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Labor market reforms in Europe: towards more flexicure labor markets?

Labor market reforms in Europe: towards more flexicure labor markets? Labor market segmentation refers to a salient divide between secure and insecure jobs and is related to problems in important areas, including macro-economic efficiency, workers’ well-being and repercussions for social cohesion. EU-28 countries have started a new wave of labor market reforms in the aftermath of the 2008/2009 crisis to tackle a number of issues, including labor market segmentation. This particularly concerns reforms in: (1) employment protection, i.e. dismissal protection and restrictions on fixed-term contracts; (2) unemployment benefit generosity and coverage; and (3) the intensity of active labor market policies. The paper provides an overview of reform patterns and tries to assess whether and to what extent these reforms have led to less dualized, more ‘flexicure’ labor markets in terms of dismissal protection, the provision of unemployment benefits and access to ALMPs. In particular, we will provide some evidence on potential changes in hirings on temporary contracts. Keywords: Employment protection, Labor market reforms, Unemployment insurance, Flexicurity JEL Classification: J42, J48, J68 major impetus for deregulation. Various European coun- 1 Introduction tries have, for instance, lowered employment protection Labor market segmentation has been one of the most with the explicit goal to overcome segmentation. Given prominent topics in recent European policy debates. that deregulation can have social and political costs, it is The issue has gained new momentum with the asym - important to accumulate evidence on the effectiveness of metrical impact of the 2008/2009 recession on young this approach. However, deregulation is not the only way people and the subsequent wave of labor market reforms to tackle segmentation, neither in practice nor in theory implemented particularly in countries hit by the crisis. (Rubery and Piasna 2016). The flexicurity approach empha - In Europe, segmentation has mainly taken the form of a sises, for example, how social protection and human capital divide between permanent and temporary jobs and it is investment can compensate for lacking job security. Against this aspect we will focus on. The goal of this paper is to this background, we consider a broad range of policies that show trends in this form of labor segmentation, provide could, in principle, tackle labour market segmentation. an overview of recent labor market reforms and assess This perspective allows us to remain as open as possible whether these reforms have deepened the segmentation in answering to our overarching question: which policy or—reversing a long-standing trend—helped to over- approach can contribute to overcoming segmentation? come divides in the labor market that were often attrib- We show that EU member states adopted various policy uted to institutional dysfunctionalities. strategies to address segmentation in the aftermath of the While our contribution is mainly descriptive, we none- Great Recession. The issue clearly has a prominent place theless believe it is important for academic and policy on policy agendas. That said, the more pessimistic mes - debates. In the past years, segmentation has become a sage of our analyses is that these initiatives have (so far) failed to produce a noticeable reduction in labour market segmentation—a best practice case is difficult to find. *Correspondence: eichhorst@iza.org IZA Institute of Labor Economics, Schaumburg-Lippe-Str. 5-9, The paper is structured as follows. We begin with two 53113 Bonn, Germany short background sections on segmentation theory and Full list of author information is available at the end of the article © The Author(s) 2017. This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made. Eichhorst et al. J Labour Market Res (2017) 51:3 Page 2 of 17 on patterns of temporary employment in the European supporting this conjecture is sparse (Kahn 2010; see Union, highlighting considerable segmentation between Rubery and Piasna 2016 for an overview). Our contribu- temporary and permanent jobs, even if upward transi- tion to this debate is to assess to what extent countries tions happen frequently. In the subsequent section, we have embarked on the flexibility (or flexicurity) agenda review recent attempts of member states to address labor (again) and if this has led to a reduction of segmentation. market segmentation on four dimensions: employment This is justified in particular by the fact that the crisis protection legislation (EPL), unemployment benefits, has led to intense efforts to reform dismissal regulation. active labor market policies (ALMP) and working-time Because this institution that has been characterized by flexibility. We will assess the extent to which segmenta - strong path dependence (Boeri 2011), past research could tion has been reduced or deepened through reforms, only exploit very limited over-time variation for such particularly regarding EPL, unemployment benefits and analyses. ALMPs. Subsequently, we briefly point to the challenges To be more specific, we have to be clear about which that policy-makers face in reducing labor market seg- problems resulting from segmentation are to be addressed. mentation. A final section concludes and derives policy With some simplification, they can be found in two broad recommendations. areas: macro-economic efficiency and workers’ well-being. Regarding macro-economic effects, there are indications 2 Theoretical background that the growth of temporary employment has hampered What do we mean when we talk about labor market seg- productivity growth (because investment in the workforce mentation? The term has been used in different ways is discouraged) and failed to increase employment levels over recent decades (see below). In this article, we will (because secure employment is substituted with tempo- use it to refer to a salient divide in European labor mar- rary jobs) (Boeri and Garibaldi 2007; Boeri 2011). kets between secure and insecure jobs. This divide has There is also strong evidence that job insecurity and been institutionalized by the creation and expansion of temporary contracts in particular depress workers’ health non-standard forms of employment, most notably tem- and well-being (Benach et  al. 2014; De Cuyper et  al. porary employment (such as fixed-term and agency 2008). Naturally, the same is true for unemployment and work) (Eichhorst and Marx 2012; Marx 2015). It does poverty, as experiences that are inevitable if mobility out not make much sense to think of segmentation in static of insecure jobs is lacking. There are strong indications terms. A labor market is only segmented if there are sig- that the stress caused by such social problems not only nificant mobility barriers. A large stock of temporary impedes health but also interferes with central aspects of workers in the labor market is unproblematic if there is people’s lives, including cognitive abilities, family forma- high mobility into secure jobs; indeed, many temporary tion and parenting (e.g. Mani et al. 2013). workers make such a successful transition. However, seg- What makes segmentation and labor market risk par- mentation exists if workers feel ‘trapped’ in unstable and ticularly stressful is that many European welfare states insecure jobs, interrupted by repeated unemployment are ill-prepared to deal with non-standard workers. spells. Addressing segmentation thus means addressing Built upon the assumptions underlying the post-war (lacking) mobility into stable jobs. employment model, eligibility criteria for social insur- It is noteworthy that segmentation and its causes ance benefits often disadvantage workers with short and have been theorized from rather contradictory perspec- interrupted work records (Berton et  al. 2012; Clasen tives (Marx 2012). Originally, segmentation was seen as and Clegg 2011; Hinrichs and Jessoula 2012). As Palier a consequence of employer strategies reinforcing socio- and Thelen (2010) emphasise, political representatives structural divides (Doeringer and Piore 1971; Reich et al. of core workers in countries with strong segmentation 1973). Since the 1990s, the dominant perspective has have incentives to design social policy in an exclusion- been to explain segmentation as a result of labour mar- ary way. This would mean that employment structures ket institutions. Employment protection legislation in and welfare state institutions reinforce each other in particular has been identified as a mobility barrier into producing labor market disadvantage. Such ‘dualization’ the core labor market (Bentolila et al. 2012; Rueda 2005; is diametrically opposed to the notion of flexicurity, Saint-Paul 1996). The reason is that employers antici - as it has been promoted by the European Commission pate turnover costs, which incentivizes relying on a small for some time. Here, the idea is that the welfare state core workforce complemented with a periphery of tem- compensates for disadvantage in the labour market porary workers. The reverse reasoning that deregulating and facilitates mobility. While the political economy employment protection could reduce segmentation and literature is sceptical regarding the prospects of mod- ‘insider–outsider divides’ is strongly reflected in con - ernizing social security systems along the lines of out- temporary policy advice. However, empirical evidence sider-friendly flexicurity (Rueda 2006, 2014), there is Eichhorst et al. J Labour Market Res (2017) 51:3 Page 3 of 17 little empirical evidence on this aspect in a broad com- conclude that the problem pressure in terms of segmen- parative perspective. However, the crisis has brought tation is much stronger among young workers and thus it insufficient protection of temporary workers in many seems advisable to focus on this group. countries to the forefront and we believe it is important Looking at stocks of temporary workers might be to assess reform efforts in this area. misleading because policy changes only affect newly recruited workers. Figure  2 thus presents the share 3 Background: labor market segmentation in the of temporary contracts among new employment con- European Union tracts (less than 3  months old) at two different points In this article, we focus on a specific form of segmenta - in time as presented by the OECD. At this level of tion, namely segmentation between workers with perma- aggregation we observe a rather strong persistence nent and temporary employment contracts. While this is over the past years and in many member states tempo- not to deny that other potentially precarious forms of rary contracts among newly recruited workers remain non-standard employment exist- including part-time pervasive. employment, temporary agency work, and quasi-depend- A striking pattern in Figs.  1 and 2 is that not a sin- ent self-employment—as opposed to temporary employ- gle member state managed to reverse the trend of grow- ment, part-time employment is predominantly voluntary ing temporary employment among the young. A partial in most European countries. Moreover, while temporary exception is Spain, where many temporary jobs were agency work and dependent self-employment can be lost, lowering their share in total employment. Further- highly precarious, they make up considerably smaller more, the decline came from an extremely high level and shares of the European workforce. has been reversed in recent years, exhibiting the high- Figure  1 presents the development of the share of est shares of fixed-term contracts in youth employment workers with temporary employment contracts in the as well as recent hirings. Hence, the project of ‘address- EU-28 countries. Besides the share among all wage earn- ing labor market segmentation’ cannot build upon easily ers, it also presents shares among young (15–29  years) identifiable best-practice cases. One important reason and older workers (55–54 years). First of all, there is con- for this lack of success is arguably that many of the most siderable variation across member states. For instance, segmented countries face a difficult overall labor market low shares of around six per cent or less are observed situation. The upper panel in Fig.  3 plots unemployment in Bulgaria, Estonia, Latvia, Lithuania, Romania and the rates and temporary employment shares among those UK. Shares considerably above the EU-28 average of 14% aged 15–24 (in 2014). With youth unemployment rates can be found in Croatia, Sweden (both 17%), Cyprus above 30% and despite regulatory issues, the Mediterra- (19), Portugal, the Netherlands (both 21), Spain (24) and nean countries also suffer from a lack of labor demand Poland (28). and cannot offer young people a sufficient number of The solid black line in Fig.  1 very clearly shows that secure positions in the labor market. This also means the young are disproportionately affected by temporary that reducing temporary employment cannot be the top employment. While this is a well-known pattern, a dis- priority among policy-makers in these countries. There comforting finding is that the gap between the young and is little doubt that the negative socio-economic effects the general population is dramatically growing in some of unemployment are much more severe than those of countries, particularly Croatia, France, Italy, Nether- being in