Employment policy and labour market regulation

How difficult it is for the unemployed to re-enter the labour market partly depends on how strict employment regulations are. The indicator of employment protection accounts for the costs and procedures of hiring or dismissing workers employed on a fixed-term or temporary basis. As is shown in Fig. 7.28, employment protection declined in the majority of European countries but still remains high in southern European and Continental countries. The Anglo-Saxon countries exhibit the lowest employment protection levels. The same variation is reflected in the job tenure (Fig. 7.29), that is, the length of time that workers remain in their current or main job with their present employer. However, Denmark is one exception since it shows an extremely low job tenure compared to other Scandinavian countries, as well as

Figure 7.28. Employment protection strictness, 1985-2005. Source: OECD, employment protection statistics.

Figure 7.29. Job tenure, 1997 and 2007. Source: OECD.

Figure 7.30. Temporary employees as % of total, 1997-2007. Source: Eurostat.

employment strictness in labour market regulation more comparable to the Czech Republic and Hungary in 1997. Also Spain has a rather low job tenure compared to other southern European countries.

In addition, Spain, Portugal, and Poland exhibit high levels of temporary employees as a percentage of total employees: above 20 and 30 per cent (Fig. 7.30). In general the other, especially Anglo-Saxon, countries show much lower levels.

In addition to labour market regulation, many countries have over the past decade turned to more active labour market policies, facilitating job experience, job-search counselling, vocational training and education, and access to in-work benefits. As a consequence of higher employment, direct spending on unemployment as a percentage of GDP has come down significantly (see Fig. 7.31) across the EU. The same applies to spending on active labour market policy, except for Spain, Italy, the UK, and Czech Republic, as shown in Fig. 7.32.

Lower expenditures on active labour market policy, relative to GDP, should not be mistaken for a decline in government priority for active labour market policy. On the contrary: when ALMP is measured in terms of spending per individual unemployed, we are able to observe a significant rise in active labour market spending in Table 7.5.

I prefer the OECD indicator here, with the unit of measurement being spending per head, at constant prices (2000) and constant PPPs (2000), in US dollars. The levels of spending on active labour market policies again show a split, here around US$200 per person, between Continental and Scandinavian countries on the one hand and the Anglo-Saxon and Mediterranean countries on the other, with the exception of Ireland and Austria, which have switched groups. The low-spending countries all started with levels below US $100 and gradually rose to levels of US$100-200, except for Greece which

Figure 7.31. Spending on unemployment, 1997-2007 (cash and benefits in kind for unemployed and early retired for 'out of labour market' reasons).

Source: OECD, social and welfare statistics.

Figure 7.32. Spending on active labour market policy (% of GDP). Source: OECD, Social and Welfare Statistics.

experienced declining levels down to almost zero in 2005. Within the high spending countries, Denmark and Sweden outperform the others completely, but seem to decline somewhat. The Netherlands shows the clearest increase, but declined again after 2003. It is, however, the only country in the Continental group that reaches Scandinavian levels. Summarizing the data presented above on employment performance, we can see, first and foremost, an overall improvement in employment and a significant decline in unemployment across most European welfare systems between 1997 and 2007. The average employment rate of the EU-15 countries increased considerably from 61 per cent in 1997 to 66 per cent, the EU-27 moved from 61 to 65 per cent. The employment rate for women rose most substantially, from 52 to 59 per cent in the EU-15 (57 per cent for the EU-27), bringing it within reach of the Lisbon objective of 60 per cent in 2010. However, huge differences

Table 7.5. Spending on ALMP per head, at constant prices and PPPs (2000), from the largest to the smallest, in 2005 (Us$)

Source: OECD.

persist between the regimes concerning the degree and type of female employment in terms of working hours and age of female workers. It is particularly worth noticing how the Scandinavian countries produce high full-time employment rates for men and women, low long-term unemployment rates, and an employment protection level averaging between the two extremes: the Anglo-Saxon countries and the southern European countries have the lowest per capita spending in comparison to other European countries on active labour market policies. The countries belonging to the Mediterranean regime, on the contrary, exhibit significantly low levels of female employment, high levels of long-term unemployment, and high employment protection levels with far worse public finances, especially when it comes to public debt, as can be seen in Fig. 7.35. Obviously, labour market integration of immigrants remains a challenge especially for Scandinavian and Continental welfare states, and might become one in the future for more recent entrants such as Italy, Spain, or Ireland.

Furthermore, it is important to stress that employment rates by skill levels differ most for the labourforce with less than upper secondary schooling or vocational training, less so for the highly skilled. Fig. 7.33 shows marked differences in low-skilled employment across countries and families of welfare states. Particular deficits are found in CEE countries, but also in some continental European countries such as Belgium and Germany, together with Italy from the Mediterranean cluster, where only about half the low-skilled are integrated into the labour market. Given the strong pressures of technological

Figure 7.33. Employment and level of education attained, 1997. Source: Eurostat.

Figure 7.34. Employment and level of education attained, 2007. Source: Eurostat.

Figure 7.35. Total central government debt and employment rates. Source: OECD.

progress and globalization it is interesting to see that there is no general decline in the employment rates of the low-skilled. Today the highly skilled groups surpass, by about 15 percentage points, the Lisbon benchmark of 70 per cent participation in gainful employment, independently of welfare regime characteristics (Fig. 7.34). Hence there is considerable convergence of employment at a high level, testifying to the imperative of human capital development, to which we now turn.

Returning to the trilemma by Iversen and Wren, employment rates are highest in those EU countries with low government debts, which probably has to do with their economic development. However, it shows that achieving balanced budgets and high employment rates is possible. As the graph depicts, the Scandinavian and Anglo-Saxon countries as well as a few Continental countries display rather low debt levels and high employment rates.