DEPARTMENT OF SOCIAL POLICY AND INTERVENTION May 15, 2015 Who Adjusts? The Economic Crisis and Labour Market Outsiders

Evidence from the crisis Labour market outsiders have been most affected in terms of unemploy- ment: the young, those with low skills, immigrants (EC 2010; OECD 2013). Possible explanations: More likely to be fired:  It is easy not to renew temporary contracts and temporary agency work have small or no firing costs.  And firing costs are lower for new hires on permanent contracts due to accumulation of severance payments. More likely to work in low-productivity sectors that are more adversely affected by demand shocks (e.g. construction sector in Spain).

LM outsiders were also more adversely affected during the economic recovery

Evidence from the crisis, continued Labour market insiders were less affected by the crisis. Older people and those with higher skills did particularly well (EC 2010; OECD 2013) Possible explanations:  Higher firing costs for older workers (EPL, or redundancy payments)  Short-term work schemes benefitted primarily those on permanent contracts in the medium- to high-skill industry.  More likely to work in high-productivity sectors.

Policy response: LM regulation  Reregulation of temporary employment in some countries, such as Spain, but also deregulation in e.g. Italy, Lithuania, Slovenia. Overall, not a strong trend in either direction.  Strong move toward decentralization of wage bargaining in bailout countries and through the Euro Plus Pact.

Policy response: unemployment benefits  Some countries have made it easier to qualify for benefit (Finland, France, Portugal, Latvia and Slovenia) and have extended duration (Spain, Finland, Romania, Latvia, Lithuania) – (Leschke 2012).  Some countries have decreased benefit duration (Ireland, Denmark, France, Czech Republic, Poland) – (Leschke 2012).  On average the coverage of UB have decreased for young people during the crisis (disclaimer: bad data on coverage).  And, austerity measures in the latter part of the crisis, e.g. in Germany and the UK.

LM outsiders and unemployment  Casual unemployment  Cyclical unemployment  Structural unemployment

Some proposals for tackling the problems associated with LM outsiders Casual:  Reduce employers’ incentives to hire on non-standard contracts  If no change in welfare systems, introduce minimum duration (12 months)  Eliminate eligibility conditions for unemployment benefits and access to active labour market programmes Cyclical:  Implement reinforced automatic adjusters: increase duration automatically and reserve funds for an increase in high-quality ALMPs Structural:  Improve skill matching  High-quality UB will reduce job displacement

Some positive developments New policy direction?  Ease of qualification requirements in some countries  Increase duration of benefits (most however in the first years of the crisis) shows understanding of cyclical unemployment.  Some reregulation of temporary employment. New thinking?  The EU 2020 has put social security coverage for non-standard workers on the agenda.  OECD WP recommends extending coverage for the young.  Deregulation of EPL for temporary employment has a negative effect on employment (OECD 2012, Going for Growth)

Some negative developments  The return to austerity measures  Decentralization of wage bargaining  Fiscal pressure. In the Social Investment Package, civil society is argued to have to take a bigger role. This will not work as a substitute to social insurance, e.g. union-run private unemployment insurance in Sweden.  Overall, a stronger focus on structural unemployment, than on casual and cyclical.