a temporary job. lands, Poland, Slovenia and (in most recent years) Spain. Temporary employment does not produce segmen- Furthermore, there is a growing share of temporary tation if it is merely a transient experience that leads to employment among the young in Germany, although the stable labor market inclusion. However, if temporary development is difficult to assess against the background workers remain in insecure positions for a long time, we of Germany’s sizable apprenticeship system, which is can conclude that they are ‘trapped’ in insecure and pre- responsible for about half of all temporary contracts. carious jobs. This point is best illustrated by examining Temporary employment in the age bracket of 55–64 the upward mobility of temporary workers. The Euro - is substantially less pronounced compared to the gen- pean Commission has recently presented year-to-year eral workforce in virtually all member states. The highest transition rates from fixed-term to permanent contracts shares are observed for Cyprus, Hungary, Portugal, Spain (see Fig.  3). Furthermore, the OECD (2015, p. 188) has (all around ten per cent) and Poland (18). Moreover, the recently provided numbers for the long-term prob- development in this group is rather stable. Hence, we can abilities of temporary workers obtaining a permanent contract. Only in Greece, Italy, Spain, and Slovakia was the majority of part-time Low transition possibilities are found in a couple of employment involuntary in 2014. Only in Italy and Spain does it account for countries, which can thus be characterized as having more than ten per cent of employment (OECD 2015). Eichhorst et al. J Labour Market Res (2017) 51:3 Page 4 of 17 Fig. 1 Shares of temporary in total dependent employment in different age groups, 1983–2014 (Source Eurostat (2015)) strongly segmented labor markets. Here, the share of Some of these countries—such as Austria or Germany— involuntary fixed-term jobs in all temporary contracts are characterized by large shares of apprentices among is the highest (European Commission 2016). However, fixed-term contract holders. there also is a group of countries in which labor market The lower panel in Fig.  4 plots youth unemployment context is less disadvantageous and temporary employ- rates and the probabilities that temporary workers ment are nonetheless widespread among the young. will obtain a permanent contract over a 10-year period Eichhorst et al. J Labour Market Res (2017) 51:3 Page 5 of 17 (1) Segmentation—measured as the share of temporary 2011-12 2006-07 employment—is a persistent feature of many, but not all European labor markets. To date, no mem- ber state has substantially managed to reverse the trend. (2) Segmentation is more severe in member states with high youth unemployment. This concerns the share of temporary employment as well as the prospects of mobility into permanent jobs. (3) Even if many temporary workers make a successful Fig. 2 Share of temporary contracts among new employment con- transition into permanent employment, segmenta- tracts (Source OECD (2014, pp. 150)) tion does exist. Considerable shares of temporary workers appear to be ‘trapped’, even in the long run. 4 Measures taken to address labor market (unfortunately, data is only available for a limited number segmentation and their impact of European cases). The plot reveals significant variation How have member states responded to labor market in transition rates: whereas virtually all temporary work- segmentation? In this section, we present measures ers move to permanent jobs in Austria, Estonia and Ger- taken over recent years in the fields of EPL, unemploy - many, around half of the workers in Italy and Spain are ment benefits and ALMPs. To reduce complexity, we will still in temporary jobs, even after 10 years. The plot also focus this review on countries with substantive shares reveals that the prospects for upward mobility strongly of temporary workers and the most significant policy correlate with general labor market performance. While changes. this is unsurprising, it is important to emphasize that labor market segmentation in many European countries 4.1 Employment protection legislation is closely related to the macro-economy and insufficient It is often argued that segmentation results from insti- demand for labor. tutional mobility barriers. Because dismissals are costly Three conclusions emerge from the analysis: 2014 2007 2015 Fig. 3 Year-to-year transition from temporary to permanent contracts. Source: EU-SILC, European Commission (2016, pp. 88). *Data on transitions refers to 2013 for all Member States except for AT, BE, ES and FI for which data on transitions refers to 2014. For these countries, the comparison is made with 2013 while for all others 2012 is used; Data on transitions is not available for IE for 2012 or 2013 or 2014 and for RO for 2013 or 2014 Spain % of all employees in the previous year Poland Portugal Slovenia Sweden France France Finland Malta Netherlands Spain Italy Greece Cyprus Luxembourg Poland Germany Italy Czech Rep. Belgium Netherlands Hungary EA 18 Slovakia Austria EU27 Lithuania Greece Latvia Denmark Portugal Ireland Finland UK Bulgaria Estonia Germany Belgium Czech Republic Slovakia Luxembourg Sweden Ireland Hungary Lithuania Denmark Austria Slovenia United Kingdom Romania Estonia Latvia Croatia Eichhorst et al. J Labour Market Res (2017) 51:3 Page 6 of 17 As mentioned above, deregulating permanent con- tracts has been difficult to implement politically. How - ever, in the aftermath of the Great Recession, some of the most segmented and crisis-ridden counties in Southern Europe implemented substantial deregulation, includ- ing France, Greece, Italy, Portugal, Slovenia and Spain (OECD 2013; Gama et al. 2015). Shown in Fig. 5, EPL reforms—as well as reforms in other policy areas—can be mapped using the European Commis- sion’s LABREF database (Turrini et  al. 2015) and the ILO inventory on labor market reforms (Gama et al. 2015). In line with this we can observe major changes in the aggregate EPL index developed by the OECD and avail- able until 2013. Here, it has to be noted that some of the most recent and probably most substantial reforms have not yet been incorporated. 4.1.1 D ismissal protection reform Regarding employment protection in case of open- ended contracts, Greece, Portugal, Slovenia and Spain’s post-crisis reforms considerably reduced notice periods and severance pay for (newly hired) permanent workers (see Fig.  6). In Italy, building upon earlier, more partial reforms, the recent ‘Jobs Act’ stipulated that employers no longer have to reinstate workers dismissed for inva- lid economic reasons; whereby this reform was combined with strong employer incentives for new hirings on open- ended contracts, including conversions from temporary to permanent contracts, but falling short of a single type of contract removing the distinction between permanent and temporary types of employment (Picot and Tassinari 2015; Sestito and Viviano 2016). In Spain, dismissals were facilitated by extended and clarifying the reasons for sep- Fig. 4 Youth unemployment, temporary employment and transition aration as well as limiting severance pay through the 2010 probabilities (Source Youth unemployment and share temporary and 2012 reforms, while strengthening the employment employment: Eurostat (2015); Probability permanent job after protection of temporary workers and encouraging inter- 10 years: OECD (2015, pp. 188)) nal flexibility. While the reforms in Greece, Italy, Portugal and Spain in strictly regulated labor markets, employers make use arguably bring substantive reduction of EPL for perma- of temporary contracts that allow for a ‘cheaper’ adjust- nent workers, reforms in France and the Netherlands ment of the workforce. Many policy experts have rec- were more subtle. In France, workers who do not accept ommended deregulating EPL for regular contracts, collectively agreed wage and working-time adjustments although this has proven difficult for political reasons. in economic crises can now be dismissed. In the Neth- Instead, many member states have deregulated the use erlands, the 2015 Work and Security Act simplified EPL of temporary contracts: a strategy that has contributed without necessarily lowering it clarifying the cases in to segmenting the labor market (e.g. Boeri 2011; Kahn which courts or the Public Employment Agency decide 2010). upon the validity of dismissals. It has also introduced a u Th s, there are two possible strategies to address seg - streamlined formula for severance pay, which will consid- mentation through EPL reforms, which are not mutually erably reduce the amount in some cases, while increasing exclusive: it in others. Hence, the Work and Security Act brings a clarification rather than deregulation of EPL. In the other (1) De-regulating permanent contracts; and/or European countries with high shares of temporary work- (2) Re-regulating temporary contracts. ers (Finland, Poland and Sweden), no substantial reforms Eichhorst et al. J Labour Market Res (2017) 51:3 Page 7 of 17 Fig. 5 Employment protection reforms in the EU (LABREF) (Source Turrini et al. (2015) and Kiss (2015)) of EPL for permanent workers have been undertaken in contribution 1.4 percentage points higher for temporary recent years. rather than permanent workers, although this is reim- bursed if the job is later converted into a permanent one 4.1.2 Temporary employment (see also the more recent subsidy for permanent hir- The second possibility to address segmentation through ings). In Spain, from 2015 onwards, temporary workers EPL reform is re-regulating temporary contracts. Indeed, receive a higher severance pay at the end of their con- there have also been some—albeit less far-reaching— tract. The payment corresponds to the salary of 12  days changes in this direction (OECD 2013, 2014). One trend per year of employment with the firm and is considerably is to make the use of temporary contracts more expen- lower than for permanent workers. Finally, in the Neth- sive for employers, while at the same time offering mon - erlands, social protection for temporary and freelance etary incentives to allow for transitions into permanent workers was improved with an Act from 2013, addressing jobs. In Slovenia, the 2013 labor market reform raised the boundary of dependent work and (sometime bogus) employers’ unemployment insurance contributions for self-employment. temporary jobs. However, if the temporary job is con- Other restrictions of temporary work were imple- verted into a permanent one, employers are exempted mented in the form of a lower maximum duration. In from contributions for a limited time. The social partners Slovenia, the 2013 reform limited the time for which in France have agreed upon a similar reform. Since May an employer can use temporary contracts for a specific 2013, employers pay increased unemployment insur- job to 2  years. In the Netherlands, the maximum dura- ance contributions depending on the length of the con- tion was limited from 3 to 2 years in 2015. However, col- tract. Contributions increase by 3 percentage points if lectively agreed deviations are still possible, whereby it the contract runs for less than one month, 1.5 if one to remains to be seen what the reform means in practice. 3 months and 0.5 for longer contracts. Hence, the goal is Some countries have made the regulation of temporary to make employers contribute to the costs of extremely work more permissive in recent years. Italy has gone fur- flexible hiring practices. Moreover, employers in France thest in this direction, whereby a recent reform has abol- are exempt from contributions for a limited period if ished the need to indicate a valid reason for temporary they hire younger or older workers on permanent con- employment. It has also extended the maximum dura- tracts. In Italy, since 2012 employers have had to pay a tion as well as the possible number of renewals. However, Eichhorst et al. J Labour Market Res (2017) 51:3 Page 8 of 17 Fig. 6 Changes in the OECD EPL index (Source OECD Employment Protection Database, as shown in European Commission (2016), pp. 95) Eichhorst et al. J Labour Market Res (2017) 51:3 Page 9 of 17 firms are not allowed to use temporary contracts for employment strongly varies among EU countries. It is more than 20% of the workforce. The maximum duration further shown that within the period from 2005 to 2013, of temporary contracts has also been increased in Greece EPL slightly decreased. and Spain. The results of the OLS regression are presented in To summarize, on the face of it, there have been some Table  2. In a first step, we include the macro indicators important changes in the field of legislation on employ - introduced above into the regression. Subsequently, we ment protection, an institution that was considered use country as well as year dummies to account for coun- highly path-dependent before the crisis. Overall, there is try- and year-specific fixed effects. The results show that a trend in some of the most segmented countries towards in this simplistic model the annual unemployment rate is lower dismissal costs for permanent workers in com- robustly and significantly positive related to the share of bination with a moderate (and sometimes ambiguous) temporary employed people. Accordingly, the more people re-regulation of temporary contracts. Overall, this tends who are unemployed, the higher the share of