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Introduction

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

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  1. Successes and Failures of Labor Market Policy in EuropeJochen Kluve(RWI Essen, Germany) Colombia Employment and Development Conference Bogotá, November 14, 2008 J Kluve

  2. 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 Introduction J Kluve

  3. 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 Today‘s presentation J Kluve

  4. J Kluve

  5. Unemployment in Europe Source: Eurostat J Kluve

  6. Youth unemployment in Europe Source: Eurostat J Kluve

  7. Long-term unemployment in Europe Source: Eurostat J Kluve

  8. Unemployment in 2005: EU-15: 8.0% 14 Mio., of which 4.7 Mio. LTU EU-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 GDP 25 Bio. Euros on training programs 126 Bio. Euros on passive labor market policy (Eurostat) European labor markets: overview J Kluve

  9. “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) Þ”Administering unemployment” J Kluve

  10. Types of Active Labor Market Programs (Labor market ) training: human capital accumulation Private sector incentive programs: employer and worker behavior Direct employment in public sector: public job creation Services and Sanctions: job search efficiency Youth programs Measures for the disabled J Kluve

  11. EU spending by program type Source: Eurostat J Kluve

  12. Knowledge on ALMP effectiveness For 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 Þ systematize information] J Kluve

  13. Northern Europe Eastern Europe Western Europe Southern Europe J Kluve

  14. “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 J Kluve

  15. “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 J Kluve

  16. “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 J Kluve

  17. “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 J Kluve

  18. Spending on ALMP in Europe (%GDP) J Kluve

  19. How to systematize the evidence • Meta-Analysis: Collect evaluations of Active Labor Market Programs from all over Europe (following certain requirements) Þ 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: • Training (70) • Private sector incentive programs (23) • Public sector job creation (26) • Services and Sanctions (21) • Youth programs (35) J Kluve

  20. 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) J Kluve

  21. 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 J Kluve

  22. 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 Þ Preventive measures. J Kluve

  23. 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. J Kluve

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