Designing active labour market policies for the recovery

 Introduction

During the early stages of the COVID‑19 crisis, governments implemented broad measures to extend support to firms and workers to preserve solvency and prevent unemployment. Job-search requirements for social assistance were eased, as measures to prevent virus transmission shut down wide swathes of the economy. Public employment services (PES) faced the twin shocks of increased customer numbers and constraints on normal face‑to-face operations. Many countries scaled up the resources for labour market services and active labour market measures in 2020 and 2021 and made significant changes to the use of resources and operating models (OECD, 2021[1]; OECD, 2021[2]).

The OECD Jobs Strategy (OECD, 2018[3]) outlines the importance of Active Labour Market Policies (ALMPs) in ensuring high quality inclusive employment. In particular, these policies can promote the reallocation of workers between firms, industries and regions and support those that have been displaced, protecting individuals and equipping them with the right skills to prosper as the economy adjusts.

This policy brief reviews how countries have adapted the mix of their ALMPs to cope with the increased and changing needs of jobseekers, workers and employers. It draws on the responses of 46 OECD and EU countries and regions1 to an OECD/European Commission (EC) Questionnaire on “Active labour market policy measures to mitigate the rise in (long-term) unemployment”, conducted at the end of 2020. It reviews what set of ALMPs should be retained to ensure that the assimilation of jobseekers back into the labour market is quick and effective in matching them to the right jobs. In addition, it discusses the types of ALMPs that were necessary during the different phases of the crisis and those that will be necessary during the recovery and after. OECD (2021[2]) provides a summary of countries’ responses to the questionnaire.

 Adapting the ALMP basket to changing labour market conditions and client needs

Countries have shown remarkable agility in scaling up their budgets for ALMPs during the pandemic and revising the basket of ALMPs they offer to address the new needs emerging as a result of the COVID‑19 crisis. Moving forward, and as the economies start opening up, countries will need to revise their offers to match the new needs. Figure 1 provides an overview of ALMPs that would help countries during the different phases of the crisis and after the pandemic and those which should be scaled back in the recovery and beyond.

 

Figure 1. Mix of ALMPs through the COVID‑19 crisis and the recovery

In the initial phase of the crisis, restrictions to economic activity meant it was important for countries to maintain their basket of ALMPs (e.g. employment incentives, start-up support, rehabilitation and public works) and boost particular training programmes, especially those that could be delivered online, so that individuals could continue to access services despite the restrictions to social contact. Programmes to upskill and reskill displaced workers, unemployed people and those at risk of job loss were important early on, to facilitate transitions to sectors facing acute labour shortages, particularly those employing essential workers (for example in health care services, public services or other essential goods and services like food industries). Labour market training to increase the employability and skills of PES clients need to remain prominent even when unemployment starts falling, as the most employable clients leave the PES registers first, leaving behind those with fewer or mismatched skills. Furthermore, lock-in effects usually associated with training programmes are less of an issue during times of weak labour demand.

After the initial shock to ALMP delivery due to the unprecedented social distancing rules and as economies start opening up, well-targeted employment incentives, such as hiring subsidies should temporarily gain importance to support labour demand and the economic recovery. Start-up incentives, although usually small in scale, would be needed beyond the short-term to support job creation, including in specific sectors and locations. Support to vulnerable groups facing major labour market integration obstacles via cross-policy responses and intensive ALMPs (such as rehabilitation and supported employment) needs to remain on the PES agenda to build inclusive labour markets along the recovery process.

 Supporting job creation by stimulating the demand for labour

A key part of countries’ response to the pandemic was to support employment via the use of hiring subsidies and social security waivers and public sector job creation (see Figure 2 and OECD (2021[2]) for details on the changes countries introduced to their ALMP basket), alongside broader short-time work schemes. This was important to preserve viable employment that had been impacted by sudden economic shutdowns imposed by COVID‑19, and to prevent detachment of individuals from the labour market. Having a concerted package of policies that encourages re‑employment alongside measures supporting job retention is important so that unemployed and displaced people are not left behind. Acting early allowed countries to limit the immediate risks to employment, enabling them to focus support on vulnerable groups that had been adversely affected and who fell outside the support of these measures. As economies emerge from the pandemic they will need to review the balance of this support, compared with ALMPs that re‑skill individuals, as the focus moves more towards the re‑integration of displaced workers.