temporary to narrow the regulatory gap between permanent and employment, which is a very intuitive result. Furthermore, temporary contracts at least to some extent. Nonethe- an increase in EPL for temporary employment is signifi - less, have these changes contributed to reducing segmen- cantly related to a decrease in temporary employment, tation? Given that many of the reforms have only been which might also be expectable. However, after controlling implemented in the past three to 5  years—in a situation for country and year fixed effects, the coefficient becomes with limited labor demand in most of the countries—it insignificant, whereby all the other variables are less robust might still be too early to evaluate their impact on hir- or insignificant. The result suggests that a more in-depth ing practices with currently available data. However, analysis is needed to explain differences in the share of revisiting Fig.  1 casts some doubt on their effectiveness, temporary and permanent employment. showing that the share of temporary contracts has even Studies on single countries based upon national data increased in the countries that deregulated EPL during can provide additional evidence. Using most recent the crisis. Between 2010 and 2014, the share of workers regional data from the Italian region of Veneto to aged 15–29 increased by roughly seven percentage points analyse the effect of the Jobs Act, Sestito and Viviano in Italy and Spain, three in France and Portugal and one (2016) show that the 2015 reform combining reduced in Greece. Of course, we do not have a counterfactual dismissal costs and regulatory uncertainty with rela- situation, thus making it difficult to assess the exact influ - tively generous hiring incentives regarding the employ- ence of the reforms. ment of permanent workers has changed firm behavior Figure  7 depicts the development of shares of tempo- in the expected direction, departing at least to some rary and permanent employment among new hires in extent from hiring and firing concentrated among each year using annual data from the European Labour temporary employees (see also Gama et al. 2015). Force Survey. The patterns are potentially influenced by both the business cycle and institutional arrangements. 4.2 Unemployment benefits Upon first glance, Fig.  7 confirms the persistence of long- Flexicurity—or a well-managed form of labor market flex - standing patterns in individual countries. In most coun- ibility—also means access to reasonable social benefits tries, the pattern of permanent vs. temporary hirings has and avoiding a double disadvantage of workers with short not dramatically changed. However, rather a long-term employment spells who often not only lose their job but declining trend in permanent hirings seems evident (e.g. also lack proper access to unemployment insurance bene- Austria, Belgium and Luxemburg), while a cyclical com- fits. The coverage of temporary workers by unemployment ponent seems to dominate in countries such as Ireland or insurance schemes is an important aspect contributing to Latvia. labor market segmentation. In many countries, the formu- Table  1 shows the summary statistic for an initial OLS las by which benefit generosity and eligibility are calcu - regression model presented in Table  2. The dependent lated tend to disadvantage workers with short employment variable ‘share of temporary employment’ is already dis- spells. Moreover, since benefits are often tied to former cussed in Fig.  7. Explanatory variables are GDP growth earnings, the wage penalty of temporary workers trans- and the annual unemployment rate both measured in lates into worse unemployment protection. The problem is percent as well as the average annual wage. We further particularly severe in many Southern European countries control for changes in the employment protection leg- that lack a universal safety net. For instance, Berton et al. islation (EPL) for temporary and permanent employ- (2012) show that non-standard employment comes with a ment. Table  1 shows that on average 54 percent of new significant penalty in social insurance systems in Italy. employment contract in 1  year are temporary. How- Modernizing the welfare state towards universalism is ever, as already shown Fig.  7, the range of temporary a difficult task in times of severe budget constraints. A Eichhorst et al. J Labour Market Res (2017) 51:3 Page 10 of 17 Fig. 7 Changes in temporary and permanent employment EU-28 for period 2003–2014 (Source Eurostat LFS (2016), own calculations (weighted). Shares of temporary and permanent employment among new hires in each year) recent step towards more universal benefits was under - contribution requirements, specifically designed for taken by the introduction of Assicurazione Sociale per including workers with short employment spells. While l’Impiego (ASPI) in Italy in 2013. ASPI replaces the rather benefit generosity will be the same as for ASPI recipi - fragmented system of unemployment benefits and makes ents, duration of Mini-ASPI will be lower and condi- the system more generous. Interestingly, the reform tional upon the actual contribution record (Berton et  al. also introduced Mini-ASPI, a special benefit with lower 2015). In May 2015, the Italian government replaced ASPI Eichhorst et al. J Labour Market Res (2017) 51:3 Page 11 of 17 Table 1 Summary Statistics. Source Eurostat LFS (2016), spells, since 2009, 4  months of employment over the last Eurostat Database (2016) and OECD.Stat (2016), own cal- 28  months suffice to receive unemployment insurance culations benefits for at least 4  months. Finally, in Spain, access to unemployment benefits was facilitated for temporary and Mean SD Min Max younger workers as well as self-employed, albeit—similar Share of temporary 0.542 0.185 0.184 0.901 to other countries—combined with stronger work incen- employed tives and activation policies for the unemployed. GDP-growth in % 1.33 3.22 −9.10 10.80 Figure  8 shows that massive differences in the share of Unemployment rate 8.99 4.22 3.40 27.50 recent unemployed people receiving unemployment ben- in % efits persist, although in some countries such as Croatia, Average annual 36,228.2 10,377.3 16,805.0 54,077.0 wage Estonia, France, Italy, Latvia and Spain the coverage share Change in EPL −0.002 0.130 −0.625 1.000 grew during and after the crisis (albeit still far from being for temporary comprehensive) while it dropped in the UK, Sweden and employment Hungary. Change in EPL −0.023 0.100 −0.635 0.190 As an approximation to benefit generosity for the least for permanent employment well-protected dismissed workers, we can refer to the maximum duration of unemployment benefits as calcu - lated by the European Commission (2016). Aside from Italy, we do not observe an expansion of unemployment Table 2 Regression results: share of temporary employed. benefit generosity for the least advantaged unemployed: Source Eurostat LFS (2016), Eurostat Database (2016) and in fact, in some countries, the benefit duration has been OECD.Stat (2016), own calculations cut. Model 1 Model 2 Model 3 To conclude, the picture regarding the development of GDP-growth − (−) protection through unemployment benefit looks some - Unemployment rate +++ +++ + what ambiguous, with notable country differences in Average annual wage −−− +++ + terms of both in levels and changes. Despite some expan- Change in EPL for temporary employ- −−− sion, benefit systems continue to be highly segmented in ment most countries. Change in EPL for permanent employ- ment 4.3 Active labor market policies Country dummies x x Another possibility to address labor market segmentation Year dummies x is expanding ALMPs and human-capital investment in Number of observations 162 162 162 particular. In segmented labor markets, vulnerable work- Due to data restrictions, the analysis is limited to the following EU countries: ers have a higher risk of becoming unemployed and thus Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, are more likely to enter into contact with public employ- Hungary, the Netherlands, Poland, Portugal, Slovak Republic, Spain, Sweden and the UK ment services (PES). Access to unemployment benefits Significance level: +++/--- p < 0.01; +/- p < 0.1; (-) borderline significant also tends to facilitate access to ALMPs as benefit recipi - ents remain within the reach of PES (European Commis- sion 2015). In principle, this provides the opportunity to prepare vulnerable workers better for the labor market and Mini-ASPI with a new scheme (NASPI) that uses and improve their future employment outcomes (e.g. job rather permissive eligibility criteria close to Mini-ASPI stability or wages). Effective ALMPs and PESs can thus (13  weeks of contributions in  the 4  years before unem- contain the consequences of higher unemployment risks ployment). At the same time, a new unemployment bene- by enabling quick and sustainable re-employment. fit scheme—DIS-COLL—was piloted for atypical workers Evaluation studies show that skill-oriented ALMPs are such as project-based collaborators (‘co.co.pro’) in parallel particularly effective in this regard: they improve the with a new unemployment assistance scheme (Picot and chance of being in employment over the long run and Tassinari 2015). With the goal of better reflecting the situ - hence clearly contribute to reducing segmentation (Card ation of temporary workers and extending coverage, the et  al. 2015), while lock-in effects into training measures reform represents a remarkable step and warrants careful are less of an issue in times of recession. evaluation once fully effective. It has the potential to serve Hiring incentives are another important element of as a model for countries facing similar challenges as Italy. ALMPs as they can set effective incentives to employers Moreover, in France, in terms of access to unemployment to hiring job-seekers. Many countries with segmented benefits for workers with relatively short employment Eichhorst et al. J Labour Market Res (2017) 51:3 Page 12 of 17 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 2015 2007 Fig. 8 Share of short-term unemployed receiving benefits (Source European Commission 2016, pp. 146) 12,000 10,000 8,000 6,000 4,000 2,000 2007 2014 Fig. 9 Expenditure on active labor market policies per person looking for work 2007 and 2014 in PPS labor markets have a tradition of subsidizing hirings on Job search assistance and activation policies require a temporary basis as well as conversions into permanent effective PESs. Sanctioning practices are only effective in positions. This can have strong short-term effects and the short run, whereas they do not lead to better long- encourage continued employment. term outcomes. Romania Poland Italy Croaa Bulgaria Slovakia Cyprus UK Sweden Malta (2014) Greece EU28 Denmark Slovenia Latvia Portugal Spain Lithuania Estonia Czech Republic Hungary Luxembourg France Belgium Finland Germany Austria Eichhorst et al. J Labour Market Res (2017) 51:3 Page 13 of 17 Hence, expanding investment in training and other in  situations of high caseloads typically observed in forms of potentially effective ALMPs appears to be a countries with steeply increasing unemployment rates. plausible strategy towards improving long-term labor Many countries have also reformed their PES structures market integration. In fact, during the crisis, the intensi- over recent years, e.g. France and the UK. Regarding fication of ALMP has been on the agenda in many Euro - expenditure per unemployed, spending only increased pean countries, although budget constraints and capacity in Germany (with a declining number of unemployed in issues have influenced the actual practices (see Gama the denominator), Denmark, Sweden and Estonia. It was et  al. 2015). To assess which member states followed this neither increased nor stabilized in those countries with route, Fig. 9 presents ALMP expenditure per person look- high unemployment and segmented labor markets such ing for work in 2007 and 2014, the most recent available as Greece, Italy, Portugal and Spain. In particular, mobil- data point for most countries. Expenditure is expressed ity-enhancing measures such as training, hiring incen- in purchasing power standards, whereby small and large tives and intensive job counselling can help to reduce economies are comparable. The figure reveals that there the risk of exclusion from employment. However, there is no general trend towards increased spending. Among are important limitations to the contribution of ALMPs the more segmented countries, the trend rather seems to towards tackling segmentation. proceed towards less spending per unemployed person. In First, ALMP participation is always selectively allo- some of the most segmented countries, this decline comes cated by the PES, whereby not all participants among the from a rather low pre-crisis baseline, namely in Greece, labor force will benefit to the same extent, while effective Italy, Poland and Spain. Furthermore, in Ireland, the ALMPs—often allocated to the ‘best risk’ unemployed— Netherlands and Portugal the numbers point to a marked may simply privilege some job-seekers over others, effec - reduction in expenditure. Among the countries with tively creating an additional element of segmentation. moderate-to-high shares of temporary workers, Austria, This is particularly relevant in  situations with high and Finland and Sweden have increased training expenditure. increasing caseloads