity by elimination of the least productive work-ers. Continuation of the wage moderation effort is in fact vital to sustain the growth of employment.

TABLE 21 LABOUR COSTS IN THE PRIVATE SECTOR

(Percentage changes compared to the previous year)

2001 2002 2003 2004 2005 e

Gross wages per hour worked . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7 3.6 1.2 2.4 2.5

Collectively agreed wages (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 3.8 1.8 2.4 2.5

Real agreed adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 1.5 0.4 1.0 0.4

Indexations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 2.3 1.5 1.4 2.1

Wage drift (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4 –0.2 –0.6 –0.1 0.1

Employers’ social security contributions . . . . . . . . . . . . . . . . . . . . . 0.2 0.7 0.3 –0.4 –0.3

Social security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –0.1 0.3 0.1 –0.3 –0.4

Other contributions (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4 0.5 0.2 –0.2 0.1

Labour costs per hour worked . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9 4.4 1.5 1.9 2.2

Sources : NAI ; FPS Employment, Labour and Social Dialogue ; NBB.(1) Wage increases fixed by joint committees.(2) Increases and bonuses granted by enterprises over and above those under central and sectoral collective agreements, wage drift resulting from changes in the structure

of employment, and errors and omissions.(3) Contributions which are not paid to the government.

82

The draft central agreement for 2005-2006 called on the representatives of employers and employees in all sec-tors to negotiate moderate wage agreements. That draft contained an indicative norm for the increase in nominal labour costs per hour worked in the private sector of 4.5 p.c. in 2005-2006, when the expected impact of the wage indexations was estimated at 3.3 p.c. Since not all the parties concerned considered that the remaining margin for agreed wage increases was adequate, this draft did not receive unanimous approval. In the absence of agreement between the social partners, the govern-ment – pursuant to the law of 1996 on the promotion of employment and the safeguarding of competitiveness – passed a royal decree at the beginning of the year under review whereby the indicative wage norm of 4.5 p.c. was made binding.

According to the data available from the national accounts, the annual rate of increase in hourly labour costs in the private sector has fallen signifi cantly since the beginning of the decade, dropping from an average of 4.2 p.c. during 2001-2002, to 1.7 p.c. in 2003-2004. Nevertheless, there was a slight acceleration in 2005, bringing the rate to 2.2 p.c.

Within the limits set by the wage norm, the movement in labour costs is largely determined by the rise in collectively agreed wages, which include the indexations and real adjustments negotiated between the social partners in joint committees at sectoral level. Indexations aside, the sectoral agreed increases came to 0.4 p.c. in 2005, which was less than the 2004 fi gure but the same as in 2003. The increases are in fact smaller, as a rule, in the fi rst year covered by a central agreement, in view of the time required to negotiate the implementing arrangements at the sectoral level.

While the slower rise in wages in 2003-2004 was due partly to an unexpected slowdown in wage indexa-tion, the accelerating increase in labour costs in 2005 is due, conversely, to indexations which were signifi cantly higher than anticipated in the technical report by the secretariat of the Central Council for the Economy (CCE) of November 2004 on the maximum scope available for labour cost increases, used as a basis for negotiating the draft central agreement. The escalation of oil prices in fact exerted upward pressure on infl ation, which was refl ected in wages via the automatic wage indexation mechanism, even though this was tempered by the exclusion of petrol and diesel from the health index of consumer prices. The impact of indexation thus increased from 1.4 p.c. in 2004 to 2.1 p.c.

The uncertainty concerning the movement in nominal col-lectively agreed wages in Belgium compared to those in the main neighbouring countries is prompting more and more sectors to limit the risk of an excessive rise in labour costs by including in their collective agreement what is known as an “all-in” clause, whereby the level of real increases is made dependent on the actual wage indexa-tions. If, during the period covered by the sectoral agree-ment, the latter exceed the initial forecasts, the difference is deducted from the real wage increases granted in the second year or in the ensuing agreement period, and vice versa. However, it should be stressed that the all-in clauses do not keep the increase in collectively agreed wages within the limits of the nominal rise agreed in advance unless the actual wage indexations are not substantially greater than the fi gures assumed, as will probably be the case of the period 2005-2006. The correction of those divergences would in fact entail a cut in real agreed wages, and there is no such provision in any collective labour agreement comprising an all-in clause.

