Mutual Learning Programme Annual Thematic Synthesis Report 2014

"Lessons from the MLP to work towards the goals of the European Strategy"

Written by ICF

January 2015

EUROPEAN COMMISSION Directorate-General for Employment, Social Affairs, Skills and Labour Mobility Unit C1 Contact: Emilio Castrillejo E-mail: [email protected] European Commission B-1049 Brussels

EUROPEAN COMMISSION

Mutual Learning Programme Annual Thematic Synthesis Report 2014

"Lessons from the MLP to work towards the goals of the European Employment Strategy"

Directorate-General for Employment, Social Affairs, Skills and Labour Mobility Mutual Learning Programme

January 2015

Annual Thematic Synthesis Report

LEGAL NOTICE This document has been prepared for the European Commission however it reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein. More information on the European Union is available on the Internet (http://www.europa.eu). © European Union, 2014

Annual Thematic Synthesis Report

Table of Contents

Annual Thematic Synthesis Report 2014 ...... 1 Annex 1: Analysis of the activities ...... 2 1 Focus on youth and the creation of dynamic labour markets ...... 3 2 Key topics for the MLP in 2014...... 6 2.1 Tackling : Focus on the implementation of the youth guarantee and effective policies to support transitions for young people ...... 6 2.1.1 Introduction ...... 6 2.1.2 Main lessons of MLP activities ...... 8 2.1.3 Key policy approaches ...... 9 2.1.4 Emerging policy recommendations ...... 12 2.2 Creating dynamic labour markets ...... 12 2.2.1 Reform of Employment Protection Legislation (EPL) ...... 13 2.2.1.1 Main lessons of MLP activities ...... 13 2.2.1.2 Key policy approaches ...... 14 2.2.1.3 Emerging policy recommendations ...... 15 2.2.2 Reform of unemployment benefit (UB) systems ...... 15 2.2.2.1 Main lessons of MLP activities ...... 16 2.2.2.2 Key policy approaches ...... 16 2.2.2.3 Emerging policy recommendations ...... 18 2.2.3 Systems of formation ...... 18 2.2.3.1 Main lessons of MLP activities ...... 19 2.2.3.2 Key policy approaches ...... 20 2.2.3.3 Emerging policy recommendations ...... 21 2.2.4 Effective creation incentives ...... 22 2.2.4.1 Main lessons of MLP activities ...... 22 2.2.4.2 Key policy approaches ...... 23 2.2.4.3 Emerging policy recommendations ...... 26 2.2.5 Flexicurity and its contribution to dynamic labour markets...... 27 2.2.5.1 Main lessons of MLP activities ...... 27 2.2.5.2 Key policy approaches ...... 28 2.2.5.3 Emerging policy recommendations ...... 30 2.2.6 The importance of in identifying effective ALMPs ...... 30 2.2.6.1 Main lessons of MLP activities ...... 31 2.2.6.2 Key policy approaches ...... 33 2.2.6.3 Emerging policy recommendations ...... 34 3 Relevance of the MLP for EU2020 and a look forward to 2015 ...... 36

Annual Thematic Synthesis Report

Annual Thematic Synthesis Report 2014 The activities organised by the Mutual Learning Programme (MLP) in 2014 focussed on some of the core challenges for European labour markets including approaches to tackling youth unemployment (particularly in the context of the Youth Guarantee); the design of effective employment creation incentives; the activation of unemployment benefit systems; and measures to reduce segmentation in the labour market. As in previous years, there was also an ongoing focus the evaluation of active labour market policies (ALMP) to support evidence based policy making. The following key lessons for policy makers arise from these MLP activities:  While the Youth Guarantee shows good potential there are concerns about the costs and the feasibility given the ‘comprehensiveness’ required for successful implementation, especially in the face of budget cuts. Further marketing of the Youth Guarantee both to young people and employers may be required. In most cases the Youth Guarantee can be built on the services and measures that already exist for young people, but where this is not the case effective partnerships with all relevant agencies should be established. This should involve the right allocation of roles/responsibilities and choice of lead organisation, taking into account the availability and capacity to reach out to young people.  Commitment from (public and private) employers is also needed, which may be achieved by minimising the administrative burden for employers, investing in dedicated services in the PES (who can pro-actively identify placement and opportunities), diversifying placement types (offering alternatives to the existing forms of ), and ensuring that incentives for employers are linked to the quality of the apprenticeships or on-the-job learning.  Subsidised job schemes can play a countercyclical role in times of crisis and also help to solve the ‘structural’ component of youth unemployment if implemented appropriately. Measures for young people at risk are most effective in terms of employability when they include a component, especially when leading to the award of recognised qualifications.  Overall, employment creation incentives must carefully balance cost-efficiency with attractiveness to employers. The sustainability of such can be enhanced by placing certain conditions on participating employers; but such conditions again must be designed in such a way as not to deter employers from offering opportunities to the most vulnerable groups.  Labour market dynamism and employment creation can also be impacted by wage setting mechanisms, including minimum , as well as the strictness of employment protection legislation (EPL). The system of setting minimum wages and review processes play a role here, but overall, the potentially negative impacts of minimum wages on employment can be considered to be marginal. A number of Member States have reformed EPL in an effort to reduce labour market segmentation while at the same time making open ended contracts more attractive to employers (for example by simplifying procedures for or the reduction of severance payments).  Incentives/disincentives for individuals to take up employment can be found in the interaction between wage/tax and benefit systems. There have been efforts to emphasise the activation elements of unemployment benefit systems by reviewing conditions of entitlement and eligibility criteria as well as sanctioning regimes. In practice it appears that significant local discretion remains over the application of such sanctions.  The possibility for evidence based policy making continues to be restricted by a lack of reliable and methodologically sound evaluations. In the absence of Randomised Controlled Trials, high quality Counterfactual Impact Evaluations

