4.1. Youth employment policies in place at the European level
EU Member States are primarily in charge of paving the way for young people to enter the labour market. However, the EU can support them by exerting influence in political decision-making. In this context, the European Commission launched the “Youth on the Move” programme, an EU flagship initiative that began in 2010 as part of the “Europe 2020” strategy. The programme shall promote policy measures at national and European level to enhance educational and training systems (European Commission 2011b). In particular, “Youth on the move” focuses on three key areas. Firstly, the initiative addresses the development of modern education and training systems as being crucial to deliver key competences.
This contains the reduction of early school leaving to 10% by concentrating on prevention and targeting on those at risk of dropping-out of school the encouragement of vocational education and training (VET) and early workplace experience in the form of apprenticeship-type training and traineeships as well as the expansion of career and life-enhancing learning opportunities for non-formal and informal learning for the youth. Secondly, the initiative intends to promote higher education for the knowledge economy, supporting the development of transnational learning. To reach the goal of 40% attainment of higher education or equivalent, all Member States are supposed to modernise higher education. For example, this can be achieved by increasing the quality and transparency of its institutions and creating partnerships throughout the entire world. Thirdly, learning mobility to increase future employability is supported, also by promoting employment mobility across the European Union to ease young workers’ moving and working within the European Union. This might provide young workers with experiences and skills, as well as contribute to better matching labour supply with labour demand. Accordingly, the procedures in terms of the social security system and the general free movement of workers shall be simplified (European Commission 2010).
In December 2011, the “Youth Opportunities Initiative” was launched as response to the growing youth unemployment since 2008, followed by the “employment package”, adopted in April 2012. The package specifies policies regarding the reduction of early school leavers and a modernisation of education, and also addresses skills that should be developed to meet the demands of the labour market, thus easing the transition from school to work. In May 2012, in its resolution on the Youth Opportunities Initiative3, the European Parliament stressed the importance that Member States should take measures at national level to safeguard that young people are either employed, in education or training within a period of four months of becoming unemployed or leaving formal education (Council of the European Union 2013). Building upon existing Youth Guarantee approaches within some Member States, such as Austria, Finland, the Netherlands and Sweden, the establishment of a European-wide Youth Guarantee aims at supporting Member States with above average youth unemployment rates. This includes the establishment of partnerships and career guidance services at national, regional or local level to ensure that young people take informed decisions regarding their professional career and are aware of the fact that services are provided to them after leaving school. In addition to this, relevant labour market actors should create partnerships with employers to promote youth employment by offering first work experience and on-the-job-training. The Youth Guarantee shall also help safeguard an involvement of youth organisations or representatives to take into account the specific needs of beneficiaries (European Commission 2012a).
According to the European Commission’s proposal, ‘the term “Youth Guarantee” refers here to the fact that young people [aged 15–24] receive a good-quality offer of employment, continued education, an apprenticeship or a traineeship. An offer of continued education could also encompass quality training programmes leading to a recognised vocational qualification’ (Council of the European Union 2013). Finally, at the EU’s Council of Employment and Social Affairs Ministers on 28th February 2013, the Council adopted the proposed Youth Guarantee Recommendation (European Commission 2013). In January 2011, the Commission approved “Tackling early school leaving: a key contribution to the Europe 2020 agenda”. Thereafter, policies should particularly target children with immigration backgrounds. It also highlighted the importance of intervention schemes dealing with problems such as absenteeism and poor performances, as well as second-chance learning schemes.
In 2010 the Commission adopted a communication on “A new impetus for European cooperation in vocational education and training to support the Europe 2020 strategy”. That is, vocational education and training shall endow young people with skills relevant to evolving labour markets. For instance, those skills encompass abilities related to the use of information technology. In September 2012, the European Commission submitted a proposal for a ‘Council recommendation on the validation of non-formal and informal learning’, as part of the ‘Youth on the move’ initiative. On the one hand, the proposal stresses the importance of creating new learning opportunities. On the other hand, it is designed to achieve a significant impact on the functioning of the labour market through a European-wide validation mechanism (European Commission 2012b).
4.1.1. Policies in place at the national level
The following section describes the policies introduced in the EU Member States to target young people’s entry into the labour market during the last five years. First, policies regarding the general school education are taken into account, before considering training and employment-related policies as well as the role of activation policies related to amendments within the benefit systems.