of job-seekers. In sum, we cannot identify a clear trend towards more Second, training the unemployed is most useful for investment into ALMPs. Similar trends can also be identi- persons with rather low or deteriorated skills, such as fied when looking into participation data. in the case of the long-term unemployed. It is more PESs have also grown in importance, albeit falling doubtful how effective it is for young people with recent short of providing sufficient individualized support educational experiences and those who have frequent 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Low Medium High Fig. 10 Composition of temporary workers by educational attainment, 2014 (Source Eurostat (2015)) Bulgaria 41.7 43.8 14.5 Portugal 41.5 30.5 28 Spain 40.2 23.8 Malta 39.2 34.6 26.2 Austria 37.7 32.1 30.2 Hungary 35.7 53.4 10.9 Denmark 33.4 35.8 30.8 Italy 33.0 46.6 20.5 Luxembourg 32.5 26.3 41.3 Netherlands 31.4 42.4 26.3 Germany 31.0 48.3 20.6 Romania 27.1 64.1 8.8 Cyprus 26.6 35.3 Greece 26.3 45.6 28.1 EU28 25.9 46.1 28.1 Belgium 22.3 38.9 38.8 Sweden 22.1 45.7 32.2 France 20.7 48.3 31.1 Estonia 20.3 52.2 27.5 Latvia 19.1 57.7 23.2 Slovakia 19.0 68.3 12.8 Ireland 18.1 42.9 39 Lithuania (2014) 16.0 68.2 15.8 Finland 14.3 48.7 37.1 UK 12.0 41.5 46.5 Slovenia 9.9 60.8 29.3 Croaa 9.8 66.5 23.7 Czech Republic 8.9 70.1 21.1 Poland 8.8 65.9 25.3 Eichhorst et al. J Labour Market Res (2017) 51:3 Page 14 of 17 employment spells in the form of temporary employ- evidence that temporary employment can serve as a ment. European data shows that workers with low- bridge to permanent jobs. Eliminating this option would skills—the prime beneficiaries of training—reflect also create strong incentives to use potentially more ‘pre- the minority of all temporary workers in all countries carious’ types of work such as economically dependent (despite accounting for considerable shares in some seg- self-employment or temporary agency work. Indeed, mented labor markets, most notably Portugal and Spain). there is little doubt that negative repercussions of tempo- Quite to the contrary, in some countries a sizable share of rary employment are dwarfed by the devastating socio- the temporary workers is highly skilled, as Fig. 10 shows. psychological as well as political effects of long-term Usually between one-quarter and one-third of all tem- unemployment. To the extent that temporary contracts porary workers have tertiary education and this group is serve as entry points into the labor market for young unlikely to benefit from ALMP intervention in the form workers or long-term unemployed, banning them prob- of additional training. ably does more harm than good. Third, temporary, targeted hiring incentives may only Another frequently proposed policy solution is the provide limited relief as it may also result in churning, deregulation of permanent contracts. This solution defin - aggravating the problem of excessive turnover among itively has some value since it would remove the labor labor market entrants or those with longer sequences of market rigidity that leads to a visibly unfair distribution temporary jobs, particularly when the macro-economy is of job security and market risks and limits transition pos- in a critical status and employment protection for perma- sibilities to permanent jobs. Under such a regime, per- nent workers is rigid. manent contracts would be less permanent, although National policy-makers should thus carefully evalu- the reliance on temporary contracts would also decline. ate the mobility patterns of people with different skill Hence, a vulnerable worker would not be less vulnerable backgrounds to decide which groups should actually if his or her temporary contract is replaced with a flexible be targeted by training and hiring incentives (which are ‘permanent’ employment contract, although the chance rather costly policy interventions). In sum, ALMPs can of being hired (and eventually dismissed) on a perma- make a considerable contribution to improving long- nent contract would be higher. However, if deregulation term labor market integration, although, they are not a does not go far enough, incentives to hire on temporary general remedy for segmentation particularly in coun- contracts remain. Member states will thus have to try tries where there are insufficient jobs for skilled work - to find a moderate level of EPL that balances both goals, ers under given economic and institutional conditions. whereby recent EPL reforms can be interpreted as steps Therefore, in a situation of recession and austerity, ALMP in this direction. Similar reservations can be formulated may not be particularly effective in shortening average for the frequently proposed ‘single-employment contract’. unemployment. Here, the idea is to replace temporary and permanent contracts with a unified legal framework in which dis - 5 Conclusions and points for discussion missal protection is phased-in with tenure. However, the The positive message of our contribution is that, in the problem is that such a framework produces thresholds aftermath of the 2008/2009 crisis and rising youth unem- in dismissal costs below that employers’ prefer to replace ployment, EU member states have started to take the a worker with a new one whose protection starts from issue of segmentation more seriously. There are plenty zero. This effectively means that newly recruited work - of policy initiatives with the goal of overcoming labor ers still face the same insecurity, at least for some time. In market divides, although the more pessimistic message addition, if thresholds are implicit and employer-specific, is that they have achieved little success to date: tempo- workers do not even know how long they can stay with rary employment keeps rising and youth unemployment the firm and when they make a transition into secure remains worryingly high. Admittedly, it is probably too employment. Depending on how the single-employment early to evaluate some of the very recent reforms, also contract is modelled, it is quite possible that it makes the given the difficult macro-economic environment. None - situation of workers with short tenure even more pre- theless, one should also consider the possibility that the carious than it would be on a temporary contract. Finally, steps taken so far are insufficient to substantially improve in the real-world situation, it is difficult to imagine an the labor market situation. arrangement without any option to have temporary con- Accordingly, which policy options exist and how suit- tracts under certain conditions, meaning that some dual- able are they against the background of the identified ity will remain. challenges? A factor that can mitigate effects of temporary con - While banning or prohibitively regulating tempo- tracts is the prospect of making a successful transition rary contracts might appear as a solution, there is clear into stable employment. On the other hand, temporary Eichhorst et al. J Labour Market Res (2017) 51:3 Page 15 of 17 contracts are a real social and political problem if work- disadvantaged in several dimensions (unemployment ers see themselves in a ‘dead end’. For policy-makers, this risk and lower wages). For such a system to be effec - means that ALMPs (and training in general) should be at tive, it would be important that, first, the bonus is suffi - the core of any strategy to improve the situation of low- ciently high to substantively affect employers’ incentives skilled temporary workers who frequently experience and workers’ material situation (albeit without totally unemployment. At least in countries with relatively well- discouraging hiring). Second, it has to be ensured that functioning labor markets, governments should make there are no legal loopholes that allow circumventing the every effort to ensure that lacking or obsolete skills do bonus. Third,—and a more general point—the equal-pay not ‘trap’ workers in chains of unemployment and precar- principle has to be vigorously enforced through moni- ious jobs. However, such efforts are somewhat less prom - toring by unions and labor inspectors as well as through ising in countries where there are insufficient jobs, even severe sanctions in case of non-compliance; otherwise, for university graduates. The use of subsidies to encour - employers can cancel out the insecurity bonus by low- age conversions of temporary into permanent contracts ering temporary workers’ wages, a practice that already is a plausible and quite widely used alternative, although seems to be widespread. it needs careful monitoring and evaluation. However, An alternative way to provide temporary workers with we can expect that mobility-enhancing investments in employer-financed social security is the Austrian Mitar - human capital are most promising if employment protec- beitervorsorgekassen. In 2003, severance payments were tion is reformed in a way whereby mobility is encouraged replaced with a system in which employers contribute and transitions to long-term employment are facilitated. on a monthly basis to an account for each worker. When Another important concern for policy-makers should the employment relationship is terminated, workers can be avoiding multiple disadvantages through the welfare withdraw the money from their account (instead of a sev- state. The modernization of unemployment and pen - erance payment) or carry it over to their next job and use sion systems towards more universal schemes would it as pension savings. An advantage of this model is that not only improve the socio-economic situation of tem- also self-employed can be integrated, which is the case in porary workers but also increase the legitimacy of the Austria since 2008. Besides providing additional financial dual employment model. If society compensates tempo- security to insecure workers, the system also overcomes rary workers for their higher risk by offering decent and stark differences in separation costs. However, one has to accessible social security, this could lessen feelings of note that there is no incentive to employers to refrain from political marginalization or exclusion. As the fiscal situa - dismissals. tion in most affected member states does not leave much There is no magical formula to address labor market leeway for social policy expansion, the politics neces- segmentation, with fiscal, economic and political cir - sary for such changes are complex and probably involve cumstances significantly limiting room for maneuvre. zero-sum conflicts. However, the recent Italian reforms Member states should nonetheless continue to care- towards more universal unemployment benefits demon - fully modernize labor law and welfare states, even if it strate that these are not insurmountable hurdles. is only possible in an incremental way. Radical deregula- However, an important objection to ‘fixing’ the tem - tion of permanent contracts or re-regulating of tempo- porary employment issue with social benefits and labor rary contracts should be avoided. Policy-makers should market policies is that turnover costs are shifted from also resist the temptation to cut ALMPs and training employers to society. Another way of compensating programs in particular. Given its favorable long-term temporary workers for their risk is granting them ‘inse- consequences, training programs targeted at the most curity bonuses’, as achieved in France in the form of the needy should be an important pillar in any strategy to prime de précarité. In this system, employers have to pay address segmentation. Member states should continue a bonus to the worker (amounting to ten per cent of the to experiment with fiscal incentives to convert tempo - total gross wage paid under the contract) if the employ- rary into permanent contracts, while carefully evaluating ment relationship is not continued after the contract has the schemes and making their survival conditional upon expired. As mentioned, since 2013 there has also been a success. Finally, it will be important to move towards a higher employer contribution rate to the unemployment better social protection of temporary workers. For eco- insurance fund in case of short fixed-term contracts. This nomic and symbolic reasons, employers will have to system ensures that employers contribute to the social make a relevant contribution to this. Austria, France and costs of their hiring practices and increases incentives to Italy exemplify different approaches that could be devel - use temporary contracts responsibly. In addition, it might oped into more broadly applicable strategies to address reduce the perception among temporary workers being segmentation. Eichhorst et al. J Labour Market Res (2017) 51:3 Page 16 of 17 Received: 14 May 2017 Accepted: 12 June 2017 Still, there are considerable challenges regard- ing the politico-economic feasibility of such reforms. First, political preferences matter. 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Rev. 63(2), 359–365 (1973) Turrini, A., Koltay, G., Pierini, F., Goffard, C., Kiss, A.: A decade of labour market Rubery, J., Piasna, A.: Labour market segmentation and the EU reform agenda: reforms in the EU: insights from the LABREF database. IZA J. Labor Policy developing alternatives to the mainstream. ETUI Research Paper, 2016.10 4, 12 (2015) (2016) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal for Labour Market Research Springer Journals

Labor market reforms in Europe: towards more flexicure labor markets?

