Transition from unemployment to work and the role of active labour market policies during the Lisbon Strategy period and the economic crisis.

Author:Leschke, Janine
 
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1 Introduction

This paper analyses how European countries have fared in terms of labour market outcomes during the Lisbon Strategy period, and, particularly, in the first phase of the economic crisis. Is it possible to observe within Europe as a whole common trends shaped by the European Employment Strategy (EES) and fostered through policy learning? Or do countries remain confined within their logic of path-dependent developments? What role has the economic crisis played? Does it constitute a break or do the countries that performed well during the EES also remain on track during the economic crisis? A particular focus is placed on transitions from unemployment to work and how they can be bridged through active labour market policies (ALMPs). The importance of focusing on transitions between different labour market states and private arrangements (e.g. full-time and part-time employment, unemployment, housework and caring), and particularly on the institutions and policy instruments (e.g. ALMPs, unemployment benefits, working-time arrangements, employment protection legislation, parental leave) that can foster these transitions, has been pointed out and theorised in Schmid and Gazier (2002) and Schmid (2008).

As part of the Lisbon Strategy, the European Employment Strategy (EES) defined an ambitious overall employment target of 70% for the EU as a whole, to be reached by 2010, and targets of 60% for women and 50% for older workers (55-64 years). Despite the slogan "more and better jobs and greater social cohesion", the focus was largely on quantitative targets and much less on qualitative ones. (1)No specific targets on unemployment were formulated. As competences in the field of employment lie with the member states, an open method of coordination (OMC) (2) was set up to monitor and benchmark developments in terms of employment in the EU member states (cf. Zeitlin et al. 2005 and, for a more critical account, Kroger 2009). Despite the fact that some policy learning can be observed, the fact that the OMC lacks provision for sanctions strictly limits the possibilities of the EES. The new or follow-up Europe 2020 strategy was conceived in the light of the severe (labour market) impacts of the economic crisis. Despite greater emphasis on education and sustainable growth, the key areas of action (knowledge and innovation, a more sustainable economy, high employment and social inclusion) are similar to those of the Lisbon Strategy, as are the methods. The new overarching employment rate target is 75% for women and men aged 20 to 64 years and the need, if this target is to be reached, for greater participation of specific labour market groups (youth, older workers, low skilled workers and legal migrants) is pointed out in the conclusions of the European Council (26 March 2010). Guideline 7 of the Europe 2020 strategy calls upon the member states to increase labour market participation and reduce structural unemployment. To this end, member states are asked to "introduce a combination of flexible and reliable employment contracts, active labour market policies, effective lifelong learning, policies to promote labour mobility, and adequate social security systems to secure professional transitions accompanied by clear rights and responsibilities for the unemployed to actively seek work" (European Commission 6.5.2010). Thus, while both transitions and the use of active labour market policies are on the European employment agenda, the specific content remains vague.

The paper proceeds as follows. Section 1 uses the European labour force survey data in order to benchmark the developments in employment and unemployment in European countries during the Lisbon period and the first phase of the economic crisis. It also compares countries in regard to transition from unemployment to employment in the pre-crisis period (latest available data). A specific focus is put on Denmark, Germany and the United Kingdom, countries with different welfare state configurations with regard to the importance of ALMPs (high importance in Denmark, medium importance in Germany, low importance in the UK) and different experiences in terms of labour market developments during the Lisbon period (the UK and Denmark doing better in terms of unemployment) and the economic crisis (Germany doing better in terms of unemployment). Section 2 looks at the policy instrument of active labour market policies that may contribute to bridging transitions from unemployment to work. It describes the functions of and latest trends in ALMPs, taking account also of evaluation results, and compares European countries in terms of their expenditure on and participation in ALMPs during the Lisbon period. In order to overcome comparative data limitations, particularly in timeliness but also in detail, section 3 uses country-specific administrative data to look at transition dynamics and the use of ALMPs in Germany, the UK, and Denmark, in order to shed light on what has happened during the crisis in terms of transitions and active labour market policies. The analysis throughout tries to take account of labour market sub-groups, and section 3, in particular, focuses on differences between men and women in terms of transitions from unemployment to employment and participation in ALMPs.

