This report analyses labour market developments in Europe during the initial phase of the recovery from the major recession that followed the financial crisis. Despite growth resumed in 2010 in most EU countries, employment lagged behind. The muted response of employment to growth was largely the result of a considerable rebound in hours worked. At the end of 2010, working hours per worker were back to pre-crisis levels in many EU Members States and headcount employment started growing again, albeit timidly, and mostly for workers with temporary and part-time contracts.

In most EU countries, unemployment rates remained at the high levels reached since 2009, in a context of very resilient participation rates. Youth unemployment has reached record highs. Unemployment disparities within the EU and the euro area have grown markedly, and the most recent trends and projections indicate the divergence in unemployment rates are likely to persist and possibly aggravate in the coming years. Unemployment duration has increased as a result of persistently low job creation and matching in the labour market has worsened. Wage moderation has prevailed during the recovery, with a reduction in the growth of nominal wages compared with previous years, and with real wages growing below productivity. The considerable surge in labour productivity was coupled with falling unit labour costs in most EU countries.

Looking forward, avoiding unemployment becoming entrenched, keeping activity rates high, fighting precariousness and job insecurity appear as major challenges. The report includes analytical focuses on issues of relevance in the current context: reform priorities for unemployment benefit systems; wages, competitiveness and macroeconomic imbalances.