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Job displacement is a serious earnings risk and the displaced are typically poorly insured
Job displacement is a serious earnings risk to long-tenured workers, both through spells of unemployment and through reduced wages on subsequent jobs. Less developed countries often rely exclusively on government mandated employer-provided severance pay to protect displaced workers. Higher income countries usually rely on public unemployment insurance and mandated severance pay. Beyond these options, more administratively demanding plans have been proposed, including UI savings accounts and “actual loss” wage insurance, though real-world experience on either model is lacking.
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Disability is associated with labor market
disadvantage; evidence points to this being a causal relationship
In Europe, about one in eight people of working
age report having a disability; that is, a long-term limiting health
condition. Despite the introduction of a range of legislative and policy
initiatives designed to eliminate discrimination and facilitate retention of
and entry into work, disability is associated with substantial and enduring
labor market disadvantage in many countries. Identifying the reasons for
this is complex, but critical to determine effective policy solutions that
reduce the extent, and social and economic costs, of disability-related
disadvantage.
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Unemployment insurance can protect against
income loss and create formal employment
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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Key labor market institutions, and the policies
that shape them, affect the restructuring that leads to economic growth
Economic growth requires factor reallocation
across firms and continuous replacement of technologies. Labor market
institutions influence economic dynamism by their impact on the supply of a
key factor, skilled workers to new and expanding firms, and the shedding of
workers from declining and failing firms. Growth-favoring labor market
institutions include portable pension plans and other job tenure rights,
health insurance untied to the current employer, individualized
wage-setting, and public income insurance systems that encourage mobility
and risk-taking in the labor market.
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Wage losses upon re-employment can seriously
harm long-tenured displaced workers if they are not properly insured
Job displacement represents a serious earnings
risk to long-tenured workers through lower re-employment wages, and these
losses may persist for many years. Moreover, this risk is often poorly
insured, although not for a lack of policy interest. To reduce this risk,
most countries mandate scheduled wage insurance (severance pay), although it
is provided only voluntarily in others, including the US. Actual-loss wage
insurance is uncommon, although perceived difficulties may be overplayed.
Both approaches offer the hope of greater consumption smoothing, with
actual-loss plans carrying greater promise, but more uncertainty, of
success.
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Appropriate timing and targeting of activation
programs for the unemployed can help improve their cost-effectiveness
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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Search requirements for the older unemployed
affect their re-employment rates and their flows into states of
inactivity
Many OECD countries have, or have had, a
policy that exempts older unemployed people from the requirement to search
for a job. An aging population and low participation by older workers in the
labor market increasingly put public finances under strain, and spur calls
for policy measures that activate labor force participation by older
workers. Introducing job search requirements for older unemployed workers
aims to increase their re-employment rates. Abolishing the exemption from
job search requirements for the older unemployed has been shown to initiate
higher outflow rates from unemployment for them.
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Selection and incentives in retirement plans
affect job transitions
The relationship between retirement plan type
and job mobility is more complex than typically considered. While
differences in plan features and benefit structure may directly affect
employees’ mobility decisions (“incentive effect”), the type of plan offered
may also affect the types of employees a given employer attracts (“selection
effect”), thereby affecting mobility through a second, indirect channel. At
the same time, some employees may not be able to accurately assess
differences between plan types due to limited financial literacy. These
factors have implications for policymakers and employers considering
retirement plan offerings.
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Temporary government schemes can have a
positive economic effect
Government schemes that compensate workers for
the loss of income while they are on short hours (known as short-time work
compensation schemes) make it easier for employers to temporarily reduce
hours worked so that labor is better matched to output requirements. Because
the employers do not lay off these staff, the schemes help to maintain
permanent employment levels during recessions. However, they can create
inefficiency in the labor market, and might limit labor market access for
freelancers and those looking to work part-time.
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Time-limited benefits may yield significant
welfare gains and help underemployed part-time workers move to full-time
employment
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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