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Hiring subsidies can be a very cost-effective
way of helping the unemployed, but only when they are carefully targeted
Long-term unemployment can lead to skill
attrition and have detrimental effects on future employment prospects,
particularly following periods of economic crises when employment growth is
slow and cannot accommodate high levels of unemployment. Addressing this
problem requires the use of active labor market policies targeted at the
unemployed. In this context, hiring subsidies can provide temporary
incentives for firms to hire unemployed workers and, when sensibly targeted,
are a very cost-effective and efficient means of reducing unemployment,
during both periods of economic stability and recovery.
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To boost the employment rate of the low-skilled
trapped in inactivity is it sufficient to supplement their earnings?
High risk of poverty and low employment rates
are widespread among low-skilled groups, especially in the case of some
household compositions (e.g. single mothers). “Making-work-pay” policies
have been advocated for and implemented to address these issues. They
alleviate the above-mentioned problems without providing a disincentive to
work. However, do they deliver on their promises? If they do reduce poverty
and enhance employment, is it possible to determine their effects on
indicators of well-being, such as mental health and life satisfaction, or on
the acquisition of human capital?
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Policies to help the unemployed can affect
feelings of identity and well-being, so measures need to be evaluated
carefully
Unemployment not only causes material hardship
but can also affect an individual's sense of identity (i.e. their perception
of belonging to a specific social group) and, consequently, feelings of
personal happiness and subjective well-being. Labor market policies designed
to help the unemployed may not overcome their misery: wage subsidies can be
stigmatizing, measures that require some work or attendance for training
from those receiving benefits (workfare) may not provide the intended
incentives, and a combination of an unregulated labor market and policy
measures that bring people who became unemployed quickly back to work
(flexicurity) may increase uncertainty. Policies aimed at bringing people
back to work should thus take the subjective well-being of the affected
persons more into consideration.
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Business consulting and supervisory skills
training can improve firm productivity and labor relations
Productivity differences across firms and
countries are surprisingly large and persistent. Recent research reveals
that the country-level distributions of productivity and quality of
management are strikingly similar, suggesting that management practices may
play a key role in the determination of worker and firm productivity.
Understanding the causal impacts of these practices on productivity and the
effectiveness of various management interventions is thus of primary policy
interest.
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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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Single, open-ended contracts with severance pay
smoothly rising with seniority can decrease both unemployment and job
losses
The trend towards labor market flexibility in
Europe has typically involved introducing legislation that makes it easier
for firms to issue temporary contracts with low firing costs, while not
changing the level of protection that is in place for permanent jobs. This
has created a strong “dualism” in some European labor markets, which might
affect turnover, wage setting, and human capital accumulation. In view of
this, some economists propose replacing the existing system of temporary and
permanent contracts by a single open-ended contract for new hires, with
severance pay smoothly increasing with tenure on the job.
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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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