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can provide significant evidence of the success or otherwise of ALMPs. However, the use of such methods is currently not widespread and should be encouraged. Annex 1: Analysis of the activities The Mutual Learning Programme is an initiative led by DG Employment, Skill and Labour Mobility and Inclusion (DG EMPL) aimed at promoting the exchange of information and good practice between Member States, as well as the wider dissemination of the European Employment Strategy (EES). The purpose of this Thematic Synthesis Report is to summarise the main lessons of the Mutual Learning Programme (MLP) during 2014. It provides an overall analysis of the results and policy messages that have emerged from the MLP activities. The document also provides a helpful signpost to other, more detailed documents available on the MLP website: Mutual Learning Programme - Employment, Social Affairs & Inclusion - European Commission The main activities that have underpinned the MLP during 2014 are as follows: Peer Reviews Emplois d’avenir: Jobs for the future scheme; Paris, France, 10-11 February 2014 ; London, UK, 7-8 April 2014 Youth Guarantee; Helsinki, Finland, 18-19 September 2014 Counterfactual Impact Evaluation; Prague, Czech Republic, 6-7 October 2014 Flexicurity; Copenhagen, Denmark, 20-21 November 2014 Thematic Event Job creation incentives: how to better integrate policies to create sustainable jobs Brussels, Belgium, 25 June 2014 Dissemination seminars Mutual Learning Programme Dissemination Conference on Lessons and insights to work towards the goals of the European Employment Strategy; Brussels, Belgium, 2 December 2014 Learning Exchanges Tackling labour market segmentation by reducing EPL and addressing other forms of work; Ljubljana, Slovenia, 11 November 2014 Co-operation at the local level in the fight against youth unemployment; Dordrecht, Netherlands, 28 October 2014 Activation strategies of the Norwegian unemployment benefit system; Oslo, Norway, 27 October 2014 Effects of foreign investment on employment; Ankara, Turkey, 23 May 2014

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1 Focus on youth unemployment and the creation of dynamic labour markets The European Union (EU) has begun to show fragile signs of economic recovery, beginning in the second quarter of 2013 with improving conditions starting to spread across countries and gaining strength in 2014. Latest data suggest that in 2014 economic conditions started to become more balanced, although large differences remain between Member States, particularly in the euro area. The improving economic context has started to impact on labour market conditions, with stabilising rates of employment and a halt in the rise in unemployment starting in 2013 and continuing into 2014. Latest forecasts predict that unemployment will begin to decline in the last quarter of 2014, with an expected slow decline into 2015, starting to reverse the rising trend since 2009.1 However the large differences in unemployment rates between EU Member States are expected to persist, as a result of output differences, and inconsistent relationships between output and employment. High youth unemployment and the share of young people not in employment, or training (NEET) are a key concern of the EU. Unemployment still affected around a quarter on average (23%) of 15-24 year olds at the end of 2013. During 2014, all Member States presented their national Youth Guarantee Implementation Plans (YGIP) to the Commission (although not all launched their activities yet). Youth unemployment rates in the EU started to decline slightly towards the end of 2013, although a fall in participation was an underpinning feature of this trend. Stronger discouragement effects and falling rates of labour market participation by young people are a particular feature in countries with high rates of long term unemployment. In 2014, around two-thirds of Member States received a Country Specific Recommendation (CSR) relating to the labour market participation of young people. Long-term unemployment (among young people and adults) has shown a rising trajectory, increasing in most Member States and has reaching an all-time high EU-wide average of 4.7%. Overall rates of unemployment are also strongly divergent, with rates in the south and periphery of the euro zone reaching an average of 17.3%, whereas in the north and core of the euro zone, they stood at around 7% in 2013. At the same time, and mismatches between the supply and demand side have also been growing. Another notable labour market trend during the crisis was the decline in temporary employment (as such contracts have not been renewed during the economic downturn) and the increase in involuntary part-time work. In line with past trends, it can be envisaged that these developments will be reversed as the economic situation improves, and an underlying trend towards greater labour market segmentation remains. Evidence of a ‘stepping stone’ effect of temporary employment remains scant. A number of Member States are making efforts address a high segmentation of their labour markets by tightening employment protection legislation with regard to temporary contracts while creating more flexibility in open ended employment relationships (e.g. Italy, Spain). Policy programmes continue to emphasise access to employment and full participation in the labour market and Active Labour Market Policies (ALMP) offer a wide range of tools and mechanisms to help facilitate labour market participation. Key emerging policy themes in line with priority areas for the 2014 Country Specific Recommendations (CSRs) relevant to employment and social policies are:

1 European Commission, Economic and Financial Affairs, Economic Forecast Winter Forecast 2014, http://ec.europa.eu/economy_finance/eu/forecasts/2014_winter_forecast_en.htm

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Annual Thematic Synthesis Report

 Boosting labour market participation through active labour market policy. Recent data suggest the Europe 2020 employment rate target of 75% is likely to be missed by 2020, and most Member States face challenges in boosting employment rates. All Member States except Malta and the Netherlands received a CSR linked to improvements in active labour market policies in 2014. The CRSs aim at the populations that are furthest away from the labour market, specifically disadvantaged women, young people, older workers, ethnic minorities, individuals with a migrant background, individuals not registered with the PES or no longer in receipt of unemployment benefit.  Reducing labour costs. In 2014, 11 Member States received a CSR concerning wage setting mechanisms. Eight concerned the high level of labour taxation (particularly alleviating the cost and tax burden on low-income earners), reflecting that the European Union is still an area with a high tax burden on labour, compared to other developed economies. About a third of Member States were encouraged to review their overall wage-setting systems in 2014. A particular challenge has been identified in countries where tax on low-wage earners lies significantly above 40%. Reducing the tax wedge on labour and eliminating distortions in the tax system constitute crucial measures for Member States to stimulate labour demand, foster employment participation, and favour the competitiveness of European companies.  Tackling labour market segmentation (primarily concerned with the emergence of a two tier labour market with a core and peripheral workforce with low employment security including the issue of undeclared work). The emergence of the shadow economy, effects progress to achieving the target of a 75% employment rate for those aged between 20-64 set out in the Europe 2020 Strategy, as well as affecting the creation of good quality and sustainable jobs, and the proper application of EU and national employment, labour, health and safety, and social security laws. As employment opportunities in the labour market have declined, there has been a trend in some Member States towards an increase in undeclared work. Ten Member States received a CSR on labour market segmentation in 2014. Four countries received CSRs focusing specifically on undeclared work.  and training (with a focus on labour market relevant skills and in work training). All Member States except the Netherlands received a CSR concerning education and training policies in 2014, reflecting the scale of the challenge across the EU. The labour market relevance of education is important to addressing young people NEET as well as other target groups. The Youth Employment Package required Member States to establish Youth Guarantees, and equally created the European Alliance for Apprenticeships, understanding the fundamental role that in-work training has for employability. Work-based learning eases the transition from education and training to work, and evidence suggests that countries with a strong apprenticeship system have lower levels of youth unemployment than countries without such systems. In the long run, such schemes are likely to contribute to increased tax revenue, less welfare payments, and great levels of social inclusion for all.  Tackling poverty and social inclusion of minorities. CSRs have repeatedly highlighted the need to improve the labour market prospects of people with a migrant background, women and older workers. Ten Member States received CSRs that specifically address migrant and Roma populations. Promoting access of Roma to quality inclusive education (and tackling discrimination) is a key precondition to improving Roma employability and access to the open labour market. Recommendations have focused on the need to implement streamlined and integrated policy measures to reduce poverty significantly, particularly among Roma, and to re-engage them into the education system, as well as to reinforce measures to enhanced labour market integration.