188.8.131.52. School education/preventing early school leaving
In the area of schooling, the most prominent means across the Member States relate to those preventing early school leaving. Early school leavers are those people aged 18–24 with a lower as secondary level education not participating in any further education or training. In countries such as Spain, Malta and Portugal, the rate of early school leavers exceeds 30%. To guarantee that young people learn basic skills, several countries have installed extra support classes, observing pupils’ achievements much closer than previously. For instance, in Greece, such kinds of classes exist throughout primary and secondary education in order to enhance pupils’ performance. The ‘Hope for suburbs’ programme in France supports young people stemming from underprivileged areas, with 200 schools providing intense training for those delivering poor results. The ‘Acting for youth’ plan in the same country has extended compulsory education from 16 to 18 years, entailing the ‘right to prepare for working life’ in the sense of benefiting from training or taking up a job after leaving school. Other Member States have also introduced so-called second-chance schools, placing emphasis on practical skills and work experience or guidance measures for early school leavers. In Finland, early school leavers were assigned to personal advisors, providing advice and support in the form of a search team to find either employment or a way to further educate the early school leaver (European Commission 2011a). In the UK, the 2008 Education and Skills Act provides that all young people will have to remain in education or training until the age of 18 by 2015. Accordingly, young people have to either participate in education or training at a school, college and home education, or carry out work-based learning such as an apprenticeship (Skill 2009).
184.108.40.206. Development of training systems
To better link the educational system with work experiences, a couple of Member States have initiated measures to close the gap between the educational system and the latter employment on the labour market. Several Member States have created vocational training programmes or expanded the number of vocational training places (European Commission 2011a). In Austria and Germany, a ‘dual’ vocational training system has long been in place, combining work experience through on-the-job learning and classroom education at a vocational school.
The system is supported by employers, trade unions and the government, particularly with regard to the legal framework and financial means. The system facilitates a relatively smooth transition from school to work (Biavaschi et al. 2012: 35). In Austria, the Vocational Training Act (Berufsausbildungsgesetz) entails an apprenticeship guarantee (Ausbildungsgarantie) for all young people up to the age of 18 (European Commission 2011a). The act was refined in 2008, providing a supra-company training programme until its completion for those who cannot find a company-based apprenticeship (Arbeiterkammer 2009). Accordingly, young people are trained until they have either found a company-based apprenticeship or completed the apprenticeship. In the meantime, the Public Employment Service Austria (Arbeitsmarktservice Österreich) supports those concerned by searching for a company-based apprenticeship (Hohbein and Wieland 2011). In Germany, the “National Pact to Promote Training and Young Skilled Workers in Germany” has been in place since 2004, introduced to offer training opportunities to young people willing and able to hold an apprenticeship. The Training Pact was refined in 2007, to include joint efforts of social partners (Federal Ministry of Labour and Social Affairs 2010).
220.127.116.11. Employment protection
While high levels of employment protection decrease labour demand, employment protection cushions the negative effects of an economic slump on the labour market. On the other hand, low levels of employment protection lead to generally higher labour demand yet relatively high unemployment rates during an economic downturn. Young people are predominantly hired under low protection contracts (Boeri 2011). Nevertheless, the Spanish example shows that high employment losses can occur despite high employment protection (Balakrishnan and Berger 2009). The Spanish reform of the labour market carried out in 2010 and 2011 contained changes regarding individual dismissals. Today dismissals for economic reasons, triggered by current and expected losses or reductions in revenues, are considered a cause of fair dismissal. In this context, the advance notice was shortened from 30 to 15 days. Moreover, the Spanish government decided to create a new permanent contract including an express dismissal procedure with a maximum severance pay of 33 days’ wages and no advance notice. For employees and workers with temporary contracts, severance pay was increased from 8 to 12 days’ wages (Bentolila et al. 2012).
In Italy, uncertainty and costs related to dismissals were previously responsible for employers relying on temporary contracts (IMF 2012: 15–16). Therefore, the labour market reforms, approved by the Italian Parliament in June 2012, included individual dismissal rules and procedures. In order to reduce time and uncertainty related to individual dismissals, the discretionary area for judges in this respect was restricted. The “fast judicial track” intends to reduce indirect costs with regard to time and uncertainty owing to dismissal disputes (Fornero 2012). The previous legislation included the possibility of every employee working in a business unit with more than 15 employees, or for an employer with more than 60 employees to claim their job back. In addition, the employee was entitled to receive all lost salary since their dismissal and the employer could be forced to rehire the employees through the labour court’s decision. Since the reform came into force in July 2012, the employee can no longer claim their job back in case of a lay-off due to an economic reason. Meanwhile the employee may only be granted an indemnity fixed by the labour court (Lexology 2012).