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Abstract

Labor market segmentation refers to a salient divide between secure and insecure jobs and is related to problems in important areas, including macro-economic efficiency, workers’ well-being and repercussions for social cohesion. EU-28 countries have started a new wave of labor market reforms in the aftermath of the 2008/2009 crisis to tackle a number of issues, including labor market segmentation. This particularly concerns reforms in: (1) employment protection, i.e. dismissal protection and restrictions on fixed-term contracts; (2) unemployment benefit generosity and coverage; and (3) the intensity of active labor market policies. The paper provides an overview of reform patterns and tries to assess whether and to what extent these reforms have led to less dualized, more ‘flexicure’ labor markets in terms of dismissal protection, the provision of unemployment benefits and access to ALMPs. In particular, we will provide some evidence on potential changes in hirings on temporary contracts. Keywords: Employment protection, Labor market reforms, Unemployment insurance, Flexicurity JEL Classification: J42, J48, J68 major impetus for deregulation. Various European coun- 1 Introduction tries have, for instance, lowered employment protection Labor market segmentation has been one of the most with the explicit goal to overcome segmentation. Given prominent topics in recent European policy debates. that deregulation can have social and political costs, it is The issue has gained new momentum with the asym - important to accumulate evidence on the effectiveness of metrical impact of the 2008/2009 recession on young this approach. However, deregulation is not the only way people and the subsequent wave of labor market reforms to tackle segmentation, neither in practice nor in theory implemented particularly in countries hit by the crisis. (Rubery and Piasna 2016). The flexicurity approach empha - In Europe, segmentation has mainly taken the form of a sises, for example, how social protection and human capital divide between permanent and temporary jobs and it is investment can compensate for lacking job security. Against this aspect we will focus on. The goal of this paper is to this background, we consider a broad range of policies that show trends in this form of labor segmentation, provide could, in principle, tackle labour market segmentation. an overview of recent labor market reforms and assess This perspective allows us to remain as open as possible whether these reforms have deepened the segmentation in answering to our overarching question: which policy or—reversing a long-standing trend—helped to over- approach can contribute to overcoming segmentation? come divides in the labor market that were often attrib- We show that EU member states adopted various policy uted to institutional dysfunctionalities. strategies to address segmentation in the aftermath of the While our contribution is mainly descriptive, we none- Great Recession. The issue clearly has a prominent place theless believe it is important for academic and policy on policy agendas. That said, the more pessimistic mes - debates. In the past years, segmentation has become a sage of our analyses is that these initiatives have (so far) failed to produce a noticeable reduction in labour market segmentation—a best practice case is difficult to find. *Correspondence: eichhorst@iza.org IZA Institute of Labor Economics, Schaumburg-Lippe-Str. 5-9, The paper is structured as follows. We begin with two 53113 Bonn, Germany short background sections on segmentation theory and Full list of author information is available at the end of the article © The Author(s) 2017. This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made. Eichhorst et al. J Labour Market Res (2017) 51:3 Page 2 of 17 on patterns of temporary employment in the European supporting this conjecture is sparse (Kahn 2010; see Union, highlighting considerable segmentation between Rubery and Piasna 2016 for an overview). Our contribu- temporary and permanent jobs, even if upward transi- tion to this debate is to assess to what extent countries tions happen frequently. In the subsequent section, we have embarked on the flexibility (or flexicurity) agenda review recent attempts of member states to address labor (again) and if this has led to a reduction of segmentation. market segmentation on four dimensions: employment This is justified in particular by the fact that the crisis protection legislation (EPL), unemployment benefits, has led to intense efforts to reform dismissal regulation. active labor market policies (ALMP) and working-time Because this institution that has been characterized by flexibility. We will assess the extent to which segmenta - strong path dependence (Boeri 2011), past research could tion has been reduced or deepened through reforms, only exploit very limited over-time variation for such particularly regarding EPL, unemployment benefits and analyses. ALMPs. Subsequently, we briefly point to the challenges To be more specific, we have to be clear about which that policy-makers face in reducing labor market seg- problems resulting from segmentation are to be addressed. mentation. A final section concludes and derives policy With some simplification, they can be found in two broad recommendations. areas: macro-economic efficiency and workers’ well-being. Regarding macro-economic effects, there are indications 2 Theoretical background that the growth of temporary employment has hampered What do we mean when we talk about labor market seg- productivity growth (because investment in the workforce mentation? The term has been used in different ways is discouraged) and failed to increase employment levels over recent decades (see below). In this article, we will (because secure employment is substituted with tempo- use it to refer to a salient divide in European labor mar- rary jobs) (Boeri and Garibaldi 2007; Boeri 2011). kets between secure and insecure jobs. This divide has There is also strong evidence that job insecurity and been institutionalized by the creation and expansion of temporary contracts in particular depress workers’ health non-standard forms of employment, most notably tem- and well-being (Benach et  al. 2014; De Cuyper et  al. porary employment (such as fixed-term and agency 2008). Naturally, the same is true for unemployment and work) (Eichhorst and Marx 2012; Marx 2015). It does poverty, as experiences that are inevitable if mobility out not make much sense to think of segmentation in static of insecure jobs is lacking. There are strong indications terms. A labor market is only segmented if there are sig- that the stress caused by such social problems not only nificant mobility barriers. A large stock of temporary impedes health but also interferes with central aspects of workers in the labor market is unproblematic if there is people’s lives, including cognitive abilities, family forma- high mobility into secure jobs; indeed, many temporary tion and parenting (e.g. Mani et al. 2013). workers make such a successful transition. However, seg- What makes segmentation and labor market risk par- mentation exists if workers feel ‘trapped’ in unstable and ticularly stressful is that many European welfare states insecure jobs, interrupted by repeated unemployment are ill-prepared to deal with non-standard workers. spells. Addressing segmentation thus means addressing Built upon the assumptions underlying the post-war (lacking) mobility into stable jobs. employment model, eligibility criteria for social insur- It is noteworthy that segmentation and its causes ance benefits often disadvantage workers with short and have been theorized from rather contradictory perspec- interrupted work records (Berton et  al. 2012; Clasen tives (Marx 2012). Originally, segmentation was seen as and Clegg 2011; Hinrichs and Jessoula 2012). As Palier a consequence of employer strategies reinforcing socio- and Thelen (2010) emphasise, political representatives structural divides (Doeringer and Piore 1971; Reich et al. of core workers in countries with strong segmentation 1973). Since the 1990s, the dominant perspective has have incentives to design social policy in an exclusion- been to explain segmentation as a result of labour mar- ary way. This would mean that employment structures ket institutions. Employment protection legislation in and welfare state institutions reinforce each other in particular has been identified as a mobility barrier into producing labor market disadvantage. Such ‘dualization’ the core labor market (Bentolila et al. 2012; Rueda 2005; is diametrically opposed to the notion of flexicurity, Saint-Paul 1996). The reason is that employers antici - as it has been promoted by the European Commission pate turnover costs, which incentivizes relying on a small for some time. Here, the idea is that the welfare state core workforce complemented with a periphery of tem- compensates for disadvantage in the labour market porary workers. The reverse reasoning that deregulating and facilitates mobility. While the political economy employment protection could reduce segmentation and literature is sceptical regarding the prospects of mod- ‘insider–outsider divides’ is strongly reflected in con - ernizing social security systems along the lines of out- temporary policy advice. However, empirical evidence sider-friendly flexicurity (Rueda 2006, 2014), there is Eichhorst et al. J Labour Market Res (2017) 51:3 Page 3 of 17 little empirical evidence on this aspect in a broad com- conclude that the problem pressure in terms of segmen- parative perspective. However, the crisis has brought tation is much stronger among young workers and thus it insufficient protection of temporary workers in many seems advisable to focus on this group. countries to the forefront and we believe it is important Looking at stocks of temporary workers might be to assess reform efforts in this area. misleading because policy changes only affect newly recruited workers. Figure  2 thus presents the share 3 Background: labor market segmentation in the of temporary contracts among new employment con- European Union tracts (less than 3  months old) at two different points In this article, we focus on a specific form of segmenta - in time as presented by the OECD. At this level of tion, namely segmentation between workers with perma- aggregation we observe a rather strong persistence nent and temporary employment contracts. While this is over the past years and in many member states tempo- not to deny that other potentially precarious forms of rary contracts among newly recruited workers remain non-standard employment exist- including part-time pervasive. employment, temporary agency work, and quasi-depend- A striking pattern in Figs.  1 and 2 is that not a sin- ent self-employment—as opposed to temporary employ- gle member state managed to reverse the trend of grow- ment, part-time employment is predominantly voluntary ing temporary employment among the young. A partial in most European countries. Moreover, while temporary exception is Spain, where many temporary jobs were agency work and dependent self-employment can be lost, lowering their share in total employment. Further- highly precarious, they make up considerably smaller more, the decline came from an extremely high level and shares of the European workforce. has been reversed in recent years, exhibiting the high- Figure  1 presents the development of the share of est shares of fixed-term contracts in youth employment workers with temporary employment contracts in the as well as recent hirings. Hence, the project of ‘address- EU-28 countries. Besides the share among all wage earn- ing labor market segmentation’ cannot build upon easily ers, it also presents shares among young (15–29  years) identifiable best-practice cases. One important reason and older workers (55–54 years). First of all, there is con- for this lack of success is arguably that many of the most siderable variation across member states. For instance, segmented countries face a difficult overall labor market low shares of around six per cent or less are observed situation. The upper panel in Fig.  3 plots unemployment in Bulgaria, Estonia, Latvia, Lithuania, Romania and the rates and temporary employment shares among those UK. Shares considerably above the EU-28 average of 14% aged 15–24 (in 2014). With youth unemployment rates can be found in Croatia, Sweden (both 17%), Cyprus above 30% and despite regulatory issues, the Mediterra- (19), Portugal, the Netherlands (both 21), Spain (24) and nean countries also suffer from a lack of labor demand Poland (28). and cannot offer young people a sufficient number of The solid black line in Fig.  1 very clearly shows that secure positions in the labor market. This also means the young are disproportionately affected by temporary that reducing temporary employment cannot be the top employment. While this is a well-known pattern, a dis- priority among policy-makers in these countries. There comforting finding is that the gap between the young and is little doubt that the negative socio-economic effects the general population is dramatically growing in some of unemployment are much more severe than those of countries, particularly