**1. Introduction**

"Promote sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all" is one of the main goals of the 2030 Agenda for Sustainable Development (Goal 8) adopted by the member states of the United Nations [1]. According to the Europe 2020 Strategy [2], the European Union (EU) aims "to become a smart, sustainable, and inclusive economy delivering high levels of employment, productivity, and social cohesion". Thus, the central role of productive employment in inclusive and sustainable development is recognized both worldwide and at the EU level.

Sustainable development is a complex and multidimensional concept [1,3,4], which implies at least three dimensions of development: economic, social, and ecological [5,6]. Empirical research [4,5] shows that there are trade-offs in favor of the economy at the cost of social wellbeing and ecological viability, which can affect the achievement of sustainable development. Inclusive development can be defined as development that "includes marginalized people, sectors, and countries in social, political, and economic processes for increased human wellbeing, social and environmental sustainability, and empowerment" [7] (p. 546). Thus, we consider that national and international strategies should

pay attention to both sustainable development and inclusive development in order to ensure a high living standard and quality of life for all people.

Sustained and sustainable gross domestic product (GDP) per capita growth, growth in productive employment, sustained reduction in income poverty and inequality, sustainable improvement in human development indicators, and basic social protection for all are the essential elements of inclusive growth and development [8–12]. Productive employment is seen as a critical nexus between growth and poverty reduction [13]. In the World Bank report [14], it is underlined that jobs are the cornerstone of economic and social development. Although productive employment and inclusive growth are actually widespread in development policies, productive employment "is still more widespread as an aspiration than as a reality in large parts of the global South" [15] (p. 2).

Europe's past experience demonstrates that the quality of available jobs is a matter for concern [16], not only in terms of pay and job security [17]. Because of a relative expansion of low-quality jobs, employment growth was not accompanied by a significant reduction in poverty [18]. A critical barrier impeding poverty reducing through sustainable employment [19] is working poverty (or in-work poverty), as a form of deficit in productive employment [20]. According to statistical data [21], in the recent economic crisis and recovery period (2007–2016), working poverty increased in most of the EU member states, and the incidence of in-work poverty varies significantly across these countries. Behind these differences, there are specific determinants that require specific measures [22]. The existence of working poverty (the latest Eurostat figures point out that 9.6% of EU workers are affected by risk of poverty [21]) proves that getting people into work is not always enough to avoid poverty risk. Therefore, actions to translate unproductive employment into productive employment are needed. Also, EU statistics [21] show large differences between countries in meeting the targets of the Europe 2020 Strategy [2] in terms of employment, research and development, climate change and energy, education, poverty, and social exclusion; while some EU member states moved toward the targets, others moved away from them. Taking into account that the new member states of the European Union, especially central and eastern European (CEE) countries, was lagging behind the old member states (EU-15) in their inclusive and sustainable development and competitiveness [21,23–25], we consider that more attention needs to be paid to improve productive employment as a key precondition for achieving economic, social, and territorial cohesion at the EU level in order to reduce disparities between individual member states and to ensure a high level of inclusive and sustainable development in all countries of the EU.

In the light of these considerations, the aim of this article was to highlight the main characteristics and mechanisms of productive employment in relation to inclusive and sustainable development, in the EU countries for the 2007–2016 period, in order to identify some possible measures that need to be taken to improve productive employment and its effect on inclusive and sustainable development. The research objectives focused on (i) analyzing the link between labor productivity and the national level of inclusive and sustainable development; (ii) exploring the sectoral structure of employment and its implications on labor productivity; (iii) investigating working poverty (deficit in productive employment) and the inclusive development nexus; (iv) identifying the common features and differences between EU member states relative to interrelationships between productive employment, and inclusive and sustainable development.

The novelty of this research consists in the multivariate analysis of the interrelationship among productive employment, and inclusive and sustainable development in the EU countries, in the recent economic crisis and recovery period (2007–2016), based on correlation and regression analysis, principal component analysis (PCA), and cluster analysis (CA). Since productive employment is a major challenge for the EU economies (and others), understanding its main characteristics and mechanisms can be a contribution to the development of the literature and an important step in designing more effective policies so that productive employment becomes a driving force for the achievement of inclusive and sustainable development.

