A wide range of crisis-related labour market measures have been implemented by the Member States. Experience suggests that discretionary measures will contribute in the most efficient and equitable way to stabilisation of employment and cutting social exclusion, without compromising long-term employment and growth potential, if they supplement automatic stabilisers(5). There is also a general consensus since the European Employment summit of May 7th 2009(6), that such discretionary measures should be implemented in a temporary, timely, targeted, fair and co-ordinated way, in line with flexicurity principles(7) and the country-specific recommendations for growth and jobs that were identified under the Lisbon Strategy (see Box 1).
Temporary: The crisis-related measures should have a clear time limit so that they do not compromise on-going structural reforms by introducing inappropriate incentives. The phasing out of the labour market recovery measures should be guided by the (expected) developments in output, taking into account the Member States’ individual constraints and starting positions. Nevertheless, some measures that have a positive impact on the structural working of the labour market, should be maintained and reinforced, such as training, activation and other flexicurity policies that facilitate job reallocation and worker re-skilling.
Timely: A key lesson from evaluations of active labour market policies (ALMP)(8) is that labour market measures have to be linked in a timely manner to developments in the rest of the economy so as to avoid ‘hysteresis’ effects(9) when actions are unduly delayed. These can have an unfavourable impact on the future employability of the unemployed, due to skill losses, declining motivation to search for work or reduced mobility.
Targeted: Measures should be well-targeted in order to improve their effectiveness and keep their fiscal cost under control. In this context, targeting the young, early school leavers, the low-skilled and migrants is particularly important as there is strong evidence that ‘scarring’ effects -whereby current unemployment increases the risk of being unemployed in the future or finding only low-wage jobs - tend to be more pronounced for these groups(10).
Coordinated: Although the choice of recovery measures is a matter for the Member States, these measures should be well-coordinated where possible at European level so that they support each other and avoid creating competition concerns in the single market.
Fair: The measures should be designed in a fair way so that the adjustment burden is equally shared over the entire labour force and further labour market segmentation is avoided.
Flexicurity is an integrated strategy involving active labour market policies, lifelong learning, modern labour laws and social security systems, which facilitates transitions during the life cycle and is conducive to job creation and social cohesion(1).
In times of economic downturn, the capacity of employment and social policies to create more and better jobs for all is put to the test. The way in which flexicurity principles should be applied is laid down in the conclusions adopted by Council of the European Union on the management of the economic downturn(2), as set out below:
(1) | See EiE 2007, Chapter 3. |
(2) | See Council of the European Union (2009). |
While a clear set of criteria is available to assess the crisis-related labour market measures, there are nevertheless difficulties in measuring the so-called deadweight losses(11), substitution(12) and displacement(13) effects.
Assessment is also complicated by the fact that, in undertaking such an analysis, it is not always clear whether the underlying shock is a demand or supply shock, whether the shock is general or sector-specific, or whether the shock is permanent or temporary. Depending on the nature of the shock, a measure’s purpose can range from retaining jobs (in the case of a temporary demand shock) to intensifying the reallocation of labour (in the case of a permanent sector-specific shock). Moreover, adjustment in the labour market may occur over different dimensions (i.e. labour income and volume) for which the welfare implications are not always easy to assess. Finally, when assessing discretionary measures, account must also be taken of the fact that they may be subject to differing perception, decisions and lags in implementation, and that changes are not necessarily automatically reversed when economic conditions change.
(5) | The term ‘automatic stabilisers’ is used to cover the effect of changes in demand and output on government fiscal transfers – notably unemployment benefits – on which expenditure increases automatically when unemployment rises, and which therefore helps to sustain demand in the economy. As demand recovers during an upturn, unemployment benefit transfers fall as unemployment declines. |
(6) | For more details concerning this summit, see http://ec.europa.eu/social/main.jsp?catId=88&langId=en&eventsId=173&furtherEvents=yes |
(7) | See http://ec.europa.eu/social/main.jsp?catId=102&langId=en |
(8) | See Employment in Europe (EiE) 2006 Report, Chapter 3. |
(9) | Hysteresis in the labour market, as applied in this chapter, refers to the phenomenon that in an economic downturn an individual who becomes unemployed loses both his/her skills and the motivation to search for a job while employers may use time spent in unemployment as a screening device so that when the economy recovers the workers affected will not get reemployed. See Box 10 for more details. |
(10) | See for instance Skans (2004) and Scarpetta et al. (2010). |
(11) | Deadweight losses refer to jobs that would have survived the downturn without any public subsidy i.e. the public expenditure is effectively wasted. |
(12) | Substitution effects refer to the replacement of jobs for non-targeted groups by jobs for targeted groups because relative wage costs have changed. |
(13) | Displacement effects refer to the reduction in jobs elsewhere in the economy because of changes in competition. |