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Annual Thematic Synthesis Report

Emphasis remains on supporting the integration or re-integration of specific target groups (in addition to young unemployed individuals) such as older workers, women and disabled people. Demographic trends in an ageing population raise issues around the sustainability of national welfare and systems and increases pressure for reforms to encourage longer . Active labour market policies - frequently in the form of wage subsidies - form the bulk of national policy measures to support mainly the return but also the retention of older workers in the labour market (often supported by benefit reforms that require workers to actively seek work and the provision of new labour market-relevant skills). In 2014 11 Member States received CSRs on the participation of older workers, with particular attention to their access to the labour market, the accessibility and effectiveness of benefits and social services directly targeted at them, and the implication of the funding of pension systems on fiscal viability. The increasing participation of women in the labour market, is a key factor in achieving the Europe 2020 employment target. In spite of significant advances over the years, women’s employment rates continue to lag behind that of men. Women are more likely than men to be in part-time, low paid jobs. Vertical and horizontal segregation of the labour market is also a significant factor which contributes to the and the greater prevalence of old age poverty among women. The 2014 CSRs concentrate on the pay gap and the supply and access to affordable childcare (particularly for low income families) and on the reduction in the disincentives for second earners. Nine Member States received CSRs that specifically mention women, and a further four touch upon the relevance of childcare provision. Such continuing labour market challenges continue to create an impetus for further learning on active labour market policy measures which show potential for success, and which can yield sustainable outcomes at economic conditions improve. In 2014, the activities of the MLP have been shaped by the overarching emphasis on tackling youth unemployment (reflected in the organisation of a Peer Review related to youth employment policies in France in February 2014 and in Finland in September 2014 focusing on the Youth Guarantee (which could lead to follow-up activities in early 2015). In addition, there has been an emphasis on creating more dynamic labour markets, but placing greater emphasis on activation in benefit systems (Learning Exchange in Norway), addressing disincentives effects in Employment Protection Legislation (Learning Exchange in Slovenia) and supporting wage setting mechanisms which balance the delivery of a fair wage with efforts to simulate employment creation (Peer Review in London). In this context, the balancing of appropriate measures in the flexicurity framework were discussed (Peer Review in Copenhagen). Furthermore, the increasing emphasis on evidence based policy making and effective and efficient ALMP meant that the MLP continued to stress the role of evaluation, and in particular Counterfactual Impact Evaluation (through a Peer Review in Prague). The subsequent sections draw the key policy lessons on each of these issues from the respective MLP events and documents.

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2 Key topics for the MLP in 2014 2.1 Tackling youth unemployment: Focus on the implementation of the youth guarantee and effective policies to support transitions for young people 2.1.1 Introduction Just under 5 million young people (individuals under the age of 25) were unemployed in the EU-28 in August 2014, of whom over 3.3 million were in the euro zone. This represents an unemployment rate of 21.6% in the EU2 (slightly down from 23% in September 2013 but still well above the figure of 15% at the start of the crisis in 2008). Latest data for August 2014 suggest mixed trends during 2014. Spain had the highest youth unemployment in August 2014 (at 53.7%) followed by Greece, Italy and Croatia (51.5%, 44.2% and 43.9% respectively in June 2014).3 In Germany, on the other hand, youth unemployment has remained below the pre-crisis level and latest figures suggest it has fallen slightly further throughout the year (at 7.6% in August 2014 compared to 7.9% in 2013). During the crisis, fostering youth employment and supporting young people in their transition towards working life moved to the top of many national and the European policy agenda. Young people, particularly low skilled individuals, face structural challenges in making the school-to-work transition, although the crisis meant rising unemployment among those with higher level qualifications as well. The average youth unemployment rate is double that of the adult population in the EU-28, and in the last four years, the overall employment rates for young people fell three times as much as that for adults.4 In 2014, some 7.5 million young Europeans between 15 and 24 are not employed, not in education and not in training (NEETs).5 The European Commission’s Youth Employment Package (December 2012) and the adoption of the Youth Guarantee (April 2013) have underpinned efforts to address the challenging situation faced by young people in the labour market. The Youth Guarantee aims at both long term structural reforms in education and youth labour markets and measures towards jobs for young people in the sort-term, drawing on evidence from Austria and Finland that investment in school to work transitions contributes to a reduction in unemployment among young people. In some countries there has been an emphasis on reforming how young people are supported public employment services (PES) to ensure individual young people receive tailor-made support, resulting in an offer of employment, education or training within four months of leaving school or losing a job. Reforms of apprenticeships, vocational education and training opportunities are also a key theme and Member States must ensure young people gain the skills required in the labour market. Identifying and activating NEET young people who are furthest away from the labour market has also been highlighted, and requires new tools and strategies and partnerships between key stakeholders (such as social services, education and training providers, youth associations and employers). Additional European funding has been made available as part of the 2014-20 European Social Fund to top-up EU financial support in regions with the highest youth

2 European Commission, Memo on the Youth Guarantee, October 2014, http://europa.eu/rapid/press-release_MEMO-14-571_en.htm 3 European Commission, Memo on the Youth Guarantee, October 2014, http://europa.eu/rapid/press-release_MEMO-14-571_en.htm 4 European Commission, Memo on the Youth Guarantee, October 2014, http://europa.eu/rapid/press-release_MEMO-14-571_en.htm 5 European Commission, Memo on the Youth Guarantee, October 2014, http://europa.eu/rapid/press-release_MEMO-14-571_en.htm