On the basis of a survey of sectoral agreements concluded in 2005, compiled by the FPS Employment, Labour and Social Dialogue (situation as of 24 October 2005), it seems that agreements containing an all-in clause were concluded by the following joint committees and sub-committees, among others : metalworking, mechanical and electrical engineering (CP 111), garages (CP 112), food industry (CP 118), cleaning and disinfection fi rms (CP 121), construction (CP 124), furniture and woodwork-ing industry (CP 126), electricians (CP 149.01) and metal trade (CP 149.04). These are mainly joint committees cov-ering manual workers. On the basis of these data, one can calculate that around 20 p.c. of private sector workers are covered by a collective labour agreement containing an all-in clause. It should also be noted that not all the joint committees have decided on a sectoral wage agreement, and that no information is available on any agreements concluded at enterprise level.

Overall, agreed hourly wages are estimated to have increased by 2.5 p.c. during the year under review. Taking account of the wage drift, which includes the increases and bonuses granted by fi rms outside the sectoral frame-work, and the impact of changes in the structure of employment, gross pay probably increased by a similar amount. The movement in the wage drift during the year under review, estimated at only 0.1 p.c., refl ects a decelerating trend to which several factors have contrib-uted. First, joint committees increasingly make explicit provision for scope for agreeing increases at the enterprise level, so that these can be better adapted to the specifi c situation, and this may have had the effect of reinforcing wage moderation. Many fi rms are implementing a wage

83


policy geared to a decline in average staff expenses by subcontracting certain activities and by restructuring, often entailing the departure of older workers who, on average, receive higher wages. The trend towards an increasing share of the tertiary sector is also curbing the rise in wages : thus, over the period from 1995 to 2002, shifts in the structure of employment between sectors exerted downward pressure of 0.1 percentage point per annum on the average hourly wage. It can also be assumed that the increased participation of women in the labour market and the expansion of part-time working and temporary employment contracts are contributing to the slowing of the rise in average hourly wages. Finally, certain measures relating to employment – other than the cuts in employers’ social security contributions – also affect the wage drift if they enable fi rms to employ work-ers at lower gross wages, as in the case of the activation of unemployment benefi ts.

Employers’ social security contributions once again exerted a moderating effect on the increase in labour costs of fi rms during the year under review, curbing it by 0.3 p.c. As in 2004, this resulted in reductions in the social security contributions which employers paid to the government. Thus, the structural reductions in employ-ers’ contributions were increased at the beginning of 2005, particularly for the part targeting high wages, i.e. gross wages representing at least 12,000 euro per quarter. Conversely, the other employers’ social security contributions generated slight upward pressure on labour costs, totalling 0.1 p.c. They comprise the imputed social contributions, such as redundancy pay, and the payments made by employers to private insurance companies, e.g. to provide a supplementary pension plan or group insur-ance. These payments have tended to increase in recent years, mainly because of the gradual democratisation of access to “second pillar” pension schemes.

Box 11 – Cost reduction measures intended to support demand for labour

Cuts in employers’ social security contributions

Cutting employers’ social security contributions is a key element of the federal government’s employment policy. It comprises two aspects : the structural reductions in contributions which apply to all wages, and the reductions for target groups, aimed at the risk groups on the labour market. Overall, these reductions represented almost 4 p.c. of the wage bill in 2005.