Croatia, France, Italy, Nether- being in a temporary job. lands, Poland, Slovenia and (in most recent years) Spain. Temporary employment does not produce segmen- Furthermore, there is a growing share of temporary tation if it is merely a transient experience that leads to employment among the young in Germany, although the stable labor market inclusion. However, if temporary development is difficult to assess against the background workers remain in insecure positions for a long time, we of Germany’s sizable apprenticeship system, which is can conclude that they are ‘trapped’ in insecure and pre- responsible for about half of all temporary contracts. carious jobs. This point is best illustrated by examining Temporary employment in the age bracket of 55–64 the upward mobility of temporary workers. The Euro - is substantially less pronounced compared to the gen- pean Commission has recently presented year-to-year eral workforce in virtually all member states. The highest transition rates from fixed-term to permanent contracts shares are observed for Cyprus, Hungary, Portugal, Spain (see Fig.  3). Furthermore, the OECD (2015, p. 188) has (all around ten per cent) and Poland (18). Moreover, the recently provided numbers for the long-term prob- development in this group is rather stable. Hence, we can abilities of temporary workers obtaining a permanent contract. Only in Greece, Italy, Spain, and Slovakia was the majority of part-time Low transition possibilities are found in a couple of employment involuntary in 2014. Only in Italy and Spain does it account for countries, which can thus be characterized as having more than ten per cent of employment (OECD 2015). Eichhorst et al. J Labour Market Res (2017) 51:3 Page 4 of 17 Fig. 1 Shares of temporary in total dependent employment in different age groups, 1983–2014 (Source Eurostat (2015)) strongly segmented labor markets. Here, the share of Some of these countries—such as Austria or Germany— involuntary fixed-term jobs in all temporary contracts are characterized by large shares of apprentices among is the highest (European Commission 2016). However, fixed-term contract holders. there also is a group of countries in which labor market The lower panel in Fig.  4 plots youth unemployment context is less disadvantageous and temporary employ- rates and the probabilities that temporary workers ment are nonetheless widespread among the young. will obtain a permanent contract over a 10-year period Eichhorst et al. J Labour Market Res (2017) 51:3 Page 5 of 17 (1) Segmentation—measured as the share of temporary 2011-12 2006-07 employment—is a persistent feature of many, but not all European labor markets. To date, no mem- ber state has substantially managed to reverse the trend. (2) Segmentation is more severe in member states with high youth unemployment. This concerns the share of temporary employment as well as the prospects of mobility into permanent jobs. (3) Even if many temporary workers make a successful Fig. 2 Share of temporary contracts among new employment con- transition into permanent employment, segmenta- tracts (Source OECD (2014, pp. 150)) tion does exist. Considerable shares of temporary workers appear to be ‘trapped’, even in the long run. 4 Measures taken to address labor market (unfortunately, data is only available for a limited number segmentation and their impact of European cases). The plot reveals significant variation How have member states responded to labor market in transition rates: whereas virtually all temporary work- segmentation? In this section, we present measures ers move to permanent jobs in Austria, Estonia and Ger- taken over recent years in the fields of EPL, unemploy - many, around half of the workers in Italy and Spain are ment benefits and ALMPs. To reduce complexity, we will still in temporary jobs, even after 10 years. The plot also focus this review on countries with substantive shares reveals that the prospects for upward mobility strongly of temporary workers and the most significant policy correlate with general labor market performance. While changes. this is unsurprising, it is important to emphasize that labor market segmentation in many European countries 4.1 Employment protection legislation is closely related to the macro-economy and insufficient It is often argued that segmentation results from insti- demand for labor. tutional mobility barriers. Because dismissals are costly Three conclusions emerge from the analysis: 2014 2007 2015 Fig. 3 Year-to-year transition from temporary to permanent contracts. Source: EU-SILC, European Commission (2016, pp. 88). *Data on transitions refers to 2013 for all Member States except for AT, BE, ES and FI for which data on transitions refers to 2014. For these countries, the comparison is made with 2013 while for all others 2012 is used; Data on transitions is not available for IE for 2012 or 2013 or 2014 and for RO for 2013 or 2014 Spain % of all employees in the previous year Poland Portugal Slovenia Sweden France France Finland Malta Netherlands Spain Italy Greece Cyprus Luxembourg Poland Germany Italy Czech Rep. Belgium Netherlands Hungary EA 18 Slovakia Austria EU27 Lithuania Greece Latvia Denmark Portugal Ireland Finland UK Bulgaria Estonia Germany Belgium Czech Republic Slovakia Luxembourg Sweden Ireland Hungary Lithuania Denmark Austria Slovenia United Kingdom Romania Estonia Latvia Croatia Eichhorst et al. J Labour Market Res (2017) 51:3 Page 6 of 17 As mentioned above, deregulating permanent con- tracts has been difficult to implement politically. How - ever, in the aftermath of the Great Recession, some of the most segmented and crisis-ridden counties in Southern Europe implemented substantial deregulation, includ- ing France, Greece, Italy, Portugal, Slovenia and Spain (OECD 2013; Gama et al. 2015). Shown in Fig. 5, EPL reforms—as well as reforms in other policy areas—can be mapped using the European Commis- sion’s LABREF database (Turrini et  al. 2015) and the ILO inventory on labor market reforms (Gama et al. 2015). In line with this we can observe major changes in the aggregate EPL index developed by the OECD and avail- able until 2013. Here, it has to be noted that some of the most recent and probably most substantial reforms have not yet been incorporated. 4.1.1 D ismissal protection reform Regarding employment protection in case of open- ended contracts, Greece, Portugal, Slovenia and Spain’s post-crisis reforms considerably reduced notice periods and severance pay for (newly hired) permanent workers (see Fig.  6). In Italy, building upon earlier, more partial reforms, the recent ‘Jobs Act’ stipulated that employers no longer have to reinstate workers dismissed for inva- lid economic reasons; whereby this reform was combined with strong employer incentives for new hirings on open- ended contracts, including conversions from temporary to permanent contracts, but falling short of a single type of contract removing the distinction between permanent and temporary types of employment (Picot and Tassinari 2015; Sestito and Viviano 2016). In Spain, dismissals were facilitated by extended and clarifying the reasons for sep- Fig. 4 Youth unemployment, temporary employment and transition aration as well as limiting severance pay through the 2010 probabilities (Source Youth unemployment and share temporary and 2012 reforms, while strengthening the employment employment: Eurostat (2015); Probability permanent job after protection of temporary workers and encouraging inter- 10 years: OECD (2015, pp. 188)) nal flexibility. While the reforms in Greece, Italy, Portugal and Spain in strictly regulated labor markets, employers make use arguably bring substantive reduction of EPL for perma- of temporary contracts that allow for a ‘cheaper’ adjust- nent workers, reforms in France and the Netherlands ment of the workforce. Many policy experts have rec- were more subtle. In France, workers who do not accept ommended deregulating EPL for regular contracts, collectively agreed wage and working-time adjustments although this has proven difficult for political reasons. in economic crises can now be dismissed. In the Neth- Instead, many member states have deregulated the use erlands, the 2015 Work and Security Act simplified EPL of temporary contracts: a strategy that has contributed without necessarily lowering it clarifying the cases in to segmenting the labor market (e.g. Boeri 2011; Kahn which courts or the Public Employment Agency decide 2010). upon the validity of dismissals. It has also introduced a u Th s, there are two possible strategies to address seg - streamlined formula for severance pay, which will consid- mentation through EPL reforms, which are not mutually erably reduce the amount in some cases, while increasing exclusive: it in others. Hence, the Work and Security Act brings a clarification rather than deregulation of EPL. In the other (1) De-regulating permanent contracts; and/or European countries with high shares of temporary work- (2) Re-regulating temporary contracts. ers (Finland, Poland and Sweden), no substantial reforms Eichhorst et al. J Labour Market Res (2017) 51:3 Page 7 of 17 Fig. 5 Employment protection reforms in the EU (LABREF) (Source Turrini et al. (2015) and Kiss (2015)) of EPL for permanent workers have been undertaken in contribution 1.4 percentage points higher for temporary recent years. rather than permanent workers, although this is reim- bursed if the job is later converted into a permanent one 4.1.2 Temporary employment (see also the more recent subsidy for permanent hir- The second possibility to address segmentation through ings). In Spain, from 2015 onwards, temporary workers EPL reform is re-regulating temporary contracts. Indeed, receive a higher severance pay at the end of their con- there have also been some—albeit less far-reaching— tract. The payment corresponds to the salary of 12  days changes in this direction (OECD 2013, 2014). One trend per year of employment with the firm and is considerably is to make the use of temporary contracts more expen- lower than for permanent workers. Finally, in the Neth- sive for employers, while at the same time offering mon - erlands, social protection for temporary and freelance etary incentives to allow for transitions into permanent workers was improved with an Act from 2013, addressing jobs. In Slovenia, the 2013 labor market reform raised the boundary of dependent work and (sometime bogus) employers’ unemployment insurance contributions for self-employment. temporary jobs. However, if the temporary job is con- Other restrictions of temporary work were imple- verted into a permanent one, employers are exempted mented in the form of a lower maximum duration. In from contributions for a limited time. The social partners Slovenia, the 2013 reform limited the time for which in France have agreed upon a similar reform. Since May an employer can use temporary contracts for a specific 2013, employers pay increased unemployment insur- job to 2  years. In the Netherlands, the maximum dura- ance contributions depending on the length of the con- tion was limited from 3 to 2 years in 2015. However, col- tract. Contributions increase by 3 percentage points if lectively agreed deviations are still possible, whereby it the contract runs for less than one month, 1.5 if one to remains to be seen what the reform means in practice. 