LABOR MARKET

In terms of unemployment, the Danish labor market performed very well prior to the global economic crisis. The unemployment level was below 2%, and the Danish case attracted substantial international attention, with its “flexicurity” focus. The debate has highlighted the country’s flexible hiring and firing rules, as well as the social security ensured for citizens via the country’s generous social safety net. However, these elements were also in place during the 1970s and 1980s when unemployment was persistently high and where Denmark was singled out by international bodies like the OECD as a case not to emulate. The main changes in labor market performance were driven by a sequence of reforms during the 1990s by the social democratic-led coalition government. These changes were introduced with the understanding that it was the country’s right and duty to maintain the social safety net, but that more clear requirements for claimants were needed. Thus the focus shifted from income maintenance to job search and job creation. There are now explicit participation or activation requirements for claimants of both unemployment insurance benefits and social assistance. Moreover, participation in active labor market programs no longer qualified for a period of extended benefits and benefit duration was shortened.
The Danish model has become known as a “flexicurity” model. It is not costly to fire employees; the social welfare state steps in with motivation and training. There is a fair amount of mobility. Youth employment and employment of women are comparatively high in Denmark. The main challenge Denmark faces is getting more immigrants, and to some extent older people, into the job market.
The European Commission has looked favorably at the Danish labor market policy.
With the current economic crisis the model faces challenges, but it will probably be one of the ingredients that will help Denmark pull through.

Germany’s labor market performance has improved considerably in recent years, and has shown strong resilience coupled with surprising stability over the course of the financial crisis. The country’s approach to regulation is very specific. While employment protection is far-reaching for employees with regular contracts, some flexibility exists with respect to fixed-term contracts. Furthermore, the temporary employment sector has expanded quickly, offering a substitute for the lack of dismissal flexibility.
While wage settlements are characterized by collective agreements, there is a growing leeway on the individual firm level to deviate from the collective agreements, particularly if the individual firm is in a weak competitive situation.
To date, the use of minimum wages has been very limited. No overall statutory minimum wage exists. However, in a few specific sectors, minimum wages have been introduced. With some exceptions (e.g., the minimum wage for postal services) the levels of these minimum wages have been moderate enough that no negative effects on the number of jobs materialized.
In the years prior to the current economic crisis, unemployment fell continuously. While this decline in unemployment came to a halt in 2008, the reaction of the German labor market was small compared to many other countries. Despite the dramatic reduction in real GDP at the end of 2008, the unemployment rate did not rise in 2009. Moreover, the number of unemployed individuals began to fall again in 2010, a development standing in sharp and positive contrast to the trends in most other industrial countries.
There are several explanations for this so-called German job miracle. Some of these are demographic, since the number of workers retiring now exceeds the number of young people entering the labor market. Furthermore, this development reflects the far-reaching labor market reforms passed in 2003 and 2004 (the so-called Hartz reforms), which merged the unemployment and social assistance benefit schemes, improved the efficiency of the labor office, liberalized temporary work and included numerous other measures. This reform was only recently stabilized in terms of its legal basis. While the Constitutional Court ruled against the measures’ creation of mixed administration in job centers (ventures cooperatively operated by municipalities and the regional offices of the Federal Employment Agency), government and opposition eventually agreed upon a constitutional amendment in March 2010. Furthermore, non-wage labor costs were reduced to below 40% of gross wages. In addition, some of the adaptability seen during 2009 can be explained by the widespread use of short-time working programs. With this instrument, the Federal Employment Agency subsidizes 60% of the difference between the previous income and the reduced income attributable to curtailed working hours, and 67% of the income difference for employees with children if a company reduces working time for economic reasons. As a result of the financial crisis, the maximum period of short-time working benefit eligibility was extended to 18 months. Additionally, the Federal Employment Agency subsidizes 50% of social security contributions, and 100% starting from the 7th month of short-time work.
Overall, German labor-market institutions have improved considerably through a specific model which is by no means comparable to the Anglo-Saxon hire-and-fire or the Danish flexicurity model. In the course of the crisis, these institutions showed their particular strength relative to the Anglo-Saxon model, under which unemployment rates reacted with high elasticity to the economic slump.
Nevertheless, several shortcomings still exist. Unemployment is still at an unacceptably high level, even if it is now well below the record levels of 2005. A substantial portion of labor costs are connected to the financing of social security systems, an aspect that threatens to become even worse. Furthermore, certain segments of the labor force, particularly workers of low productivity and poor education, are still at high risk of long-term unemployment.

Labor market policy in New Zealand has been relatively successful during recent years, given a comparatively high level of employment. Following the world financial crisis unemployment has risen less than in most OECD countries. This has been achieved by government borrowing, as well as a labor market policy that includes reduced working hours programs, extended transfer payments, and active labor market policies alongside longer-term measures to reduce non-wage labor costs. Nevertheless, areas of concern remain, such as the differentials between urban and non-urban areas, and the unemplyoment rate among the Maori population, which was more than 15% by the end of 2009. Differences in unemployment rates across groups reflect the growing shortage of skilled and professional labor. Government policy responses to these skills shortages have been limited, apart from the use of targeted immigration criteria.

