OPTIMISING ACTIVATION POLICIES TO INTEGRATE

UNEMPLOYED PEOPLE INTO THE LABOUR MARKET

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ISSUE 08 DECEMBER 2011

* Under UNSCR 1244/1999, hereinafter ‘Kosovo’.

DEFINITION

Activation is a combination of mutually supporting policiesformulated to increase the capabilities and motivation ofunemployed people (registered unemployed) or welfare

benefit recipients who are able to work, to participate inactive labour market measures and to search actively for ajob. The aim of activation is to get job seekers into jobs thatprovide them with an adequate income, thereby helpingthem to avoid poverty and exclusion

High employment rates and incomesecurity are key to economicdevelopment and robust fiscal budgets.They are also important in establishinginclusive labour markets accessible tovulnerable groups.

Increasing employment rates is a targetof Europe 2020, a strategy for smart,sustainable and inclusive growth. Its goalis to increase the employment rate forpeople aged 20 to 64 to 75% by 2020.To achieve this, the EU’s employmentguidelines highlight the importance of‘increasing labour market participation ofwomen and men, reducing structuralunemployment and promoting jobquality’. They also emphasise thatactivation is key to increasing labourmarket participation. Countries should‘step up social dialogue and tackle labourmarket segmentation with measuresaddressing precarious employment,underemployment and undeclared work’(Council of the EU, 2010).

The EU strategy also establishes theframework for candidate countries andpotential EU accession candidates. Thisprocess is supported and funded by the

EU’s Instrument for Pre-AccessionAssistance and has led to a gradualmodernisation of employment policiesand services. Improving activationpolicies is one of the main challengesfacing the Western Balkan countries andTurkey. It is a challenge that calls forcustomised approaches that take specificconditions into account.

Successful activation policies combineobligations and support measures tomotivate and empower unemployedpeople. Support measures includeinformation, counselling and guidance,better placement and referral services,training measures, support for self-employment and other forms of activelabour market measures. Job seekers’rights and responsibilities are clearlydefined and communicated to registeredunemployed individuals; non-complianceis sanctioned by cuts in cash benefits orelimination from the unemploymentregister. Such carrot and stick approacheshave proved to be successful in many EUcountries. However, conditions in theWestern Balkan countries and Turkey aredifferent.

The economic crisis resulting from theglobal financial crisis of 2007/08 led toincreased unemployment rates inCroatia, Montenegro and Serbia, whileAlbania and Turkey managed to reversenegative labour market trends.

Employment rates in the region are farbelow the EU average, with only Croatiacoming relatively close. The primaryreasons for this are low femaleemployment rates (lowest in Kosovo*and Turkey, where less than one quarterof the female working-age population isemployed) and low youth employmentrates. Long-term unemployment is highin many countries. Youth unemploymentis alarmingly high in Kosovo, Bosnia and

Herzegovina, and the former YugoslavRepublic of Macedonia. The labourmarkets are characterised by persistentinformal employment in the form ofundeclared or under-declared labour andvulnerable self-employment. Tailor-madedemand and supply-side measures areneeded to enhance the effects ofactivation

This policy briefing focuses on howto improve activation approaches tointegrate unemployed people intothe labour market. It explores currentpractices applied by publicemployment services, analysesinterrelated factors at play inWestern Balkan countries and Turkeyand concludes with recommendedapproaches for more coherentactivation policies. It addressesprimarily policymakers andpractitioners in the candidatecountries and potential candidatecountries for European Union (EU)accession. It may also be relevant toany country aiming to upgrade itsemployment policies and services.

The findings of this policy briefingare based on the joint workconducted with a community ofpractice on activation, which wasestablished in 2009 within theframework of the European TrainingFoundation’s (ETF) Mutual LearningProgramme. The ETF, together withexperts and practitioners from thepublic employment services inWestern Balkan countries and Turkey,analysed the current activationapproaches and frameworkconditions and elaborated policyoptions to improve activation results

DEMAND-SIDE CHALLENGES

SUPPLY-SIDE CHALLENGES

Factors that affect the demand for labourand the effectiveness of activationpolicies include total labour costs, thelegal and administrative proceduresrelated to hiring workers, irregularemployment practices and possiblesanctions for such practices.

Labour supply relates to the availableskills of the workforce as well as workingconditions, the competitive price oflabour in the informal economy and thealternative, non-work-related financialresources available. Low net wages atthe lower end of the qualification scalecurtail the supply of labour in the formalsector. This contrasts with the availabilityof social benefits combined withinformal employment.

For many people in the region it does notmake financial sense to work in theformal sector if they can accessunemployment-related benefits andwork in the informal economy at thesame time. The irregular payment ofwages and defaulting on social securitycontribution payments is a widespreadpractice and creates a strongdisincentive to work, especially for morehighly qualified individuals in theworkforce.

