The FINANCIAL — Most Northern European countries, Germany, Estonia, Latvia and Poland are among the top opportunity performers in the European Union (EU), as the vast majority of their youth – including those from disadvantaged backgrounds – attain basic competency in PISA reading scores, and their firms enjoy considerable economic freedom as seen in Doing Business rankings, says a new World Bank report.
However, the rise of technology risks leaving Europe’s poorest countries, lagging regions and unskilled workers behind, deepening economic divides within the EU.
Over the last 15 years, manual jobs across the EU have declined by more than 15% while creative and analytical jobs have gone up by the same amount. This trend is accelerating. The report recommends policymakers strive to boost skills for workers, readying them for new jobs in a rapidly evolving labor market. This will drive improved living standards in lagging countries and regions.
“The EU’s remarkable convergence machine has boosted growth and prosperity, benefitting people and firms across all of Europe for more than sixty years. Convergence, however, is not automatic. The machine will stall unless steps are taken to ensure people benefit equally,” says World Bank Chief Executive Officer Kristalina Georgieva. “To keep this momentum going, we need policies that ensure people have the skills to exploit new opportunities. Increasing access to education and training combined with improvements to a country’s business environment, will create more jobs for more people.”
It also suggests that burdensome red tape should be removed to allow firms to unlock their full potential and take advantage of the technology transition. The growing productivity gap between Southern and Northern member states over the last two decades illustrates the immediate challenges facing Europe. Between the late 1990s and today, productivity growth has decelerated from 2% to 1.5% in Northern Europe while productivity growth in Southern Europe has decelerated twice as fast.
Low quality education in particular regions and countries in the EU is also creating an economic and social divide between the richest and the poorest. In half of the EU, more than 20% of 15-years-olds are below basic proficiency in reading and mathematics while in Bulgaria, Malta, Romania and the Slovak republic it’s more than 30% below basic proficiency.
To close the skill divide in the labor market, governments need to redesign education systems and introduce policies to create equal opportunities in schooling and jobs. In many countries, radical improvements are needed to equip students with skills so they can compete for the jobs of the future.
Unskilled workers are more vulnerable to the shocks of a changing labor market, according to the report. Onerous regulations in many countries in central and southern Europe are discouraging firms from growing, creating jobs, and attracting foreign direct investment.
Enhancing the business environment in the EU will also help firms benefit from continuing growth in the region by spurring innovation and encouraging the adoption of new technologies. In Greece, Italy, Slovakia, and Spain, for example, micro firms account for 40 percent of employment.
“The EU is growing, but Europeans are not growing united. This report highlights the need to create a better environment for both people and firms to benefit from the opportunities being provided by Europe’s convergence machine,” says Arup Banerji, Regional Director for the European Union Countries at the World Bank. “Many countries, particularly in the North, are operating in environments that have high inclusive growth potential. We need to focus on policies that create similar environments for those countries and regions that are lagging behind.”