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Annual Thematic Synthesis Report unemployment and inactivity rates through the Youth Employment Initiative (YEI).6 The money can be used for measures such as hiring subsidies, support for young entrepreneurs, work experience and traineeships, apprenticeships, and training. Twenty Member States are eligible for support and so far two Operational Programmes outlining measures to use YEI money have been agreed (in France and Italy). The 2014 CSRs adopted as part of the European Semester have continued to emphasise the importance of early intervention measures, support for the transition from school to employment and measures to combat youth unemployment. A number of Member States received CSRs in this regard (See Table 2.1). These include active labour market policies, reinforcing the role of the PES, support for training and apprenticeship schemes, and outreach strategies, which contribute to the delivery of the Youth Guarantee. More broadly the CSRs recommend that Member States address segmentation of labour markets which contribute to the vulnerability of youth employment (young people are over-represented in fixed-term work). Indicators on youth unemployment and NEETs form part of the Scoreboard of key employment and social indicators which has been put in place to identify employment and social imbalances within the EU7. The Commission and EU Council of Ministers 2014 Joint Employment Report published the first Scoreboard results. Table 2.1 European Commission Country Specific Recommendations relevant to young people in 2014

Theme Recommendations Member State covered Youth Guarantee Recommendations on implementation of Spain, Italy, Slovakia, the Youth Guarantee Croatia, Portugal, Poland, Bulgaria and Ireland Improving outreach Measures to target resources to engage Bulgaria, Czech youth, particularly non-registered young Republic, Spain, Italy, people. Portugal, Romania, Slovenia Extending supply of Offering better workplace training and Ireland, Croatia and apprenticeship increasing apprenticeships. Latvia. programmes Boosting labour Measures to increase labour market Czech Republic, Poland market relevance relevance through a stronger work- and Spain of education based learning component where groups at risk of school dropout should be encouraged. Support for young Encouragement to improve educational Austria, Belgium, people from outcomes and reduce unemployment Denmark and migrant amongst this group. Luxembourg backgrounds

6 The YEI comprises €3 billion from a specific new EU budget line dedicated to youth employment matched by at least €3 billion from the European Social Fund national allocations. The funding is targeted to regions experiencing youth unemployment rates above 25% and on young people not in employment, education or training (NEETs). 7 The Scoreboard is composed of five key indicators and forms the basis of the Commission's proposals for reforms needed to support job creation, strengthen the resilience of labour markets and address poverty and social inclusion (Country-Specific Recommendations), see http://europa.eu/rapid/press-release_IP-13-893_en.htm

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2.1.2 Main lessons of MLP activities Through the Council Recommendation on the Youth Guarantee of April 2013, Member States have committed to ensuring that all young people under the age of 25 receive a good-quality offer of employment, continued education, an apprenticeship or a traineeship, within a period of four months of leaving education or becoming unemployed. Well targeted measures are needed in order to avoid deadweight and substitution affects. At the same time a range of measures should be offered to young people depending on their needs, including ‘train first’ approaches and/or less intensive and costly measures when suitable (e.g. combining work experience with more limited top up training). ‘Work first’ measures are most effective in terms of employability when they include a training component, especially when leading to the award of recognised qualifications. Training acts as a “bridge” between short-term and structural measures and helps to develop transferable skills. Training pathways should be fine-tuned according to individual circumstances and needs. Ensuring the sustainability of outcomes for young people is a principle of effective design. Profiling, guidance and counselling can support sustainable outcomes. Some training and capacity-building may be required to allow counsellors to operate the ‘right’ matching process between the young person and the employer (helping to reduce drop- out) and provide support to both parties from entrance to exit from the scheme, as well as after the exit in case of the most disadvantaged young people. Where subsidised job schemes are used they should be tailored according to institutional, labour market and economic contexts, taking into account the potential for job creation in different economic sectors, the coverage of social benefits, the level of the (youth) minimum wage, available budget for active labour market policies, features of the education system and of public employment services, and so on. Monitoring whether a Youth Guarantee scheme is providing ‘good quality’ offers to young people is important. At present, ‘quality’ often remains rather loosely defined, although it should ensure as a minimum a personalised offer which meets the needs of the young person and leads to sustainable labour market outcomes. ‘Good quality offers’ can be difficult to ensure, for example, education and training places that are of interest for young clients and at the same time relevant for the local labour market in rural regions and small towns with few education and training providers. At the same time demand for popular training courses can easily outstrip supply in bigger cities which cluster larger numbers of young people. This is equally pertinent to the provision of good quality traineeships, apprenticeships and employment offers. The availability of such places is strongly linked to the economic cycle with fewer places available during periods of downturn. It is also a challenge for high unemployment deprived areas where strong proactive work with employers and their representatives is crucial to encourage them to get involved in the Youth Guarantee. Youth Guarantee Pilot Projects are doing innovative work in this field by reaching out to employers, clearly articulating ‘what is in it for them’ and addressing misconceptions. The Youth Guarantees which build on a case management approach have the potential of addressing the issue of engaging with the most at risk young people. As an example, in France a personal counsellor from Mission Locale has a responsibility to follow the young people until they are securely in sustainable employment. A key challenge for the delivery of a Youth Guarantee for at risk young people is insufficient integration of youth health, welfare and rehabilitation services within the Youth Guarantee model; supporting the employment integration of young people with mental health or substance abuse problems, or young people who have been or continue to be involved in gang and criminal activities, will typically take significantly greater effort, time and financial investment. Most Youth Guarantee schemes struggle to

