WP3: Policy Performance

WP LeaderIZAWerner Eichhorst
WP Co-leaderIESKari Hadjivassiliou
To map out and compare the dynamics, performance and effectiveness of youth labour markets in Europe in different institutional and policy settings using qualitative and quantitative analysis.
D 3.1Key Indicators & Drivers of Youth Unemployment
D 3.2Impact of youth-related policy measures
D 3.3Country Case Study Fiches
D 3.4Comparative Overview Synthesis
D 3.5Policy synthesis and integrative report

Work and Role of Partners

Task 3.1 Performance and Key Drivers of Youth Labour Markets in Europe
(IES)

Using comparable multidimensional micro data for all 27 MS (ELFS & EU-SILC)

  1. derive indicators for the integration of young people in the labour market at MS and sub-national levels (27 MS, further sub-MS levels: NUTS-1 [97] or NUTS-2);
  2. provide time-series descriptions of dynamic measures (country/region-specific transition rates from school to further education, work, unemployment and in and out of NEET status) and aggregate labour market outcomes (youth unemployment rates/ratios, atypical and standard employment rates, indicators for young/old people segmentation);
  3. develop composite indicators capable of capturing the multi-dimensional characteristics of country-specific youth labour markets (additive index measures of individual dimensions/radar charts/derived performance indicators/analytical benchmarking, similar to other areas like gender equality on the labour market (Plantenga et al. 2009); and
  4. to estimate, based on the microdata, the key drivers of transition rates of young people to (further) education, work, unemployment and in and out of a NEET status in competing risk models (multinomial probit/logit).

The analysis focuses on the characteristics of young people and key policy variables such as

  1. economic circumstances;
  2. labour market segmentation;
  3. welfare system and labour market policy.

Task 3.2 – The Effectiveness of Policies to combat Youth Unemployment
(IES)

We provide quantitative estimates on the impact of specific programmes of the Active Labour Market Policy (ALMP) on youth unemployment and school-to-work transitions. We combine

  1. a causal analysis on the impact of specific youth-related labour market and education policies and on youth labour market dynamics and outcomes with
  2. a cost-benefit analysis.

i. A causal analysis of the impact of policies requires econometric methods in order to contrast implemented policies to counter-factual absence of ALMP provision for young people. In an ideal world, microeconomic data for both participants and counterfactual non-participation would be used, either exploiting some exogenous variation (experiment/discontinuity in programme eligibility) or available data for a suitable comparison group. However, most programmes targeting young people do not systematically collect information in order to estimate counterfactual outcomes. Therefore, we propose to exploit the regional variation of ALMP implementation for young people and relevant outcomes (for example specific regional youth unemployment rates, transition rates and measures for young people’s employment integration/job mobility and labour market inclusion).

Regional participation rates would be derived from ELFS micro data (eg on the incidence of vocational education and training) and EU SILC (on specific activities undertaken by young people with support by public programmes)

Both policy variables (engagement in young people programmes/apprenticeships etc.) and outcomes (transition rates/unemployment rates) would be derived from EU LFS microdata for national and subnational (at least NUTS-1) aggregates and for a time series covering the time since 2000’s. The resulting information of country/regional aggregates repeated consistently over time allows to create a panel data set, which would be analysed using dynamic panel data models to address the problem of endogeneity of policy allocation (ie high levels of young people’s policy participation and high youth unemployment coincide and do not allow to estimate an unbiased policy impact). Similar to Bassanini and Duval’s (2006) study on overall ALMP effectiveness in the context of the European Employment Strategy, we plan to use dynamic panel data models in order to address the endogeneity problem of policy allocation as high levels of young people’s policy participation and high youth unemployment are likely to coincide. Using the current state-of-the-art estimators for dynamic panel data models (following Blundell, Bond and Windermejer’s [2000] paper on related GMM estimators), we believe that we can obtain robust estimates of the quantitative impact of policy, controlling for economic circumstances and specific characteristics of young cohorts in regions/particular member states. Hence, the estimate would provide a ceteris paribus effect, which shows the change in aggregate measures (youth unemployment, transition from school to NEET, etc.) caused by a change in programme offered by policy (eg increases in apprenticeships). Similar approaches on the impact of ALMP for the main age group have been used in previous studies, for example Schmid, Speckesser and Hilbert (2001) and Speckesser 2004).

ii. Cost-benefit analysis: Understanding the costs and benefits for public budgets involves accounting spending in relation to young people’s ALMP, eg per-participant spending on apprenticeships or specific other programmes (eg work experience, further vocational education and training, etc.). Such data should be consistently available at level of MS (for example from OECD data as a percentage of GDP), but using regional participation data, we would also be able to model spending of the programmes at sub-aggregate levels. Such ALMP spending can be understood as initial investments financed from public budgets.