Relatively high labour costs discourageemployers from hiring and reduce thepotential demand for labour. Cost issuesand administrative procedures can leadto the employment of shadow (informal)workers, a phenomenon that reinforcesthe segmentation of the labour market.Limited sanctions for employers whowork outside the regulatory environmentand employ informal workers and anacceptance of non-compliance withfiscal obligations and labour legislationhelp to sustain the system.

When hiring, employers preferindividuals with relevant workexperience, but discriminate againstolder workers, women and people withlower qualifications.

Managerial skills are also an issue,particularly with regard to deploying and

developing workers in small andmedium-sized enterprises. This may bean impediment to innovation and furtherbusiness development and growth.

As a result of these factors, the level offormal sector vacancies is low, despitethe fact that this is a key condition forsuccessful activation and job placementby public employment services

A number of key challenges face theregion in this regard. The eligibilitycriteria for registering as unemployed arerelatively liberal, but the focus isgenerally on the individual’s status as anunemployed person, rather than as a jobseeker and someone able to work. Thepublic employment services’unemployment registers are structuredin such a way that inactivity andemployment in the informal economymake it very difficult for these servicesto fulfil some of their usual goals andfunctions. Legislation does notdistinguish clearly between employed,unemployed and inactive. Publicemployment services do not alwaysidentify those who are employable andthose who need different kinds of

support measures (Croatia, Serbia andMontenegro are the exceptions). Giventhe limited resources of the publicemployment services and the limitednumber of vacancies, it is difficult toimplement obligations such asmonitoring job search activities orimposing sanctions if job seekers declinejob offers.

In many Western Balkan countries,receiving benefits is contingent uponbeing registered as unemployed – alogical requirement. All countries, withthe exception of Kosovo, offer anunemployment insurance scheme withunemployment cash benefits. However,coverage is limited (only a few of theregistered unemployed receive cashbenefits). Wage replacement rates arelow and the maximum duration of suchschemes is 12 months (with someexceptions for pre-retirement schemes).These factors result in a situation thatoffers little income security andmotivates people to work in the informalsector, even though they are registeredas unemployed. Attempts to legaliselow-waged work and make thiscompatible with the receipt ofunemployment benefits are still at anearly stage.

Unemployed people can avail of manyother social benefits but accessing themis a complex procedure. Many are smalland seemingly insignificant but they doadd up. The institutions granting thebenefits rarely work together. We canconclude from this that the socialsecurity system generally functions byproviding benefits for various purposesthrough multiple institutions. Unlessthese income support measures areredesigned to make work more attractiveand to better target those in need,unemployment levels will remainexcessively high and public employmentservices will remain overloaded withbenefit administration.

All countries offer vocational training andre-training and facilitate the uptake ofvarious basic or generic skills as part oftheir active labour market measures.Even though the measures and numbersof participants have increased over thelast few years, they still fall far short ofwhat is needed. The low skill levels ofthe working-age population, particularlyamong unemployed and inactive people,make activation difficult and expensive.

The public employment services’ staffinglevels and budgets required to ensurereasonable coverage of passive andactive labour market measures areextremely limited

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EFFECTIVE ACTIVATION

Any possibility of effective reform requires an integratedapproach to activation, covering supply and demand issues aswell as support measures and individual obligations. Whilepublic employment services are mainly responsible foractivation measures, they cannot be expected to act alone.Their most obvious partners are relevant ministries, socialpartners, social welfare centres, education and trainingproviders, local authorities and employers.

The limited demand for labour in the formal sector is the mainimpediment to activation. Tackling this is a priority. Economicdevelopment, regional, industrial, fiscal, investment andentrepreneurship development policies need to be reformed tostrengthen competition, increase labour mobility, create avibrant entrepreneurial environment and a stable regulatoryframework, which facilitates enterprise creation, innovation andgrowth.

Apart from establishing a macro-economic environment toencourage job creation, governments must implement longer-term policies to curb the informal economy. As long as onlysome beneficiaries pay insurance premiums, contribution ratesmust be kept high, leading to increased labour costs.Employers who do not pay contributions to the social securitysystem must be sanctioned. Incentives for employers to moveinto more lucrative sectors and making (formal) work pay maymotivate employers and employees to take up formalemployment. Policies to make certain categories of workers,such as new labour market entrants, less expensive to employshould be implemented. Some countries have alreadyintroduced employment incentive schemes to stimulate therecruitment of specific target groups (Croatia and Turkey).

On the supply side, the nature of the current skills of jobseekers poses the biggest challenge to more effectiveactivation. Furthermore, public employment services have toaddress other issues to break the vicious circle of low demandfor labour, limited incentives to take up formal work and longspells of unemployment. These are summarised below.

The public employment services’ registers should remain opento all who wish to find work for whatever reason. However,registration must be restricted to individuals able and willing towork according to the International Labour Organisation (ILO)definition. They should be seen as job seekers rather thanunemployed people. Changes in legislation are needed in someWestern Balkan countries to distinguish between employed,unemployed and inactive individuals. This is the only way tomonitor the activity status of registered unemployed people.