#### **2. Theoretical Background and Research Hypotheses**

In the literature on employment, productive employment is presented as a driving force for inclusive and sustainable development [8,11,20,26,27]. According to the International Labor Office (ILO) definition [20] (p. 3)**,** productive employment is that employment which yields "sufficient returns to labor to permit workers and their dependents a level of consumption above the poverty line", and includes three dimensions: remuneration, stability of employment, and working conditions [9]. Moreover, it is the crucial element that links economic growth to development and poverty reduction, and which, combined with social protection, provides the main means of reducing poverty [20].

Empirical evidence shows that a real challenge for national economies is their reduced capacity in terms of generating employment growth while in a process of economic growth [8,28,29], emphasizing the lack of inclusive economic growth and development [30]. This fact can generate a high level of inequality and poverty, and insufficient productive opportunities for employment [31]. Taking into account that economic growth by itself may not be inclusive and sustainable [32], the nature and pattern of economic growth matters for employment creation and poverty reduction.

The World Bank report [14] highlights that the jobs that contribute the most to development are those that enhance the functioning of cities, create a link between the economy and the global markets, promote cooperation and civic engagement, and are environmentally friendly and help diminish poverty. In the same report [14], it is stated that "good jobs for development" are those jobs that significantly contribute to the development of a society. Access to productive employment provides the poor with better income, as well as stimulating learning and skills acquisition, which is essential for the inclusion of the poor in society [9].

In order to measure productive employment, as a key driver of development, three main indicators are used [20,33]: labor productivity, the proportion of vulnerable workers (the proportion of own-account and contributing family workers in total employment), and the share of working poor (working poverty rate).

Economic growth and development, competitiveness, and living standards within an economy depend on labor productivity [8,11,15,34], and workers are more productive if they work with better equipment and are more efficient if they benefit from education and training [35].

The level of an economy's productivity is considered the heart of competitiveness [36] and "the prime determinant of a nation's long run standard of living" [34] (p.76). Moreover, The Europe 2020 Competitiveness Report [36] highlights a high level of interaction between competitiveness and sustainable and inclusive development, taking into account that competitive economies "are those that are able to provide high and rising living standards, allowing all members of a society to contribute to and benefit from these levels of prosperity" [36] (p. 5), as well as those economies that meet "the needs of the present generation while not compromising the ability of future generations to meet their needs" [36] (p. 5).

An improvement in labor productivity and quality of jobs is often interlinked with structural transformation [16,37,38]. As Porter [34] showed, differences in national economic structures alongside the differences in national values, culture, and institutions have an important contribution to competitive success of nations. Moreover, Porter identified the differences in the patterns of competitiveness in every country [34]. A major element of structural transformation is the gradual reallocation of workers and other resources from traditional activities, with low productivity (agriculture and low value-added manufacturing), to modern activities, characterized by higher productivity (high value-added manufacturing and services) [39]. According to the World Economic Forum, which adapts Porter's theory of development stages [34], as a country becomes more competitive and moves along the development path, from the factor-driven stage into the efficiency-driven stage and then into the innovation-driven stage, productivity will increase and wages will increase as well [40]. Moreover, Erkut [41] states that the transformation of a national economy from one stage of competitiveness and development to the other "can be interpreted within the context of a self-organized economic evolution" [41] (p. 86).

The fact that structural transformation is not a mechanical process is acknowledged and it is often significantly different from the approach adopted by the developed countries over the last century [16]. In most developing countries, there was a premature deindustrialization process, expressed by reducing shares of both employment and output in the manufacturing sector, but at a low level of economic development, which had important consequences for the pace of development and the type of employment generated [16,37]. Lehmann-Waffenschmidt [42], based on the contingency approach and the structural similarity approach, emphasized that laying the foundations of successful industrialization and growth processes takes a long time and this cannot be replaced by a short-term political intervention, but he also adds another important factor, i.e., a sufficiently high rate of technical progress and innovation.