The OECD fi gures for 2004 indicate that, in Belgium, the fi scal and parafi scal burden on the income of a single person with no children was still the highest in Europe. This fi nding is valid both for low wages (defi ned by the OECD as representing 67 p.c. of the average wage) and for average and high wages (167 p.c. of the average wage). For any given wage, a higher fi scal and parafi scal burden on labour is refl ected in higher labour costs which may lead to the exclusion of the least productive workers, while for any given labour cost it is accompanied by a lower net wage which may depress the labour supply, since low-paid work is not fi nancially attractive compared to unemployment or inactivity.

If gross pay remains unchanged, cuts in employers’ contributions help to reduce labour costs. On the one hand, such a development encourages the replacement of capital by labour. On the other hand, it also consolidates the competitive position of enterprises, since the reduction in production costs permits a price cut or slower price rises. The increase in sales which is likely to result reinforces the expansion of output and hence employment. The improvement in competitiveness may also ensue from better profi tability, enhancing the capacity to invest and to innovate.

Simulations made at the government’s request during the year under review, using the Bank’s econometric model, show that a linear reduction in employers’ contributions totalling 1.5 billion euro – which corresponds to 0.5 p.c. of GDP – creates around 7,000 new jobs in the private sector in the fi rst year, and this number increases to around 46,000 additional jobs by the end of 8 years.

4

84

In general, when assessing the impact of reductions in employment charges, it is necessary to take account of certain factors which may reduce the scale of the effects. In practice, partial allowance is made for the cuts in contributions at the time of the negotiations, when calculating the available margin for fi nancing gross wage increases ; that reduces the impact on labour costs, and hence the number of new jobs created. Moreover, it is necessary for the increase in labour demand from fi rms to be matched by a satisfactory supply. If that is not the case, the subsequent labour shortage leads to upward pressure on gross wages. The presence of relatively high unemployment in Belgium is not suffi cient to ensure that the additional demand for labour will be swiftly met, in view of the mismatch between the labour supply and the demand, attributable partly to inappropriate vocational training and low geographical mobility. Finally, while the job creation permitted by cuts in charges has positive repercussions on public fi nances, those effects are insuffi cient to make these cuts fully self-fi nancing. Measures are therefore needed to restore the budget balance, and – depending on their nature - their negative impact on the economy depresses net job creation to some degree.

The structural reductions in employers’ social security contributions do not exhibit a linear relationship with the worker’s reference wage, but are targeted at both low wages (up to 1,956 euro gross per month) and high wages (above 12,000 euro gross per quarter). Econometric simulations carried out by the Federal Planning Bureau and the IRES, in particular, have shown that contribution cuts concentrated on low wages have more favourable effects on employment than the equivalent linear cuts, mainly because the opportunities for substitution between capital and labour are, in principle, greater in the case of low-skilled labour.

Accordingly, to facilitate the integration of risk groups into the regular labour market, the structural reductions in contributions are supplemented by fl at-rate deductions targeting these groups, namely job seekers with no work experience (fi rst job contracts), the long-term unemployed, older workers and low-skilled young workers. It is generally considered that, without these measures, the adverse ratio between the productivity likely upon recruitment and the labour cost may inhibit the recruitment of these categories of people.

0 10 20 30 40 50 60 70 0 10 20 30 40 50 60 70 0 10 20 30 40 50 60 70

FISCAL AND PARAFISCAL BURDEN ON LABOUR (1)

(Percentages of labour costs, 2004)

Source : OECD.(1) Employers’ and employees’ contributions and taxes on income of an unmarried employee with no dependants.(2) I.e. 67 p.c. of the average wage.(3) I.e. 167 p.c. of the average wage.

