Executive summary

The world of work is changing. Technological progress, globalisation and population ageing are having a significant impact on the labour market – not only by creating many new job opportunities and destroying obsolete ones, but also by profoundly changing how most ongoing jobs are carried out. Belgium is likely to be strongly impacted by these mega-trends: 14% of jobs are estimated to be at high risk of automation in the next 15 years; more than half of business sector jobs are dependent on demand from abroad; and the ratio of older to working-age persons is expected to increase by 46% over the next 30 years.

These transformations bring many opportunities for the creation of new and better jobs. However, they can also result in job loss for some, and a need for on-the-job adaptation for others, as the tasks and the skills that are required change.

In many ways, Belgium is well-prepared to face the future. It has a highly skilled and productive workforce, strong safety nets, an inclusive system of social dialogue, and a low level of income inequality. However, some groups, like the low-educated (i.e. workers without an upper secondary qualification), risk being left behind. These workers are more likely to see their jobs disappear, and less able to take advantage of new job opportunities, which have tended to benefit primarily the high-skilled.

The low-educated in Belgium already face significant challenges. In 2018, only 47% of those aged 20-64 were employed – compared to 52% in France, 61% in Germany, and 63% in the Netherlands. Perhaps more worryingly, the employment rate of the low-educated in Belgium has been falling (down from 51% in 2000), while it has been rising in both Germany and the Netherlands.

These challenges are likely to heighten in the future in Belgium. Based on current trends, the employment rate of the low-educated could continue to fall by up to 7 percentage points between now and 2030 (while it is expected to rise in the Netherlands and Germany). Moreover, employment in sectors that traditionally provided high-quality jobs to the low-educated (such as manufacturing) is projected to further decline, while it is forecast to grow in sectors with lower job quality (e.g. in services).

Given these current and forthcoming challenges for low-educated workers, Belgium faces some stark policy choices. These are not about whether Belgium should follow the same path as its neighbouring countries. Rather, it is a question about balance. For example, while many of the low-educated in Belgium are not working, those in jobs tend to have a higher quality job, on average, than their peers in neighbouring countries. Average earnings are considerably higher than in France and Germany, and the share of low-educated workers in non-standard, more flexible work contracts is lower than in all three neighbouring countries. Some concessions on job quality may be necessary in order to get more low-educated into work.

Based on international evidence, this report puts forward some policy directions to improve the employment outcomes of the low-educated in Belgium. The suggestions made are not intended as an exhaustive list of policy options. In particular, the focus is on labour market and skills policies. It is clear that interventions will be required on other complementary areas (e.g. fiscal and production market reforms), which have been discussed in other OECD reports.

The employability of the low-educated will need to be strengthened. Compared with neighbouring countries, Belgium still has a higher share of workers who are low-educated. Moreover, evidence from shortage occupation lists indicates that job opportunities exist for low-educated workers in middle-skilled occupations. Taking advantage of these opportunities will require additional investments in initial education, accompanied by measures to encourage lifelong learning.

Improving skills will not be sufficient, however. The demand for low-educated workers in Belgium will need to be boosted and labour costs, which are among the highest in the OECD, are likely to be a barrier.

A key driver of higher labour costs in Belgium is taxes and social security contributions. The tax wedge for a single person with no children earning 67% of the average wage is the highest in the OECD – despite recent reforms to lower such taxes. There is further scope for reducing such taxes on low-wage workers and/or better targeting existing reductions.

Another important source of higher labour costs for low-educated workers in Belgium is their relatively higher wages compared to their peers in neighbouring countries (especially France and Germany). If higher wages reflect higher productivity, then this should not adversely affect employment. However, where imbalances do exist, efforts should be made by the Belgian social partners, with help from the government, to better align the wages of low-educated workers with their productivity. Any potential wage declines could be compensated for by a greater use of in-work benefits/tax credits.

More should also be done to improve the work incentives facing the low-educated who are not working. In Belgium, when an individual moves into low-paid work, a higher share of earnings is lost to either higher taxes or lower benefits than is the case in neighbouring countries.

Work incentives could also be strengthened by tightening eligibility requirements which determine continued receipt of unemployment benefits. In particular, availability requirements are not particularly stringent and individuals have more leeway than in other countries for refusing job offers. But, in exchange, additional measures must be taken through further training to improve the job offers that are open to those with few formal qualifications.

Low-educated workers will also need help overcoming other non-financial barriers to work. Compared to neighbouring countries, a far larger share of non-employment among the low-educated in Belgium is due to disability and caregiving duties. Belgium also has a known challenge with low employment rates among older workers.

A greater use of non-standard employment contracts in neighbouring countries like the Netherlands and Germany may also explain some of the difference in employment rates between countries, but it is unlikely to be a major factor. That being said, a narrowing of the gap in regulation between permanent and fixed-term contracts in Belgium may be desirable so as to encourage employers to hire low-educated workers on regular contracts.

The proposed measures outlined above have gained in urgency since the COVID-19 crisis which, to date, has affected low-educated workers disproportionately and may have accelerated some of the longer-term trends documented in this report. The crisis does not change fundamentally the recommendations made in this report, but may affect their timing. For example, in the short-run, reforms of the unemployment benefit system may be less urgent given the continued need for adequate income protection. At the same time, additional, temporary measures may need to be introduced, such as hiring subsidies, occupational safety and health measures, as well as strengthened rights to flexible working arrangements – particularly where they benefit the groups most affected by the crisis.

Helping the low-educated into better job opportunities as Belgium rebuilds its labour market for a post COVID-19 world will also be important for improving the resilience of the Belgian labour market to future shocks.