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Annual Thematic Synthesis Report integrate these services within the mainstream model, even if it is recognised that early intervention in the context of young people with mental health problems such as depression has the potential to cut a cycle of exclusion early and yield a high return on investment. 2.1.3 Key policy approaches Many similarities exist between the various Youth Guarantees in the EU Member States but no two schemes are the same. The broad European concept is expected to be tailored to national, regional and local contexts. Most schemes are universal but a small number of schemes are available only for specific groups (e.g. the most disadvantaged young people). Many schemes are reliant on European funding. Several countries had established and were running a Youth Guarantee or an equivalent arrangement already before the Council Recommendation was concluded in 2013 (Austria, Belgium, Denmark, Finland, Sweden and the UK). These existing schemes have undergone significant reform since they were first introduced. Some were target-group specific at the start and only aimed at certain age or skill groups, and have since been widened to meet the EU level objectives. For example, in Austria the guarantee was focused on access to apprenticeship training but the recent reform resulted in a much more comprehensive set of measures. The Flemish scheme was trialled among low and medium skilled young people but was subsequently opened up to highly skilled young people struggling to access/stay in the labour market. A key feature of the emerging policy approaches is an enhanced emphasis on multi- sector partnerships in both the planning and delivery of the Youth Guarantees. The rationale is that this releases synergies, capitalises on the expertise of different partners and avoids duplication of activity. The Youth Guarantee in Finland went through an important reorganisation in 2013 resulting in a more comprehensive and solid partnership and more ambitious targets for early activation in terms of initial interviewing and quality offer (see Box 2 below). In most countries, PES holds the central operational responsibility. Several countries have designed new services for young people, including new engagement services and youth specific PES services. Croatia, for example, has opened up new PES operated youth centres which cater exclusively for young people. The Member States have also improved early access to skills assessments, personal advisors and careers counselling. Others are improving linkages between employment and education services (in some cases it is expected that the full implementation all planned reforms and activities will take several years, especially when structural reform is expected). There are differences between countries in their approach to the two main types of activation strategies: ‘work first’ (which emphasises integration into employment and getting individuals off the welfare roll) and ‘train first’ approaches (which emphasises investment in human capital to improve employability). For example, the French scheme is centred on supporting young people over a one year period with their integration into employment (Box 1). The Finnish and Danish schemes prioritise ‘train first’ approach with unqualified and ‘work first’ approach with qualified young people. One of the most important success factors associated with the Youth Guarantee is the flexibility to tailor national approaches to regional and local contexts and the flexibility to choose the right menu of individual measures linked to the Youth Guarantee for each country. For example, wage subsidies are used successfully as part of the Youth Guarantee in Belgium, Denmark, Finland, Sweden and Poland, but less extensively in Germany. A comprehensive menu of options should also encompass outreach and follow-up, and consider that some young people are ready to enter the labour market as soon as the first opportunity arises. Key ‘building blocks’ of effective schemes for disadvantaged young people have been identified as work experience, training and counselling to overcome the multiple

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Annual Thematic Synthesis Report challenges faced by some young people to access the labour market. Focusing on longer-term economic objectives and targeting specific sectors are being used in some countries to increase the effectiveness of the approaches. The ‘Emplois d’Avenir’ (EA) scheme in France (Box 1) is an example of learning from past programmes to design ambitious localised measures for youth at risk. The EA ‘fills a gap’ in the current offer of policies for low-skilled young people and targets sectors such as the public and non-for- profit sector where apprenticeship training is currently not well-developed. The design and innovative features - compared to subsidised job schemes implemented in France over the past decades – include clear eligibility criteria and a mandatory training component, defined in an individual training plan, which can include formal (qualifying) training, non-formal training complementary to the scheme and informal training. In addition, young people are mentored by their employers. EA contracts are full-time and of a relatively long duration in order to help young people build sustainable pathways. The scheme is implemented locally by specialised agencies in charge of youth inclusion (missions locales), working in close cooperation with PES to operate the ‘right’ matching process at the micro level. Local implementation is supported by regional coordination, which helps optimise available resources for training. The approach is based on the needs of each area and the priority sectors.