 

Figure 2. Countries introduced additional measures to stimulate labour demand

Share of countries having made adjustments

Note: Reductions in non-wage labour costs includes countries with stock subsidies that are either i) universal (all employers for all employees) or ii) targeted (certain employers or employees only) subsidies and universal hiring subsidies.

Source: OECD (2021), “Active labour market policy measures to mitigate the rise in (long-term) unemployment – A summary of country responses to the OECD-EC questionnaire”, https://www.oecd.org/els/emp/almpmeasuresCOVID-19.pdf.

Countries are stimulating labour demand through hiring subsidies and other employment incentives

The use of time‑limited, well-designed and targeted hiring subsidies is a cost-effective way to reduce unemployment, strengthen the employability of workers and support the most vulnerable population groups (Kluve, 2010[4]; IZA, Germany, 2015[5]). These schemes are also easier to scale up operationally than many other types of ALMPs. The challenge is to design programmes that will reach the groups most heavily affected by the crisis, while ensuring that supported jobs do not displace ordinary employment and that take up by employers is satisfactory. Although restricting the availability of these incentives to specific groups limits their use as a general tool to manage unemployment, good targeting of such measures is needed to ensure cost-effectiveness. Over the course of 2020 and early 2021 nearly two‑thirds of OECD and EU countries already scaled up (or are planning to do so) their employment incentives to stimulate labour demand (see Figure 2).

Countries introduced new employment incentive schemes or increased the coverage of existing ones to support the hiring of young jobseekers, long-term unemployed and other vulnerable groups. Countries that use employment incentives for young jobseekers include Argentina, Australia, Chile, France, Greece, Hungary, Ireland, Korea, Luxembourg, New Zealand, Portugal, Romania and the United Kingdom. Employment incentives that target the long-term unemployed have been introduced or expanded in Belgium (Wallonia and Flanders), Greece, Hungary, Korea, Portugal and Sweden. Other target groups include people with disabilities (Chile and France), older unemployed (Portugal and Romania) and other vulnerable groups (e.g. Māori in New Zealand and victims of the armed conflict in Colombia). Some of these measures are still available in some countries, while in others they only covered a short period of time. For example, France introduced new recruitment incentives for youth and people with disabilities to be recruited on fixed-term or permanent contracts, which were open for application until early 2021. In Hungary, a wage subsidy was available between May and August 2020 and supported the hiring of 39 000 long-term unemployed and young jobseekers under the age of 25. Ireland introduced additional subsidies under its JobsPlus scheme for the hiring of registered unemployed under the age of 30 over the course of two years. The United Kingdom introduced a new scheme, Kickstart, to create six‑month work placements for benefit recipients aged 16‑24 who are at risk of long-term unemployment and will accept applications from employers until December 2021. Slovenia extended the coverage of its existing employment incentive scheme Employ.me to unemployed individuals over 30 years old who lost their job due to the pandemic. Mana in Mahi (Strength in Work) in New Zealand received additional funding for participant places. It combines employment with apprenticeship or formal industry qualification to upskill disadvantaged individuals and provide meaningful employment opportunities. In Greece, an important aspect in supporting job creation and take‑up of employment incentives was to enable online applications and accelerate the application procedure.

A number of countries have also introduced subsidies that target existing workers, as well as newly hired former unemployed or inactive persons.2 In August 2020, Italy introduced an exemption from social security contributions paid by employers for six months for companies hiring new workers on open-ended contracts, provided they increase their overall workforce. An exemption was also made available for employers in the tourism sector for three months, regardless of contract type and a net increase in the workforce. Chile introduced a hiring incentive available for all newly hired workers, but offers higher rates to employers hiring women, youth and people with disabilities. Beyond such hiring subsidies, 14 countries introduced reductions in social security contributions, which also were applied to existing staff. Broad subsidies like these can help to boost employment, but they are expensive and may involve deadweight losses by subsidising jobs that would have existed without the subsidy (OECD, 2010[6]). They are more appropriate in a period of acute labour demand shocks (like that seen with COVID‑19) and should be used with caution. Three countries (Costa Rica, Iceland and Sweden) introduced temporary reductions in social security contributions applying to all employers. In some countries, reductions are targeted on SMEs (e.g. the Czech Republic, Estonia, Korea, Poland and Portugal) and companies or sectors hit by the pandemic (e.g. Hungary, Portugal and Spain).

