The Economic Crisis and Flexible Employment/Intermediaries: What Are the Implications for Employment and Social Policy? Paul Swaim Directorate for Employment, Labour and Social Affairs OECD FlexWorkResearch Centre and eurociett Conference 26-27 November 2009, Brussels

Outline of Talk The labour market impact of the crisis Impact so far and short-term outlook Have flexible employment and intermediaries made a difference? Employment and social policy responses Policy responses to date Are flexible employment and intermediaries making a difference?

Part I: Labour market impact Impact of the crisis on the unemployment rate (UR) and the short-term outlook Which workers have been hardest hit? Which countries have been hardest hit? Have flexible employment and intermediaries made a difference?

Labour market impact and short-term outlook Last year’s financial crisis turned into a jobs crisis OECD area UR rose from 25-year low at 5.6% in 2007 to a post-war high of 8.6% in September (nearly 17 million more unemployed) No group spared, but men, youth, immigrants and, especially, workers in temporary jobs hardest hit UR up in all OECD countries this year, but large differences in how sharply (e.g. Germany versus Spain) Latest OECD projections (19 November) Economic recovery now spreading (the worst was averted) But it is still too timid to halt rising unemployment Project a peak of 9.2% in mid-2010, then a slow decline Nearly a two-thirds rise in under 3 years Previous post-war worst were 50% increases following the first 2 oil shock

The unemployment impact so far differs greatly across countries Percent of the labour force

Unemployment rates, Finland Recessions not only hurt lots of people, but also take a long time to fix Unemployment rates, Finland

Already disadvantaged groups bear the brunt of falling labour demand

A similar pattern holds in the current downturn Percentage change of employment over 2008 Q2 to 2009 Q2

Have flexible employment and intermediaries made a difference? Implications for the evolution of overall unemployment More shock amplification, but less shock persistence (in theory) Might fit the Spanish case so far, but not the German case Other factors can dominate (e.g. “kurzarbeit”) Implications for the distribution of the social costs of recessions Very strong concentration of job losses on temporary workers Contributes to vulnerability of youth, low-skilled and immigrants But other factors also matter (e.g. industry mix explains why men are harder hit than women) Is the combination of “partial EPL reform” and short-time schemes increasing labour market segmentation? Danger of a “lost generation” of youth?

Part II: Labour market policy challenges Short-term challenges Should labour demand policies play a major role? Are social security systems appropriate? Should unemployment benefits (UBs) be expanded? Is the work-first approach recession-proof? How to activate the unemployed when labour demand is weak? Long-term challenges How to avoid allowing high unemployment from persisting? How to avoid undermining long-run labour supply? How to avoid undermining labour market efficiency?

Resources available for LM policies differ across OECD countries On average, 1.5% of GDP of which: 0.9% passive and 0.6% active But large differences across countries: e.g. from 0.4% in US to 4.5% in DEN Spending on UBs exceeds spending on ALMPs in almost all countries

Number of OECD countries that have taken different types of measures Governments have taken many types of measures in response to the jobs crisis Number of OECD countries that have taken different types of measures

Discretionary funds for ALMPs limited with some notable exceptions Average annual planned additional expenditure in response to the economic downturn

Supporting labour demand Vigorous macro-economic policy response, including large fiscal packages, to boost AD Estimated to save 3.2 to 5.5 jobs in 2010 in the 19 OECD included in the analysis Important not to withdraw too soon, but also to restore fiscal balance Most OECD countries have introduced targeted measures to support labour demand Reduction in social security contributions (estimated cost per additional job: 1.7 times average job costs in SR; 7 times in LR ) Short-time work schemes (e.g. Kurzarbeit in Germany counts more than 1.4 million participants corresponding to about 1% of LF) LD measures play a positive role, but have to be temporary and well-targeted

Reinforcing social safety nets Crisis leads to longer average unemployment spells Where UB durations are short, temporary extension during the crisis helps reducing the poverty risk among the long-term unemployed Countries that have temporarily extended benefits durations are: Canada, Finland, Japan, Portugal and United States Increasing numbers of ineligible jobseekers due to the increase in non-standard work in some countries Make sure social assistance is adequate and accessible Consider extending coverage if adequate enforcement can be provided Countries that have extended coverage are: Finland, France, Japan and United States Any extensions should be temporary and targeted to the most vulnerable and not undermine job-search requirements

Unemployment benefits are only one element of safety nets for job losers Average net replacement rates over a 5-year unemployment spell

Helping job-seekers find a job Maintain core jobs-search assistance to help jobseekers Even in recessions firms continue to create many new jobs Cost of job loss increases due to longer expected unemployment duration and loss of human capital Many countries have made good progress in recent years in implementing back-to-work policies For those at risk of long-term unemployment, re-employment services need to be adapted to low labour demand Shift in emphasis from “work-first” approach to “train-first approach” through training and work-experience programmes Negative effects of programme participation on job-search less of an issue in recessions Helps provide jobseekers with “the new skills for the new jobs” in the recovery

How do flexible employment and intermediaries fit in? A growing role for private intermediaries in providing back-to-work services EC endorsement for PES to cooperate with private employment agencies (PEAs), especially around the job placement function Country examples of good practices (growing list) NLD: local cooperative agreements (e.g. post intermediaries in WERKplein offices) GER: national agreement under which e.g. job listings are shared DNK: sharing vacancies & candidates, PES outsourcing tasks to PEAs Social protection systems need to be adapted to flexible and other “non-standard” forms of employment Modernising UI/UB entitlement rules Concerns about too little coverage for temporary workers But also about subsidising erratic working patterns (e.g. voluntary vacations) Assuring that SA is an adequate backstop

Thank you