Executive summary
The reinsertion of long-term unemployed persons poses enormous challenges. However, the evidence shows that active labour market policies help to improve their labour market position when the interventions are well-designed, and this conclusion holds even when overall unemployment is high. The objective of this report is to identify the weaknesses in the existing support to the long-term unemployed in Spain and to propose measures that would help to overcome these weaknesses and to offer the best possible individualised support to the long-term unemployed. The ultimate goal is to achieve their re-employment in the private sector.
The Spanish labour market shows strong signs of recovery, but there is widespread concern about the persistently high levels of long-term unemployment. At the end of the second quarter of 2016, the long-term unemployment rate was still close to 12% and two million persons had been out of employment for over two years.
A previous report of New Skills at Work showed that this situation creates a clear risk of social and economic exclusion, especially among the most vulnerable groups. Their job finding rates are very low and Spain lacks well-designed policies and institutions to support them. The Public Employment Services (PES) are understaffed and have a poor track record in the field of active labour market policies (ALMPs). Moreover, the available evidence shows that they play a marginal role as labor market intermediaries. Finally, the existing policies mainly focus on the provision of financial support, while little is done to improve the employability of the long-term unemployed or to avoid their marginalisation.
Fortunately, however, the tide is turning. Following a recommendation of the European Council, the central government and the regions have recently reached agreement on a joint plan – Programa de Acción Conjunta para Desempleados de Larga Duración – with a budget of 515 million euros to provide individualised support to 1 million long-term unemployed persons in the period until 2018.
The reintegration of the long-term unemployed is an arduous task because problems tend to accumulate over time and many of the long-term unemployed find themselves at the margins of the labour market. The European Commission therefore stresses the need for integrated support systems with three pillars: (i) a well-designed system of benefits and social services, (ii) close coordination between all relevant authorities and organizations and (iii) a sufficient capacity to offer individualised support tailored to the individual’s needs. As the report makes clear, the Spanish system of active and passive labour market policies presents considerable weaknesses on all three scores. However, its true Achilles heel is the limited capacity of the Public Employment Services to offer individually tailored solutions. The poor performance of the PES on this score is the combined result of underinvestment in placement services, excessive case workloads for its officers, and structural weaknesses in the design of active labour market policies. Furthermore, the crisis has exacerbated these problems due to the unprecedented rise in the number of long-term unemployed.
The report is divided in four parts. The first one provides descriptive evidence on the incidence of long-term unemployment, benefit coverage rates and participation rates in ALMPs. We document a steep drop in benefit coverage rates and a marked deterioration in the access to ALMPs during the crisis. According to data from the Spanish Labour Force Survey (EPA) less than 30% of the LTU received some form of benefit or subsidy in the first quarter of 2016. Moreover, using administrative data compiled by the national PES (SEPE), we find that only one out of six unemployed and one out of eight low-educated unemployed registered in January 2015 received some service from the PES during the next three months. Furthermore, we observe remarkably little variation in participation rates when we disaggregate the clients of the PES by age, level of education or duration of the unemployment spell. The evidence points at an urgent need for targeted interventions that are tailored to the needs of the unemployed.
The second part of the report reviews the institutional aspects that need to be addressed to achieve this goal. In the case of the PES, it highlights the need to adopt modern profiling tools. Such tools can provide useful assistance to caseworkers and allow the PES to differentiate the type, intensity and duration of its services on the basis of objective indicators of a person’s employability. In the future, the adoption of profiling tools will also enable the PES to undertake preventive actions that are essential for reducing the incidence of long-term unemployment.
Spain’s experience with poorly designed ALMPs has generated scepticism about their effectiveness. The third part of the report is therefore devoted to a review of the recent empirical literature that tries to measure the impact of ALMPs on the labour market outcomes of the long-term unemployed. The first part of our review considers the gains from improvements in the institutional design of the support to the long-term unemployed. It highlights quite a few examples of cost-efficient programs for the long-term unemployed that were implemented during the recent crisis. Common elements of these programs are the creation of one-stop shops and the reduction in the workload of caseworkers. More intensive support to the long-term unemployed is found to improve their job finding rates and tends to reduce the use of standard ALMP measures, reflecting the improved ability of caseworkers to design tailored solutions. The available evidence does not support the view that private provision is necessarily more effective than public provision, but the report offers several arguments in favor of a more intensive use of external partners.
Next, the review proceeds with a discussion of the evidence on the impact of specific ALMP measures. Investment in training and targeted hiring incentives are shown to deliver the best long-run results, while public employment generally delivers the worst outcomes. Furthermore, a recent comprehensive analysis of all published impact evaluations indicates that ALMPs tend to have a larger impact in downturns and when they are targeted at long-term unemployed persons. These findings clearly suggest that well-designed ALMPs are an effective tool to combat long-term unemployment.
The last part of the report contains a number of policy recommendations.