Public works programmes have been used to support the most vulnerable

Around a third of OECD and EU countries introduced or expanded direct job creation programmes (“public works”) since the start of the COVID‑19 crisis. Bulgaria, Hungary, Ireland, Luxembourg and Slovenia have allocated additional budget to existing schemes to create additional jobs. In Japan, Korea, New Zealand and Spain jobs are created mainly by regional or local-level governments. The pre‑pandemic evidence suggests that direct job creation programmes, such as public works, are generally not effective in bringing participants back to open market jobs.3 The meta‑analysis of the literature by Card et al. (2018[7]) finds that these programmes are generally ineffective in the short, medium and longer term and might even have negative effects on employment. However, the abrupt termination to hiring that characterised the pandemic may mean that the skills developed by such jobs are useful to prevent the scarring and human capital deterioration that can otherwise occur when there is a lack of suitable opportunities on the primary labour market in the short term. They can also be useful in times of crisis to provide complementary income to vulnerable households and to build local public infrastructure, services and social capital (ILO, 2020[8]). But these objectives could be better achieved by other measures than ALMPs and income support could potentially be provided more effectively through passive labour market programmes (Brown and Koettl, 2015[9]). For these reasons, programmes should be targeted at very disadvantaged groups and should be temporary and well integrated in broader strategies to address unemployment. Building public infrastructure should aim to pay fair wages on the labour market, use proper employment contracts, and provide full access to prevailing social security rights.

Supporting entrepreneurs is an important element for the recovery

In 2020, countries introduced additional support for existing start-ups, as the primary concern has been providing support to self‑employed who often could not continue their activity or could only partly continue their activity because of lockdowns or sickness (OECD, 2020[10]). Given the specific circumstances that SMEs and self-employed are facing, countries have put in place special measures to support them. The most widely used instruments in response to the outbreak are income and profit tax deferrals, loan guarantees and direct lending to SMEs, and wage subsidies (OECD, 2020[11]). In the Netherlands support for the self‑employed moved to a new phase in January 2021 to prepare those benefitting from government support for a new future, either as an independent entrepreneur or as an employee. Municipalities will work with independent entrepreneurs to identify whether and what support the self-employed person needs and provide them with advice, reorientation, further training or retraining and coaching. In 2020, Lithuania introduced extra support for self-employed individuals who recently benefited from its targeted start-up incentives.

About a fifth of surveyed countries expanded start-up incentive programmes targeted at unemployed and other disadvantaged groups. For example, Australia, Belgium (Brussels and Flanders), and Estonia adjusted their existing start‑up incentive programmes in response to the COVID‑19 crisis through increasing the financial support to jobseekers starting their own business. Sweden extended the duration of an existing programme and the Slovak Republic introduced a new start‑up incentive programme called Work, change your life. Portugal introduced Empreender2020 a national competition for start-up projects by young and unemployed people. Successful applicants receive advice and technical training during the first year of their start-up.

 Enabling reallocation of workers across sectors and occupations through training

As countries move through the pandemic and look again to the future, policies that help to enhance and augment individuals’ skills will become increasingly important to connect people to jobs. Reallocating displaced workers and supporting firms to recruit skilled workforces that fully utilise their human capital will help to ensure a strong and balanced recovery.

Specific shocks to sectors and industries, and rapid adoption of new labour-saving technologies and ways of working, may result in an impetus for greater reskilling of the workforce. Persistent job losses in some sectors (e.g. hospitality, travel and tourism) and job creation in others (e.g. technology and care services) may leave economies with an excess of some skills and a deficit of others. Strategies that support effective reallocation of workers that have been displaced will be crucial to ensure that any negative effects of the COVID‑19 crisis to workers and firms are quickly addressed. Training measures are crucial for building and sustaining the skills that will be needed in post COVID‑19 labour markets – and PES have a major role to play in this regard. Countries have made extensive alterations across the suite of their training programmes, changing delivery models and increasing the number of places available (Figure 3).

Training will be vital to match workers to jobs in both the short- and long-run

Effective training programmes will be needed to ensure labour supply adequately meets labour demand, both in the short term as some industries face immediate shortages and in the longer term as sectors and industries adjust to post-crisis conditions. However, even prior to the COVID‑19 crisis, many adult learning systems failed to match investments in training with labour market needs. Adults in jobs at high risk of being automated were 30 percentage points less likely to train than adults in safer occupations (OECD, 2019[12]). Only about 13% of firm-provided training was fully aligned with the strategic needs of the company. Additionally, not all training was aimed at reskilling workers, about one‑fifth of training hours were taken up by compulsory health and safety courses (OECD, 2019[13]). Moreover, during the pandemic, many employers were unable to provide learning opportunitis in the workplace. As a result, the number of hours spent on non-formal learning dropped by 18%, while the hours on informal learning dropped by 25% (OECD, 2021[14]). Countries will need to improve the responsiveness of training to changing labour demands to meet the immediate needs as well as those emerging in the medium term. This will rely on good co‑operation between employers, training providers, government agencies and policy makers to deliver for jobseekers, workers and firms alike.