Box 1: Emplois d’Avenir (Jobs for the future), France France has a long history of using many different types of subsidised job contracts (for a range of target groups). Based on past experiences, it is known that there are no, or limited effects, of subsidised contracts on access to public employment (but a slightly positive impact for longer contracts which include training, support and guidance). Subsidised job contracts have been used as counter-cyclical instruments but only have short-term effects and limited effectiveness in a context of high unemployment; other observed shortcomings are little attention paid to job quality, support and guidance, and the lack of selection of employers. The Emplois d’avenir measure follows a different logic: sustainable integration into employment, a focus on jobs with social or environmental utility, selection of employers, access to training/qualifications and on-going guidance of young people and their employers. There are three innovations in the design of this measure:  targeting youth with low/no qualifications and coming from disadvantaged areas (unknown by the public employment services);  selection of employers on the basis of quality of their training plan and mentoring abilities – with a focus on the non-profit sector;  Ongoing guidance provided by specific structures (missions locales) with specific expertise on youth insertion, in cooperation with other parts of the PES: before and during the contract (follow-up meetings after 3, 12 and 24 months). The main results are as follows:  125 000 contracts signed at the end of May 2014 (the objective was: 150 000 contracts signed by the end of 2014);  53 % of contracts are 3-year contracts or open-ended contracts, 91 % of contracts are full-time;  High survival rates (91 %);  One fifth of contracts were signed in the profit sector (health, social and medical care and administrative support);  The scheme is successful in reaching the low qualified (83 % of beneficiaries have a qualification inferior to the baccalauréat; 41 % have no qualification)

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but only 31 % of beneficiaries come from a disadvantaged area (including 18 % from a disadvantaged urban area). A key challenge is that employers do not know how to implement the training plans and training does not necessarily lead to a recognised qualification.

Given that many young people face complex issues and obstacles in taking up education, training or employment, partnerships between organisations are an under-pinning element in the design and implementation of a national Youth Guarantee scheme. Organisations can share information, operate early warning and tracking systems, and combine different tools and methods (inter alia, one-stop-shops, youth outreach workers and collaboration with community and voluntary groups). Working with the third sector to deliver the Youth Guarantee can improve reach and take into account young people’s views, but some countries may need to build the capacity of organisations that are less able to participate. Political commitment (including across party lines) has helped with effective design and delivery of a national Youth Guarantee scheme. In Finland the Youth Guarantee is implemented through a public-private-people- partnership, which aims to bring together government officials, private businesses, social partners and civil society organisations, and young people themselves, in the design and roll out of the Youth Guarantee. A National Youth Guarantee Working Group was set up to this effect.

Box 2: The Finnish Youth Guarantee The objective of the Finnish Youth Guarantee, implemented in its latest form since January 2013, is to support young people to gain a place in education or employment. An important principle underscoring this objective is to help every young person to find a personalised pathway into employment. A total of EUR 60 million per year has been added to the state budget for the duration of the current Government Programme to support the measures. Crucially, strong political commitment for the Youth Guarantee has been an important force behind its realisation. At the highest political level, its design and implementation relies on the cooperation of six different ministers from four different political parties. The Youth Guarantee is implemented through a range of measures including an Educational Guarantee, a skills programme for young adults, youth services from the Employment and Economic Development Office (the public employment service, PES), and rehabilitation services, including municipal social and health care services, and other individual services for young people, such as youth outreach work (to help young people, who are not in contact with services, to receive the support they require) and youth workshop activities (work-oriented learning workshops). In order to promote youth participation and empower young people to create their own future, the results of a national survey of 2,300 young people fed into the design of the Youth Guarantee. Cooperation among a wide variety of actors (many of whom were represented in the roundtable discussion) at both national and local levels is of paramount importance for the effective delivery of the Youth Guarantee in Finland. An independent monitoring and evaluation of the implementation the Youth Guarantee was carried out during its first year. The results show that the concept of the Youth Guarantee has improved cooperation with educational institutions and employers, as well as internal cooperation within organisations providing services to youth. Similarly, the Youth Guarantee has achieved good public awareness, although more substantial information about its content is required. Finally, the scheme has been best implemented within municipal youth services, but its delivery in social, health and rehabilitation services has fallen short of expectations. Success factors

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include raising the Youth Guarantee as a political priority at the local level and providing single-point youth services.

