Labour Economics After the Crisis: What theoretical lessons to draw from policy experience? High-level expert conference organised by the EC Management Centre Europe, 118 Rue de l'aqueduc Brussels, 18-19 September 2014 TACKLING DEMAND-SIDE BARRIERS TO EMPLOYMENT OF YOUTH AND LOW- SKILLED WORKERS Mark Keese Head of Employment Analysis and Policy Directorate For Employment Labour and Social Affairs
Demand-side barriers can reduce jobs available to low productivity workers Employment rates by socio-demographic characteristics Percentage of the population of the indicated group, 2013 a a) 2012 for the indicators by education. Source: OECD Labour Force Statistics (database), http://dx.doi.org/10.1787/data-00310-en, OECD Education at a Glance (2014), Paris and Eurostat, EU-LFS results, Employment rates by sex, age and highest level of education attained for Bulgaria, Croatia, Cyprus, Latvia, Lithuania, Malta and Romania.
Demand-side barriers to hiring lowproductivity workers 1. Minimum wages 2. Labour costs for low-wage workers 3. Employment protection regulation 4. Poor skills and inadequate school-to-work pathways
MINIMUM WAGES
Minimum wages Employment effect of MW still subject to debate but: Negative employment effects of high minimum wages more likely for youth/low-skilled (Neumark and Wascher, 1998, 1999, 2004; Pabilonia, 2002 although some other studies fail to find negative effects) High minimum wages may have adverse effects on enrolment in education of youth with very low skills (Neumark and Wascher, 1995; Landon, 1997, Chaplin et al. 2003, Pacheco and Cruickshank, 2007)
Some countries set the minimum wage much higher relative to the median wage than others Ratio of minimum to median wage of full-time dependent employees, by age Source: OECD (2014), OECD Minimum Wage (database), http://dx.doi.org/10.1787/data-00313-en; and OECD (2014), OECD Tax-Benefit Models, http://dx.doi.org/data-00201-en.
Setting sub-minimum wages Appropriate level needs to reflect earnings/labour costs distribution Allow for jobs with training only (e.g. apply to apprenticeships and work-based learning schemes) Restrict to youth who have recently left education or are in their first job
NON-WAGE COSTS
High labour costs may hamper job opportunities for low-productivity workers Employer social security contributions As a percentage of gross average earnings, single households with no children Source: OECD Taxing Wages 2014.
Wage subsidies and reductions in social security contributions Many countries have wage subsidies/reductions in nonwage costs in place: France has introduced subsidies for companies that hire simultaneously a young and a senior worker (contrat génération); they also have wage subsidies for the long-term unemployed In the United Kingdom, under the Youth Contract Offer, wage incentives of up to 2,275 are available for businesses that take on an 18-24 year old from the Work Programme; in addition, Autumn Statement 2013 announced the abolition of employer National Insurance contributions for under-21 year old employees earning less than 813 a week from April 2015, making it cheaper for businesses to employ young people; and extra incentive payments worth 1500 each for employers to take on young people as apprentices
Wage subsidies and reductions in social security contributions (contd) Some subsidy programmes have worked well in the past: The New Deal for Young People in the United Kingdom (Van Reenen 2003) The New Jobs Tax Credit in the United States (Bartik and Bishop, 2009) SGB III (WS) and JUMP (JWS) subsidies in Germany (Caliendo, Künn and Schmidl, 2011) But design is important: Generalised reductions bring about deadweight loss Risk of substitution effects However, excessive targeting/conditions to ensure additional hiring can reduce take-up
EMPLOYMENT PROTECTION LEGISLATION
Employment protection regulation Some evidence that strict EPL reduces the employment rates of youth while no effect for prime-age workers and a positive effect for older workers (Bassanini and Duval, 2006) BUT deregulating temporary work only has risks: Youth over-represented in temporary work Combined with strict EPL on permanent contracts -> duality Low transition rates from temporary to permanent jobs Reduced probability of receiving employer-sponsored training Temporary workers bear the brunt of job losses in times of crisis Subsidies for conversion help, but dead-weight losses are high
For many, temporary jobs are a trap, not a stepping-stone Three-year transition rates from temporary to permanent contracts Percentage share of temporary employees in 2008 that were employed as full-time permanent employees in 2011 Note: 2007-2010 of the Czech Republic, France, Greece, Sweden and the United Kingdom; 2006-2009 for Norway and the Slovak Republic; and 2005-2008 for Ireland Source: OECD calculations based on the European Union Statistics on Income and Living conditions (EU-SILC) 2005-11.