BE

SE

DE

IT

DK

AT

FI

NL

EL

ES

FR

PT

GB

IE

BE

DE

SE

FR

IT

AT

FI

NL

DK

ES

EL

PT

GB

IE

BE

DE

SE

FR

IT

AT

DK

FI

ES

EL

NL

PT

IE

GB

AVERAGE WAGE HIGH WAGE (3)LOW WAGE

(2)

4

85


Other cost-cutting measures

In addition to the cuts in employers’ contributions, the government extended the assistance in the form of reductions in payroll tax, in order to promote particular types of work arrangements, such as shift work and overtime, and also research and development, by reducing the cost for fi rms. In order to prevent the reduction granted from being passed on in the form of higher net wages, the employer has to deduct the whole amount of the payroll tax. Only part of that amount is paid to the public treasury, while the fi rms keep the remaining part, corresponding to the reduction in the tax. According to the national accounts methodology (ESA 95), the whole amount of the payroll tax has to be taken into account in labour costs, the unpaid part being recorded as a subsidy. The reductions granted therefore have no impact on labour costs for national accounts purposes, but they do affect production costs. In consequence, these measures do not infl uence the competitiveness of Belgian fi rms as defi ned by the 1996 law on the promotion of employment and the safeguarding of competitiveness, even if in fact they do provide substantial support for improving competitiveness.

REDUCTIONS IN EMPLOYERS’ SOCIAL SECURITY CONTRIBUTIONS

(Millions of euro)

2004 2005

Total . . . . . . . . . . . . . . . . . . . . . . . . . . 4,047 4,441

p.m. Idem, percentagesof the wage bill . . . . . . . . . . . . 3.6 3.8

of which :

Structural reductions . . . . . . . . 3,423 3,756

Target groups . . . . . . . . . . . . . . 201 289

Source : NSSO.

REDUCTIONS IN PAYROLL TAX

(Millions of euro)

2004 2005

Total . . . . . . . . . . . . . . . . . . . . . . . . . . 74 237

p.m. Idem, percentagesof the wage bill . . . . . . . . . . . . 0.1 0.2

of which :

Shift work . . . . . . . . . . . . . . . . . 42 144

Scientific research . . . . . . . . . . . 32 53

Overtime . . . . . . . . . . . . . . . . . . – 40

Source : General notes on the budget.

4

86

Whereas these reductions represented only 74 million euro in 2004, they came to 237 million euro during the year under review. As arranged under the draft central agreement for 2005-2006, the government in fact took supplementary measures in 2005 to encourage more fl exible ways of organising labour and augment the innovative capacity of enterprises.

The main measures concern shift work - a common way of organising labour in industry - which has declined sharply in recent years : in 1992, 16 p.c. of all employees worked shifts, but by 2004 that was down to 9.3 p.c. At the 2003 employment conference it was decided to provide tax concessions for this form of labour, introducing a reduction in the payroll tax due amounting to 0.5 p.c. of the reference wage, i.e. the monthly pay including the shift work bonuses. This percentage reduction was increased by stages in 2005, to 1 p.c. and later 2.5 p.c.

At the same time, the payroll tax deduction applicable to assistant researchers and post-doctoral researchers attached to universities and colleges was increased from 50 to 65 p.c. and, in order to stimulate research and development in the private sector, the benefi t of this measure was extended to researchers employed by fi rms carrying out a research project under a cooperation agreement with the academic world. The tax deduction for the latter category of researchers amounts to 50 p.c. of the payroll tax.

Finally, the draft central agreement for 2005-2006 called on the government to provide for a reduction in the tax burden on paid overtime for private sector workers, to be shared equally between workers and employers. Since 1 July 2005, the employer no longer has to pay part of the payroll tax relating to overtime, namely 24.75 p.c. of the gross pay (i.e. the basic wage). Workers are granted an equivalent reduction in personal income tax. However, the reduction in charges applies only to the fi rst sixty-fi ve hours of overtime during any year.

The profi le of the movement in labour productivity broadly refl ects that of economic activity. Thus, the weak business activity caused a contraction in employment in 2002 and 2003, partly as a consequence of the corporate restructur-ings, which led to an increase in the apparent labour pro-ductivity. In 2004, productivity further improved, driven by the economic revival. Since the growth of employ-ment lags behind that of activity to some degree, the cyclical expansion in 2004 still had a favourable impact on employment during the year under review. Taking account of the slowing of economic activity in 2005, the productivity gains dipped sharply, from 1.9 to 0.1 p.c. The growth of hourly labour costs therefore far outpaced the rise in productivity once again, whereas it had more or less mirrored the pattern of apparent labour productivity in the two preceding years. Consequently, after two years of relative stability, unit labour costs increased by 2.1 p.c.