18.104.22.168. Active labour market policies (e.g. hiring subsidies)
Lacking labour demand resulting from insufficient growth represents another factor for increasing unemployment among the youth, prompting active labour market measures aiming at increasing the employers’ demand for hiring young workers (ILO 2010). Active labour market policies (ALMP) are usually understood as “bringing unemployed back to work by improving the functioning of the labour market in various ways. ALMP include programmes such as public employment services, labour market training and subsidised employment” (Boone and van Ours 2004: 2). One of the most prominent measures used to combat (youth) unemployment during the recession of 2008/2009 was short-time work resulting from an economic downturn and shortfall of orders. This scheme allows employers to reduce the working hours during times of economic difficulties. Many Member States have carried out short-time working schemes or partial unemployment benefit scheme during the economic slump, and some have even expanded the coverage of existing schemes or eased procedures for their application. (Hijzen and Venn 2011: 7). Across a number of Member States, there are no tailor made ALMPs for young people. However, several Member States have incentivised youth employment by hiring subsidies and reductions of the non-wage related costs. Such policies aim at stimulating additional demand from the employers’ perspective, in order to create new jobs for the youth (European Commission 2011a). Measures such as wage and (labour market) training subsidies are taken to decrease work-related costs and incentivise the recruitment of young workers, and are typically provided by the government to support companies hiring or training an unemployed young employee or worker. Subsidies are sometimes paid directly to the employee or worker, with employment agencies or offices typically responsible for providing the funds. Public works programmes, which contain mostly direct employment opportunities through public activities, can also be mentioned in this context. Nonetheless, as stated by Kluve (2006), no significant positive effect and even some negative outcomes regarding the post-programme employment have been found (ILO 2010: 57–58). Another measure introduced with the outbreak of the financial crisis, is the promotion of self-employment. Other Member States have also initiated programmes to support self-employment, often encompassing mortgages or other forms of financial funding to start an own business and gain entrepreneurial knowledge (European Commission 2011a).
22.214.171.124. Reforms of the benefit system due to activation policies
Within the youth employment framework, the modernisation of the social benefit systems is addressed as part of the ‘Youth on the move’ initiative. Hereafter, access to social benefits should be safeguarded when perceived as appropriate. In addition, it should be expanded in the case of insufficient coverage of income safety for the youth. At the same time, activation measures and conditionality should guarantee that those concerned are actively searching for workplaces or willing to participate either in education or training. Young people often face the same requirements regarding the entitlement of unemployment benefits as older employees. Accordingly, if a young person does not meet the criteria for the entitlement owing to a lacking overall working period, they are unable to claim unemployment benefits (European Commission 2011a).
4.2. Measures to prevent the early exit of the labour market of the older workers
Measures fostering the employment of older workers should take two different aspects into consideration: first, the measures in countries with a high employment rate of older workers; and second, measures in countries with a strong dynamic in the employment rate of older workers. Within the second perspective, the decline in employment rate and rise in unemployment rate due to the economic crisis in 2008 hamper a clear picture of successful country specific measures. Therefore, we concentrate on the literature and empirical evidence largely prior to 2008. The development of the employment rates of older workers and the transition to retirement since 2008 can be seen indicative of how successful the national states were in managing the economic crisis.
4.2.1. Reform of the social security incentive structures
Pension reforms have been on the agenda in all Member States during the past decade (overview in European Commission 2008, box 2.1). First of all, early exit schemes were closed in the majority of countries, leading to increasing average age of exit from the labour market. In five countries4 , the average exit age is still below 60 (in 2010), whereas twelve countries have a retirement age of 62 years or above5. An increase in the statutory retirement age causes different reactions among persons and firms, with the extent to which such a reform increases the employment rate depending on many factors. Hakola and Määttänen (2007) calculated the impact of the pension reform 2005 in Finland on the average labour market exit age. In the reform, there was a restriction in access to early retirement options and an increase in retirement age of two years (also an increase in pension accrual rate and actuarial adjustment factors), which led to an increase of the average labour market exit age by 8.5 months. The increase of the pension age for early exits in Austria by 2.2 years between 2000 and 2006 leads to a decrease in retirement of 25 percentage points among women of the relevant age cohorts and 19 percentage points among men. Employment increased by 10/7 percentage points among women/men, although the unemployment rate also significantly increased (+11/10 percentage points among women/men) (Staubli and Zweimüller 2011). However, for the outsiders, the unemployed older, the reform leads to a decrease in employment probabilities. Empirical findings for the Netherlands suggest that 11% of all people entering the disability pensions constitute a form of hidden unemployment (1994 – 2003) (Koenig and van Vuuren 2010). To stop this dynamic, new measures among employers and employees have been established. To reduce labour lay-offs, a firm’s firing costs of older workers were increased through increased pension contributions in the case of lay-offs. The employer’s contributions are experience rated. That is, the higher the amount of workers who exit from the labour market and enter disability pensions, the higher the employers contributions are. The introduced system of experience rating in the health and disability insurance reduced the inflows in disability (Hakola and Uusitalo 2005). In Germany, public pension reforms led to an increase of average labour exit age among women from 61.6 to 61.9 and among men 62.1 to 62.6 years within 2006 to 2009. The reason for this is the introduction of the means-tested ‘unemployment benefit II’ in combination with the shortened entitlement period that paved the way for a higher job-search intensity as well as the broader acceptance of fixed-term contracts and agency work. In France, the past reforms increased the employment rate of older workers and persons beyond the retirement age up to 13%.