The unemployment rate is low and has remained low through the recent economic crisis, rising by about a percentage point from 2008 to 2009, to between 3% and 4% of the workforce. The aggregate level of employment is high by international standards, due mainly to a high level of labor force participation among women. But also the level of absenteeism (short- and long-term illness and disability) is high, potentially disturbing the validity of unemployment statistics. The country’s labor market policy has traditionally been proactive, with an emphasis on retraining long-term unemployed workers. Unemployment benefits are generous. Employment-protection laws impose restrictions on dismissal procedures. However, layoff costs are small for firms that need to downsize. This guarantees a certain amount of mobility in the labor force. Recent reforms have included the reorganization of the public offices for job applicants. In general there is no minimum-wage policy. In most sectors wage floors are set by negotiations between unions and employers. Indeed, wage setting is dominated by collective agreements, and bargaining is still quite centralized. However, due to increased labor mobility there are more and more sectors of the economy that are now subjected to a kind of minimum salary.
The recent economic literature portrays Norway and Denmark as successful examples of the so-called flexicurity model, combining high labor mobility (flexibility) with high levels of government-provided social insurance (security). However, there has been concern over a propensity to take early retirement, stimulated by early retirement incentives. These are increasingly seen as outdated and unaffordable, and pension reforms are now being implemented after a protracted process, and against some union resistance, with the aim of removing or modifying early retirement incentives and reversing the trend to early retirement.

In the period up until late 2008, Australia experienced strong employment growth and declining unemployment, to a significant extent attributable to the boom in the resources sector. The period of rapid growth faltered in late 2008 and early 2009. Following substantial monetary and fiscal stimulii, and as demand for resources picked up from the emerging economies, employment growth returned in mid-2009. Unlike many other OECD countries, the downturn had a relatively modest impact on unemployment, causing it to rise by less than two percentage points.

Macroeconomic factors have been the primary drivers of Australia’s performance in keeping unemployment rates from growing, but labor market policies have also played roles, both positive and negative, in affecting unemployment and employment. A long-standing concern of many analysts has been constraints on employment growth due to inflexibility and high minimum wages in the labor market, deriving from the industrial relations system. Such a concern has seen a series of reforms over the last two decades attempting to improve flexibility and in general remove encumberances to employment. However, the “Work Choices” reforms implemented in 2006 were regarded by many in the community as undermining employment conditions and wages to an intolerable extent. The incoming Labor government had promised to unwind the Work Choices reforms, and by January 2010 had largely completed implementation of its industrial relations policy. The measures taken by the Labor government retain many of the features of the Work Choices system, including the unified national system, the minimum wage setting function of an independent agency, and the commitment to simplifying the multitude of industrial and occupational “awards.” Major changes from the Work Choices system include the partial restoration of trade union powers, increased restraints on “unfair dismissal,” greater rights of employees to collective bargaining (as opposed to individual agreements), the elimination of “Australian Workplace Agreements” (a specific form of individual agreements that allowed wages to be set below the minimum specified in an award), and provisions for regular (4-yearly) review (including the updating of award pay and conditions). A set of 10 “national employment standards” has also been established. These apply to all employees and cover key conditions such as maximum weekly hours of work, sick and vacation leave entitlements and rights to redundancy pay. The changes in the review period have marginally reduced labor market flexibility and may have mild negative effects on the level of employment, but broadly speaking the industrial relations system remains conducive to employment growth.

Recent changes to labor market policies focused on the supply side of the market have included reforming the decentralized system of job search assistance, a step which has incorporated additional resources for disadvantaged job seekers; the introduction of a “Compact with Youth,” whereby young people are guaranteed a place in an education course; the introduction of employment incentives for persons on the Age Pension; and an increase in the child care subsidy from 30% to 50%. Tight welfare eligibility criteria and mandatory participation in active labor market programs by unemployment benefit recipients have also been preserved. However, high effective marginal tax rates for second earners in households and for many welfare recipients remain negative factors in increasing employment.

A recurring theme of commentary of the Australian labor market in recent years has been so-called skills shortages. One response to the perceived shortages in skilled labor has been to provide more employment incentives for groups of workers, such as is created for women with young children by the increase in the child care subsidy. In practice, however, immigration has remained the primary source of additional skilled labor.

The unemployment rate in Canada is driven by the business cycle, which reflects aggregate demand conditions. Labor market policies and programs such as unemployment insurance and training programs have limited effect on overall unemployment, although these policies and programs are important for income support and the upgrading of skills. In other words, supply-side labor-market policies can never in themselves ensure that unemployment is not a serious threat. The fall in the unemployment rate to 6% in 2008 reflected the high commodity prices and strong demand conditions of the 2003 – 2008 period rather than effective microeconomic labor market policies, although the latter could potentially have played a minor role. Program evaluations would be needed to document this. Equally, the rise in the unemployment rate after 2008 reflected the effects of economic crisis, not a failure of labor market policy. Indeed, the expansion of the federal government work-sharing program during the crisis mitigated the rise in the unemployment rate. Overall, labor market regulation is Canada is relatively light, and there are few labor market rigidities that impede the operation of the labor market. The most important may be regional employment insurance benefits that may somewhat reduce the outflow of labor from high unemployment regions, even though labor mobility in Canada, both inter- and intraprovincial, is high. One possible area of weakness is represented by workplace training. Responsibility for this function has been devolved from the federal government to the provinces, and it is unclear whether all provinces have developed effective policies and programs in this area.