3 months and 0.5 for longer contracts. Hence, the goal is Some countries have made the regulation of temporary to make employers contribute to the costs of extremely work more permissive in recent years. Italy has gone fur- flexible hiring practices. Moreover, employers in France thest in this direction, whereby a recent reform has abol- are exempt from contributions for a limited period if ished the need to indicate a valid reason for temporary they hire younger or older workers on permanent con- employment. It has also extended the maximum dura- tracts. In Italy, since 2012 employers have had to pay a tion as well as the possible number of renewals. However, Eichhorst et al. J Labour Market Res (2017) 51:3 Page 8 of 17 Fig. 6 Changes in the OECD EPL index (Source OECD Employment Protection Database, as shown in European Commission (2016), pp. 95) Eichhorst et al. J Labour Market Res (2017) 51:3 Page 9 of 17 firms are not allowed to use temporary contracts for employment strongly varies among EU countries. It is more than 20% of the workforce. The maximum duration further shown that within the period from 2005 to 2013, of temporary contracts has also been increased in Greece EPL slightly decreased. and Spain. The results of the OLS regression are presented in To summarize, on the face of it, there have been some Table  2. In a first step, we include the macro indicators important changes in the field of legislation on employ - introduced above into the regression. Subsequently, we ment protection, an institution that was considered use country as well as year dummies to account for coun- highly path-dependent before the crisis. Overall, there is try- and year-specific fixed effects. The results show that a trend in some of the most segmented countries towards in this simplistic model the annual unemployment rate is lower dismissal costs for permanent workers in com- robustly and significantly positive related to the share of bination with a moderate (and sometimes ambiguous) temporary employed people. Accordingly, the more people re-regulation of temporary contracts. Overall, this tends who are unemployed, the higher the share of temporary to narrow the regulatory gap between permanent and employment, which is a very intuitive result. Furthermore, temporary contracts at least to some extent. Nonethe- an increase in EPL for temporary employment is signifi - less, have these changes contributed to reducing segmen- cantly related to a decrease in temporary employment, tation? Given that many of the reforms have only been which might also be expectable. However, after controlling implemented in the past three to 5  years—in a situation for country and year fixed effects, the coefficient becomes with limited labor demand in most of the countries—it insignificant, whereby all the other variables are less robust might still be too early to evaluate their impact on hir- or insignificant. The result suggests that a more in-depth ing practices with currently available data. However, analysis is needed to explain differences in the share of revisiting Fig.  1 casts some doubt on their effectiveness, temporary and permanent employment. showing that the share of temporary contracts has even Studies on single countries based upon national data increased in the countries that deregulated EPL during can provide additional evidence. Using most recent the crisis. Between 2010 and 2014, the share of workers regional data from the Italian region of Veneto to aged 15–29 increased by roughly seven percentage points analyse the effect of the Jobs Act, Sestito and Viviano in Italy and Spain, three in France and Portugal and one (2016) show that the 2015 reform combining reduced in Greece. Of course, we do not have a counterfactual dismissal costs and regulatory uncertainty with rela- situation, thus making it difficult to assess the exact influ - tively generous hiring incentives regarding the employ- ence of the reforms. ment of permanent workers has changed firm behavior Figure  7 depicts the development of shares of tempo- in the expected direction, departing at least to some rary and permanent employment among new hires in extent from hiring and firing concentrated among each year using annual data from the European Labour temporary employees (see also Gama et al. 2015). Force Survey. The patterns are potentially influenced by both the business cycle and institutional arrangements. 4.2 Unemployment benefits Upon first glance, Fig.  7 confirms the persistence of long- Flexicurity—or a well-managed form of labor market flex - standing patterns in individual countries. In most coun- ibility—also means access to reasonable social benefits tries, the pattern of permanent vs. temporary hirings has and avoiding a double disadvantage of workers with short not dramatically changed. However, rather a long-term employment spells who often not only lose their job but declining trend in permanent hirings seems evident (e.g. also lack proper access to unemployment insurance bene- Austria, Belgium and Luxemburg), while a cyclical com- fits. The coverage of temporary workers by unemployment ponent seems to dominate in countries such as Ireland or insurance schemes is an important aspect contributing to Latvia. labor market segmentation. In many countries, the formu- Table  1 shows the summary statistic for an initial OLS las by which benefit generosity and eligibility are calcu - regression model presented in Table  2. The dependent lated tend to disadvantage workers with short employment variable ‘share of temporary employment’ is already dis- spells. Moreover, since benefits are often tied to former cussed in Fig.  7. Explanatory variables are GDP growth earnings, the wage penalty of temporary workers trans- and the annual unemployment rate both measured in lates into worse unemployment protection. The problem is percent as well as the average annual wage. We further particularly severe in many Southern European countries control for changes in the employment protection leg- that lack a universal safety net. For instance, Berton et al. islation (EPL) for temporary and permanent employ- (2012) show that non-standard employment comes with a ment. Table  1 shows that on average 54 percent of new significant penalty in social insurance systems in Italy. employment contract in 1  year are temporary. How- Modernizing the welfare state towards universalism is ever, as already shown Fig.  7, the range of temporary a difficult task in times of severe budget constraints. A Eichhorst et al. J Labour Market Res (2017) 51:3 Page 10 of 17 Fig. 7 Changes in temporary and permanent employment EU-28 for period 2003–2014 (Source Eurostat LFS (2016), own calculations (weighted). Shares of temporary and permanent employment among new hires in each year) recent step towards more universal benefits was under - contribution requirements, specifically designed for taken by the introduction of Assicurazione Sociale per including workers with short employment spells. While l’Impiego (ASPI) in Italy in 2013. ASPI replaces the rather benefit generosity will be the same as for ASPI recipi - fragmented system of unemployment benefits and makes ents, duration of Mini-ASPI will be lower and condi- the system more generous. Interestingly, the reform tional upon the actual contribution record (Berton et  al. also introduced Mini-ASPI, a special benefit with lower 2015). In May 2015, the Italian government replaced ASPI Eichhorst et al. J Labour Market Res (2017) 51:3 Page 11 of 17 Table 1 Summary Statistics. Source Eurostat LFS (2016), spells, since 2009, 4  months of employment over the last Eurostat Database (2016) and OECD.Stat (2016), own cal- 28  months suffice to receive unemployment insurance culations benefits for at least 4  months. Finally, in Spain, access to unemployment benefits was facilitated for temporary and Mean SD Min Max younger workers as well as self-employed, albeit—similar Share of temporary 0.542 0.185 0.184 0.901 to other countries—combined with stronger work incen- employed tives and activation policies for the unemployed. GDP-growth in % 1.33 3.22 −9.10 10.80 Figure  8 shows that massive differences in the share of Unemployment rate 8.99 4.22 3.40 27.50 recent unemployed people receiving unemployment ben- in % efits persist, although in some countries such as Croatia, Average annual 36,228.2 10,377.3 16,805.0 54,077.0 wage Estonia, France, Italy, Latvia and Spain the coverage share Change in EPL −0.002 0.130 −0.625 1.000 grew during and after the crisis (albeit still far from being for temporary comprehensive) while it dropped in the UK, Sweden and employment Hungary. Change in EPL −0.023 0.100 −0.635 0.190 As an approximation to benefit generosity for the least for permanent employment well-protected dismissed workers, we can refer to the maximum duration of unemployment benefits as calcu - lated by the European Commission (2016). Aside from Italy, we do not observe an expansion of unemployment Table 2 Regression results: share of temporary employed. benefit generosity for the least advantaged unemployed: Source Eurostat LFS (2016), Eurostat Database (2016) and in fact, in some countries, the benefit duration has been OECD.Stat (2016), own calculations cut. Model 1 Model 2 Model 3 To conclude, the picture regarding the development of GDP-growth − (−) protection through unemployment benefit looks some - Unemployment rate +++ +++ + what ambiguous, with notable country differences in Average annual wage −−− +++ + terms of both in levels and changes. Despite some expan- Change in EPL for temporary employ- −−− sion, benefit systems continue to be highly segmented in ment most countries. Change in EPL for permanent employ- ment 4.3 Active labor market policies Country dummies x x Another possibility to address labor market segmentation Year dummies x is expanding ALMPs and human-capital investment in Number of observations 162 162 162 particular. In segmented labor markets, vulnerable work- Due to data restrictions, the analysis is limited to the following EU countries: ers have a higher risk of becoming unemployed and thus Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, are more likely to enter into contact with public employ- Hungary, the Netherlands, Poland, Portugal, Slovak Republic, Spain, Sweden and the UK ment services (PES). Access to unemployment benefits Significance level: +++/--- p < 0.01; +/- p < 0.1; (-) borderline significant also tends to facilitate access to ALMPs as benefit recipi - ents remain within the reach of PES (European Commis- sion 2015). In principle, this provides the opportunity to prepare vulnerable workers better for the labor market and Mini-ASPI with a new scheme (NASPI) that uses and improve their future employment outcomes (e.g. job rather permissive eligibility criteria close to Mini-ASPI stability or wages). Effective ALMPs and PESs can thus (13  weeks of contributions in  the 4  years before unem- contain the consequences of higher unemployment risks ployment). At the same time, a new unemployment bene- by enabling quick and sustainable re-employment. fit scheme—DIS-COLL—was piloted for atypical workers Evaluation studies show that skill-oriented ALMPs are such as project-based collaborators (‘co.co.pro’) in parallel particularly effective in this regard: they improve the with a new unemployment assistance scheme (Picot and chance of being in employment over the long run and Tassinari 2015). With the goal of better reflecting the situ - hence clearly contribute to reducing segmentation (Card ation of temporary workers and extending coverage, the et  al. 2015), while lock-in effects into training measures reform represents a remarkable step and warrants careful are less of an issue in times of recession. evaluation once fully effective. It has the potential to serve Hiring incentives are another important element of as a model for countries facing similar challenges as Italy. ALMPs as they can set effective incentives to employers Moreover, in France, in terms of access to unemployment to hiring job-seekers. Many countries with segmented benefits for workers with relatively short employment Eichhorst et al. J Labour Market Res (2017) 51:3 Page 12 of 17 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 2015 2007 Fig. 8 Share of short-term unemployed receiving benefits (Source European Commission 2016, pp. 146) 12,000 10,000 8,000 6,000 4,000 2,000 2007 2014 Fig. 9 Expenditure on active labor market policies per person looking for work 2007 and 2014 in PPS labor markets have a tradition of subsidizing hirings on Job search assistance and activation policies require a temporary basis as well as conversions into permanent effective PESs. Sanctioning practices are only effective in positions. This can have strong short-term effects and the short run, whereas they do not lead to better long- encourage continued employment. term outcomes. Romania Poland Italy Croaa Bulgaria Slovakia Cyprus UK Sweden Malta (2014) Greece EU28 Denmark Slovenia Latvia Portugal Spain Lithuania Estonia Czech Republic Hungary Luxembourg France Belgium Finland Germany Austria Eichhorst et al. J Labour Market Res (2017) 51:3 Page 13 of 17 Hence, expanding investment in training and other in  situations of high caseloads typically observed in forms of potentially effective ALMPs appears to be a countries with steeply increasing unemployment rates. plausible strategy towards improving long-term labor Many countries have also reformed their PES structures market integration. In fact, during the crisis, the intensi- over recent years, e.g. France and the UK. Regarding fication of ALMP has been on the agenda in many Euro - expenditure per unemployed, spending only increased pean countries, although budget constraints and capacity in Germany (with a declining number of unemployed in issues have influenced the actual practices (see Gama the denominator), Denmark, Sweden and Estonia. It was et  al. 2015). To assess which member states followed this neither increased nor stabilized in those countries with route, Fig. 9 presents ALMP expenditure per person look- high unemployment and segmented labor markets such ing for work in 2007 and 2014, the most recent available as Greece, Italy, Portugal and Spain. In particular, mobil- data point for most countries. Expenditure is expressed ity-enhancing measures such as training, hiring incen- in purchasing power standards, whereby small and large tives and intensive job counselling can help to reduce economies are comparable. The figure reveals that there the risk of exclusion from employment. However, there is no general trend towards increased spending. Among are important limitations to the contribution of ALMPs the more segmented countries, the trend rather seems to towards tackling segmentation. proceed towards less spending per unemployed person. In First, ALMP participation is always selectively allo- some of the most segmented countries, this decline comes cated by the PES, whereby not all participants among the from a rather low pre-crisis baseline, namely in Greece, labor force will benefit to the same extent, while effective Italy, Poland and Spain. Furthermore, in Ireland, the ALMPs—often allocated to the ‘best risk’ unemployed— Netherlands and Portugal the numbers point to