Unemployment and labour market policies: novel approaches

Citation

Blien, U., Jahn, E.J. and Stephan, G. (2009), "Unemployment and labour market policies: novel approaches", International Journal of Manpower, Vol. 30 No. 7. https://doi.org/10.1108/ijm.2009.01630gaa.001

Unemployment and labour market policies: novel approaches

Article Type: Guest editorial From: International Journal of Manpower, Volume 30, Issue 7

About the Guest Editors

Uwe BlienHead of the Research Department on Regional Labour Markets at the IAB and Professor for Economics at the Technical University of Kaiserslautern. He is an Affiliate of the Labor and Socio-Economic Research Center (LASER) at the University of Erlangen-Nuremberg and Research Fellow at the Institute for the Study of Labor (IZA) in Bonn. His general research interests focus on regional labour markets, the effects of unemployment on wages, the development of regions, and institutional influences on East-Asian economies.

Elke J. JahnAssociate Professor at Arhus School of Business, Arhus University, Denmark. Furthermore she is affiliated to the Institute of Employment Research (IAB) in Nuremberg, a Research Associate at and Affiliate of the Labor and Socio-Economic Research Center (LASER) at the University of Erlangen-Nuremberg, and a Research Fellow at the Institute for the Study of Labor (IZA) in Bonn. Her general research interests focus on temporary agency employment, employment protection legislation, search and matching theory, and migration and comparative labour law.

Gesine StephanHead of the Research Department, Active Labour Market Policies and Integration, at the IAB, an Affiliate of the Labour and Socio-Economic Research Center (LASER) at the University of Erlangen-Nuremberg and a Research Fellow at the Institute for the Study of Labor (IZA) in Bonn. Her research interests are in the field of applied labour economics, with a particular focus on the evaluation of active labour market programs.

The Conference

The International Conference of the German Association of Political Economy took place in Nuremberg, Germany, 12-14 October 2006. The Conference provided a forum to present novel approaches analysing the causes and consequences of unemployment and investigating and evaluating recent labour market policies. Keynote speakers at the Conference were Armin Falk (University of Bonn) and Tito Boeri (Bocconi University, Milano, and Fondazione Rodolfo Debenedetti).

The papers in this special issue were selected from papers presented at the Conference. A special focus was given to topics that have not featured very strongly in the scientific community in the past, but deserve more attention in the future. The first section of this special issue gives insights on the functioning of active labour market programs from a microeconometric as well as macroeconometric perspective. The second section contains three papers investigating the labour market effects of labour market institutions. The third part presents a paper exploring the determinants of the self-selection of migrants. Finally, a new panel data set – to which international researchers will have access – with a special focus on long-term unemployment is introduced.

Evaluation of active labour market programs

During the last years, the evaluation of active labour market programs has become a central research topic in many countries: Policy and administration have increasingly been interested in topics such as program effectiveness and efficiency. At the same time, the development of comprehensive merged data sets – covering times of unemployment, program participation and employment – laid the groundwork for further research.

In Germany, one strategy of the federal government to combat the unemployment problem is to turn unemployment into self-employment. In his paper, Marco Caliendo estimates the effects of two start-up programs on participating individuals in East Germany, taking the microeconomic perspective. The empirical analysis is based on a combination of administrative data from the German Federal Employment Agency and a follow-up survey. The author utilises statistical matching techniques to find a comparison group of similar individuals who did not take up subsidised self-employment and compares labour-market results of the treatment and the comparison group over a period of 28 months. Compared to non-participants, at the end of the observation period the unemployment rates of participants are lower, while their employment rates and personal incomes are higher. Furthermore, the author finds some evidence for additional employment effects through direct job creation by the (previously) subsidised entrepreneurs. He concludes that programs aimed at turning the unemployed into entrepreneurs may be a promising strategy in East Germany.

In macroeconmic studies, the success of active labor market programs is measured not by individual labour market success, as in Caliendo’s paper, but by the development of important labour market indicators (for instance the unemployment rate) over time, taking into account possible deadweight and substitution effects. Reinhard Hujer, Paulo J.M. Rodrigues and Katja Wolf evaluate German active labour market programs from such a macro perspective. They apply spatial econometric methods to estimate an augmented labour market matching function at the regional level, modelling spatial interactions by adding a spatially correlated error term. Whereas these methods have already been well-developed for cross-sectional data, they are rather novel for panel data. For their empirical analysis, Hujer et al. utilise monthly data from two years and 141 regional employment offices (which implies a huge gain in variance compared to studies conducted at the national level). As a main result of the study, the authors find no evidence of positive effects of the analysed programs on the matching process in West Germany.

