rheinisch-westfälisches institut für wirtschaftsforschung 1 j kluve successes and failures of...
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Successes and Failures of Labor Market Policy in Europe
Jochen Kluve(RWI Essen, Germany)
Colombia Employment and Development Conference
Bogotá, November 14, 2008
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Introduction
Majority of countries worldwide has implemented certain labor market policies: unemployment benefits, training for the unemployed, etc
While labor markets are heterogeneous by country, these policies are similar, and their general objective is the same: increase employment, reduce unemployment
Important for countries to learn from each other’s experience
Europe: many different countries within relatively small space, many experiences with different labor policies
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Today‘s presentation
European labor markets: Unemployment and policy spending
Passive and Active Labor Market Policy
Knowledge on ALMP effectiveness
Types of countries
Systematizing the evidence: Meta-analysis
Failures and successes
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Unemployment in Europe
Source: Eurostat
0
2
4
6
8
10
12
14
16
EU (25)
EU (15)
Austria
Belgium
Czech
Rep
ublic
Denmark
Finlan
d
France
German
y
Hunga
ry
Irelan
dIta
ly
Netherl
ands
Poland
Portug
al
Spain
Sweden
United
King
dom
Japa
n
Norway
United
Stat
es
in % 2006
2007
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Youth unemployment in Europe
Source: Eurostat
0
5
10
15
20
25
30
35
EU (25)
EU (15)
Austria
Belgium
Czech
Rep
ublic
Denmark
Finlan
d
France
German
y
Hunga
ry
Irelan
dIta
ly
Netherl
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Poland
Portug
al
Spain
Sweden
United
King
dom
Japa
n
Norway
United
Stat
es
in %
2006
2007
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Long-term unemployment in Europe
Source: Eurostat
0
2
4
6
8
10
12
EU (25)
EU (15)
Austria
Belgium
Czech
Rep
ublic
Denmark
Finlan
d
France
German
y
Hunga
ry
Irelan
dIta
ly
Netherl
ands
Poland
Portug
al
Spain
Sweden
United
King
dom
Japa
n
Norway
United
Stat
es
in % 2005
2006
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European labor markets: overview
Unemployment in 2005:
EU-15: 8.0% 14 Mio., of which 4.7 Mio. LTUEU-27: 8.9% 19.3 Mio., of which 7.9 Mio. LTU
Spending (2003):
EU-15: 65 Bio. Euros on active labor market policy = .75% of GDP25 Bio. Euros on training programs
126 Bio. Euros on passive labor market policy
(Eurostat)
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“Passive” labor market policy
“Out-of-work income maintenance and support”, i.e. unemployment benefits and unemployment assistance
Early retirement schemes
Administration of the Public Employment Services (PES)
”Administering unemployment”
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Types of Active Labor Market Programs
1. (Labor market ) training: human capital accumulation
2. Private sector incentive programs: employer and worker behavior
3. Direct employment in public sector: public job creation
4. Services and Sanctions: job search efficiency
5. Youth programs
6. Measures for the disabled
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EU spending by program type
0
0,05
0,1
0,15
0,2
0,25
0,3
Total LMPservices
Training Job rotationand jobsharing
Employmentincentives
Integration ofthe disabled
Direct jobcreation
Start-upincentives
Source: Eurostat
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Knowledge on ALMP effectivenessFor a particular country:
Labor market policy Types of Active Labor Market Programs Design of the unemployment insurance system (passive support) Interaction of the active and passive systems (sanctions, “rights
and duties”)
Evaluation practice Data collection Academic and government-sponsored research Policy interest in learning about program effectiveness
[Countries are heterogeneous systematize information]
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Northern Europe
Western Europe
Southern Europe
Eastern Europe
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“Northern Europe”
Labor market policy Comprehensive use of Active Labor
Market Programs (Sweden: since the 1970s) Generous unemployment insurance
system (Denmark: 90% replacement rate) Program participation ultimately
compulsory for the LTU
Evaluation practice Comprehensive data collection (administrative) Multitude of academic evaluation studies Changes in policy? To some extent
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“Western Europe”
Labor market policy Less comprehensive use of
Active Labor Market Programs, but still substantial spending
Fairly generous unemployment insurance system Many countries (e.g. Germany, Netherlands, UK) have
introduced sanction elements over the last decade
Evaluation practice Less established, mostly triggered by EU, in some countries
rapidly evolving (Germany) Increasing number of academic evaluation studies Changes in policy? Unclear
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“Southern Europe”
Labor market policy Little use of Active Labor Market Programs, often regionally
focused Less generous unemployment insurance system
Evaluation practice Program evaluation rather uncommon Some academic evaluation studies exist Little is known on ALMP effectiveness
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“Eastern Europe”
Labor market policy After breakdown of Communist regimes, systems of active and
passive support built from scratch, often copying Western systems Little use of Active Labor Market Programs in most countries, some
exceptions are Romania and Poland (in the 1990s) Unemployment insurance
system offers basic support
Evaluation practice Program evaluation rather uncommon Some academic evaluation studies exist Little is known on ALMP effectiveness
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Spending on ALMP in Europe (%GDP)
00,20,40,60,8
11,21,41,61,8
2
Sweden
Denmark
German
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Netherl
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Spain Ita
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Czech
Rep
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Hunga
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2004
2005
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How to systematize the evidence Meta-Analysis: Collect evaluations of Active Labor Market
Programs from all over Europe (following certain requirements) 137 studies
For each study: Does the evaluation find a positive, negative, or zero effect of the program (on employment)?
[75 +, 33 Ø, 29 –]
Then analyze if there is a systematic pattern by program type: 1. Training (70)2. Private sector incentive programs (23)3. Public sector job creation (26)4. Services and Sanctions (21)5. Youth programs (35)
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Other factors that may influence effectiveness
For each country:
Labor market institutions Gross replacement rate Regulation on dismissal protection Regulation on fixed-term contracts Regulation on temporary work (OECD indexes)
Economic context Unemployment rate ALMP expenditure as % of GDP GDP growth
Study design (method, sample size)
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Results: ALMP effectiveness in Europe
Picture emerging from analysis surprisingly clear-cut:
Little systematic relation between program effectiveness and contextual factors
Exception: restrictive dismissal regulations
Instead: the program type matters
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Failures? Direct job creation in the public sector very rarely has a positive
effect on participants’ employment probability. Quite the opposite: effects are frequently negative.
Training programs have mixed effects, but generally tend towards positive impacts (see “successes” next slide), though maybe not as clearly / strongly as one might have hoped for.
Young people seem to be particularly hard to assist. Indeed, most youth programs fail. Perhaps ALMP is not the right type of policy for this group Preventive measures.
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Successes? Training programs are modestly effective on average. There is
some indication that impacts materialize in the longer run (human capital accumulation).
Private sector incentive schemes such as wage subsidies and start-up grants generally show positive effects. Caveat: Not much is known about substitution or displacement effects and deadweight loss.
“Services and Sanctions” seem particularly successful: Apparently many unemployed can be helped with basic job search assistance measures. Also, sanction elements mobilize the unemployed. These measures are also likely cost-effective.
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