A peculiarity of Swedish politics is that the battle against unemployment is a policy priority shared by all political parties. Swedish labor market policies have traditionally been built on heavy investments in active labor market policies, keeping unemployment rates very low until the crisis of the 1990s. Unemployment then began to grow, hovering at moderate levels until the global financial crisis of 2008, after which open unemployment reached 10%. A prominent contemporary problem is high youth unemployment.
Once highly regulated, the Swedish labor market has undergone some deregulation since the 1990s. Nevertheless, powerful trade unions continue to defend specific labor market regulations and have vehemently criticized European deregulation measures. Swedish employers’ organizations, however, support further deregulation and greater flexibility in negotiating conflicts. During the period under review, wage negotiations conducted rather smoothly, but the ambitious attempt to renegotiate the Swedish model of labor market rules (Saltsjöbadsavtalet) failed because of diverging goals between labor and capital.
During the economic crisis, the center-right government increased spending on active labor market policies and education measures. However, open unemployment continued to increase significantly, and youth unemployment in particular remained unaffected. However, Swedish active labor market policies are expected to reduce long-term unemployment numbers efficiently.
The center-right government also took highly controversial steps to remove the state fiscally from (voluntary) unemployment schemes. As a result, membership fees have shot up since 2007, compelling many Swedes to opt out of these unemployment insurance plans and thereby annul their membership in the trade unions administering the plans. Sweden now has a significant number of unemployed without unemployment insurance. During the crisis, the government increased public transfers to unemployment insurance schemes, but the government did not install old rules.

The major problems and achievements of Switzerland’s labor market policies have been described above (see also Economic Policy). Although the “golden age” of unemployment containment is past, the achievements of Swiss labor market policy are still remarkable. In the last quarter of 2009 (Source: OECD website), the harmonized unemployment rate remained half or even less of the unemployment rates of neighboring Germany, France and Italy. The one percentage point increase in the unemployment rate between 2007 (before the recent global crisis) and the last quarter of 2009 was much less than that seen in France and Italy. Even in comparison with Austria, Switzerland performs well: Austria’s unemployment rate in late 2009 was higher than Switzerland’s, although the increase during the crisis period was more pronounced in Switzerland than in Austria, as the latter showed only a 0.5 percentage point increase.

The Austrian labor market is characterized by deepening gaps between different segments. There is a significant difference between a large, well-performing core of the labor force and some of the more vulnerable groups with lower employment rates. There is also a major gap between the “privileged sector” (i.e., more or less the public sector), which enjoys a high degree of job security, and the non-privileged sector, which has to bear the burden of unemployment.
Another troubling issue is the very low number of persons aged 50+ actively participating in the labor market. Although the official age for pension-entitlement has been raised, recent reforms have once more delayed the envisaged reduction of early retirees. Furthermore, foreign labor (legal or illegal) provides the least protected and least paid labor force, representing a kind of underclass. The gap between skilled prime age and (often unskilled) older workers is affecting the labor market through different channels. Vulnerable workers are generally the first ones to face unemployment when activity falls. The pursued transition to a higher national minimum wage and full liberalization of the movement of workers from Central and Eastern European countries (by 2011) will undermine the demand for unskilled laborers in Austria’s current labor force.
Austria’s labor market policy is struggling hard to overcome those deepening gaps. A wide range of incentives for potential employers have recently been introduced. In order to improve the skills of vulnerable workers, however, more attention has to be paid to policy tools such as lifelong learning, active labor market policies and improving education. Nevertheless, unemployment in Austria is, in international comparison, relatively low. Due to a significant proportion of part-time work arrangements, mostly accumulated during the crisis of 2008-2009, even under prospects of an economic upturn, current unemployment figures will remain at their present levels for the months and possibly years to come.

Labor market policy in Finland has been only partially successful in implementing strategies against unemployment. The achievements in terms of, for instance, long-term unemployment, low-skilled unemployment, youth employment and elderly employment are satisfactory, but far from excellent. This is due to several interrelated factors. Finland is a large but sparsely populated country, and geography therefore becomes an obstacle to the smooth mobility of the labor force. Also, globalization has turned into a threat against labor market strategies, as companies out of cost-related considerations are moving their production facilities to an increasing extent outside the country, contributing to unemployment and weakening job security. Concerning labor market regulations, a system of minimum wages and collective agreements are operating, but more attention should be given to matters of dismissal protection. In many sectors, temporary work contracts make it difficult for employees to plan and organize their careers and lives. In the current assessment period, the government has among other things set off an amendment of a program on wage subventions for employing unemployed persons under the age of 25. Furthermore, a strategy for more flexicurity in the labor market was implemented in June 2009 and a development strategy for the creative economy was set up in October 2008.

Consecutive Japanese governments have been able to keep unemployment at tolerable levels. While there were many concerns earlier in the decade about rising unemployment for the young and for elderly people, unemployment rates even for those groups have stayed comparatively low. Hidden unemployment is rising, though, and it remains to be seen whether layoffs will ultimately increase more visibly. Societal concerns have shifted to the issue of the rise in non-regular employment. According to the OECD, one in three workers aged 15 to 24 was employed in non-regular work by 2007. Overall, the share of non-regular jobs increased from 16% in 1985 to more than one third of the total in 2008.

