It’s the Youth, Stupid! Explaining labour market policy reactions to the crisis

It’s the Youth, Stupid! Erklärungsansätze für die arbeitsmarktpolitischen Reaktionen auf die Krise

Abstract

The global financial and economic crisis that has persisted since 2008 has triggered massive increases in unemployment in almost all Western industrialized nations. Consequently, in 2009, about half of the OECD countries tried to curb the increase in unemployment by introducing or expanding jobs in the so-called second labour market by means of direct job-creation measures. Why did the OECD countries opt for different types of interventions in the labour market in light of the financial crisis? In order to answer this question, we proceed in two steps. By applying a discriminant analysis, we first note that the fiscal scope and the increase in youth unemployment were the decisive predictors for direct job-creation measures. Subsequently we compare the changes in the labour market policies in three most different systems, namely Germany, Sweden and the United Kingdom.

Zusammenfassung

Die seit 2008 anhaltende internationale Finanz- und Wirtschaftskrise hat in nahezu allen westlichen Industrienationen zu einem massiven Anstieg der Arbeitslosigkeit geführt. Infolgedessen versuchte fast die Hälfte der OECD-Staaten im Jahr 2009, den Anstieg an Arbeitslosigkeit durch die Einführung oder Ausweitung des zweiten Arbeitsmarktes mittels direkter Arbeitsbeschaffungsmaßnahmen abzumildern. Wie kann diese unterschiedliche arbeitsmarktpolitische Reaktion auf die Finanzkrise erklärt werden? Die Antwort erfolgt in zwei Schritten: Zuerst wird mithilfe einer Diskriminanzanalyse herausgearbeitet, dass der fiskalpolitische Spielraum und der Anstieg an Jugendarbeitslosigkeit die entscheidenden Prädiktoren für die arbeitsmarktpolitische Reaktion waren. Im zweiten Schritt wird die arbeitsmarktpolitische Entwicklung in drei unterschiedlichen Fällen – Deutschland, Schweden und Großbritannien – verglichen.

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Notes

  1. 1.

    Conservative political parties, in turn, favour (obligatory) “workfare” programmes during economically sound times. Accordingly, such workfare programmes are mostly designed as work tests, sorting out “deserving” from “undeserving” benefit recipients (Handler 2004).

  2. 2.

    The Box-M value is 0.103 and thus not statistically significant.

  3. 3.

    The data for the independent variables come from the CPDS-I data set containing data for 23 OECD member countries (Armingeon et al. 2011) and OECD.stat (http://www.oecd.org/document/34/0,3343,en_2649_33927_40917154_1_1_1_1,00.html). The variables for the partisan cabinet composition refer to the year 2008, as the decision about the expansion of the direct job-creation programmes had to be made in this year. All other variables capturing socio-economic data or the number of institutional constraints also refer to the year 2008 or to the year 2007 to capture the conditions for policy making in the first stage of the financial crisis.

  4. 4.

    Iceland did not respond to the OECD questionnaire (OECD 2009c).

  5. 5.

    A t test could not be used because some of the independent variables do not match the assumption of normal distribution. The results of a Mann-Whitney-U-test show that the assumption of normal distribution can be neglected at a 5 %-significance level for the increase of youth unemployment.

  6. 6.

    The results are robust if we control for the change of unemployment between the first quarter of the year 2008 and the first quarter of 2009 and/or the gross government debt as percentage of GDP. As expected, the increase in unemployment is higher in countries that adopted direct job-creation schemes (2.67 %) than in countries that did not opt for this labour market policy (1.23 %). Because of the high standard deviation within both groups (2.36 and 1.46 % respectively) the increase of youth unemployment discriminates much better between both groups than the increase in overall unemployment. This indicates that labour market policy makers care more about increases in youth unemployment than in overall unemployment when opting for or against direct job-creation schemes. Therefore we dropped the change in total unemployment to keep the model smooth and because we would lose one case because of missing data otherwise. The results are also robust for including gross government debt in the model, as both groups of countries do not differ substantially in regard to their gross government debt (58.5 % of GDP in countries that did not adopt direct job-creation schemes to 61.2 % in the other countries).

  7. 7.

    The Chi-square value of the discriminant function is 15.384, the eigen-value is 1.247, the canonical correlation coefficient 0.745, indicating that the discriminant function discriminates at a 1 %-level of significance between the group of countries which have expanded direct job-creation programmes and those who have not.

  8. 8.

    The Christian Democrats include two factions: the Christian Democratic Union (CDU) and the Christian Social Union (CSU). The CSU only operates in Bavaria, while the CDU operates in all of the remaining German states.

  9. 9.

    The Christian Democrats, who held a majority in Germany’s upper chamber in parliament, voted in favour of the Hartz reforms.

  10. 10.

    Similarly important were also, however, the employment-protecting social partnership agreements and the effective use of working-hour accounts (Möller 2010).

  11. 11.

    The data refers to the central government’s budget only.

  12. 12.

    These changes, in turn, led to a rapid drop in UI fund membership. Within the first four months of 2007 alone, some 210,000 people cancelled their insurance policies (Brunk 2007).

  13. 13.

    The job guarantees are structured in two or three phases, depending on the age of the jobseeker. The “job and development guarantee” for adult, long-term unemployed is structured as follows: during a first phase that lasts for a maximum of 150 benefit days, jobseekers are offered intensive job-search and counselling services. In the second phase, participants are offered some type of on-the-job training with an employer. Jobseekers, who still have not found a job after 450 days, are referred to the third phase, where they will be offered a job in the “second labour market”, typically with a social firm or a non-profit organization (Government of Sweden 2008, p. 58). The “job guarantee” for young job seekers, in turn, only lasts a maximum of 15 months and offers programmes similar to the first two phases of the “job and development guarantee”. All participants on these guarantees are required to continuously look for and accept work in the first labour market (The Local 2010a).

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Correspondence to Dr. Felix Hörisch.

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We thank Carlo Knotz, Carolin Bauder and Clara Hadwiger for their valuable research assistance. Felix Hörisch would like to thank the Fritz Thyssen Foundation for financial support of his research.

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Hörisch, F., Weishaupt, J. It’s the Youth, Stupid! Explaining labour market policy reactions to the crisis. Z Vgl Polit Wiss 6, 233–253 (2012). https://doi.org/10.1007/s12286-012-0138-1

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Keywords

  • Labour market policy
  • Financial crisis
  • Discriminant analysis
  • Germany
  • Sweden
  • United Kingdom

Schlüsselwörter

  • Arbeitsmarktpolitik
  • Finanzkrise
  • Diskriminanzanalyse
  • Deutschland
  • Schweden
  • Vereinigtes Königreich