Over time and subject to discounting, positive programme outcomes at the levels of individuals (reduction of welfare benefit payments, increases in average wages and therefore increases in taxes and further revenue for the exchequer) translate into benefits for the public budget resulting from cost reductions and increased tax incomes, which repay for the initial investment.

Subtracting the present values of net benefits, ie monetised values of all relevant outcomes of the programme from the initial investment into the programme should result in a non-negative amount for the public budgets for a cost-effective programme. Such a positive fiscal effect indicates economic efficiency, ie resources are allocated in a way to achieve higher productivity and prosperity of society than in the absence of the programme.

The proposed cost-benefit analysis would use the ceteris paribus effect of a reduction in youth unemployment obtained from the impact analysis to model long-term social and fiscal returns to the programmes. Since EU-wide life course data are not available, which would allow us to estimate the individual impact of reduced youth unemployment on employment inclusion in later life explicitly, we will rely on published estimates on this link, such as the lifetime ‘scarring’ effects found in Bell and Blanchflower (2009) or other published life-course impacts in Smyth and McCoy (2009) or Coles et al. (2010). Using such evidence on the link between youth unemployment and long-term social costs arising from it, our study will provide the EU-wide short- and long-term fiscal and social impact of reductions in youth unemployment in monetary terms (in present values) by multiplying

  1. our estimates of the ceteris paribus effects of reducing youth unemployment with
  2. evidence on the average life-course impact of youth unemployment and
  3. social and fiscal improvement due to the reduction of youth unemployment.

Task 3.3 –Qualitative, Case Study-Based Analysis of Performance and Policies
(IZA)

  1. To analyse the institutional arrangements structuring youth labour markets in place;
  2. assess their effects on differently skilled young people and vulnerable groups;
  3. review policy innovations during and after the crisis.

Case studies will be conducted in Germany, the UK, Spain, Poland, Sweden, the Netherlands, Estonia and Turkey. These will be structured along a common systematic framework developed in the process of the project. Task 2 will provide country reports and input for comparative work (Task 4) and policy recommendations (Task 5). Findings from Task 2 will also be useful in providing background information to interpret the quantitative findings from Task 1. We will also draw on the findings from the INSPIRE project to guide our choice of innovative areas to examine. Expert interviews will be conducted with comparable groups of policy makers and policy implementing organisations in each country.

Task 3.4 – Comparative Policy Overview of STW Transitions and Youth Labour Markets Dynamics, Performance and Effectiveness
(IZA)

We provide a comparative analysis using the typology of policies, programs and measures proposed by Eurofound (2012) focusing on policies:

  1. facilitating the STW transition;
  2. developing relevant labour market skills
  3. supporting a first work experience; and
  4. improving access to the labour market/first job, especially for NEETs.

This part of the analysis will also focus on policy priorities in relation to young people, including NEETs in the selected MS and on any future policy changes/trends foreseen at present. An important element of this Task will also be a focus on innovative policies aimed at reducing the vulnerability of new labour market entrants. In particular, the project will enter into a dialogue with stakeholders in order to discuss current and future challenges and define viable innovative policies to improve labour market access of young people.

The output of this task will be a Comparative Overview Synthesis Report. This will build on the work from INSPIRES project (http://inspires-research.eu/) and the database inventory being developed in WP4, Task 4.

Task 3.5 – Comparative Policy Overview and Synthesis of STW Transitions and Youth Labour Markets Dynamics, Performance and Effectiveness.
(IZA)

We provide a comparative analysis using the typology of policies, programs and measures proposed by Eurofound (2012) focusing on policies:

  1. facilitating the STW transition;
  2. developing relevant labour market skills
  3. supporting a first work experience; and
  4. improving access to the labour market/first job, especially for NEETs.

This part of the analysis will also focus on policy priorities in relation to young people, including NEETs in the selected MS and on any future policy changes/trends foreseen at present. An important element of this Task will also be a focus on innovative policies aimed at reducing the vulnerability of new labour market entrants.

In particular, the project will enter into a dialogue with stakeholders in order to discuss current and future challenges and define viable innovative policies to improve labour market access of young people. The output of this task will be a Comparative Overview Synthesis Report.