A European perspective on long-term unemployment

In the aftermath of the 2008/09 recession, long-term unemployment has increased in many EU member states. Even in some countries with a favorable economic environment that contributed to declines in overall unemployment, the share of long-term unemployed in total unemployment remains at high levels.

LTUIn addition, some countries with low long-term unemployment rates have persistently high numbers of working-age long-term benefit recipients (e.g. disability, sickness or early retirement) so that the overall numbers of people dependent on benefits are more similar across countries than a comparison of long-term unemployment figures suggests.

This calls for a careful assessment of the various institutions that account for long-term non-employment of people at working age in Europe. One might even argue that high shares of long-term unemployment are not necessarily worse than having hidden unemployment in benefit systems that are not governed by the principle of activation, i.e. public policies that aim at making the long-term non-employed fit for the labor market.

Apart from the general issue of labor demand and achieving a better macro-economic environment in Europe, activation policies – in particular suitable active labor market policies – can in fact help facilitate exits from benefit dependency and entry into employment.

What we have learned from two decades of activation policies for the long-term unemployed in Europe is that it is not enough to promote ‘work first’ or ‘workfare’ policies without offering proper support in terms of training and other measures that tackle individual barriers to employment in terms of qualification, health, social and psychological issues.

While active labor market policies can make a difference in raising transition rates from long-term unemployment to (relatively stable) employment, there is no a priori preference for certain programs such as training, hiring incentives, start-up support or temporary public employment opportunities. Rather, to achieve more sustainable employment paths, it is important to provide individualized packages of supportive policies that really help improve the employability and stabilize employment after having found a job.

Research shows that the quality and frequency of interactions with case workers is crucial. What we need is sufficient capacities in terms of well-trained case workers within the public employment services that are not overburdened by high caseload figures and can maintain an intense relation with their clients over a longer period.

Member states with high long-term benefit receipt figures need to invest in these capacities. They should also extend the principle of activation to benefit systems aside from unemployment benefits. This process that takes time, but it can really help improve labor market integration and reduce expenditure on benefits, as the Dutch policy reversal in disability pensions shows. The EU can help promote capacity building and policy innovation through the European Social Fund.

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Don’t be afraid of the future of work! Werner Eichhorst explains current labor market trends

A new book edited by Werner Eichhorst and Paul Marx looks at Non-Standard Employment in Post-Industrial Labour Markets. Examining the occupational variation within non-standard employment, the book combines case studies and comparative writing to illustrate how and why alternative occupational employment patterns are formed.

In a video interview, Werner Eichhorst (IZA Director of Labor Policy Europe) shares some of the key insights from the book. He explains why the share of non-standard work has increased in many developed economies and addresses the role of occupational factors. He also comments on the role of policy makers and social partners, and outlines what types of employment will dominate in the future.


See also the latest IZA Policy Paper by Werner Eichhorst:

adobebutton Do We Have to Be Afraid of the Future World of Work?

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30 years after Schengen: Freedom of movement in danger

SchengenIn June 1985, European leaders met in the town of Schengen in Luxembourg. They agreed to gradually relax border controls between their countries. Today the Schengen Area comprises 26 European countries that have abolished passport checks and other types of control at their common borders. However, the path-breaking agreement has come under pressure recently.

In an op-ed for the daily Luxemburger Wort, IZA Director Klaus F. Zimmermann warns not to erode the core principle of free movement in Europe: “We don’t have too much, but too little cross-border mobility in the EU.” Still, people tend to overestimate the economic threat and overlook the economic benefits of immigration. Rather than trying to turn back the wheel of history, Europe should work towards closer integration and harmonization in various fields – from tax law to recognizing professional qualifications.

[read more in German]

Following an IZA initiative about a year ago, leading European labor economists had urged policymakers to strengthen labor mobility within the EU and adopt a European Charter for Migration:

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How to increase the attractiveness of STEM for female students

Women have been traditionally under-represented in college major fields of Science, Technology, Engineering and Math (STEM). Analyzing the reasons is one of the hottest topics in the economics of education. Low graduation rates in STEM fields among women are believed to be a major driving factor behind the persistent gender wage gap.

Peter Arcidiacono (Duke University) is one of the leading scholars in the analysis of tertiary education. He recently gave an IZA seminar presentation on the effect of differences in grading standards and grade inflation on incentives for women to go into STEM. In an IZA Newsroom interview, he explained his key findings.

What are the main reasons behind gender differences in college major choice?

Arcidiacono_002Arcidiacono: The two biggest factors are likely preferences and comparative advantage. Preferences has two components. First is the interest in the material itself, second is preferences over careers. Jobs in STEM fields may be difficult to re-enter following a break in labor force participation, making it unattractive for those who want to take some time off to have a family. With regard to comparative advantage, women perform as well as men in just about all academic areas, but particularly outperform men on reading. The stronger skills in areas related to non-STEM fields make these fields comparatively more attractive for women.

How can public policy set incentives for universities to attract women into STEM fields?