The LDP-led government under Aso answered the challenge of the global financial crisis through major stimulus programs, which compared favorably with significantly smaller programs in several other leading western economies. This helped significantly in keeping unemployment rates stable. Moreover, portions of the anticrisis program were used to support labor-market policies. The new DPJ-led government has promised to support weaker members of society such as the disadvantaged non-regular employees. In one major measure, the government introduced a bill in March 2010 that would limit the use of temporary employment. While this serves the political clientele of the ruling coalition, the economic consequences are doubtful at best. It is discouraging that the government seems to be more determined with respect to distributional issues than in laying the groundwork for an improvement in the quality of labor use, as suggested by the OECD.

Unemployment, at 5.7% on average, is quite unevenly distributed. The Netherlands’ youth employment of 5.6%, the long-term unemployment rate of 1%, and the low-skilled unemployment rate of 4% are all very low. However, the unemployment rate of older individuals (55-64 years) remains high at 50.7%.
The Netherlands’ tradition of wage moderation dates back to the Wassenaar agreement, which was reached during a period of economic stagnation in 1982 by employer organizations and trade unions. This policy has led to a relatively low level of unemployment in the Netherlands and is currently very relevant following the consequences of the economic crisis. Benefits in the event of job loss are relatively high and set at 70% of an individual’s last-earned income. This percentage guarantees a certain level of income security.

The participation rate in the labor market is relatively high. In 2008, this included 83.2% of men and 71.1% of women. Participation by women, older employees and immigrants has been growing. Recently, the government implemented policy instruments to improve work and care for mothers. In 2008, the cabinet submitted a long-term childcare plan to the Lower House. Additionally a taskforce for part-time employees was initiated. Restrictions for seasonal foreign workers were loosened.

A high pay gap is usually characteristic of a labor market in which a significant proportion of women work part-time, as is the case in the Netherlands (75.3% of part-time workers are females).
Another fact that is detrimental to the very favorable rating of Dutch labor market policy is the relatively high proportion of economically inactive people in the Netherlands (4% in 2009) and especially those in disability benefit programs.

The performance of the UK labor market remained remarkably good and stable for more than a decade after the mid-1990s. The rate of unemployment was below that of the euro zone and even below the OECD average. In the light of the substantial levels of immigration into the UK labor market from EU accession countries, this was a particularly impressive performance. A closer look into labor market statistics, however, reveals a high degree of working age inactivity due to a sharp increase in the rate at which disability-related benefits are being claimed (the rate of which is now among the highest in the OECD). Some 2.5 million people claiming incapacity benefits are not on the labor market.
Since 2007, the financial crisis has hit the labor market particularly severely. Although the government massively increased general public expenditure, as well as supporting unemployed people with an additional £1.3 billion to help them find new jobs, the unemployment rate increased from 5.2% in the first quarter of 2008 to 7.1% in March 2009. The latest (spring 2010) forecasts for unemployment from Eurostat are for an actual figure of 7.6% in 2009, rising marginally to 7.8% in 2010, then declining to 7.4% in 2011. Yet a surprise is that unemployment and labor-force inactivity have risen rather less than many commentators expected, and indeed appear to have stabilized. A possible explanation is that the framework for labor market and employment policy established over the previous decade proved to be both flexible and resilient, while targeted initiatives introduced from the autumn of 2008 attenuated the deterioration in employment.

Especially when compared its European partner countries, the United Kingdom’s labor market performance now has to be assessed far more critically than would have been the case five or 10 years ago, particularly with a view to the chances of improving performance in years to come. Whether the resilience so far exhibited by the labor market will continue is uncertain, and it may be that the expiration of temporary anti-crisis measures will mean that employment growth will be slow to appear. However, the current combination of activation and welfare policies has performed comparatively well in an obviously difficult time.

Unemployment rates are starkly different across regions and cities. Flanders has been very successful at maintaining high employment rates during the last decade, whereas some large sub-regions in Wallonia, especially in Liège and Hainaut which suffer from a declining industrial sector, show very high unemployment rates (up to 25% in some areas). By contrast, other sub-regions in Wallonia (along the north-south corridor between Brussels and Luxembourg) perform much better and display a more dynamic and diversified (including high-tech and tertiary industry) economic environment.
The economic crisis is likely to deepen these discrepancies in the middle-term. The reason is that deindustrialization will most likely accelerate and the cities with high unemployment are precisely those that still depend on industrial activity. The crisis has also had strong negative effects in some parts of Flanders (for example, around Antwerp) which rely on large industrial plants operated by multinational companies (such as the automobile industry) which tend to relocate because of the high labor costs.
Social tensions are likely to prevent aggressive active labor market policies in these areas, which do not attract sufficient investment due to the lack of appropriate human capital. Yet, the short-term responses in unemployment rates displayed opposite patterns, with employment losses being relatively less sharp in Wallonia, partly due to the larger share of state employment. Belgium also suffers from low employment rates, in part because of early retirement and high youth unemployment.

By international comparison, Chile (like most of Latin America) has very wide-ranging and restrictive labor market laws and regulations, at least on paper. Excessive regulation of job content, firing restrictions, and flexible and part-time contracts creates disincentives to formal-sector employment. Minimum wages are high relative to average wages (in comparison to other OECD countries) and are therefore likely to contribute to overall and youth unemployment, as well as the level of economic activity taking place in the informal sector. Chile has a relatively high level of structural unemployment (8%, according to central bank studies) and informal economic activity is a relatively high proportion of the whole compared to the OECD average (though it is the lowest such level in Latin America). Despite diminishing productivity, comparatively high wage levels have been established, with wage increases running ahead of inflation. That said, 70% to 80% of salary earners work in a low-wage sector. Issues that would increase the flexibility of the labor market, such as greater integration of groups such as women or low skilled workers, have largely been ignored. Trade unions are on average relatively weak, with a large variance in strength ranging from very high (in state enterprises and the central government) to very low (in informal enterprises and state-owned enterprises), with factors influencing this divide ranging from inadequate legislation or enforcement to the prevalence of informality. As a result of excessively rigid labor laws and regulations, job turnover is relatively high.

