IZA World of Labor
key topic

Fighting long-term unemployment

Long-term unemployment refers to those people who are out of work and have been actively seeking employment for at least 12 months. Unemployment can have adverse effects on the economy and on the well-being and life satisfaction of those who are out of work. But, what factors prolong unemployment? And, which measures help shorten unemployment spells and enable people to find more stable jobs that better match their skills and qualifications?

  • Does unemployment insurance offer incentives to take jobs in the formal sector?

    Unemployment insurance can protect against income loss and create formal employment

    Mariano Bosch, October 2016
    Unemployment insurance can be an efficient tool to provide protection for workers against unemployment and foster formal job creation in developing countries. How much workers value this protection and to what extent it allows a more efficient job search are two key parameters that determine its effectiveness. However, evidence shows that important challenges remain in the introduction and expansion of unemployment insurance in developing countries. These challenges range from achieving coverage in countries with high informality, financing the scheme without further distorting the labor market, and ensuring progressive redistribution.
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  • How to minimize lock-in effects of programs for unemployed workers

    Appropriate timing and targeting of activation programs for the unemployed can help improve their cost-effectiveness

    Conny Wunsch, September 2016
    Activation programs, such as job search assistance, training, or work experience programs for unemployed workers, typically initially produce negative employment effects. These so-called “lock-in effects” occur because participants spend less time and effort on job search activities than non-participants. Lock-in effects need to be offset by sufficiently large post-participation employment or earnings for the programs to be cost-effective. They represent key indirect costs that are often more important than direct program costs. The right timing and targeting of these programs can improve their cost-effectiveness by reducing lock-in effects.
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  • Public or private job placement services—Are private ones more effective?

    Analyzed public employment agencies were at least equally as successful as private ones in placing unemployed workers

    Gesine Stephan, August 2016
    Expenditures on job placement and related services make up a substantial share of many countries’ GDP. Contracting out to private providers is often proposed as a more efficient alternative to the state provision of placement services. However, the responsible state agency has to design and monitor sufficiently complete contracts to ensure that the private contractors deliver the desired quality of services. None of the recent empirical evidence indicates that contracting out is necessarily more effective or more efficient than public employment services.
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  • The dynamics of training programs for the unemployed

    Job-search training and occupational skills training are both effective

    Time plays an important role in both the design and interpretation of evaluation studies of training programs. While the start and duration of a training program are closely linked to the evolution of job opportunities, the impact of training programs in the short and longer term changes over time. Neglecting these “dynamics” could lead to an unduly negative assessment of the effects of certain training schemes. Therefore, a better understanding of the dynamic relationship between different types of training and their respective labor market outcomes is essential for a better design and interpretation of evaluation studies.
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  • Should unemployment insurance cover partial unemployment?

    Time-limited benefits may yield significant welfare gains and help underemployed part-time workers move to full-time employment

    Susanne Ek Spector, October 2015
    A considerable share of the labor force consists of underemployed part-time workers: employed workers who, for various reasons, are unable to work as much as they would like to. Offering unemployment benefits to part-time unemployed workers is controversial. On the one hand, such benefits can strengthen incentives to take a part-time job rather than remain fully unemployed, thus raising the probability of obtaining at least some employment. On the other hand, these benefits weaken incentives for part-time workers to look for full-time employment. It is also difficult to distinguish people who work part-time by choice from those who do so involuntarily.
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  • Tuning unemployment insurance to the business cycle

    Unemployment insurance generosity should be greater when unemployment is high—and vice versa

    High unemployment and its social and economic consequences have lent urgency to the question of how to improve unemployment insurance in bad times without jeopardizing incentives to work or public finances in the medium term. A possible solution is a rule-based system that improves the generosity of unemployment insurance (replacement rate, benefit duration, eligibility conditions) when unemployment is high and reduces the generosity when it is low.
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