Arcidiacono: This is difficult because other players at the university (i.e. faculty in non-STEM fields) want people to take their courses as well. Hence there are incentives for these other players to do things to attract both men and women to their fields. Some policies that could be effective are scholarships that are field-dependent.

What can universities and professors do to increase the attractiveness of STEM for female students?

Arcidiacono: Grading practices and workloads vary substantially across fields. STEM fields give lower grades and assign more work, an equilibrium response to the higher demand for these fields. More work is actually not an issue for women because they tend to study more than their male counterparts. Policies that shift grading practices in STEM fields away from low grades and towards high workloads may make these fields relatively more attractive for women.

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Reducing early marriage to boost female labor market participation in Senegal

african_motherSenegal is a country with large gender disparities in education and career opportunities. Early marriage and low age at first birth greatly impede women’s career prospects. A study by Francesca Marchetta and David E. Sahn, conducted under the GLM-LIC program supported by DFID and IZA, provides some important insights into opportunities for improving the well-being of Senegalese women.

The authors simultaneously estimated four key decisions in a woman’s life course, i.e. the level of education, the age at marriage, the age at first birth, and the age at entry into the labor market. The results show that parents’ education has a powerful impact on schooling attainment of their daughters. Interestingly, father’s education seems to matter more.

The study also sheds light on the relationships between these four interrelated decisions, in particular the effect of schooling on the other outcomes. It appears that the number of completed grades among young women is important in delaying the age at marriage and, consequently, at first birth.

Most development interventions designed to prevent early childbearing aim at changing sexual behaviors through increasing contraception use or through education programs. The results of this paper also lend support to policies aimed at reducing early marriage directly, e.g. through laws that ban marriage of very young girls, or indirectly through cash transfer programs. This would facilitate labor market entry, and more generally promote greater opportunities for young women.

Read the whole paper (IZA DP No. 8876):glm_logo1
The Role of Education and Family Background in Marriage, Childbearing and Labor Market Participation in Senegal

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Why labor market policies should be guided by happiness

ritzenHappiness should be a guiding factor in the governance of labor markets, argues Jo Ritzen in his most recent IZA World of Labor article. When designing employment policies, policy makers should weigh the unhappiness of the unemployed against the extra happiness which the employed derive from employment protection.

IZAWOL149Increasing citizens’ happiness is rarely declared an official policy goal, even though many political decisions have a direct impact on people’s joy. While personal factors, such as health and character traits are the key determinants of happiness, external factors play an important role, too. Scientific studies show that employment is the most important external factor affecting people’s happiness. Unsurprisingly, studies reveal that unemployed people are in general less happy than employed people. Additionally, having a job with high employment protection provides a sense of more security and contributes to happiness.

Based on the experiences of the financial crisis, Jo Ritzen observes that high employment protection can have negative effects on the general unemployment rate. Rigid labor market policies in France and Spain have caused the unemployment rate to grow larger than in countries like Germany. Ritzen concludes that politicians should aim at striking a compromise between the unhappiness of the unemployed and the extra happiness of those enjoying high employment protection.

He recommends gradually reducing employment protection of those who have permanent contracts, while raising the protection for those with temporary contracts. Extra support should be granted to the group of older workers, who fall out of a permanent contract. But Ritzen remains skeptical whether such measures will be adopted, given that politicians have always found it difficult to implement programs that promise long-term benefits at the expense of short-term costs.

Read the complete article:

More IZA World of Labor articles on the economics of happiness:

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The online temptation: How employees react to restrictions of internet use in the workplace

Online TemptationEmployers tend to regard Twitter, Facebook, and other online services including e-mail as “temptations” that distract employees from the work they are supposed to do. Many firms have therefore implemented policies prohibiting private e-mail and internet use in the workplace. While such a policy removes a temptation, it also signals distrust and could hurt worker morale.

In a lab experiment, Aarhus University economists Alexander Koch and Julia Nafziger investigate how workers react to such restrictive policies. Specifically, they analyze (i) whether workers tempted to surf the internet still reciprocate generous wages by putting in substantial effort, and (ii) how an active policy of restricting internet use affects workers’ output.

Their findings: Workers provide low effort whenever they perceive their wages as ‘unfair’  – no matter whether they have internet access or not. Yet, workers who receive a ‘fair’ wage provide more effort when the internet is off than when it is on. The authors observe that temptations may even completely crowd out reciprocal motives towards the employer. A restrictive policy therefore provides a commitment device for workers not to get distracted from their job.

Commitment device vs. excessive control

However, restricting internet access may also perceived as excessive control. This is particularly true for highly reciprocal workers, who value “freedom from control” at least as highly as a generous wage. For non-reciprocal workers, the commitment aspect dominates.

The internet policies studied are just one example of ‘soft’ control that firms can impose on their employees. Other common examples are home office strategies that imply some form of working hour monitoring. The results of the lab experiment show that these policies do not come without potential hidden costs that firms should take into account.

Download the complete paper (IZA DP No. 9084):
A Real-Effort Experiment on Gift Exchange with Temptation

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