Some countries also need to profile people who register asunemployed. Profiling systems help to identify individualemployability, assess the risk of long-term unemployment andthe level of assistance needed and target the appropriateservices (Weber, 2011). Currently, only Croatia and Montenegrokeep records of who has marketable skills and who needssimple support measures (such as vocational guidance, adviceon how to look for a job, job fairs and activities in job clubs) andwho is hard to place and in need of the most support. Profilingthe unemployed requires sufficient staff capacities.

Those who are registered as unemployed but are actuallyworking in the informal economy should be given the

opportunity to legalise their status. Social welfare or healthinsurance should not be contingent on being registered asunemployed. Positive examples of schemes that separatehealth insurance from the unemployment register can be foundin Croatia and Turkey.

Public employment services need more resources for passiveand active labour market measures. The caseload of staffworking with clients should be reduced. Staff should be movedfrom administrative duties to work directly with clients. Theactivation rate (percentage of registered job seekersparticipating in active employment measures) should beincreased. The effects of active labour market measures shouldbe regularly evaluated and funds should be strategicallydirected to the most effective approaches.

Female employment rates need to be increased. Gendermainstreaming approaches should be applied to ensure thatboth women and men in the working-age population participatepro rata in all measures. This must be combined with targetedapproaches for disadvantaged women (low-skilled women,women with family responsibilities). Support services forspecific vulnerable groups could be outsourced to non-governmental organisations, for example.

In order to improve their reputation as a service provider, publicemployment services should provide better services toemployers. A new approach that considers employers aspartners and customers of the public employment servicescould cover services such as recruitment support (by pre-selecting suitable candidates). Subsidies could be offered forhiring hard-to-place job seekers rather than imposing quotasystems with sanctions for non-compliance. This implies achange of mindset in some employment services providing aservice to employers instead of fulfilling an administrativefunction. The development of a communications and servicestrategy vis-à-vis employers, preferably with specialisedcounsellors for employers could also be envisaged.

Activation approaches should include both obligations andsupport measures. Support measures are needed to increaseemployability and provide basic income security for jobseekers, thus making informal sector income unnecessary.This must be accompanied by more stringent measures totackle informal employment and ensure that job seekers areactively searching and available for work.

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Eligibility and profiling of registeredunemployed people

Public employment services’ resources,capacities and service delivery

ISSUE 08 DECEMBER 2011

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Prepared by Lizzi Feiler, ETF

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REFERENCES

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ISSUE 08 DECEMBER 2011

Skills matching

Conclusion

Labour market training is a cornerstone of active labour marketmeasures adopted by public employment services in all theWestern Balkan countries and Turkey. Training measures needto be more effective and results measured in terms of jobplacement rates. It is essential that training programmesprovide qualifications needed by the labour market. This, inturn, requires that they are implemented in close cooperationwith employers. Skills mismatches can only be reduced if thetraining content is based on a reliable skills needs analysis. Thesystematic screening of economic sectors is needed to identifycrucial occupations and monitor changing skills needs. Trainingproviders should plan their training programmes based onthese analyses and engage in ongoing dialogue with employersand analysts on current and future skills needs (employmentpartnerships, human resource development centres and sectorcouncils).

There is a need for a system that systematically collects andtransfers information from the local to the national labour

market. The employment service is possibly the only institutionthat could set up such a labour market information system forhuman resource needs.

Overall, there is no easy way of making activation approachesmore effective. Activation needs to be embedded in a policymix that tackles informal employment, invests in demand-driven skills, increases the scope and effectiveness of activelabour market measures and modernises social securitysystems. Public employment services in the candidatecountries and potential EU candidate countries can learn fromgood practices and failures in EU countries, but they can learneven more from each other. Mutual learning within theframework of regional and international public employmentservices networks can make an important contribution toimproving activation policies

Council of the European Union, ‘Council Decision of 21 October 2010on guidelines for the employment policies of the Member States’,

, L 308, 24 November 2010.

Crnkovic-Pozaic, S. and Feiler, L. (European Training Foundation),

, ETF working paper, Turin, 2011.

European Commission,

, COM(2007)620 final, Brussels, 2007.

OECD (Organisation for Economic Cooperation and Development),‘Activating the unemployed: what countries do’,

, Paris, 2007.

ÖSB Consulting and Vienna Institute for International EconomicStudies,

, Finalreport for DG Employment, Contract No VC/2010/0028, 2010.

Weber, T., ,Thematic synthesis paper for the European Commission mutuallearning programme for public employment services, May 2011

Official Journal of the European Union

Activating the unemployed: optimising activation policies in the

Western Balkans and Turkey

Modernising social protection for greater

social justice and economic cohesion: taking forward the active

inclusion of people furthest from the labour market

OECD

employment outlook

Developing efficient activation approaches and identifying

elements for regional cooperation in the Western Balkans

Profiling systems for effective labour market integration

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