The impact of improvements in labor productivity on inclusive development is strongly linked to the sector that generates economic growth [43]. The countries that manage to increase productivity and pull out of poverty are those that were able to diversify away from agriculture and other traditional sectors [16,28,38]. A strong negative correlation between economic development (GDP per capita) and shares of agriculture in GDP [9] and in employment [44] were found, which can be explained by the significant contribution of agriculture to employment, in countries with low economic development. A real challenge facing employment in agriculture is its low quality due to the low productivity in traditional activities [9,44]. There is a strong association between productive structural transformation and job quality, expressed by a high share of wage and salaried workers or, equivalently, a low share of vulnerable employment in total employment [33]. Thus, as labor moves from the agricultural sector (characterized by a high degree of vulnerable employment and low productivity) to the manufacturing and/or services sector, the share of wage workers (better-quality jobs) tends to increase and the share of vulnerable workers (own-account workers and contributing family workers) tends to decrease [33]. Also, evidence points to a strong negative relationship between the incidence of vulnerable employment and the level of development [16]. Vulnerable workers were more affected by relative poverty than wage and salaried workers, who benefit from greater employment security [8,33,45]. The vast majority of the working poor work in agriculture and rural areas [8,44]. Moreover, structural transformation drives profound changes in the labor market, especially shifting from the standard employment relationship (permanent jobs, full-time, employee status, etc.) to the non-standard employment relationship (temporary work, part-time, self-employment, etc.), which may increase vulnerability of work [22,46,47], leading to an increase in working poor.

As regards the main causes and mechanisms of working poverty, as a form of deficit in productive employment, the literature is very broad [8,18,22,45,48,49], encompassing low pay (which is usually associated with low levels of productivity), temporary and part-time work, personal characteristics and professional status of employed persons, household structure of the person working, and different dysfunctions of the labor market and welfare states regimes.

Empirical results [8,22,30,33] showed a positive two-way relationship between job quality and per capita income. Moreover, it is underlined that sustainable development cannot be achieved unless it goes hand in hand with decent and productive work [33]. Moreover, the potential of structural transformation to create more and better jobs is essential in generating sustained economic development and improving living standards [16]. Therefore, the movement of workers from agriculture to services reflects the growth of productive jobs, especially when workers relocate into high-productivity services sectors, such as knowledge-intensive services (KIS) [16,50]. Some authors [8,50] found, at the EU-27 level, a strong positive relation, in both directions, between the employment in KIS, on the one hand, and economic development (GDP per capita) and labor productivity, on the other hand. According to McMillan et al. [51], sustained economic development requires employment to be directed toward modern sectors and to be backed by actions that would foster the productivity of each economic activity, such as making investments in technology upgrading, skill development, and last but not least institutional capabilities. Lavopa and Szirmai [52], analyzing the link between trajectories of structural modernization and the ability of countries to escape

poverty, pointed out that expanding the size of the modern sector is not sufficient to ensure a steady growth, as a process of technology absorption is needed in order to reduce the technology gap. Economic development and labor productivity are highly related to the knowledge capital and innovation of the countries [53–56], since education, especially tertiary education, is seen as a driver of productivity and economic development in both developing and developed countries [57].

In light of these considerations, the fundamental research question of this study is as follows: which are the characteristics of productive employment in the EU member states and to what extent can productive employment be a driving force for the achievement of inclusive and sustainable development?

Based on the theoretical background and evidence from the literature, we formulated the following research hypotheses (H):

**H1:** *Labor productivity is higher in EU countries with high inclusive and sustainable development.*

**H2:** *There is a strong association between high labor productivity and an efficient sectoral structure of employment in the EU countries, during the 2007–2016 period.*

**H3:** *Working poverty (deficit in productive employment) influences the level of inclusive development negatively.*

**H4:** *A higher level vulnerable and precarious employment determines a high risk of working poverty in the EU countries, during the 2007–2016 period.*

**H5:** *There are common features and differences between EU member states based on their interrelationships between productive employment, and inclusive and sustainable development.*
