Labor Market Policies: Employment Incentives and Support

Active Policies: Encouraging Job Creation and Retention

Active labor market policies focus on promoting recruitment, retention, training, retraining, and job mobility to prevent unemployment and facilitate access to employment for various groups. Both employees and employers benefit from these policies, which emphasize a precautionary approach to address unemployment, particularly long-term unemployment.

Heterogeneity of Measures

These policies employ diverse approaches:

• Work Incentive Type: Measures targeting self-employment and paid employment.
• Target Groups: Youth, women, long-term unemployed (1 year or more), disabled individuals, and immigrants. Intensive programs with well-defined and relatively small target groups tend to be more efficient.
• Content: Flexible entry and exit from the labor market, direct financial aid (subsidies), and indirect financial assistance (deductions from social security contributions, tax relief for business creation).
• Work Duration: Incentives for temporary and indefinite work, encouraging the conversion of temporary contracts into permanent ones.

These classifications are interconnected, and the choice of approach depends on the European and economic situation. Coordination among state, regional, and local active policies is crucial to prevent resource waste.

Economic Incentives to Promote Employment

State Level

State-level incentives include subsidies for hiring workers, with a focus on active policies. Indirect financial assistance, such as tax credits for employer's social security contributions, are also provided. These incentives are typically time-limited and prioritize permanent contracts (initial recruitment and conversion of temporary contracts).

Exceptions exist for temporary appointments of specific groups (disabled individuals, victims of domestic violence, socially excluded individuals). The survival rate of regular permanent contracts, especially after the bonus period, is a key concern.

Targeted Recruitment Bonuses

Bonuses target traditional unemployed groups (long-term unemployed, individuals over 45, disabled individuals, socially excluded individuals), women (recruitment and replacement contracts related to maternity leave, return-to-work bonuses), victims of domestic violence, unemployed individuals aged 60 or older, and young people aged 16 to 30. The specific groups targeted depend on the country's economic situation.

The effectiveness of subsidies can be affected by the deadweight effect (contracts that would have been created regardless of the subsidy), the substitution effect (changes in the characteristics of hired workers rather than new job creation), and the rotation effect (short-term employment followed by a return to unemployment).

Studies suggest that bonuses may not be the most efficient way to promote stable employment due to the deadweight effect and the complexity of bonus schemes.

Regional Level

Regional authorities lack the power to set social security contribution allowances. Their primary measures include direct financial support for job creation, contingent upon the creation of stable jobs and/or targeted at groups most affected by unemployment, particularly in less developed municipalities. Aid for self-employment includes financial grants and technical advice.

Promoting Self-Employment

Policies supporting self-employment and entrepreneurship include technical and financial support, financial grants for technical assistance and training, assistance with administrative procedures, reductions in social security assessments, financial assistance from the Official Credit Institute, payment of unemployment benefits, and recruitment bonuses.