Economics and politics - comment and analysis

A report on long-term unemployment policies in the EU. Trends and prospects

The Bertelmann Foundation just published a new report on long-term unemployment policies in the EU. What are the trends and prospects (see here)? Let’s look at the problem first. The report gives a lot of figures. Nearly one-half (48.2%) of the 22 million unemployed people in the European Union in the third quarter of 2015 have been unemployed for 12 months or longer. Unemployment has risen dramatically in a number of European countries since the beginning of the Great Recession in 2008 and has peaked at 27 million at the beginning of 2013, of whom 45.3% or 12.2 million were long-term unemployed. Over the past year, the number of long-term unemployed fell by 11% on EU average, but the picture across Europe is mixed. While long-term unemployment has been declining in some countries, it has increased in France, the Netherlands, Sweden, Croatia, Austria, Latvia, Romania, Finland and Luxembourg. Long-term unemployment remains at very high levels in all southern countries. The Nordic countries, Austria, Germany and the UK generally register low LTU rates, though in the case of Germany, the share of long-term unemployed among all unemployed is above 40%. So who are the long-term unemployed? It turns out that they represent a heterogeneous group. As an EU-wide average, the risk of falling into long-term unemployment was 5.9% for the low-skilled, 4.3% for those with an intermediate education and 2.6% for those with a high educational level. In several countries hit hardest by the economic crisis, the LTU rate among intermediate and high-skilled workers is still worryingly high. In these countries, long-term unemployment has become a general risk for the working population. And this, the Foundation writes is due to ‘’the persistent lack of aggregate labour demand.’’ I will come back to this lack in a moment.

Some groups face a higher risk of long-term unemployment after losing their job as a result of economic restructuring – this applies in particular to older workers and workers in declining occupations and sectors. Long-term unemployment has risen among young people too, primarily in countries particularly hit by the crisis (Greece, Italy, Croatia and Slovakia). For young people, the impact of long-term unemployment is likely to be more severe than it is for other age groups. It is not only unemployment that is the problem, but also underemployment. This is especially the case in countries hit most by the crisis, where the share of part-time workers wanting to work more hours is particularly large. However, low working hours are also common in countries such as Germany and the Netherlands.

Since the problem is clear, what can be done against it? The report makes several recommendations: 1. Develop coherent and comprehensive activation approaches by establishing easy registration procedures, profiling, early intervention and follow-up measures. 2. Build up the capacity of public employment services by increasing staff numbers, deepening specialization, developing e-services and cooperating with external providers. 3. Provide adequate funding for ALMP on the basis of a social investment approach. 4. Invest in employability by implementing training measures and continuing education and training systems. 5. Make use of a broad range of ALMP measures and personalized services including in-work benefits, wage subsidies and job creation programs. 6. Ensure an adequate balance of “carrots and sticks” by combining generous out-of-work benefits with activation and work-availability requirements. 7. Integrate activation policies into a broader policy mix against long-term unemployment including macroeconomic, structural, regional, educational and social inclusion policies.

How do we need to evaluate all of this? First, the question is how much the figures from Eurostat are worth, i.e. are they accurate? This is a very tricky and politically laden discussion which I won’t go into. Let’s just say – and many with me – that I do not trust them. Second, I am not against any of the recommendations of the Foundation, but it would be good to know what they can achieve. The problem of unemployment in Europe (or anywhere else) cannot be ‘solved’ without dealing with the macroeconomic context. In Europe, this means reform of the EMU, dismantling the six pack and renegotiating Maastricht. One can optimise services etc. for the unemployed night and day, as long as Germany exports its unemployment and depresses domestic demand, the euro zone cannot recover. The solution lies therefore not in activation policies, although they certainly have a role to play (but then in such a way that ‘activation’ does not mean ‘sanctioning’ – a very serious problematic that is absent in the report), but in the end of German wage moderation. It is not the unemployed which created unemployment. Unemployment is a problem caused by the employed, namely those who sit on their money and channel it to hedge funds, derivatives and other schemes and to foreign banks. This is not loose talk, it is the simple reality of the dysfunctional rentier economy. Those who pay no taxes. Those who, as in the UK, doubled their wealth since the financial crisis of 2008. Those who do not invest. Those who are, in the words of Joseph Stiglitz, responsible for the loss of the trillions of dollars in the economy since 2008 and for many millions of unemployed (Stiglitz estimates it at around ten million). Monetary policy in Europe has been exhausted: how far can negative interests go? What has been the effect of QE? It is all very minimal. Everybody knows that fiscal policies are in order: letting go of the mythology (the right word) of the need for balanced government budgets (which austerity of course cannot deliver anyway) and implement massive public investment. If Europe would move in this direction, soon enough there would be no need for tailor-made policies to help the unemployed. It is impossible for the unemployed to find a job if they aren’t any jobs. This sounds like the usual left wing discourse, but it is not true? Is Owen Jones wrong when he reports that for one job in a supermarket in Newcastle, some 370 people showed up? 370 people for one job is really great. People who want to work for £7 an hour or less. Shall we re-school the 369 who did not get the job? Shall we work with stick and carrots? I hate this expression because it betrays fundamental lack of insight into what unemployment is. Or do you think that the unemployed did not get enough sticks already? How many careers, how many livelihoods and how many relationships got destroyed and how many people lost their life because of a small club of people – the plutocrats as Flassbeck correctly calls them – who, for decades, have been standing in the way of any decent macroeconomic policies? It is all too true, as Sebastian Muller wrote just a couple of days ago in Makroskop, that we now live in a system in which those who promote capitalism the most are the ones who are destroying it (see here). The only way to get out of this insane mechanism is to increase demand so that productive investment pays off. It is that simple, and yes, also that complicated because the plutocrats destroyed much of the productive infrastructure (a point recently repeated  by Ha-Joon Chang in the Guardian – see here) – and given the power relations within the EU, it is that impossible. That is the major scandal of our time, but of course none of this makes an impression on people who have no shame, no conscience and no economic insight.

This report doesn’t deal with anything ‘structural,’ but it is well worth a read because it presents interesting data and, within the confines of more or less humanitarian activation, good recommendations. But, again, without macroeconomic restructuring, it will all be water under the bridge. This is not my opinion. Wim Van Oorschot (previously at the University of Rotterdam and now professor of Labour and Welfare at the University of Louvain) has written several high ranked papers that evaluate activation policies in the Netherlands (see here). The results have been absolutely abysmal. Enormous amount of money has gone into activation. And what is the overall result? Is the Dutch economy doing better? Are there less unemployed? Is there less poverty and inequality? Is there more demand and more investment? Or is it the case, as Flassbeck also already said in his cyclical analyses, that the empirical data show the existence of a simple relationship: the more restrictive austerity, the less recovery? And that makes of course perfect logical sense.

The report (free download) can be read here.