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Over five years have passed since the onset of the global financial and economic crisis
and yet unemployment still remains high in many OECD countries. In April 2013, there
were over 48 million people out of work, representing an unemployment rate of 8.0%,
only half a percentage point below the crisis peak of 8.5%. But there are big variations
between countries: unemployment is close to or below 5% in five OECD countries, but
exceeds 25% in two others (Greece and Spain). Looking ahead, the OECD projects little
change in unemployment for the OECD area through to the end of 2014, with a projected
rise by at least a percentage point in six European countries offset by a fall by
half a percentage point or more in five other OECD countries.
Older workers are faring relatively well
Certain groups, most notably low‑skilled young men, are doing particularly poorly
in the labour market. By contrast, older workers have weathered the crisis better
than in previous deep recessions. A number of factors are at work and appear to predate
the crisis: among them is a trend among older workers to retire at a later age, in
part because they are better educated and healthier than previous generations. The
closure or tightening of access to early retirement schemes has also played a role.
An analysis of the relationship between employment of younger and older workers over
time and across countries shows that the better performance of older workers in the
labour market did not come at the expense of youth. This reinforces the conclusion
that previous attempts by governments to help youth gain a foothold in the labour
market by encouraging early retirement among older workers were costly policy mistakes.
Reassuringly, governments have so far resisted introducing early retirement schemes
in response to today’s high rates of youth unemployment. Instead they should pursue
strategies that will improve employment prospects for both younger and older workers,
including through growth‑enhancing structural reforms and targeted active labour market
measures to help those in both groups with specific problems of finding or staying
in employment.
Employment protection legislation is becoming less strict
Over the past decade, and particularly since the crisis, OECD countries have tended
to reduce the strictness of employment protection legislation – the rules covering
the hiring and firing of workers – especially regarding collective and individual
dismissals. There have also been changes, albeit less far‑reaching, to reduce the
gap between the level of protection afforded to permanent and temporary contracts.
In the 1990s, temporary contracts were widely deregulated, which fuelled the emergence
of dual labour markets split between workers on stable, long‑term contracts and others
on insecure, short‑term contracts.
These recent reforms should help ensure labour markets respond more flexibly to economic
change while reducing the gap between workers on temporary and permanent contracts.
Research suggests workers, on average, should benefit, as it will become easier for
them to find jobs that match their skills. Inevitably, however, some workers may face
significant losses. Governments need to respond with policies to reduce the negative
impact of these reforms and help such workers find new jobs.
Well‑designed activation policies encourage and help the jobless find jobs
Activation policies refer to labour market policies that aim to encourage people on
welfare benefits to return to work. Approaches vary, but they include help with job
hunting and training, and linking benefit payments to evidence of job search and requirements
to participate in measures to improve employability. Based on detailed reviews by
the OECD of activation policies in seven countries, a number of key lessons are identified.
First, in order to prevent welfare dependency, all countries with a well‑developed
system of income support for unemployed people can benefit from a strong employment‑focused
activation system. This should consist of measures to assist job search and improve
work readiness, backed up by requirements to participate in employment and training
programmes. Second, it is important to persevere with reforms to introduce or extend
work‑related requirements for groups such as lone parents, unemployed older workers
and people with partial work‑capacity. These reforms have proved to be successful
in helping these groups return to work even if initially they may result in some increase
in “open” unemployment as these groups lose their inactive status. Third, implementing
a successful activation strategy may require institutional reforms such as co‑ordinating
the administration of benefits and job‑search assistance as well as funding arrangements
at the national and local levels. Finally, the effectiveness of public and private
employment services can be improved through performance management based on measures
of employment outcomes that are adjusted for jobseeker and local labour market characteristics.
Getting back to work after redundancy
In countries for which data is available, between about 2% and 7% of workers face
lay‑offs or redundancies in a typical year. Compared with prime‑age workers, older
and younger workers are at greater risk, although their experience of finding new
jobs differs. Older workers generally find it harder to re‑enter the workforce than
younger workers and suffer greater losses in earnings whereas younger people find
a new job relatively quickly and one that requires higher skill levels. Others at
higher risk of redundancy are workers in small firms and those who rely on physical
and craft skills which may not be much in demand in expanding sectors such as information
technology.
Because many aspects of non‑wage benefits rise with job tenure, laid‑off workers who
find a new job are less likely to be entitled to paid holidays and sick leave. They
may also be required to work unsociable hours or part‑time. In general, however, the
main financial cost for laid‑off workers results from loss of salary while out of
work and not reduced earnings in a new job.
There are several policy implications from these findings: To reduce the financial
burden on laid‑off workers, it is essential to get them back to work quickly. Also,
if public resources are scarce, they should be targeted at older and low‑skilled workers.
Finally, relying on firms to provide outplacement and retraining may not be the best
approach if layoffs are concentrated in small firms that are often not required to
offer or fund such services.