RAND Review News for Summer 2011

Europe Can Raise Employment for Young and Old, Cut Inequality

The aftermath of the economic crisis of 2008 has undone much of the progress in improving employment and growth in Europe over the past 20 years. However, targeted help to place young people into jobs and job training combined with efforts to update the job skills of older people would be a “win-win” strategy for European leaders, according to a RAND Europe study.

European policymakers should increasingly focus on encouraging people to achieve their full productive potential and to participate in the labor force as complements to traditional social insurance approaches, the study recommends.

The study examined ways to increase employment rates among vulnerable groups and to reduce income inequality within groups of comparable workers. In terms of employment, the study focused on those between the ages of 16 and 24 who are not in school or working and are thus at great risk of long-term unemployment, along with those between the ages of 55 and 64, who have low labor force participation rates in general.

People queue outside an unemployment office in Madrid
AP IMAGES/PAUL WHITE
People queue outside an unemployment office in Madrid on January 28, 2011. In the fourth quarter of 2010, Spain’s unemployment rate rose to 20.3 percent, the highest since 1997 and the highest in the euro zone.

Importantly, the study found that what works to promote the labor force participation of one group may not harm another. For example, there are no significant trade-offs between increased female participation in the workforce and the employment of younger and older workers.

For the young, the recent shift toward service-sector jobs is associated with an overall increase in the probability of employment. For the old, however, trying to move them toward white-collar jobs presents a risk that they will stop working altogether, since their skills may need updating.

“That’s why it is important to combine job placement and training for the young with job skills updating for the old,” said Christian van Stolk, the lead study author. Evidence from Nordic countries shows that such work-enabling interventions can mitigate poverty and long-term unemployment.

As for income inequality, researchers found that unlike in the United States, European inequality often occurs within groups: Groups with the same education, age, gender, and employment profiles exhibit high degrees of wage inequality. This within-group inequality is often associated with flexible labor markets, such as those in Europe, which allow part-time and flexible working arrangements.

Increasing labor force participation among the young and old would help reduce income inequality. In addition, policymakers could combat within-group inequality by providing basic income support and a higher guaranteed minimum income, the study concluded.

RAND Europe conducted the study for the Directorate-General for Employment, Social Policy and Equal Opportunities at the European Commission. square

For more information:

Life after Lisbon: Europe’s Challenges to Promote Labour Force Participation and Reduce Income Inequality, RAND/MG-1068-RE, 2011.