In a number of countries, some efforts have been made to extend the coverage and, in some cases, duration of benefits to provide a more effective safety net for the crisis. Such measures can be effective, but should be carefully designed so as not to dull incentives to look for employment, thereby lengthening the jobless spell.
Apart from reinforcing safety nets, governments have also sought to scale up the resources for active labour market policies ALMPs to help jobseekers find work. However, compared with the overall size of the fiscal stimulus packages and the magnitude and pace of the job losses in the current crisis, the increase in spending on ALMPs has been modest in many cases.
This looks like a missed opportunity.
Prague Economic Papers
True, calls for additional public spending on labour market policies have to bear in mind the growing fiscal constraints many countries are facing due to the crisis. However, the extra spending can be justified on cost-effectiveness grounds. We now know a lot about what works and what does not work in this area.
In addition, as this year's edition of the OECD Employment Outlook highlights, the composition of spending on active labour market policies can be varied with the business cycle to maximise effectiveness. A key priority is to provide effective employment services to a rapidly rising pool of jobseekers and ensure that the most vulnerable of them do not lose contact with the labour market.
It will be important to build on these successes and not dismiss the activation approach, even if there are fewer job vacancies to which jobseekers can be referred.
Instead, the activation approach needs to be adapted to the circumstances of a deep recession. It is essential to maintain core job-search assistance throughout the downturn. Even in a deep recession, many jobs are created by firms that are able to exploit new market opportunities, and employment services can play a decisive role in helping fill these vacancies quickly. Indeed, as OECD research suggests, the focus and resources behind activation could be shifted somewhat from the "work-first" approach, which tended to dominate prior to the crisis, to a "train-first" approach. This is likely to be particularly important now, since the global economic crisis is spurring structural changes in OECD economies, and measures to foster skills and training will help ensure that workers are well-equipped for emerging jobs.
During the recession, firms have been battered by a collapse in demand and a major credit crunch, resulting in massive lay-offs. Many OECD countries have introduced or scaled-up subsidies that encourage firms to retain or hire workers, with measures such as short-time working schemes, hiring subsidies, and cuts in social security contributions. Such measures help support labour demand in the short term, but to judge by past experience, they often lead to high deadweight costs that bear down on economic performance. To minimise these costs, such schemes should be temporary and well-targeted at firms where demand is depressed only temporarily and at those workers who are at high risk of long-term unemployment.
Without these key features, these schemes will not only be less effective in preserving jobs but could also become an obstacle to the recovery by slowing the reallocation of workers from declining to expanding firms and sectors. Likewise, public-sector job creation schemes that target the hardest-to-place jobseekers might provide a useful, temporary backstop to activation regimes during the recession.
However, experience shows that these schemes are not that successful in helping the most at-risk jobseekers get back into regular jobs. It is therefore important to build incentives into such measures to ensure that participants go on to regular jobs and to unwind the schemes quickly once the recovery gathers pace. There is now real hope that a recovery is on the horizon. When it comes, this will make tackling the jobs crisis easier. But a recovery on its own is unlikely to make swift inroads into high and persistent unemployment.
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Labour shares, employment protection and unions in European economies
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Tax Wedge on Labour and its Effect on Employment Growth in the European Union
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