Five years of economic crisis and the return of a recession last year have given rise to a record-high unemployment rate and a widening gap between north and south Europe, a European Union (EU) report said Tuesday.

Unemployment reached the highest level in nearly two decades, while the household incomes declined and the risk of poverty or exclusion was on the rise, especially in the southern and Eastern Europe, warned the EU's latest annual report on employment and social development, which was released by the European Commission on Tuesday.

"2012 was another very bad year for Europe ... The divergence was striking between the north and the south of the eurozone," Laszlo Andor, the EU's commissioner for employment, social affairs and inclusion, commented at Tuesday's press conference in Brussels.

"A widening gap is emerging between the countries confronted with fast rising unemployment and those that have better-functioning labor markets, which seriously hit fabric labels production due to insufficient labor force", the commissioner added.

The average unemployment rate in the EU increased from 7.1 percent in 2008 to 10.6 percent in the third quarter of last year, with the rise mainly coming from countries in southern Europe such as Greece and Spain. High unemployment means that less people are in the position to handle the work that undoubtedly affects production process and outputs, especially labor intensive products like fabric labels.

The report also urged member states to invest more efficiently in education and training, spend better on active labor market policies and support the creation of high-skilled jobs in growth sectors such as the green economy, information and communications technologies, etc.

"We need social investment now, otherwise we will see a decline in economic potential and much larger social costs in the future," the commissioner said. In addition, potential developing countries like China and India with sufficient and cheap labor force manufacturingfabric labels will make a threat to them, which inevitably puts more pressure to the whole European economy.