Tackling youth and long-term unemployment by addressing labour market supply and demand: A new start?, By Linden Farrer - EuroHealhNet Policy & Research Co-ordinator

05 March 2015

The European Commission under Jean-Claude Juncker promises “A New Start” in its 2015 work programme, concentrating on “‘big things’ like jobs and growth”, promising to “do different things and to do things differently”, and, intriguingly, to “apply political discontinuity[1]. In this post I examine how the Commission could live up to these promises in its forthcoming non-legislative measure on integrating youth and long-term unemployed in the labour market, and question whether a limited measure such as this is likely to live up to the Commission’s own promises.

In fact, far from being ‘bold and new’, employment represents a return to the concerns of 15 years ago, when it formed a core part of the Lisbon Agenda (2000-2010). Unfortunately, the Commission finds itself in a worse social situation than in 2000, having to deal with the aftermath of the financial crisis (2007-2008), the monetary/sovereign debt crisis (2009-2011) and the subsequent economic and social crisis (2011-today). Instead of aiming for an employment rate of 70 per cent as under Lisbon, the main focus now is on reducing youth unemployment, which has reached levels unprecedented in recent decades[2]. Moreover, action comes amidst a sense of urgency, with rates of long-term unemployment continuing to increase[3] - leading to fears about the generational scarring effect it will have[4] -, and with the rise of what are generally termed ‘populist parties’, often espousing anti-European or even racist views. Compounding this - and in contrast to the relatively free and easy years before the ‘crash’ - eurozone member states are now bound to work within the stringent spending rules imposed by so-called Six-pack and Two-pack legislation[5].

What kinds of measures could fit the Commission’s bill in terms of reducing youth unemployment and long-term unemployment? A recent publication by DG EMPL titled “Addressing youth unemployment in the EU” provides a hint of what might be included, at least on the ‘youth side’. First, there is the Youth Guarantee, which is unfortunately still mostly unimplemented in most member states[6]. Second is increased labour market mobility as a means of helping young people to move across borders to where jobs can be found. And third is the European Commission’s own scheme, ‘your first EURES job’, which is funded to help a modest 5,000 young people into their first job alongside language training and financial support[7]. The recent EPSCO Council conclusions on “Moving towards more inclusive labour markets”, which make the case that good quality and fairly remunerated employment is the best way to reduce poverty, increase social inclusion and improve economic growth, provide other hints: adequate social protection systems, improving the efficiency of public employment services, promoting social entrepreneurship, taking (more) measures to combat discrimination, and investing in human capital and skills[8].

Also mentioned, but given less weight than they might, are active labour market programmes (ALMPs). The recently completed DRIVERS project recommended four principles by which policy makers can create fair employment and well-designed social protection systems which include ALMPs: the need for policies and programmes to be universal, the need for them to respond to disadvantage, the need to respect the rights of the people concerned, the importance of adapting interventions and policies to context, and the need to use evidence to inform policies[9]. Wide application of these principles by policy makers would not only help deal with long-term employment and create inclusive labour markets, but also - over the longer-term - reduce health inequalities (which would bring a whole host of follow-on benefits).

However, not every job seeker is immediately ‘employable’ and the longer someone has been unemployed the longer their path to employment is likely to be and the greater their chances of being socially excluded, lacking in confidence and in poorer physical and mental health. ALMPs therefore need to support people along the path to employment, from helping them to be more socially included and building up the ‘hard and soft’ skills so valued by employers, to providing information about how to obtain jobs and eventually suitable and sustainable job placements.

The notion that unemployment is the fault of the persons concerned, and consequently that punishments and conditionalities need to be designed in to programmes, is likely reduce their effectiveness. While these conditionalities may be useful in some cases, they should be implemented on the basis of proven effectiveness across socio-economic groups of helping people into sustainable and fair employment. Instead, case studies conducted as part of DRIVERS found that conditionalities often deprive social protection from those people who need it most, exacerbating the difficult living conditions and social exclusion they experience – and inadvertently moving them even further from employment[10]. In addition, barriers to the uptake of social protection (e.g. lack of knowledge of legal rights and perceptions of stigmatisation when accessing it) may prevent involvement in ALMPs and contribute to increasing social exclusion and hardship. As a result, the frontline staff who provide access to the ALMPs may require adequate training and resources to deal with their clients in an appropriate manner, and efforts need to be made to make legal rights to protection and ALMPs more widely known.