Unemployment benefit improves the job matches as employers and employees have a certain period to find the most suitable employee/job, and moreover macroeconomic efficiency can be enhanced. Employers can also use the insurance to reduce the labour costs in case of short term contraction of demand (hire-and-fire). Labour turnover varies among the Member States. To reduce short term labour turnover, many countries introduced a specific unemployment contribution rate for employers. If firms have a lay off beyond the average of the industry, the contribution rate to the unemployment insurance increases.
There is an indirect relationship between the employment level of older workers and health insurance. Health insurance can support employability of workers and workplace health promotion (WHP) through various incentives. For example, work organisation fosters an appropriate balance between individual level of skills, job demands and job control, work time, etc., and becomes particularly important with the increasing age of employees. Disability pensions and health insurance are closely related: A stricter health screening reduced disability pension in the US (Gruber and Kubik 1997). An experiment in the Netherlands shows that in regions with stricter screening, the disability rate declined (De Jong et al. 2011). Moreover, the compulsory rehabilitation plan has also had a positive impact on employment of older workers, reducing the disability inflow. Furthermore, Autor and Duggan (2003) calculated a significant screening effect on high-qualified employees but no effects on low qualified employees. In Sweden, there is just a small effect of stricter health screening on disability entrants and no effect on the employment level of older workers (Karlström et al. 2008). Johansson et al. (2012) find reduced entry rates between 1986 and 2008 in the context of screening stringency of the disability insurance in Sweden. The stricter health access criteria for disability pension in Austria decreased the disability entrances by ten percentage points, with 45% of the affected persons remaining employed, while 46% became unemployed and 9% received sickness benefits through health insurance (Staubli 2011).
4.2.2. Incentives of the tax system
European tax systems in general and income and payroll tax systems in particular are not age-specific, given that the income tax rate relates to the level of income and not the age of the taxpayer. While there is extensive empirical literature on the relationship between taxes and the individual labour supply decisions6, there are few empirical findings of tax impacts on the labour supply decision of older workers. The age group that is in transition between employment and retirement is usually excluded from labour supply incentives. The labour income of workers includes decisions of qualification, income level of the industry, hours worked, age, gender, etc., with tax incentives corresponding to the elasticity of the mentioned components. Empirical findings show that working aged women are more responsive to taxes and wages than men. For US employees, Alpert and Powell (2012) find significant effects of payroll taxes on labour exit and pension entries of older workers (55 to 74 year old): the higher the tax burden of older men, the sooner they will quit employment for retirement. The authors suggest that a tax decrease for older workers by one percentage points would decrease labour market exits by 4%. Age specific deductions of contributions in the social security systems try to reduce labour costs of older workers to promote their labour market attachment. In Finland, the employer pension contribution rate decreased by 1.2 percentages to 16.1%, and vice versa increased the contribution rate for the older employee by 1.2 percentage points to 5.8% of pensionable income.
In Austria, there is also an evident reduction in social security contributions: for workers older than 60 years, firms do not pay contributions to the unemployment insurance (6% of pensionable income), to the work accidence insurance (1.4%), insolvency safeguarding fund (“Insolvenzentgeltsicherung”) (0.55%), and contributions to the family-fund (“Familienlastenausgleichsfonds”) (4.5% of the assessment basis). Up to 2012, the social security contribution rate for employees older than 60 years decreased by 12.45 percentage points. There are no evaluations of the impact of the deduction on employment levels of older workers, and by 2013 the contribution deduction is going to be less generous.
4.3. Measures promoting employment of both groups
The specific problems of young and old workers within the labour market relate to the lack or obsolescence of relevant skills and insufficient work experience. To counter this, active labour market policies are in place in all EU Member States, along with labour market reforms to raise employment levels. In this context, it makes sense to distinguish between targeted and universal policies, with targeted policies addressing specific socio-economic groups such as youths and older workers and universal policies aiming to generally stimulate employment growth and job creation, thereby benefiting a broad range of potential target groups.
