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EU Labour Market Policies: how active are we and how do we respond to unemployment?

18/11/2015
EU Labour Market Policies: how active are we and how do we respond to unemployment? © Kzenon / Shutterstock

Labour market policies comprise a range of financial and practical policy interventions that can help people when they face difficulties in the labour market. They aim to bring the unemployed and the inactive into employment and help people in low-quality or threatened jobs find better employment opportunities.

Labour market policies are varied and include job searching mechanisms, training, start-up incentives and income support (unemployment benefits). A set of these policies are grouped together as "active measures" or activation policies and include training, employment incentives, supported employment, rehabilitation, and direct job creation.

Total spending on Labour Market Policies varies significantly across Member States: from more than 3% of GDP in Denmark, Ireland and Spain to less than 0.5% of GDP in Lithuania, and Romania (Chart 1). These spending levels are not a simple reflection of the number of unemployed or inactive people; they reflect different policy choices. This can also been seen from the extent to which countries differ in their allocation of spending across three types of interventions: "services" (e.g. job searching assistance), active "measures" or activation policies (e.g. training) and "supports" (e.g. unemployment benefits).

 Chart 1: Total LMP expenditure split by type of intervention ( Note: No data for EL, CY and UK for 2013 so that the EU28, EU15 and EA19 averages for 2013 are proxies and authors' computations based on data available for EU25.

A large group of countries, which includes Member States which experienced a sharp rise in unemployment over recent years (e.g. Spain, Italy, Portugal), spends a high share of LMP expenditure on "supports". Another group spends a large share (more than 30% of all spending) on "measures" or activation policies. This group is made up of the Nordic Countries (Finland, Sweden, Denmark) as well as some Baltic States (Latvia, Lithuania) and Central and Eastern European countries (Czech Republic, Bulgaria, Poland, Hungary). While the emphasis on activation policies is common in the Nordic countries, a number of other mostly Central and Eastern European are also taking a greater interest in activation policies.

LMP spending responded to unemployment over the double dip recession but more so in 2009-2010 than in 2011-2012, when it was considerably less reactive to the downturn: In general, total LMP expenditure increased in 2009 and 2010 following the onset of the crisis (Chart 2). This was to be expected after a very large increase in unemployment in 2009. However, spending behaved somewhat differently in the second part of the crisis: even though unemployment increased in 2011 and 2012, expenditure on LMP decreased or increased proportionally less than unemployment and less than in 2009.

 

Note: No data for EL, CY and UK for 2013 so that the EU28 average for 2013 is a proxy and authors' computation based on data available for EU25. The data use here can be found in our Labour Market Policy Statistics database. The database is funded by EaSI and managed by DG Employment, Social Affairs and Inclusion since 1st January 2014 with the technical support of the private contractor Alphametrics and Eurostat. The data is available on-line from the Eurostat statistics website.

There appears to be a sequencing of spending on LMP categories: Chart 2 shows that the increase in spending on “supports” was very large, and larger than the increase in spending on activation policies or “measures”. This suggests an immediate priority to income support or “supports” in the vast majority of Member States when unemployment rises.

Spending on “measures” and “supports” follows different patterns: in 2009 when LMP expenditure rose more than 40%, it strongly favoured “supports” (e.g. unemployment benefits). In 2010, it was mainly “measures” that showed a small increase. Again in 2012 and 2013, where LMP expenditure increased, it was on “supports”, while expenditure on “measures” decreased.

This sequencing in spending as can be observed for the majority of Member States makes sense: as people lose their job, they need immediate income support in the form of cash benefits. The questions is whether activation policies kick in quickly enough to avoid that people lose their skills and become discouraged from participating in the labour market.

For more information on the spending on labour market policies, see "Analytical Web Note 1/2015 - A descriptive analysis of the EU Labour Market Policy (LMP) Statistics (2015)"

Authors: A. Xavier is the deputy head of unit and P. Badea statistician in the unit Thematic Analysis of DG EMPL.

Editor's note: this article is part of a regular series called "Evidence in focus", which will put the spotlight on key findings from past and on-going research at DG EMPL.

The views expressed in this article are those of the author and do not necessarily reflect the views of the European Commission.


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