The unemployment rate increased during the economic crisis, but has stayed below the EU-27 average. However, about half of the jobless are long-term unemployed, and there are substantial regional variations. Whereas unemployment is high in some regions, others suffer from labor shortages. As a reaction to the economic crisis, labor market policy has been expanded, with part of the resources made available through European Social Fund projects. Labor market policy has focused on providing subsidized employment or training to those who are unemployed or whose jobs are under threat. The success of these projects has been limited. Czech employees, especially the older ones, are still rather unused to lifelong learning. Results through mid-2010 also suggest that employers have not been taking advantage of all available resources.

The center-right government has promoted some policies that increase the flexibility of labor contracts. In addition, in agreement with two of the three largest trade unions (CISL and UIL) and with the employers’ association, it has encouraged the introduction of less rigid contractual agreements that would give greater freedom to local enterprises in setting salaries. In combating the effects of the crisis, the government has also increased the resources devoted to salary integration programs (the so-called cassa integrazione), which temporarily partially or fully subsidize the salaries of workers kept idle by private companies, thus encouraging firms to avoid dismissing employees. Overall, these various mechanisms have enabled Italy to contain increases in unemployment during the crisis. However, labor policies have on the contrary had little success in significantly changing the overall conditions of the labor market, and in particular in increasing the relatively low proportion of people actually at work.
It is doubtful whether it is the government’s labor market policy which brought down unemployment. As there are only minimal welfare state benefits, there is no choice for most Italians: Either they work or they do not have resources to survive. In recent years, the labor market became much more flexible with new forms of employment (short-term employees) or self-employment (partita IVA) becoming more common. Italians are well used to mobility: Immigration abroad or to Northern Italy is a strong phenomenon. But it reflects not just a highly mobile workforce, but also – even after 150 years of national unity – the failure of economic, structural and labor market policy to create enough jobs in southern Italy.
Protection against dismissal is very strong in Italy, but is of course active only for the old, classic and “typical” forms of employment. Collective agreements persist, but in a very fragmented landscape of trade unions and small industrial sectors.

Even if unemployment has increased considerably in the past few years, despite the economic crisis unemployment numbers have seemed to have leveled off in recent months. The official, seasonally adjusted unemployment rate stood at 5.9% in February 2010 and still remains low when compared to other European countries. Job security is also relatively high as Luxembourg remains – thanks to a labor law that is very strict on this point – the country with the highest rate of permanent employment contracts in the European Union (95%).
As Luxembourg’s economy far exceeds its demographic resources – native and immigrant alike – it is largely dependent on a non-resident workforce, the so-called transborder commuters. Since summer 2009, the total number of people in the workforce has stabilized after more than two decades of rapid growth. This has led to a decline in the relative proportion of transborder commuters in the workforce.
In the current atypical situation of manpower shortage, achieving full employment remains one of the stated goals of the government. It aims to achieve this through a series of proactive measures: to reform the public employment agency; to press companies to first attempt to fill vacancies from within the national labor market through the public employment agency; to create subsidies for job creation, particularly if said jobs benefit young unskilled workers, older people (50+) or women wanting to re-enter the workforce after starting a family. These actions however only have had a very limited impact on more general sources of unemployment. These include the serious shortage of highly skilled labor, or more generally speaking, the inadequacy of educational qualifications with the requirements of the labor market. The very generous unemployment and social security benefits, as well as a high guaranteed minimum wage, lead to a high reservation wage level.

The Tusk government has expanded active labor market policy. Compared to the previous government, it has emphasized more strongly activation measures and the promotion of self-employment, and it has drawn more strongly on EU funds. Moreover, it has limited the scope for early retirement. The government’s policies have shown some positive effects. The predicted collapse of the labor market in the wake of the economic crisis did not materialize, the number of long-term unemployed has fallen, the number of self-employed has risen and the labor market participation of older workers has increased slightly. Still, however, the overall employment rate is among the lowest in the OECD and regional disparities in (un)employment are large.

Labor market policies have successfully kept the unemployment rate at about half the OECD average. The jobless rate reached 4% in mid-2009, up one percentage point from a year earlier. The increase in unemployment was also lower during the global economic crisis than in most other OECD countries. Youth unemployment remains relatively high at 8.5%.
This comparatively good performance can be attributed to the effects of the largest fiscal stimulus package in the OECD, the county’s export competitiveness due to massive currency devaluation, and corporatist arrangements that traded wage restraints for job security.
On the other hand, labor market policies have been less successful in preventing the proliferation of precarious working conditions and irregular employment. This problem is particularly severe for young college graduates, who have been dubbed the “88 generation” because they cannot get regular jobs, and their first irregular job or internship typically pays about 880,000 won (approximately $800 dollars) a month. The government actively supports an internship program for college graduates, but it is doubtful whether these internships can open a path to regular employment. The rate of work-related accidents in Korea is also among the highest in the OECD, pointing to lax enforcement of security standards by the government.
The overall employment rate in Korea also remains below the OECD average, due to low levels of employment among women and the lack of effectiveness of government measures designed to address this problem.

