BRUSSELS (AFX) - Euro zone finance ministers said they have identified labour supply as being of "crucial importance" to increasing the euro zone's growth potential and, over time, for facing the challenges of an ageing population.
In a statement issued after the monthly eurogroup meeting, the ministers said they "singled out as highest priority the increase of the productive potential of the euro area economies as the best way to create more jobs and to foster high, non-inflationary growth." "To this end, ministers are resolved to continue with sound budgetary policies," they said.
The statement noted ministers had examined structural impediments to growth in the euro area.
"They focused on labour supply, which is of crucial importance for increasing the growth potential of euro area economies and, in the longer term, for facing the challenges of ageing populations." Reforms of tax and benefit systems are needed in most euro zone states "to improve incentives for greater labour force participation and to make work pay."
The ministers noted some progress in recent years to make tax systems more employment-friendly and to reduce the overall tax burden (of direct taxes and social security contributions) on labour. "But more needs to be done in many member states to lower the tax burden in particular on low-paid workers, without jeopardising fiscal consolidation," the statement added.
As tax measures alone will not be enough to swell employment and participation rates substantially, "much more attention" has to be paid to the interaction between tax and benefit systems, it said.
This interaction, which results too often in very high marginal effective tax rates, needs attention by policy-makers to ensure that policies make work pay, avoid unemployment traps which deter those out of the labour market from searching for a declared job, and avoid poverty traps when people see little financial gain from working harder or moving to better jobs, it said.
It welcomed recent trends in some countries towards employment-conditional benefits, like tax credits on earned income, as it enhances work incentives.
Unemployment benefit schemes need reform to address their incentive effects, duration, eligibility and enforcement, so that total employment is increased, it said.
The extent of early retirement schemes should be reduced, while developing "programmes for active ageing in order to increase the effective retirement age," it said.
The ministers added they will return to tax and benefit system reform in October, and want to develop comparable indicators to benchmark national policies and improve data availability. The European Commission and Economic Policy Committee of member state representatives should take this work further in their joint report for next year's Barcelona summit on raising labour force particpation and promoting active ageing, they said.