a marked may simply privilege some job-seekers over others, effec - reduction in expenditure. Among the countries with tively creating an additional element of segmentation. moderate-to-high shares of temporary workers, Austria, This is particularly relevant in  situations with high and Finland and Sweden have increased training expenditure. increasing caseloads of job-seekers. In sum, we cannot identify a clear trend towards more Second, training the unemployed is most useful for investment into ALMPs. Similar trends can also be identi- persons with rather low or deteriorated skills, such as fied when looking into participation data. in the case of the long-term unemployed. It is more PESs have also grown in importance, albeit falling doubtful how effective it is for young people with recent short of providing sufficient individualized support educational experiences and those who have frequent 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Low Medium High Fig. 10 Composition of temporary workers by educational attainment, 2014 (Source Eurostat (2015)) Bulgaria 41.7 43.8 14.5 Portugal 41.5 30.5 28 Spain 40.2 23.8 Malta 39.2 34.6 26.2 Austria 37.7 32.1 30.2 Hungary 35.7 53.4 10.9 Denmark 33.4 35.8 30.8 Italy 33.0 46.6 20.5 Luxembourg 32.5 26.3 41.3 Netherlands 31.4 42.4 26.3 Germany 31.0 48.3 20.6 Romania 27.1 64.1 8.8 Cyprus 26.6 35.3 Greece 26.3 45.6 28.1 EU28 25.9 46.1 28.1 Belgium 22.3 38.9 38.8 Sweden 22.1 45.7 32.2 France 20.7 48.3 31.1 Estonia 20.3 52.2 27.5 Latvia 19.1 57.7 23.2 Slovakia 19.0 68.3 12.8 Ireland 18.1 42.9 39 Lithuania (2014) 16.0 68.2 15.8 Finland 14.3 48.7 37.1 UK 12.0 41.5 46.5 Slovenia 9.9 60.8 29.3 Croaa 9.8 66.5 23.7 Czech Republic 8.9 70.1 21.1 Poland 8.8 65.9 25.3 Eichhorst et al. J Labour Market Res (2017) 51:3 Page 14 of 17 employment spells in the form of temporary employ- evidence that temporary employment can serve as a ment. European data shows that workers with low- bridge to permanent jobs. Eliminating this option would skills—the prime beneficiaries of training—reflect also create strong incentives to use potentially more ‘pre- the minority of all temporary workers in all countries carious’ types of work such as economically dependent (despite accounting for considerable shares in some seg- self-employment or temporary agency work. Indeed, mented labor markets, most notably Portugal and Spain). there is little doubt that negative repercussions of tempo- Quite to the contrary, in some countries a sizable share of rary employment are dwarfed by the devastating socio- the temporary workers is highly skilled, as Fig. 10 shows. psychological as well as political effects of long-term Usually between one-quarter and one-third of all tem- unemployment. To the extent that temporary contracts porary workers have tertiary education and this group is serve as entry points into the labor market for young unlikely to benefit from ALMP intervention in the form workers or long-term unemployed, banning them prob- of additional training. ably does more harm than good. Third, temporary, targeted hiring incentives may only Another frequently proposed policy solution is the provide limited relief as it may also result in churning, deregulation of permanent contracts. This solution defin - aggravating the problem of excessive turnover among itively has some value since it would remove the labor labor market entrants or those with longer sequences of market rigidity that leads to a visibly unfair distribution temporary jobs, particularly when the macro-economy is of job security and market risks and limits transition pos- in a critical status and employment protection for perma- sibilities to permanent jobs. Under such a regime, per- nent workers is rigid. manent contracts would be less permanent, although National policy-makers should thus carefully evalu- the reliance on temporary contracts would also decline. ate the mobility patterns of people with different skill Hence, a vulnerable worker would not be less vulnerable backgrounds to decide which groups should actually if his or her temporary contract is replaced with a flexible be targeted by training and hiring incentives (which are ‘permanent’ employment contract, although the chance rather costly policy interventions). In sum, ALMPs can of being hired (and eventually dismissed) on a perma- make a considerable contribution to improving long- nent contract would be higher. However, if deregulation term labor market integration, although, they are not a does not go far enough, incentives to hire on temporary general remedy for segmentation particularly in coun- contracts remain. Member states will thus have to try tries where there are insufficient jobs for skilled work - to find a moderate level of EPL that balances both goals, ers under given economic and institutional conditions. whereby recent EPL reforms can be interpreted as steps Therefore, in a situation of recession and austerity, ALMP in this direction. Similar reservations can be formulated may not be particularly effective in shortening average for the frequently proposed ‘single-employment contract’. unemployment. Here, the idea is to replace temporary and permanent contracts with a unified legal framework in which dis - 5 Conclusions and points for discussion missal protection is phased-in with tenure. However, the The positive message of our contribution is that, in the problem is that such a framework produces thresholds aftermath of the 2008/2009 crisis and rising youth unem- in dismissal costs below that employers’ prefer to replace ployment, EU member states have started to take the a worker with a new one whose protection starts from issue of segmentation more seriously. There are plenty zero. This effectively means that newly recruited work - of policy initiatives with the goal of overcoming labor ers still face the same insecurity, at least for some time. In market divides, although the more pessimistic message addition, if thresholds are implicit and employer-specific, is that they have achieved little success to date: tempo- workers do not even know how long they can stay with rary employment keeps rising and youth unemployment the firm and when they make a transition into secure remains worryingly high. Admittedly, it is probably too employment. Depending on how the single-employment early to evaluate some of the very recent reforms, also contract is modelled, it is quite possible that it makes the given the difficult macro-economic environment. None - situation of workers with short tenure even more pre- theless, one should also consider the possibility that the carious than it would be on a temporary contract. Finally, steps taken so far are insufficient to substantially improve in the real-world situation, it is difficult to imagine an the labor market situation. arrangement without any option to have temporary con- Accordingly, which policy options exist and how suit- tracts under certain conditions, meaning that some dual- able are they against the background of the identified ity will remain. challenges? A factor that can mitigate effects of temporary con - While banning or prohibitively regulating tempo- tracts is the prospect of making a successful transition rary contracts might appear as a solution, there is clear into stable employment. On the other hand, temporary Eichhorst et al. J Labour Market Res (2017) 51:3 Page 15 of 17 contracts are a real social and political problem if work- disadvantaged in several dimensions (unemployment ers see themselves in a ‘dead end’. For policy-makers, this risk and lower wages). For such a system to be effec - means that ALMPs (and training in general) should be at tive, it would be important that, first, the bonus is suffi - the core of any strategy to improve the situation of low- ciently high to substantively affect employers’ incentives skilled temporary workers who frequently experience and workers’ material situation (albeit without totally unemployment. At least in countries with relatively well- discouraging hiring). Second, it has to be ensured that functioning labor markets, governments should make there are no legal loopholes that allow circumventing the every effort to ensure that lacking or obsolete skills do bonus. Third,—and a more general point—the equal-pay not ‘trap’ workers in chains of unemployment and precar- principle has to be vigorously enforced through moni- ious jobs. However, such efforts are somewhat less prom - toring by unions and labor inspectors as well as through ising in countries where there are insufficient jobs, even severe sanctions in case of non-compliance; otherwise, for university graduates. The use of subsidies to encour - employers can cancel out the insecurity bonus by low- age conversions of temporary into permanent contracts ering temporary workers’ wages, a practice that already is a plausible and quite widely used alternative, although seems to be widespread. it needs careful monitoring and evaluation. However, An alternative way to provide temporary workers with we can expect that mobility-enhancing investments in employer-financed social security is the Austrian Mitar - human capital are most promising if employment protec- beitervorsorgekassen. In 2003, severance payments were tion is reformed in a way whereby mobility is encouraged replaced with a system in which employers contribute and transitions to long-term employment are facilitated. on a monthly basis to an account for each worker. When Another important concern for policy-makers should the employment relationship is terminated, workers can be avoiding multiple disadvantages through the welfare withdraw the money from their account (instead of a sev- state. The modernization of unemployment and pen - erance payment) or carry it over to their next job and use sion systems towards more universal schemes would it as pension savings. An advantage of this model is that not only improve the socio-economic situation of tem- also self-employed can be integrated, which is the case in porary workers but also increase the legitimacy of the Austria since 2008. Besides providing additional financial dual employment model. If society compensates tempo- security to insecure workers, the system also overcomes rary workers for their higher risk by offering decent and stark differences in separation costs. However, one has to accessible social security, this could lessen feelings of note that there is no incentive to employers to refrain from political marginalization or exclusion. As the fiscal situa - dismissals. tion in most affected member states does not leave much There is no magical formula to address labor market leeway for social policy expansion, the politics neces- segmentation, with fiscal, economic and political cir - sary for such changes are complex and probably involve cumstances significantly limiting room for maneuvre. zero-sum conflicts. However, the recent Italian reforms Member states should nonetheless continue to care- towards more universal unemployment benefits demon - fully modernize labor law and welfare states, even if it strate that these are not insurmountable hurdles. is only possible in an incremental way. Radical deregula- However, an important objection to ‘fixing’ the tem - tion of permanent contracts or re-regulating of tempo- porary employment issue with social benefits and labor rary contracts should be avoided. Policy-makers should market policies is that turnover costs are shifted from also resist the temptation to cut ALMPs and training employers to society. Another way of compensating programs in particular. Given its favorable long-term temporary workers for their risk is granting them ‘inse- consequences, training programs targeted at the most curity bonuses’, as achieved in France in the form of the needy should be an important pillar in any strategy to prime de précarité. In this system, employers have to pay address segmentation. Member states should continue a bonus to the worker (amounting to ten per cent of the to experiment with fiscal incentives to convert tempo - total gross wage paid under the contract) if the employ- rary into permanent contracts, while carefully evaluating ment relationship is not continued after the contract has the schemes and making their survival conditional upon expired. As mentioned, since 2013 there has also been a success. Finally, it will be important to move towards a higher employer contribution rate to the unemployment better social protection of temporary workers. For eco- insurance fund in case of short fixed-term contracts. This nomic and symbolic reasons, employers will have to system ensures that employers contribute to the social make a relevant contribution to this. Austria, France and costs of their hiring practices and increases incentives to Italy exemplify different approaches that could be devel - use temporary contracts responsibly. In addition, it might oped into more broadly applicable strategies to address reduce the perception among temporary workers being segmentation. Eichhorst et al. J Labour Market Res (2017) 51:3 Page 16 of 17 Received: 14 May 2017 Accepted: 12 June 2017 Still, there are considerable challenges regard- ing the politico-economic feasibility of such reforms. First, political preferences matter. 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