For a small, open economy, the movement in labour costs is a key factor determining the competitiveness of fi rms and, hence, employment. It therefore also needs to be analysed from an international perspective, and particularly in relation to Belgium’s main trading partners. Since 1996, nominal hourly wages in the private sector in Belgium, have been assessed as moving in line with those of the three main neighbouring countries and competitors,

namely Germany, France and the Netherlands, under the law on the promotion of employment and the safeguard-ing of competitiveness.

According to the CCE secretariat, the increase in the hourly labour costs of Belgian fi rms has broadly matched that in the three countries mentioned above, only exceed-ing it by 0.9 percentage point during the period from 1997 to 2004 ; that minor handicap worsened never-theless in 2005 to reach around 1.8 percentage points altogether since the law came into force. However, during those years, the profi le of the movement in labour costs in Belgium compared to the three main neighbouring countries has fl uctuated widely, the divergences recorded being determined essentially by the differential impact of unexpected price shocks – in view of the different wage-setting mechanisms – and by asymmetric developments in economic activity and the labour market.

In that regard, it must be remembered that the wage norm in Belgium represents a maximum or indicative margin for the increase in nominal hourly wages in the private sector, which is defi ned every two years by the social partners. They determine that norm on the basis of the maximum scope available for hourly labour cost increases in the pri-vate sector, calculated by the CCE secretariat on the basis

87


TABLE 22 UNIT LABOUR COSTS IN THE PRIVATE SECTOR

(Percentage changes compared to the previous year)

2001 2002 2003 2004 2005 e

Labour costs per hour worked . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9 4.4 1.5 1.9 2.2

Labour productivity (1) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –0.2 2.9 1.3 1.9 0.1

Unit labour costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 1.4 0.2 0.0 2.1

Sources : NAI, NBB.(1) Value added at constant prices per hour worked by employees and the self-employed.(2) Calendar adjusted data.

of forecasts for the movement in nominal labour costs in the three main neighbouring countries for the ensuing two years. Those forecasts are based on the estimates of the OECD Economic Outlooks relating to labour costs per worker, adjusted for any variations in working time per person employed, as revealed by the Eurostat labour force survey. The assessment of the expected automatic indexations based on the infl ation forecasts, on the one hand, and the scale increases resulting from seniority, age, promotion or individual changes of category, on the other hand, determine the margin available, ex ante, for real wage increases.

The reliability of the estimate of expected indexations therefore largely determines whether the wage norm set in advance is, or is not, respected. Thus, the signifi cant price rises at the end of the year 2000 had led to higher than expected indexations during the period 2001-2002. The 6.4 p.c. wage norm which had been agreed for that period was therefore far exceeded. Since none of the three main neighbouring countries has an automatic wage indexation system, and since the effect of the tem-porarily higher infl ation on the movement in labour costs was very different there, labour costs increased faster in Belgium at that time. Conversely, the fact that infl ation decelerated faster than predicted over the period from 2003 to 2004 meant that wage indexations were lower than expected, and the movement in wages in 2003-2004 remained well below the 5.4 p.c. wage norm agreed for that period. However, the increase in nominal hourly wages among the three trading partners over the same period was also less than expected : on the basis of the latest national fi gures, it was estimated at an average of 4.6 p.c. The wage handicap accumulated in 2002 has therefore not been totally eliminated.

Conversely, an increase in that handicap in relation to the three main neighbouring countries proved inevitable during the year under review, both because of the faster wage indexation in Belgium and because of a smaller rise in labour costs in other countries than had been envisaged at the time of the negotiation of the draft central agree-ment for 2005-2006. As has already been mentioned, the increase in nominal hourly labour costs in Belgium prob-ably totalled 2.2 p.c. in 2005, whereas it averaged only 1.8 p.c. in the three main neighbouring countries.

