1

Analyzing Labor-Market Policy Reforms in an Integrating Europe

Radical Departure, Muddling Through or Self-Transformation?

J.Timo Weishaupt, Ph.D.

2

Background Europe faces a set of common challenges &

constraints (“input convergence”) Acquis Communautaire SGP, EMU, ECB Demographic ageing, family structures Etc.

EU members also receive same advice through EES & OECD (“paradigm convergence”) Activation &Supply-side measures EES and Lisbon targets

3

Central Research Questions

1. As EU Member States face a common set of challenges and receive a common set of recommendations, is there also a common policy response?

2. If not, do their reform efforts systematically vary, and if so, how?

3. Have these reform activities fundamentally transformed the institutional settings of national labor-market policy regimes, and if so, to what effect?

4

Literature Review Globalization Thesis

Cost containment main common concern Leaner and meaner welfare state Result: policy convergence

Path-dependency Thesis Regime types face regime-typical pressures Significant changes, but relative “distance” between

regimes remains intact Result: persistent policy diversity

5

Literature Review, II

Hybridization Thesis EU member states deliberately “mix and match”

various policies Recalibration rather than retrenchment Regime characteristics soften Result: neo-convergence or neo-divergence

6

Analytical Grid: Four Dimensions

1. Ideational 2. Organizational3. Financial

How are labor-market interventions financed? How much are governments willing to invest?

4. Incentives (rules and policies) How are jobseekers motivated to seek, be available for, and accept work? What is the policy mix between compulsion and support?

7

Negative Incentives(financial)

Negative Incentives

(non-financial)

Positive Incentives(financial)

Positive Incentives

(non-financial)

Short duration of benefits Low reservation wage Limited or no “exit options” (early retirement, disability)

Strict eligibility criteriaBroad definition of “suitability criteria” Sanctions

In-work tax credits Wage subsidies Benefit top-up for participation in public work scheme Self-employment startup subsidies

Job counseling and placement Training (soft & occupational skills) Childcare Other support services (mobility, mental health, debt, substance abuse)

Compulsion Support

Financial Dimension: Funding2000 2006

Change in %

EmployeeSSC

EmployerSSC

EmployeeSSC

EmployerSSC

EmployeeSSC

EmployerSSC

Austria 18.1 31.63 18.1 28.86 0 -2.77

Belgium 13.1 34.7 13.1 34.72 0 0.02

Denmark [1] a +8+3% AW 0.6% AW 8+3% AW 0.6% AW [-1] 0

Finland 7.2 26 7 24 0.2 -2.0

France 13.52 35.95 13.6 41.05 0.08 5.1

Germany 20.5 20.5 21.4 21.4 0.9 0.9

Greece 15.9 27.96 16.0 28.06 0.1 0.1

Ireland 4.5 8.5 4.0 8.5 0.5 0

Italy 9.19 34.08 9.19 32.08 0 -2.0

Netherlands b 31.15+0.6%AW 7.4 31.7+2.44%AW 14.36 0.55+1.84%AW 6.96

Portugal 11.0 23.75 11.0 23.75 0 0

Spain 6.4 30.6 6.4 30.6 0 0

Sweden 7.0 32.92 7.0 32.28 0 -0.64

UK 10 12.2 11 12.8 1.0 0.6

Financial Dimension: ExpendituresALMP divided by number of unemployed persons

  1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Austria 0.10 0.11 0.11 0.15 0.15 0.16 0.14 0.14 0.12 0.12 0.15

Belgium 0.14 0.12 0.14 0.14 0.16 0.18 0.15 0.15 0.16 0.13 0.13

Denmark 0.26 0.31 0.36 0.39 0.45 .. 0.47 0.35 0.35 .. ..

Finland 0.11 0.11 0.10 0.10 0.09 0.09 0.09 0.10 0.11 0.11 0.12

France 0.10 0.10 0.10 0.10 0.12 0.13 0.12 0.12 0.11 0.10 0.10

Germany 0.15 0.11 0.12 0.15 0.15 0.15 0.14 0.13 0.11 0.09 0.08

Ireland 0.10 0.12 0.14 0.18 0.22 0.24 0.19 0.16 0.15 0.14 0.14

Netherlands 0.21 0.26 0.34 0.43 0.49 0.57 0.51 0.36 0.27 0.25 0.28

Portugal 0.07 0.07 0.11 0.12 0.15 0.14 0.11 0.10 0.10 0.09 0.08

Spain 0.02 0.02 0.03 0.05 0.06 0.07 0.06 0.06 0.07 0.08 0.10

Sweden 0.23 0.21 0.29 0.31 0.30 0.33 0.30 0.21 0.18 0.17 0.19

UK 0.03 0.04 0.04 0.04 0.05 0.07 0.06 0.09 0.10 0.10 0.08

10

Financial Dimension: Expenditures Normalized ALMP

0,00

0,10

0,20

0,30

0,40

0,50

0,60

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Austria

Belgium

Denmark

Finland

France

Germany

Ireland

Netherlands

Portugal

Spain

Sweden

UK

Financial Dimension: ExpendituresPLMP divided by number of unemployed persons

  1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Austria 0.35 0.31 0.31 0.33 0.31 0.30 0.27 0.26 0.22 0.24 0.24

Belgium 0.18 0.17 0.15 0.15 0.17 0.19 0.19 0.20 0.20 0.18 0.17

Denmark 0.42 0.46 0.40 0.33 0.35 0.36 0.36 0.35 0.37 .. ..