The U.S. continues to have one of the least regulated and least unionized labor markets, with union membership having declined in recent years to constitute only about 13% of the labor force. However, the Obama administration may try to tilt the balance somewhat towards more regulation and union rights. The stimulus program, enacted in February 2009, increased the level and duration of unemployment benefits. In addition, the earned-income tax credit was increased. However, all these measures could only ease the unemployment situation. Unemployment remains stubbornly high, at 9.7% in March 2010. There has been a silver-lining, namely that non-farm payroll employment has increased by 570,000 jobs in the first two months of 2010, mostly in health care and government. Most worrisome is the doubling of long-term unemployment (i.e., those unemployed for more than six months) from 3.2 million in March 2009 to 6.5 million in March 2010. In that month, 44% of all unemployed were in that status for more than half a year and are thus classified as long-term unemployed. Unemployment rates among young workers have also reached unprecedented levels of near 20% in April 2010 – the highest rate recorded since 1947. The labor market problems are mostly due to severe permanent job cuts in the real estate, construction and financial sectors, which were the backbone of the U.S. economic model. In short, it is a post-real-estate bubble phenomenon. There are no quick fixes, but the numbers state that the United States is having a long-term unemployment problem similar to European proportions. Most experts reckon that it will take a prolonged upturn to rectify the situation. Basically, there has been little private job creation during the period under review. Most new jobs were due to the stimulus program. There is very little fiscal leeway for public employment programs. As a matter of fact, public employment in state and local governments continues to be under pressure.

Despite high overall spending and an impressive number of measures, labor market policy has shown rather poor results. Special problems concern youth unemployment, which is notoriously high in France; the employment rate of workers past the age of 55, one of the lowest in the OECD (38% compared to the OECD average of 51.5%); and the difficulties of (especially young) French citizens with a migrant background to integrate into the labor market.
The reasons for such failure are many and complex. The French job-training system relies heavily on public schools, yet diplomas from such training are not really accepted in the industry at large, which hinders a potential worker’s transition from school to a job. As for senior workers, a retirement age set at 60 and various early retirement schemes have led to the present situation. Heavy labor market regulation is another issue. All successive governments have added new layers of regulations and employment programs, with the result of creating a costly, highly complex system. According to the OECD index on employment protection, the French labor market is one of the most strictly regulated in the OECD.
The new government under Prime Minister François Fillon (since 2007) set out with the promise to break with old policies. Putting forward the value of work and individual effort alongside workfare arguments (“work more to gain more”), it promised to render the labor market more flexible, reduce regulations and improve incentives for jobless citizens to actively seek employment. Three years later, only few reforms have been realized. Public employment services have been reorganized by the creation of a unified labor service center, destined to have a more “activating” policy toward recipients of unemployment benefits. A special social benefit was created which offers complementary benefits to the unemployed who return to (often badly paid) work. As for the abolishment of the 35-hour work week, which played a major role in Nicolas Sarkozy’s 2007 presidential campaign, the new regulation does not really affect the law of former Prime Minister Lionel Jospin. A 35-hour week is still in effect, but the government added new freedoms to work longer, with heavy (and highly expensive) incentives, such as tax-free surplus wages for hours worked above 35 and discounts in social security taxes paid by the employer. Finally, the president has abandoned the promise to simplify or soften labor market regulations.

The Gyurcsány and the Bajnai government refined and expanded active labor market policy. The main instrument was the Road to Work (Út a munkához) project. Introduced in December 2008, it aimed at expanding employment opportunities in the public sector for the unemployed. The Bajnai government tried to stabilize employment in times of crisis by subsidizing businesses for the purpose of creating or keeping existing jobs. The reliance on labor market policy was facilitated by EU funds, but suffered from tight fiscal constraints. The overall effect of labor market policy on employment was limited. The Hungarian employment rate is still among the lowest in the EU, and the readiness of Hungarians to move inside or outside the country for a job is relatively limited as well.

To the extent that a labor market policy has been followed in Iceland, it has generally been successful. Unemployment has been very low for many decades, with few exceptions. At the end of 2007, the unemployment rate was just below 1% of the labor force, which by international comparison is very low. Things changed dramatically in the autumn of 2008 as a result of the economic collapse, the bankruptcy of the three biggest banks and a dramatic deterioration in the government’s fiscal situation. The unemployment rate rose to 8% in 2009 and 10% in 2010, a startling increase in Iceland even if these numbers are not high by European standards. The IMF expects the unemployment rate to decrease to 3% by 2014. If this turns out to be the case, this will be the longest spell of significant unemployment in the history of the republic. A new reality now faces the Icelanders. Earlier, the government was in the habit of keeping unemployment at bay through lax fiscal and monetary policies that caused high levels of inflation. Further, during the pre-bust boom period, the overheating of the economy exacerbated the underlying problems. Regionally driven policy motivated infrastructural investments such as the construction of the Kárahnjúkar power plant in the eastern part of Iceland, followed by a large aluminum smelter in nearby Reyðarfjörður, the funding of which contributed to the overheated economy.