2 Benchmarking EU countries: labour market outcomes and transition dynamics

This section looks at developments in employment and unemployment since the start of the Lisbon Strategy period and will focus particularly on the impact of the economic crisis on labour markets. To add a more dynamic perspective, short-term transition patterns from unemployment to employment are compared between EU countries. Specific emphasis is placed on Germany, the United Kingdom and Denmark, in order to prepare the ground for the subsequent more detailed country comparison in section 3.

2.1 Developments in employment and unemployment

Figure 1 shows how the EU27 performed in terms of the overall employment targets. Employment rates indeed increased from the start of the Lisbon strategy up to 2008. Employment growth was particularly strong among women (about 5 percentage points) and older workers (about 9 percentage points) and a considerable share of employment growth was due to increasing shares of part-time and temporary employment (see also European Commission 2006a: 24, 38). Corresponding with the growth of employment, from 2004 unemployment was falling. However, the economic crisis reversed these trends and led to a drop in employment rates of more than 1 percentage point and an in-crease in unemployment of almost 2 percentage points within one year. As a result, employment and unemployment are currently back at their 2006 and 2005 levels. As far as the ambitious Lisbon 2010 targets are concerned, total employment remains, at 64.6% in 2009, far from the 70% target, while female employment (58.6%) is relatively close to the 60% target and employment among older workers falls significantly short, despite a substantial increase to 46%, of the 50% target.

[FIGURE 1 OMITTED]

Figure 2 illustrates that almost all countries saw employment growth over the Lisbon period and up until 2008. Particularly large increases are evident in several new member states (Baltics, Slovenia, Bulgaria and Cyprus) as well as in Southern Europe (Italy, Spain, Greece) and Germany. Despite some catching-up effects, country differences in terms of employment rates remain large in Europe. Only five countries have more than 70 percent of the working-age population in employment in 2009, namely, Germany, Austria, Sweden, Denmark and the Netherlands, followed closely by the UK. Comparatively high female employment rates in these countries largely contribute to this positive outcome, however, and in all these countries - and most particularly in the Netherlands - a large share of female employment is part-time, such that the full-time-equivalent employment rates are much lower (see e.g. Leschke/Jepsen 2009). At the other end of the spectrum, with employment rates below 60 percent, are the Southern countries and new member states, with particularly low employment rates being recorded in Italy, Hungary and Malta. Not least due to the lack of encompassing work-life balance policies such as child- and elderly care provision and flexible working time options (compare e.g. OECD 2007a), in these countries the labour market participation of women, but also that of older workers, is very low.

[FIGURE 2 OMITTED]

The economic crisis resulted in declining employment rates in all countries but Germany, Poland and Luxembourg. With falls of around 5 percentage points or more, the Baltic countries, Ireland and Spain were particularly hard hit when comparing the employment figures of 2008 and 2009. With the exception of Spain, these countries had experienced larger than average declines in GDP. Employment losses in the UK, meanwhile, were close to the EU average, whereas Denmark experienced relatively large employment losses of close to 2.5 percentage points in one year.

Figure 3 shows that a number of countries, and particularly several new member states, had made considerable progress in terms of unemployment since the start of the Lisbon strategy in 2000; these countries are the Baltic countries, Czech Republic, Slovenia, Slovakia, Poland, Bulgaria, Finland and Italy. However, in line with falling employment, over the last two years unemployment rates have increased in all countries, least so in Germany and Luxembourg. In the Baltic countries unemployment rates more than doubled between 2008 and 2009 but also countries such as Spain and Denmark, and to a somewhat lesser degree the UK, saw large increases. Currently, the Netherlands and Austria fare best with unemployment rates of less than 5 percent while unemployment rates in Latvia and Spain surpass 17 and 18 percent and are thus considerably higher than the EU27 average of 9 percent. At...

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