Finland 0.22 0.21 0.19 0.18 0.16 0.16 0.17 0.17 0.18 0.17 0.17

France 0.11 0.11 0.11 0.11 0.12 0.14 0.16 0.19 0.18 0.17 0.15

Germany 0.26 0.25 0.24 0.25 0.24 0.24 0.24 0.24 0.22 0.20 0.20

Ireland 0.18 0.16 0.17 0.18 0.16 0.17 0.18 0.18 0.19 0.18 0.18

Netherlands 0.50 0.53 0.60 0.64 0.65 0.62 0.54 0.43 0.41 0.38 0.33

Portugal 0.09 0.09 0.12 0.14 0.16 0.16 0.15 0.15 0.16 0.15 0.14

Spain 0.10 0.09 0.09 0.09 0.10 0.13 0.13 0.12 0.13 0.15 0.16

Sweden 0.21 0.19 0.20 0.22 0.22 0.20 0.19 0.20 0.19 0.15 0.14

UK 0.08 0.07 0.07 0.06 0.06 0.05 0.05 0.05 0.04 0.04 0.04

12

Financial Dimension: Expenditures Normalized PLMP

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Austria

Belgium

Denmark

Finland

France

Germany

Ireland

Netherlands

Portugal

Spain

Sweden

UK

13

Incentives Dimension: Negative, non-financial Missing Data (Micro Data from European LFS) Tightening of benefit regimes

Suitability criteria Jobs search criteria Monitoring, sign-ins etc. Danish Finance Ministry shows common trend that

benefits are less “freely” available

14

Incentives Dimension: Negative, financial

Average levels of initial UB have remained largely unchanged for low and medium incomes.

Slight cuts on average on high incomes, except Greece, Ireland and UK (all with flat rate systems, where increases are distributed across all recipient groups)

Average levels of long-term benefits have been somewhat reduced on average for low and medium incomes, and dropped – at times substantially – for high incomes

Average Net Replacement Rates for Long-term Unemployed Persons Different Earning Levels, 2001 and 2006

 

Ø 67% of AW Ø 100% of AW Ø 150% of AW

2001 2006 Change 2001 2006 Change 2001 2006 Change

Austria 67 62 -5 57 55 -2 47 36 -11

Belgium 71 73 2 58 58 0 45 39 -6

Denmark 79 77 -2 63 62 -1 52 42 -10

Finland 76 73 -3 62 59 -3 48 39 -9

France 60 60 0 45 44 -1 32 30 -2

Germany 72 67 -5 63 53 -10 61 38 -23

Greece 18 18 0 15 15 0 12 10 -2

Ireland 71 76 5 57 62 5 43 41 -2

Italy 20 20 0 17 17 0 14 11 -3

Netherlands 71 74 3 53 59 6 40 39 -1

Portugal 50 50 0 38 38 0 28 26 -2

Spain 47 46 -1 36 35 -1 27 24 -3

Sweden 72 69 -3 54 52 -2 42 35 -7

United Kingdom 62 63 1 49 50 1 37 34 -4

Average 60 59 -1 48 47 -1 38 32 -6

16

Changes in Maximum UB Duration for Prime-Aged Workers in Monthsmid-1990s to 2008

Anglophone Europe Nordic Europe

Ireland (15) Denmark ( 108 → 48)

UK (12 → 6) Finland (23)

Sweden (28 → 14)

Continental Europe (center) Continental Europe (south)

Austria (9) Greece (12)

Belgium (indefinite) Italy (6)

France (23) Portugal (24)

Germany (32 → 12) Spain (24)

Netherlands (24)

17

Exit Options – early retirement

General trend to reduce or even completely phase out early retirement schemes (e.g. IE; SE)

Still some countries with rather generous use of these schemes (BE, FN)

AT as only country even increasing availability (until 2005)

18

Incentives Dimension: Positive, non-financial

Reorientation of Public Employment Services customer focus Improved matching services (new technologies) “soft skills”

Mostly “negative” trend with respect to the provision of occupational skills Exceptions include AT, (BE),(ES), PT, and UK Most drastic cuts in DE, DK, FN, SE

Mostly “positive” trend with respect to the provision of childcare places, but significant differences remain Laggards include AT, DE, GR, IT Nordics plus BE & FR in the lead

19

Incentives Dimension: Positive, financial

Variations remain with regard to the taxation of (low-paid) work – slight trend toward tax reductions is identifiable

Differences with regard to existence and levels of statutory minimum wages remain

Variations in the use of wage subsidies remain High spenders include BE, DK, ES, SE (UK but also IE and NL use in-work tax credits)

Variations in the use of direct job creation remain General trend to downsize DJC High spenders include BE, FR and IE

Germany (plus ES) as outliers in investing large resources in business start-ups for the unemployed

20

Conclusions

No overall retrenchment, yet substantial changes have occurred in some, but not all identified areas

Financial Dimension Persistent differences in sources of funding Some convergence with respect to spending on

ALMP (high-spending countries spend less, low-spending ones spend more)

Common downward trend in PLMP (with exception of ES, FR & PT)

21

Conclusions, II Incentives Dimension

Convergence on positive and negative non-financial incentives

Persistent diversity on financial incentives, especially with regard to benefit levels and “make work pay strategies”. (But there are common reductions in the benefit levels for higher

incomes and modest attempts to reduce overall taxation on labor)

Overall conclusion: Historical legacies do matter Regime typologies becomes less relevant – but not irrelevant

–as countries become hybrids “Social-liberal” reform agendas, recombination of elements of

the Nordic and the liberal worlds (from Bismarck to Beveridge) Contingent neo-convergence

22

Thank you very much for your attention and interest.