4.3.1. Targeted measures
The evidence collected shows that there are very few targeted schemes trying to simultaneously promote the employment of young and old workers. Most targeted measures focus on training and hiring incentives to employers, such as specific skill adjustment programmes or hiring incentives. Nonetheless, diverse measures may be used to reach the same goal: while some of these measures were designed to encourage the retention of older workers, others focus on improving the labour market access and early career mobility of young people. One such measure involves the introduction or expansion of tax and social security incentives for employers and/or employees to hire and retain younger and older workers (Eurofound 2012). Similar financial incentives targeting both younger and older workers at risk can be found in other countries. Specific programmes aiming to establish a labour market “bridge” between older and younger workers rarely exist. However, one particularly notable policy approach in this respect is old-age part-time work. In some countries, this was designed to promote a gradual exit from work to retirement, thereby prolonging the employment career whilst also facilitating the integration of younger people into work.
In an ideal-type, old-age part-time work programme employers received a subsidy if they: (a) established a phase-out programme for older workers and topped up their pension contributions during the part-time work period; and (b) hired a young unemployed person as a replacement worker. One prominent example is the system that was place in Germany until 2009 (Altersteilzeit). However, old-age part-time work neither helped to retain older workers, as it was hardly used for progressive retirement but rather for premature exit from work, nor was there any positive effect on the employment of younger workers (see the evaluation study by Wanger 2009). Indeed, at best it was neutral regarding its effects on younger workers while effectively lowering the employment rate of older workers. This is also confirmed by the similar case of Austria (Graf et al. 2011). Furthermore, the costs for subsidised early retirement had to be borne by employers and employees via social security contributions. In turn, this might have actually reduced overall demand for labour, therefore with detrimental effects on younger people. Accordingly, removing older workers from the labour market can harm the employment prospects of younger people.
4.3.2. Universal measures
More universal policy approaches are fundamentally different as they aim at more jobs and better labour market access for all working-age people. Such general policies to promote high employment and facilitate mobility on the labour market for all groups are beneficial for all (Bassanini and Duval 2006), and thus are also conducive to the better employment record of young and old workers. The most fundamental policy areas and initiatives in this area include:
● skill formation and updating via vocational education and training and continuous vocational training later in life;
● effective forms of active labour market policies and activation strategies that make the receipt of social benefits for working-age people conditional upon reintegration efforts;
● policies to reduce taxes on work and non-wage labour costs, particularly involving expenditure for ‘passive’ social benefits granted to working-age people without a reintegration perspective;
● reforming employment protection to enable entry into the labour market and facilitate mobility between jobs; while the effects of reforms of employment protection legislation may generally be ambiguous, deregulatory reform on the labour market to promote (re)entry into employment by creating flexible jobs can at least facilitate labour market access for those outside the labour market, to some extent.
These general employment-friendly policies can have particularly beneficial effects on demographic groups seeking access to the labour market at a young age or when re-entering the labour market after a phase of unemployment or inactivity. Therefore, it can be stated that universal policies can have a particular impact on certain groups. Regarding active labour market policies, one can argue in a more generalised fashion that many active labour market policy schemes can be targeted flexibly to address the employment obstacles of target groups identifiable in the national context, with age representing just one parameter among others here. In particular, ALMPs can help to make jobseekers more attractive to potential employers by reducing labour costs in the initial phase of employment or by raising productivity via skills upgrading.
In principle, active labour market policies such as (i) publicly sponsored training, (ii) hiring incentives for employers, (iii) start-up support, (iv) in-work benefits topping up low wages and (v) activation policies establishing an effective conditionality between benefit receipt and participation in ALMP programmes or acceptance of job offers are available to address the whole working-age population. As shown above, there is some potential to deliver effective active labour market policies tailored to the needs and employment barriers of particular groups, such as the young and the old, so that the employment prospects of both groups are promoted. To summarise, general policies are particularly relevant in terms of raising the employment levels of all, including young and old workers. Targeted policies are justified if particular barriers to employment exist, yet age is only one criteria amongst many in identifying specific target groups and designing policies accordingly. As can be seen from the experiences of EU Member States, it is less obvious to have policies addressing specifically young and old workers (but only them). Rather, if these groups are targeted, they are dealt with separately. Finally, consistently both with respect to developments over time and in cross-country comparisons, there is no competition between the two groups in terms of opportunities to obtain jobs. Accordingly, there is also no economic or political trade-off between a good start into employment for young workers and the retention of older workers.