Active labour market policies for young people and youth unemployment. An analysis based on aggregate data

• Pages: 1510-1534
• DOI: https://doi.org/10.1108/IJM-03-2018-0100
• Published date: 04 November 2019
• Date: 04 November 2019
• Author: Stefan Sonke Speckesser,Francisco Jose Gonzalez Carreras,Laura Kirchner Sala
• Subject Matter: Economics

Active labour market policies

for young people and

youth unemployment

An analysis based on aggregate data

Stefan Sonke Speckesser

National Institute of Economic and Social Research, London, UK

Francisco Jose Gonzalez Carreras

Her Majesty’s Government of the United Kingdom of Great Britain and

Northern Ireland, London, UK, and

Laura Kirchner Sala

Ivàlua Barcelona, Barcelona, Spain

Abstract

Purpose –The purpose of this paper is to provide quantitative estimates on the impact of active labour

market policy (ALMP) on youth unemployment in Europe based on a macroeconomic panel data set of youth

unemployment, ALMP and education policy variables and further country-specific characteristics on labour

market institutions and the broader demographic and macroeconomic environment for all EU-Member States.

Design/methodology/approach –The authors follow the design of an aggregate impact analysis, which

aims to explain the impact of policy on macroeconomic variables like youth employment and unemployment

(see Bellmann and Jackman, 1996). This follows the assumption that programmes, which are effective in

terms of improving individual employment opportunities, are going to make a difference on the equilibrium of

youth unemployment.

Findings –The findings show that both wage subsidies and job creation are reducing aggregate youth

unemployment, which is in contrast to some of the surveys of microeconomic studies indicating that job

creation schemes are not effective. This finding points towards the importance to assist young people making

valuable work experience, which is a benefit from job creation, even if this experience is made outside regular

employment and/or the commercial sector.

Research limitations/implications –In terms of the variables to model public policy intervention in the

youth labour market, only few indicators exist, which are consistently available for all EU-Member States,

despite much more interest and research aiming to provide an exhaustive picture of the youth labour market

in Europe. The only consistently available measures are spending on ALMP as a percentage of gross

domestic product (in the different programmes) and participation stocks and entries by type of intervention.

Practical implications –The different effects found for the 15–19 year olds, who seem to benefit from wage

subsidies, compared to the effect of job creations benefitting the 20–24 year olds, might relate to the different barriers

for both groups to find employment. Job creation programmes seem to offer this group an alternative mechanism to

gain valuable work experience outside the commercial sector, which could help form a narrative of positive labour

market experience. In this way, job creation should be looked more positively at when further developing ALMP

provision, especially for young people relatively more distant to engagement in regular employment.

Social implications –Improving the situation of many millions of young Europeans failing to find gainful

employment, and more generally suffering from deprivation and social exclusion, has been identified as a

clear priority for policy both at the national level of EU-Member States and for EU-wide initiatives. With this

study, the authors attempt to contribute to the debate about the effectiveness of policies which combat youth

unemployment by estimating the quantitative relationship of ALMP and other institutional features and

youth unemployment.

Originality/value –To research the relationship between youth unemployment and ALMP, the authors

created a macroeconomic database with repeated observations for all EU-Member States for a time series

(1998–2012). The authors include variables on country demographics and the state of the economy as

well as variables describing the labour market regimes from Eurostat, i.e. the flexibility of the labour market

(part-time work and fixed-term employment as a percentage of total employment) and the wage setting

system (level and coordination of bargaining and government intervention in wage bargaining).

Keywords Public policy, Labour market, Europe, Youth

Paper type Research paper

International Journal of Manpower

Vol. 40 No. 8, 2019

pp. 1510-1534

© Emerald PublishingLimited

0143-7720

DOI 10.1108/IJM-03-2018-0100

Received 16 March 2018

Revised 23 April 2019

Accepted 27 May 2019

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/0143-7720.htm

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IJM

40,8

1. Introduction

The EU youth unemployment rate[1] peaked in the first quarterof 2013 at almost 24 per cent,

compared to 9 percent for the adult population[2](European Commission, 2019).Since then, it

has fallen considerably, but still is more than twice as high as the adult unemploymentrate,

pointing towards the great difficulties young people are facing when trying to access the

labour market forthe first time. This measure alsoindicates the size of the welfare lossto the

EU economy: totalunemployment could be valued at marketprices, for example, using young

people’swage levels and average working hours,to provide a measure of wealth lostto the EU

economy because of underemployment in the present period.

For example, the 2012 Eurofound study has shown the estimated cost of young people

who are not in employment, education or training (NEETs) in 26 Member States to be

about €156bn (representing 1.51 per cent of the EU’s gross domestic product (GDP),

Eurofound, 2012). Additionally, in the light of evidence that young people’s

unemployment experience increases the likelihood of them being unemployed in later

adult life (“scarring of youth unemployment”, Bell and Blanchflower, 2011), youth

unemployment will also have a sustained impact on wealth and growth in future periods.

This impact would have to be added in present values to the welfare loss caused by youth

unemployment in the present period.

Improving the situation of millions of young Europeans failing to find gainful

employment, and more generally suffering from deprivation and social exclusion, has been

identified as a clear priority for policy both at the national level of EU-Member States and

for EU-wide initiatives. Concrete policy initiatives focus on reforming labour market

institutions, such as:

•young people’s participation in vocational education: EU initiatives aim to set quality

standards for apprenticeships and traineeships and provide funding by European

Structural Funds (European Commission, 2011, 2013, 2014a);

•active labour market policies (ALMPs): EU Policy initiated the creation of “Youth

Guarantees”, offering all young people a job or a place in continued education within

a fixed time period after becoming unemployed (European Commission, 2014a, b,

2018); and

•wage bargaining institutions: the introduction of the “European Semester for

Economic Policy Coordination”in 2011 formalised country-specific recommendations

on national wage bargaining regimes (e.g. European Commission, 2014c) to achieve

high employment levels, including for young people.

While these key policy areas have been identified and proposals how to improve the

situation have been informed by results of scientific research, see Section 2.2, there is not

much knowledge about the quantitative impact of making specific policy choices and using

particular programmes of ALMP across the EU. In this paper, we aim to contribute to this

evidence base with further research about the relative effectiveness of particular ALMP

choices, and types of intervention, i.e. training or supported work experience in the

commercial sector or by public provision, among other options. Because of the difficulty to

obtain a consistent database at individual level, we have chosen to estimate these

quantitative impacts of specific ALMP measures for young people using aggregate data,

while controlling for further institutional features relevant to youth unemployment from EU

data sources.

Our particular contribution is to use this variation across Member States and over time

and provide estimates on the effects of different policy choices controlling for further

institutional characteristics. We follow the design of an aggregate impact analysis of youth

ALMPs (e.g. Bellmann and Jackman, 1996), which exploits variation in ALMP and other

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market policies