 

Figure 3. While countries shifted training online and increased their training offers, workplace training often had to be suspended or postponed

Share of countries having made adjustments

Source: OECD (2021), “Active labour market policy measures to mitigate the rise in (long-term) unemployment – A summary of country responses to the OECD-EC questionnaire”, https://www.oecd.org/els/emp/almpmeasuresCOVID-19.pdf.

Expanding longer-term training programmes during recessions makes sense because of diminished opportunity costs. While enrolled in a training programme, participants are less likely to enter unsubsidised employment due to a combination of decreased job-search intensity and a diminished willingness to accept a job offer. Evidence of such lock-in effects is well-documented (e.g. Forslund, Fredriksson, and Vikström (2011[15])), but the associated costs are lower when job vacancies are scarcer. Evidence shows that firms’ job creation responses following a major reallocation shock lag behind the job destruction response by at least one year (Barrero, Bloom and Davis, 2020[16]), supporting the view that the opportunity costs of any lock-in effects may be lower in the current context. An additional argument for increased training is that recessions tend to be associated with periods of accelerated structural change entailing a reallocation of workers across industries and occupations.

There are several arguments in favour of expanding short-term training as an immediate response to COVID‑19, in addition to reviewing longer-term provision. Countries should enable and encourage jobseekers and workers to move from sectors that operate below capacity to those that have expanded as demand shifts due to COVID‑19. This could be supported through increasing the number of places and variety of short-term programmes such as short vocational training or general and remedial training, and internships.

Similarly, in the short term, governments may also focus attention on workers at risk of displacement. France provides two illustrations of policy interventions in this area. First, it has sought to supplement its existing short-time work (STW) scheme with a training subsidy that was originally developed for firms undergoing structural changes. The FNE Formation (Fonds national de l’Emploi- Formation) fully covers training costs (OECD, 2020[17]) and the government compensates workers for 84% of the gross wage but 100% if they participate in training. This encourages the productive use of time that may otherwise be lost due to the pandemic and may help to bring gains to productivity in the longer term. Second, the introduction of Transco (Transitions Collectives) in January 2021 provides funding for the re‑training of workers at risk of redundancy; fully covering training costs for small and medium‑sized enterprises (or 75% and 45% of costs for larger firms with over 300 and 1 000 workers respectively). This will help to pre‑empt potential disengagement from the labour market for workers in firms that are struggling due to the pandemic.

Shortening the average duration of programmes or introducing a modular format is another option for scaling up the provision of training to accommodate higher needs for training in the near-term. This can also lower the opportunity costs for workers as well as accommodate their time constraints for participating in training. For example, Bruxelles Formation in Belgium (Brussels) has developed additional online training solutions with blended learning modules that take account of trainees’ IT numeracy and IT equipment available to them. In the medium term, countries would need to ensure that training modules provide certificates that feed into the national qualification framework so that learners can cumulate courses and ultimately acquire a qualification.

Publicly subsidised training programmes should be responsive to employers’ needs. Many OECD countries conduct skills assessment and anticipation exercises that can guide their expenditures on adult learning investments (OECD, 2019[13]). To the extent that cross-sectoral imbalances in labour and skill demand persist as economies open up, countries will also benefit from further developing their skill assessment and anticipation mechanisms and skills profiling tools, as well as their career guidance systems (OECD, 2020[18]). Furthermore this requires a strong dialogue with employers and the social partners. Tools to support firms in clearly identifying skill needs are also important, particularly for small and medium-sized enterprises (SMEs). In Lombardy, Italy, the T.I.M.E. (Training Innovation Management Experience) pilot programme provides personalised counselling services to SMEs’ managers in order to guide them through the steps needed for an effective identification of their company skill needs and to plan adequate skill development programmes (OECD, forthcoming[19]).