The most important problem in Mexico’s labor economy is the differentiation of the labor market into so-called formal and informal sectors. The second category consists of companies that are not legally registered for taxation or national insurance, and largely escape both the advantages and disadvantages of legal regulation. By OECD standards, the size of the informal sector is quite large. Mexican labor law is still based on Article 123 of the constitution, as well as the1931 labor law. The law is corporatist in inspiration, and in some important respects anachronistic given Mexico’s past of corporatist authoritarianism and its more market-oriented present. The problem is that the legal framework is highly prescriptive in some irrelevant ways, while procedures are slow and bureaucratic and capable of being undermined – for example, by employers’ establishment of company-based unions. Moreover, the law offers benefits only to workers in a part of the formal sector, a minority of the workforce as a whole. It also strengthens union membership (at least on paper) via its closed-shop provisions. In principle, recognized unions can effectively dismiss workers by taking away their union card. This does not happen often, but is still a legacy of the corporatist ancien regime. The overall effect of this situation is to raise employers’ cost of doing business without necessarily protecting the rights of workers. For example, an employer – including the government – can simply declare an enterprise bankrupt, dismiss the employees and resume operations with a different and smaller workforce. Something of the kind happened with Mexico’s Light and Power company in 2008. Suggestions that NAFTA regulations might be adapted to offer more protections to labor have so far come to nothing. President Calderón recently promised to propose a new labor law aimed at increasing the flexibility of employment practices, making it easier to set up new businesses and integrate the informal sector of the economy more closely with formal firms. However, there remains the problem that the government is in a minority in the National Congress, and opposition parties are likely to try to block the reform.

The anemic growth highlighted in this report has inevitably had effects in other dimensions of the economy, perhaps most notably on the labor market. The unemployment rate has almost trebled in the past decade, rising from 4% in 2000 to 10.5% in January 2010, a level that is 0.6 percentage points above the EU-15 average. The recession of the 2008 – 2010 period trickled through to further job losses, with unemployment rising by more than three percentage points between the second trimester of 2008 and January 2010. Labor laws were changed in 2009, partially liberalizing the employment sector. In early 2010, the government created the Employment Initiative, 2010 (Iniciativa Emprego, 2010) program, attempting to stimulate employment by reducing or eliminating employer social security contributions for new hires who are more than 40 years old. However, policies have lagged well behind the needs of the labor market, with little discernible impact in slowing down a galloping unemployment trend.

The unemployment rate rose from a “full employment” level of 4.5% at the beginning of 2007 to a crisis level of 13.5% early in 2010. Labor market policies have not been successful in averting a steep rise in unemployment.
The flexibility of the Irish labor market has made it relatively easy for employers to reduce their labor force.
The main unemployment insurance schemes are preoccupied with coping with the increased volume of claims, and play little role in active job placement and training. It is recognized that in certain situations the unemployed have little incentive to accept any job offers that might become available, due to the fact that their social welfare entitlements are high relative to potential take-home pay associated with employment. This is a common complaint during times of economic crisis, when there are downward pressures on wages and the tax burden is increasing, and the unrecorded or “black” economy becomes more significant.
Ireland’s national training and employment agency, FÁS, has been the subject of much critical scrutiny over the past two years. In November 2008, the agency’s director general resigned amid public controversy concerning overspending on expenses and travel. In January 2010 the Comptroller and Auditor General published a report into FÁS internal oversight and governance covering the period from 2002 to 2008. The examination found that failure to fully implement elements of the agency’s oversight plan exposed FÁS to the risk of losses, as well as to the risk of expending resources inefficiently. A risk-management system adopted by the FÁS board in 2005 did not function effectively. There were breaches of internal procurement and payment procedures, and key units failed to detect or react appropriately to this noncompliance. It was found that monitoring visits to external training providers were not as frequent as envisaged under FÁS’s own procedures, program output was not recorded in terms of results such as persons achieving certification, and there was no evaluation of the extent to which the program’s training objectives were achieved.

Unlike its predecessor, the Fico government put the emphasis on active labor market policy rather on increasing labor market flexibility. It increased the minimum wage several times, with a view to protecting the most vulnerable groups. The Slovakia 21 Modernization Program, approved by the Government in June 2008, included an expansion of employment opportunities for the long-term unemployed. Further measures were adopted as part of the response to the economic crisis. However, the government failed to address the high tax wedge on labor caused by high social security contributions. By and large, the effects of the government’s labor market policy have been modest. The measures failed to prevent a strong increase in unemployment in the wake of the economic crisis, to reduce the high rates of long-term unemployment and to bring down the sharp regional imbalances in (un)employment.