Workers on temporary contracts receive less employer-sponsored training Temporary workers and employer-sponsored training Estimated percentage effect of temporary contract status on the probability of receiving employer-sponsored training, 2012 Note: Estimated percentage difference between temporary and permanent workers in the probability of having received training paid for or organised by the employer in the year preceding the survey, obtained by controlling for literacy and numeracy scores and dummies for gender, being native, nine age classes, nine occupations, nine job tenure classes and five firm size classes. Data are based only on Flanders in the case of Belgium and England and Northern Ireland in the case of the United Kingdom. ***, **, *: significant at the 1%, 5%, 10% level, respectively based on robust standard errors. Source: OECD Survey of Adult Skills (PIAAC) 2013, http://dx.doi.org/10.1787/9789264204256-en.
Short trial periods may discourage the hiring of youth Trial period, OECD and other selected countries, 2012/13 Months Note: Data refer to 2013 for OECD countries and Latvia, and to 2012 for all other countries. a) Unweighted average of the 32 OECD countries shown in the chart above. Source: OECD calculations based on the OECD Employment Protection Database, 2013 update, www.oecd.org/employment/emp/oecdindicatorsofemploymentprotection.htm.
SKILLS AND SCHOOL-TO- WORK PATHWAYS
Low-skills can act as a disincentive to hiring Literacy proficiency among 16-65 year-olds Percentage of adults scoring at each proficiency level in literacy Source: Survey of Adult Skills (PIAAC) (2012), Tables A2.1 and A2.2a. 18
Despite the known benefits, the use of apprenticeships varies considerably across countries Participation in apprenticeship programmes Percent of youth aged 16-29 who are apprentices, 2012a,b 16 14 12 10 8 6 4 2 0 Total Men Women a) The estimates are shown in a lighter colour for each country where they are based on less than 30 observations for the total and less than 15 observations by gender. These estimates should be interpreted with caution. b) The results for Belgium and United Kingdom refer to, respectively, Flanders and England and Northern Ireland. The data for the Russian Federation are preliminary and exclude the population of the Moscow municipal area. Source: OECD Survey of Adult Skills (PIAAC), 2012. 19
Challenge: making apprenticeship schemes more attractive to employers Employers might not be willing to hire apprentices if: Youth lack basic skills Cost of apprenticeships is not equally shared among employers, the public sector and apprentices Apprenticeship contracts are too rigid (in duration, for example) Employers are not involved in the development of the programme Solutions: Ensure youth have basic skills through pre-apprenticeship programmes Share the training costs equally between employers, apprentices and the public sector and offer financial incentives to hire apprentices Add flexibility to apprenticeship contracts Include employers and trade unions in the discussion, management and development of apprenticeship systems
Thank you Contact: mark.keese@oecd.org Read more about our work Follow us on Twitter: @OECD_Social Website: www.oecd.org/els Newsletter: www.oecd.org/els/newsletter 21
OECD work on youth employment www.oecd-ilibrary.org Country reviews on: Jobs for Youth Learning for Jobs Skills beyond School Investing in Youth in Emerging Economies Social Policies for Disadvantaged Youth Work on skills: OECD Skills Outlook OECD Skills Strategy Background reports for G20 on: Youth employment Activation strategies 22