Combating long-term unemployment

The EU Commission has submitted a proposal for a Recommendation on combating long-term unemployment in which the Member States are urged to set up a single point of contact to reduce red tape for the long-term unemployed. This agency will also conclude job integration agreements with long-term unemployed people setting down the rights and duties of both parties. Finally, employers will be involved in the reintegration in order to improve needs-based skills training for the long-term unemployed.

The Commission rightly points out that, in order to reduce long-term unemployment, the Member States primarily have to implement structural reforms - particularly reforms to make the labour market more flexible - and investment in human capital. In fact, the effect of the proposals contained in the Recommendation can only be complementary.

In order for a long-term unemployed person to receive training or to be placed with an employer, he/she must be registered as unemployed. Whether the proposed improvement in the provision of information about the available assistance will result in the long-term unemployed having a better overview of the available assistance therefore making them register as unemployed, depends on whether the information actually reaches them. Since the Commission does not indicate how the provision of information is to take place, its impact depends on the Member States.

Appointing a single point of contact to coordinate the assistance eases the problem of several authorities being responsible for looking after one long-term unemployed person. Thus, until now, in many Member States one authority has been responsible for financial support and another for placement of the long-term unemployed. A single point of contact may also reduce red tape for the long-term unemployed and speed up their reintegration. Lastly, it may prevent the situation where a long-term unemployed person does not receive all the necessary assistance, or prevent a lack of coordination between the various types of assistance. The requirement for this is - as proposed by the Commission - that the single point of contact and the responsible authorities have access to all the information they need about a long-term unemployed person.

The proposed "individual assessment" for the long-term unemployed also facilitates the supervision of the long-term unemployed. It permits the identification of individual deficits which prevent a reintegration into the labour market. Thus necessary qualifications can be renewed or obtained and additional, tailor-made assistance offered which makes it easier for the long-term unemployed person to look for and find a job.

A "job integration agreement" which sets out, in writing, the rights and duties of the long-term unemployed person and of the point of contact, provides - in addition to a clear overview of the obligations of both parties - a target/actual comparison between the requirements which the long-term unemployed person has to meet and his/her entitlement to benefits. The "job integration agreement" also offers legal certainty both for the long-term unemployed person and for the single point of contact, for example in the case of sanctions or the refusal of assistance. The principle of providing support while setting requirements can thus be more effectively implemented.

Involving the employers in reintegration facilitates needs-based skills training for the long-term unemployed.

Although subsidies for employing the long-term unemployed, such as those proposed by the Commission, may reduce divergences between labour costs and the often lower productivity - at least to start with - of the long-term unemployed and thus create incentives for recruitment, in practice the condition for such subsidies imposed by the Commission - the avoidance of deadweight loss and displacement effects - cannot be achieved. Neither does the Commission explain exactly how this is to work. In particular, reliably identifying these effects will not generally be possible, so the fact that they do not arise will not amount to a suitable basis for granting recruitment subsidies.

Deadweight loss distorts competition between companies because the labour costs, of those companies who claim the financial benefits, will fall. From a fiscal perspective, deadweight loss is no problem if a positive net effect arises, i.e. wage subsidies are lower than the social expenditure for the long-term unemployed. Displacement effects result in redundancies or at least to people not being employed who would be if it were not for the subsidies.

To sum up: A single point of contact may reduce red tape for the long-term unemployed and speed up their reintegration. The "job integration agreement" provides legal certainty both for the long-term unemployed and for the point of contact. The inclusion of employers helps to ensure that the long-term unemployed gain needs-based skills training. Subsidies for employing the long-term unemployed may create incentives for recruitment but, in practice, the condition imposed by the Commission - the avoidance of deadweight loss and displacement effects - cannot be achieved.

Matthias Dauner, Policy Analyst in the Employment & Social Affairs Department, dauner(at)cep.eu

Iris Hohmann, Policy Analyst in the Economic & Stability Policy Department, Hohmann(at)cep.eu

Dr. Matthias Kullas, Head of Division in the Economic & Stability Policy Department, kullas(at)cep.eu