Successive Greek governments since the early 1990s have struggled to implement greater labor market flexibility. Such attempts, and related efforts to create active labor market policies (ALM), have largely been prompted by EU-level commitments (e.g., the Lisbon 2000 Agenda). Thus, this is a policy area that displays both low domestic reform capacity and the problem of non-implementation in a practical sense, or the limits to “Europeanization.”
Labor market policies are still much more passive than active. ALM policy measures have not been implemented, or have met with the indifference of the labor force. For instance, only 3.5% of eligible Greek workers have participated in any kind of nonformal job-related education and training program.
The labor market shows a Janus-type character. Workers in the public sector and the in the largest private enterprises are well protected from dismissal, and have a loud union voice. It is particularly difficult for employers to implement large-scale layoffs, as regulations in this area are strict. By contrast, few relevant regulations are adhered to in practice in the very large numbers of micro- and small-sized enterprises in the urban centers where young and/or underemployed Greeks find precarious work, or in the agricultural sector where many migrants are employed. The Greek economy is marked by a very flat pyramid, with few large companies and a very high number of very small enterprises. This shapes the relationship between the state and the differentiated markets.
Minimum salaries and wages are set every two years through nationwide collective agreements by representatives of employers and employees. However, in the large underground economy – estimated as the equivalent of at least 25% of GDP – an unknown but probably large number of unskilled migrant workers and skilled Greek employees work for less than the minimum wage.
In general, labor market policy has been rather unsuccessful in combating unemployment. This rate was over 11% in April 2010, up from 7.7% in 2008. The rate of youth unemployment is double the national average, and about half of all unemployed have been without work for more than 12 months.
To conclude, ALM policies have been the subject of legislation, but are rarely applied. Labor rigidity, while present in some sectors of the economy (state-owned enterprises, large private businesses), is completely unknown and irrelevant in the case of small and medium-sized enterprises and farms, where workers and employees receive little protection from labor law regulations. There is a long-term, rising problem of structural unemployment affecting the young in particular, leading to growing fears of social exclusion and conflict.

According to official data, unemployment has doubled in the last two years, strongly hitting workers in low-skill occupations, particularly immigrants, women and young people. Unemployment rose to more than 4 million people in February 2010, with a rate of 19.4%, nearly twice the euro zone average. On the other hand, a severe mismatch exists between workers’ qualifications and job availability, with many highly skilled employees not making adequate use of their expertise and capabilities. The debate on labor market reform has focused on two primary issues: the inflexibility of employment regulations (particularly concerning layoffs), and the existence of a dual labor market in which some 35% of the workforce serves under temporary contracts and has no job protection, in contrast to the other highly protected 65%. This arrangement has held down both wages and permanent employment.
In 2009, the government put considerable effort into negotiating a social pact with trade unions and employers. Thus, the Agreement for Employment and Collective Bargaining 2010 – 2012 was signed in February 2010, featuring moderation in salary increases and limits to the use of temporary employment (although by spring 2010, this agreement could be viewed as having been superseded, since the government unilaterally decided to launch a much more radical labor market reform). Over the same time period, the Spanish government adopted a package of measures aimed at encouraging transition to employment, increasing geographical mobility and shortening periods of unemployment. These include the Extraordinary Plan for Orientation, Vocational Training and Labor Insertion; the Local Investment Fund; and Plan E’s Special Fund for Employment and Economic Reactivation, which was budgeted at €11 billion and was expected to result in the creation of 300,000 new jobs across the country. Most direct job-creation measures have taken place in the public and private construction sector; however, this risks reinforcing the roots of the crisis, while offsetting the moderate level of funding directed to alternative economic sectors that might better contribute to reform of the Spanish growth model. Initiatives aimed at reorganizing active employment policies have also been put in place, as well as incentives designed to smooth the transition from unemployment to part-time or self-employment. All in all, there are problems of intergovernmental coordination in this crucial field, with the central government retaining responsibility for financing unemployment benefits, while the autonomous regions run job placement services.

While the mid-year population of Turkey was 71.1 million people in 2008 and 71.9 million people in 2009, the working-age population (15+) was 50.8 million and 51.7 million in these years. With the onset of the global financial crisis, households faced an actual reduction or the risk of a reduction in their family income. As a result, persons who were previously out of the labor force started seeking jobs, and the labor force participation rate thus increased from 46.9% in 2008 to 47.9% in 2009. Total employment, which amounted to 21.2 million people in 2008, increased by 83 thousand to 21.3 million people in 2009. While employment during the same period respectively increased in agriculture and services by 224,000 and 221,000 people, industrial employment fell by 362,000 people. Simultaneously, the number of unemployed increased from 2.6 million in 2008 to 3.5 million in 2009, the unemployment rate in the economy increased from 11% in 2008 to 14% in 2009, and the unemployment rate in the non-agricultural sector increased from 13.6% in 2008 to 17.4% in 2009.
Unemployment insurance was introduced in June 2006, but due to an array of bureaucratic conditions, the number of beneficiaries was just 314,000 in August 2009, despite the roughly 3.5 million individuals unemployed in that year.
Although more women have begun to look for jobs or to participate in the labor force recently, the female labor force participation rate is still much lower than that of men, both in rural and urban areas. Furthermore, a major characteristic of the Turkish labor market is the relatively high share of informal employment in the economy. According to the Household Labor Force Survey figures, the share of the informal sector in the economy increased from 41.3% in March 2009 to 42.1% in March 2010, while the corresponding shares in the agricultural sector were 84.5% and 85.1% respectively.
In response to the global crisis, the government introduced a new package of labor-related measures directed at companies, employees and retired people. Eligibility for “short-term employment compensation” implemented through the Unemployment Fund was extended from three to six months, and the total amount of the related compensation was increased by 50%. Furthermore, starting from April 2009, the government has been subsidizing additional employment by firms. For these workers, the employers’ contribution to minimum wages was covered by the government for a period of six months.
According to Law No. 5763, which became effective in 2008, all the unemployed registered with Turkish Employment Agency (İŞKUR) can benefit from advice, labor force adaptation measures, job placement services, vocational training and temporary community employment programs.