Up to now, most of these measures have concentrated on the ‘supply side’ of the issue – on perceived or actual ‘deficiencies’ in job seekers. Yet it was not deficiencies in job seekers or a lack of mobility that caused increased levels of youth and long-term unemployment but badly regulated financial markets, indebted member states, segmented labour markets, and a lack of investment, new jobs and aggregate demand resulting from recurrent crises. As such, the most significant benefits are likely to come from stimulating labour market demand, particularly in countries that already have relatively developed and effective ALMPs and high levels of employability. In the first instance, this could include employment subsidies, tax incentives for hiring and training, anti-discrimination laws and equal opportunities. In line with the recommendations of the DRIVERS project, all of these should be considered in terms of their universality and in terms of increasing the policy response according to where it is needed the most.

All this suggests that the private sector will be the predominant focus of demand-side policies, given the immense pressure the public sector is under to constrain spending. Some businesses already do play an active role in trying to help the long-term unemployed back into work[11], but without the right legal frameworks and incentives in place they are likely to remain the exception rather than the rule. It also raises two important questions: will an eventual surplus of highly employable long-term unemployed people create labour market demand, and can the private sector not only pick up the slack resulting from ‘streamlined’ public sector positions but also create completely new vacancies? Neither is impossible, but both seem highly unlikely to respond to the challenge adequately in the foreseeable future.

For this reason, in order to tackle the issue with the sense of urgency that it deserves calls not only for better spending, but for additional spending on ALMPs and incentives to create employment. One way of doing this without touching any of the sensitive fiscal rules imposed after the debt crisis would be to alter the established EU funding instruments so they focus more on the issue[12]. However, this would take time - realistically, several years - to filter down to projects that are up and running. Moreover, the eventual impact would be fairly minor given the many other already established priorities EU instruments have to meet. A much more ambitious approach would see the Commission try to align the proposed €315 billion investment plan with aims to reduce long-term unemployment. Unfortunately, this course of action looks unlikely given the difficulties reconciling the rather incoherent proposals put forward by member states and the low number and types of jobs likely to be generated[13]. Nevertheless, some political groups are currently pushing for this course of action in the European Parliament.

As rightly noted in the Commission’s work programme, member states are best placed to create jobs, but most are under immense pressure to reduce spending and cut public sector jobs rather than stimulate the public and private sectors to reduce youth and long-term unemployment. The yearly Country Specific Recommendations do suggest ways member states could balance their books within legislated constraints, but vested interests and ingrained practices make progress much slower than many in Brussels seem to expect. Therefore, and given the urgency of the situation and taking account of Commission’s professed aim to demonstrate “political discontinuity”, it could look at treating job creation schemes and ALMPs as investments exempt from the fiscal rules that have been blamed by some experts for compelling Eurozone countries to languish rather than grow. It could even be a fortuitous time for doing so, because there is currently open discussion in some capitals about greater ‘fiscal flexibility’. Such a move could create the breathing space necessary for member states to rise to the challenge of tackling youth and long-term unemployment, improve social inclusion and health, and signal that this new Commission really does represent a "new start”.

Linden Farrer is EuroHealthNet's Policy & Research Co-ordinator. To know more about him, click here

To contact Linden Farrer, click here

  • [3] “In total, 5.1 % of the labour force in the EU-28 in 2013 had been unemployed for more than one year; more than half of these, 2.9 % of the labour force, had been unemployed for more than two years. Both these figures mark a sizeable increase when compared with the data from 2012, when 4.7 % of the EU-28’s labour force had been unemployed for more than one year and 2.6 % for more than two years”. See here
  • [4] Amongst others, these scarring effects can be in terms of future earnings (e.g here) and health (e.g. here).
  • [7] These measures are noted in the recent publication “Addressing youth unemployment in the EU”. See here.
  • [12] For example, the European Social Fund and Cohesion Fund.