The average movement in labour costs in the three main neighbouring countries masks substantial divergences. Thus, the annual growth of labour costs in Belgium during the period from 1997 to 2005 was very similar to that seen in France, or even slightly lower since the start of the new millennium. In addition, a huge gap has opened up, particularly since 1999, between the cumulative increase in hourly labour costs in Belgium and the Netherlands, in favour of Belgium. This development is attributable to the very marked economic cycle in the Netherlands, The rapid growth of activity at the end of the 1990s gener-ated severe tension on the Dutch labour market, which also adapted very slowly to the abrupt downturn in 2000. As a result, wages continued to rise steeply, whereas unemployment was increasing. During 2003 and 2004, the effect of the growing wage moderation on labour costs was offset by the strong increase in employers’ social security contributions. The coverage of future com-mitments under supplementary pension schemes – which are far more important than in Belgium – had fallen so low after the bursting of the stock market bubble in 2000 that employers had to pay substantial additional contribu-tions in order to avoid a pension fund solvency crisis. As the employers’ contributions to the pension funds have remained stable at that high level since then, the effect of the wage moderation should have become more appar-ent in 2005.

88

In contrast, labour costs in Belgium increased signifi cantly faster than in Germany, where a lengthy period of weak economic growth has brought a high unemployment rate. In that country, priority has been increasingly accorded to sectoral agreements which guarantee employment, rather than wage increases. It seems that the wage moderation was also favoured by the increasing decentralisation of wage bargaining, combined with measures to control costs in fi rms (abolition of pay supplements, introduction of “working time accounts”, and relocation of activities to the former East Germany where wage levels remain more competitive). Finally, the rapid rise in the number of low paid jobs, particularly following the “Hartz” reforms, has also exerted downward pressure on hourly labour costs in Germany.

Examination of the competitiveness of Belgian fi rms in the light of the relative movement in unit labour costs – i.e. taking account of the movement in labour productivity – reveals that the handicap which Belgium has accumulated in relation to its three main trading partners is probably even greater : the cumulative growth of unit labour costs between 1996 and 2005 is assessed at 4.4 percentage points above the average for the three neighbouring

countries. This larger gap appears to be due mainly to the movement in relation to France. While hourly labour costs have risen slightly less in Belgium, the movement in unit labour costs was more favourable in France, because the productivity gains there have been signifi cantly larger. In recent years, the Netherlands has also recorded more sustained productivity growth, which has reinforced the impact of wage moderation on its competitiveness in relation to Belgium.

In relation to the euro area, the wage handicap accu-mulated by Belgian fi rms since 1996, the year of entry into force of the law on the promotion of employment and the safeguarding of competitiveness, is of the same order of magnitude as in relation to the three main neighbouring countries, at least if it is assessed in terms of hourly labour costs. On the basis of the unit labour costs, the slippage appears less signifi cant, at 1.4 against 4.4 percentage points, taking account of the less rapid increase in labour productivity, on average, in the euro area.

–15

–10

–5

0

5

10

15

20

–15

–10

–5

0

5

10

15

20

–15

–10

–5

0

5

10

15

20

–15

–10

–5

0

5

10

15

20

CHART 39 LABOUR COSTS IN THE PRIVATE SECTOR IN BELGIUM AND IN THE EURO AREA

(Percentage points, difference compared to the index for Belgium, 1996 = 100)

Sources : OECD, CCE, NBB.

1997

1999

2001

2003

2005

e

1997

1999

2001

2003

2005

e

HOURLY LABOUR COSTS UNIT LABOUR COSTS

Germany

France

Netherlands

Three main neighbouring countries(weighted average)

Euro area

4. Labour market and labour costs · LABOUR MARKET AND LABOUR COSTS 4.1 Labour market The favourable movement in employment which had begun in the last quarter of 2003 continued during

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