At the same time, countries should be cautious about moving too far toward a “train-first”, rather than “work-first”, strategy. Investment in training tends to be more expensive than interventions offering job‑search assistance (Martin, 2016[20]), increasing the stakes that public funds may be used inefficiently. In addition, high quality training programmes take time to be established, and existing providers of high‑quality services may find it difficult to rapidly expand capacity while maintaining a consistent level of quality. The effectiveness of training measures should be evaluated, including the longer-term impact of these measures as it can take some time before the benefits of additional investments in training are reaped.

The current crisis has emphasised the need to boost digital skills

The crisis has highlighted that the continued development of online learning will be fundamental in the future of adult learning systems (OECD, 2020[21]). The nature of social distancing policies has accelerated the digitalisation trends and has put more primacy on the need for countries to invest in digital training, which many countries have already started (see Figure 3). Likewise jobseekers need the skills to participate in online training. Enabling jobseekers to conduct job search and training online allows greater immediate participation and provides benefits for future utilisation of this mode of delivery. It also allows for more efficient provision of training as content is easy to adjust and can be delivered to customers’ timescales and needs. It will be important to ensure equity in digital access, as the development of basic digital skills will be fundamental to ensure the rewards of this learning are widely shared. During the pandemic, several online learning platforms have made their content freely available for jobseekers, including some major platforms offering massive open online courses (MOOCs). For example, the French national platform for MOOCs, France Université Numérique, worked in collaboration with partner institutions – including leading French universities – to freely offer its MOOCs to interested users (OECD, 2020[22]). MOOCs offer a particularly interesting proposition in the current context: they offer virtually unlimited participation in interactive courses, incorporating mechanisms such as peer grading to ensure scalability, and are commonly offered in short modular courses.

Basic computer literacy training can allow low-skilled jobseekers to acquire digital skills that are now required in almost every occupation. Many countries have set up programmes targeting adults with very low ICT literacy skills (OECD, 2019[13]). In the United Kingdom, low-skilled adults have access to fully funded digital skills programmes, similar to existing maths and English programmes. Such programmes provide a stepping-stone for individuals to access additional resources online. Where customers are able to enhance their computer literacy, it can also offer direct benefits to PES by allowing them to participate in online services which might better match them to available vacancies. Greece, for example, has sought to support NEETs and vulnerable groups, through the provision of e‑training to address ICT training needs. Portugal has introduced a comprehensive suite of digital training programmes, to equip its workforce with the skills needed to succeed in the digital age through its Activar.PT programme. It has worked with private sector stakeholders to quickly identify skills gaps and create accredited training programmes for unemployed young adults and vulnerable groups in a range of training paths. It has simultaneously introduced the Digital guarantee to ensure that by 2023 all unemployed people have training opportunities in digital skills suitable for their level of qualification and skills profile.

 Conclusions

ALMPs play a key role in underpinning the economic recovery through helping jobseekers find jobs, making available training for those most in need, and providing comprehensive support to those who struggle most. They can also help speed up the reallocation of labour from declining sectors and firms to expanding ones including through support provided to employers and entrepreneurs.

Measures to shore up labour demand were essential in the early phases of this crisis and the speed of their application demonstrated their use in fighting immediate and acute demand shocks. As the recovery proceeds, training programmes which are responsive to business needs are essential so that displaced workers can be easily re‑integrated into the labour market. Particular attention should be given to more vulnerable workers, such as the young and low skilled, so that programmes can address specific needs and provide opportunities that enable an inclusive and widely-shared recovery.

Governments have made rapid and substantial responses to this crisis thus far with far reaching policy changes to cope with the significant challenges to their labour market. As support to jobs via job retention schemes is gradually wound down and more permanent structural demand shifts become evident, the challenge will be to ensure that the policies they have currently implemented are sufficient. This encompasses both the coverage of the individuals they reach and the extent to which investment in re‑skilling matches labour market needs. The latter will require good tools to identify the skills in demand and a strong dialogue with the social partners and business now and in the future. Moreover, the effectiveness of new and adapted measures will also depend on their successful implementation.

It is important to ground policy responses to the current crisis upon a strong evidence base to ensure that funding for ALMPs provides the highest possible economic and social return on investment. There are many lessons to be drawn from the Global Financial Crisis and a rich and growing body of evidence base of “what works for whom” has been built in its aftermath. Nevertheless, new evaluations will be required as the COVID‑19 crisis was very different. Going forward, once data becomes available, it will be important for countries to evaluate new policies and programmes introduced in response to the COVID‑19 crisis to identify those that are inefficient and need to be adapted or terminated. Countries should continue to invest in their monitoring and evaluation systems to be able to conduct regular and timely evaluations of their policies.