Labor Market Policy Reforms in Europe: Convergence or Divergence?

1. Analyzing Labor-Market Policy Reforms in an Integrating Europe Radical Departure, Muddling Through or Self-Transformation? J.Timo Weishaupt, Ph.D.

2. Background • Europe faces a set of common challenges & constraints (“input convergence”) • Acquis Communautaire • SGP, EMU, ECB • Demographic ageing, family structures • Etc. • EU members also receive same advice through EES & OECD (“paradigm convergence”) • Activation &Supply-side measures • EES and Lisbon targets

3. Central Research Questions • As EU Member States face a common set of challenges and receive a common set of recommendations, is there also a commonpolicy response? • If not, do their reform efforts systematically vary, and if so, how? • Have these reform activities fundamentally transformed the institutional settings of national labor-market policy regimes, and if so, to what effect?

4. Literature Review • Globalization Thesis • Cost containment main common concern • Leaner and meaner welfare state • Result: policy convergence • Path-dependency Thesis • Regime types face regime-typical pressures • Significant changes, but relative “distance” between regimes remains intact • Result: persistent policy diversity

5. Literature Review, II • Hybridization Thesis • EU member states deliberately “mix and match” various policies • Recalibration rather than retrenchment • Regime characteristics soften • Result: neo-convergence or neo-divergence

6. Analytical Grid: Four Dimensions • Ideational • Organizational • Financial • How are labor-market interventions financed? • How much are governments willing to invest? • Incentives (rules and policies) • How are jobseekers motivated to seek, be available for, and accept work? • What is the policy mix between compulsion and support?

7. Compulsion Support

8. Financial Dimension: Funding

9. Financial Dimension: ExpendituresALMP divided by number of unemployed persons

10. Financial Dimension: Expenditures Normalized ALMP

11. Financial Dimension: ExpendituresPLMP divided by number of unemployed persons

12. Financial Dimension: Expenditures Normalized PLMP

13. Incentives Dimension: Negative, non-financial • Missing Data (Micro Data from European LFS) • Tightening of benefit regimes • Suitability criteria • Jobs search criteria • Monitoring, sign-ins etc. • Danish Finance Ministry shows common trend that benefits are less “freely” available

14. Incentives Dimension: Negative, financial • Average levels of initial UB have remained largely unchanged for low and medium incomes. • Slight cuts on average on high incomes, except Greece, Ireland and UK (all with flat rate systems, where increases are distributed across all recipient groups) • Average levels of long-term benefits have been somewhat reduced on average for low and medium incomes, and dropped – at times substantially – for high incomes

15. Average Net Replacement Rates for Long-term Unemployed Persons Different Earning Levels, 2001 and 2006

16. Changes in Maximum UB Duration for Prime-Aged Workers in Monthsmid-1990s to 2008

17. Exit Options – early retirement • General trend to reduce or even completely phase out early retirement schemes (e.g. IE; SE) • Still some countries with rather generous use of these schemes (BE, FN) • AT as only country even increasing availability (until 2005)

18. Incentives Dimension: Positive, non-financial • Reorientation of Public Employment Services • customer focus • Improved matching services (new technologies) • “soft skills” • Mostly “negative” trend with respect to the provision of occupational skills • Exceptions include AT, (BE),(ES), PT, and UK • Most drastic cuts in DE, DK, FN, SE • Mostly “positive” trend with respect to the provision of childcare places, but significant differences remain • Laggards include AT, DE, GR, IT • Nordics plus BE & FR in the lead

19. Incentives Dimension: Positive, financial • Variations remain with regard to the taxation of (low-paid) work – slight trend toward tax reductions is identifiable • Differences with regard to existence and levels of statutory minimum wages remain • Variations in the use of wage subsidies remain • High spenders include BE, DK, ES, SE • (UK but also IE and NL use in-work tax credits) • Variations in the use of direct job creation remain • General trend to downsize DJC • High spenders include BE, FR and IE • Germany (plus ES) as outliers in investing large resources in business start-ups for the unemployed

20. Conclusions • No overall retrenchment, yet substantial changes have occurred in some, but not all identified areas • Financial Dimension • Persistent differences in sources of funding • Some convergence with respect to spending on ALMP (high-spending countries spend less, low-spending ones spend more) • Common downward trend in PLMP (with exception of ES, FR & PT)

21. Conclusions, II • Incentives Dimension • Convergence on positive and negative non-financial incentives • Persistent diversity on financial incentives, especially with regard to benefit levels and “make work pay strategies”. • (But there are common reductions in the benefit levels for higher incomes and modest attempts to reduce overall taxation on labor) • Overall conclusion: • Historical legacies do matter • Regime typologies becomes less relevant – but not irrelevant –as countries become hybrids • “Social-liberal” reform agendas, recombination of elements of the Nordic and the liberal worlds (from Bismarck to Beveridge) • Contingent neo-convergence

22. Thank you very much for your attention and interest.