Labour market institutions

There is a broad consensus that labour market institutions and policies play a prominent role in explaining the high and persistent European unemployment (e.g. Organisation for Economic Co-operation and Development, 2004). It is interesting to see, however, that the influences of minimum wages and employment protection legislation and its deregulation – by facilitating fixed-term contracts – are not clear-cut at all. The following three papers take a fresh look on different aspects of the latter institutions.

While a vast literature has studied the quantitative effects of different degrees of firing taxes and severance payments on macroeconomic labour market outcomes up to today, there is little evidence whether legal norms defined by employment protection legislation are binding. In this issue the paper by Elke J. Jahn emphasises that in Germany ex post bargaining about compensation plays an important role if firms have to lay off workers. Ex post bargaining takes place because employers cannot dismiss the workers with the lowest productivity; instead, employment protection legislation specifies social criteria determining the order in which workers are to be dismissed. Jahn shows that firms obey the law and take into account social criteria when they have to dismiss workers. Workers whose personal characteristics are included in the list of social criteria indeed have the lowest dismissal probability. However, social criteria do not correlate with the probability of receiving severance payments and the incidence of compensation. In fact, the expected outcome of filing a lawsuit seems to be the most important factor determining the compensation policy. The size of the severance payment depends on the way the employment contract is dissolved, and is highest if the contract is dissolved by mutual agreement.

In Western Europe, the use of non-standard forms of employment – such as part-time employment and temporary employment – has increased considerably over time. One reason for its active promotion has been the hope of combating unemployment and to facilitate the reconciliation of work and family life. However, non-standard employment also has negative side effects, such as higher volatility, less employment security and less social security. In her paper, Janine Leschke investigates whether non-standard employment forms indicate labour market segmentation, and whether mobility patterns between different kinds of non-standard employment and standard employment are similar within different institutional frameworks. She utilises data from the European Community Household Panel data and compares results from event history analysis for Denmark, Germany, the UK and Spain. She obtains remarkabe differences in transition between employment forms. For instance, part-time workers move much more often into inactivity than full-time workers. Furthermore, her results reveal several differences across countries; for example, the risk of temporary workers exiting from employment is greatest by far in Spain.

The impact of minimum wages on earnings and employment has long been an important topic of theoretical and empirical analyses in labor economics. While there is a broad consensus that binding minimum wages have an impact on the distribution of earnings, their impact on employment is ambiguous. The study of Marion König and Joachim Möller contributes some fresh evidence to the debate: The authors analyse the impact of an introduction of minimum wages in the West and East German construction sector. They exploit this natural experiment to estimate the effects of the introduction of miminum wages on wage growth and employment retention probability of affected workers. The authors find positive wage growth effects in both parts of Germany, negative employment effects for East Germany, and weak positive employment effects for West Germany. Because the minimum wage in the East German construction sector was much higher than in West Germany, the authors conclude that the introduction of moderate minimum wages might increase wages of low-paid workers without simultaneously inducing job losses.

Migration

High migrations flows from mostly non-industrialised countries have fanned fears in receiving countries that the skill levels of migrants may be declining over time and will jeopardise social stability in the sending countries. The paper by Herbert Brücker and Cécily Defoort in this issue contributes to the literature on the economics of brain drain by generalising the model of Roy (1951). The basic idea is to analyse the factors determining the selectivity of migrants with respect to their education levels if the earnings inequality of sending and receiving counties differ. Assuming that individuals’ skill levels and migration costs (measured as share of their personal income) are negatively correlated, the authors show that migrants can be positively self-selected on their observable skills. This result holds even if the relative returns to education are higher in the sending country as compared to the receiving country. Based on a unique panel dataset, the empirical part of the paper finds a positive effect of income inequality in the sending country on the selectivity of migrants. In addition, the results suggest that high migration costs may increase the skill level of migrants and therefore shape the selectivity of migrants.

New household panel data

Mark Trappmann, Bernhard Christoph, Juliane Achatz and Claudia Wenzig describe a new household panel data set that was designed to address the labour market situation and problems of individuals at the lower end of the income distribution. The first wave of the panel study, “Labour market and social security” (PASS), covers nearly 19,000 respondents. The panel offers new research opportunities for research on the reform of the social security system as well as on many aspects of poverty, migration and labour market developments. Data access for the international research community is provided by the Research Data Centre of the Federal Employment Agency in Nuremberg.

Acknowledgements

The Guest Editors would like to thank the referees for their helpful reports, which have contributed to selecting the papers presented in this issue and improving these papers further.

Uwe BlienInstitute for Employment Research, Nuremberg, Germany

Elke J. JahnAarhus School of Business, Aarhus University, Aarhus, Denmark

Gesine StephanInstitute for Employment Research, Nuremberg, Germany