A new report from Eurofound, published by the end of February 2009 maps innovative and good practice government and company measures to keep workers in employment. It shows how companies are using short-term working, paid/unpaid sabbaticals and 'pay for jobs' clauses in restructuring agreements and how social partners are reacting to these developments.

There are increasingly alarming predictions about the employment impact of the most severe crisis in the developed world economies since the great depression of the 1930s. The International Labour Organization predicted in January 2009 that global unemployment could increase by up to 50 million in a worst case scenario. Already, most of the developed world has succumbed to recession. Forecasts for future growth have been repeatedly revised downwards and it is unlikely that the EU economy will begin to recover before late 2009 at the earliest.

Unemployment levels in the EU-27 had already began to increase in May 2008, when the report studies were carried out, and the rise has been precipitous in certain Member States (Spain, Ireland, Estonia, Latvia and others) while even those labour markets that have been least affected thus far (Germany, Poland, Slovakia) are beginning to report abruptly worsening conditions.  While figures on May 2008 showed an employment rate in the Euro area of 7.1%, the most recent data published by Eurostat showed that unemployment within Euro area had risen to 8.2% in January 2009.

The report published by Eurofound seeks to describe how some companies, the social partners and Member States in the EU have reacted over recent months to forestall or mitigate the negative employment consequences of the downturn. Many EU governments have short-time compensation programmes in place whereby employers can apply for temporary state assistance to top up the wages of workers working reduced hours. Generally, these programmes are conditional and negotiated agreements between the social partners, subject to specific market conditions and declines in sales levels. The report outlines the workings of the systems in place in Germany, France, the Netherlands and Austria as well as the bill currently being discussed by the Slovenian government.

The report emphasises three specific types of initiative: short-term working, paid/unpaid sabbaticals and ‘pay for jobs’ clauses in restructuring agreements. A common feature is negotiated reduction of working time balanced by increased provision of training. The rationale for such measures is that upskilling during a period of reduced demand retains qualified staff, enhances human capital and preserves internal flexibility in anticipation of an upturn.

Employers are also looking to retain staff through the economic turbulence, one sign of this being the increase in offers of paid career breaks. Such measures are mainly found in the UK and Ireland according to the report, mainly since company-level initiatives involving both wage and time flexibility are more likely in countries where there are no collective frameworks of agreed working time flexibility.

The report also examines why companies prefer to avoid forced job cuts. One reason is certainly the financial cost of redundancies but there is also widespread anecdotal evidence that companies have been chastened by previous experience of downturns where the dismissal of trained and experienced staff undermined efforts to restore levels of production during the recovery phase. In some countries, public schemes to finance temporary layoffs and reduced working times provide an incentive for companies to use these mechanisms. Also, human resource management policy in large firms may be more focused on the medium to long term than previously was the case, where unfavourable demographic profiles in many countries will severely limit labour supply.

The report clearly outlines the risks with measures intended to secure the survival of viable businesses through short-term difficulties, and that these may not be so effective in a protracted slowdown.