2.1.4 Emerging policy recommendations  While the Youth Guarantee shows good potential there are concerns about the costs and the feasibility given the ‘comprehensiveness’ required for successful implementation, especially in the face of budget cuts in mainstream services. In most cases the Youth Guarantee can be built on the services and measures that already exist for young people.  Partnerships with the involvement of all relevant key agencies, institutions and organisations are needed in order to provide the necessary continuum of support. This should involve the right allocation of roles/responsibilities and choice of lead organisation, taking into account the availability and capacity to reach out to young people.  The Youth Guarantee has to be appropriately marketed to all key stakeholders concerned, including all the front-line staff who work with young people. It is equally important to ensure that young people themselves and employers have a good understanding of the programme and what it means to them.  Commitment from (public and private) employers is also needed, which may be achieved by minimising the administrative burden for employers, investing in dedicated services in the PES (who can pro-actively identify placement and apprenticeship opportunities), diversifying placement types (offering alternatives to the existing forms of apprenticeships), and ensuring that incentives for employers are linked to the quality of the apprenticeships or on-the-job learning.  Monitoring is important to track outcomes. Young people would need to be tracked after their participation to assess whether the longer term objectives of the intervention have been met. It is important to share and centralise the data necessary to fully track and support the young person’s journey.  Subsidised job schemes can play a countercyclical role in times of crisis and also help to solve the ‘structural’ component of youth unemployment if implemented appropriately. Member states with high youth unemployment rates face challenges in implementing high cost schemes for young people.  Measures for young people at risk are most effective in terms of employability when they include a training component, especially when leading to the award of recognised qualifications. Linking measures to the VET system (and enhancing flexibility of the VET system) can help to increase effectiveness of combined “work-and-train” measures) and control over the quality of the training component is a key issue for the success of combined measures. 2.2 Creating dynamic labour markets Introduction Another key theme for the MLP in 2014 was help to support the creation of more dynamic labour markets which provide the right framework conditions for job creation (and preservation) and effective activation measures. The adaptation of framework conditions was reflected in the themes of reform of employment protection legislation (EPL), unemployment benefit (UB) systems and the creation of a suitable wage setting framework, including the establishment of minimum wages. These are among the framework conditions which form part of Member States’ approach to flexicurity and its four pillars. This section discussions the key themes about how to create more dynamic labour markets.

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2.2.1 Reform of Employment Protection Legislation (EPL) In terms of the impact of EPL in employment productivity, studies8 usually find a negative or no (significant) relationship between the strictness of employment protection and the economic variable. Nicoletti et al. (2003) examined 23 industries in manufacturing and business services in 18 OECD countries over the period 1984-1998 using an index of employment protection measures. Bassanini and Venn (2007) extend this using the longer period 1982-2003, investigating employment protection in the area of minimum wages, and .9 On the other hand, Botero et al. (2004) use employment regulation to find that stricter employment protection is related to lower labour force participation and higher unemployment.10 Besley and Burgess (2004) use employment law variations across Indian states to show that legislation offering greater protection to workers lowers economic growth.11 In regard to the balance between flexibility and security, since 2008 a considerable number of Member States have undertaken important reforms creating more flexibility in open-ended employment relationships while attempting to tighten employment protection legislation as regards temporary contracts in order to tackle labour market segmentation. Relevant measures have included the simplification of procedures for individual dismissals, the reduction of severance payments, and the extension of probationary periods in contracts. An outstanding EPL challenge relates to atypical forms of employment, i.e. the unlawful use of temporary or self- employment contracts. While the recent trend towards the relaxation of employment protection for permanent contracts has contributed to a reduction of labour market segmentation, such measures have been in most cases accompanied by ALMP programmes to stimulate employment in a more flexible labour market. 2.2.1.1 Main lessons of MLP activities A Learning Exchange in November 2014 in Slovenia explored the impact of labour market segmentation and the reasons for the growing use of alternative forms of employment (student employment, ‘bogus’ self-employment), based on the situation in Austria and Slovenia. The role of national Labour Inspectorates in monitoring and tackling unlawful forms of employment was also discussed. Reforms in Slovenia during 2013 reduced employment protection relating to permanent employment contracts (see Box 3). On the issue of false self-employment, it was noted at the Learning Exchange that there is no clear-cut definition and partly for this reason, tackling such phenomena is exceptionally challenging. The practice of forced dependent self-employment has become widespread in Austria, particularly in sectors such as construction and home care services. It was also noted that employers are tending to favour dependent self-employed workers for outsourced work as they can be cheaper and the liberalisation of the trade register now allows this. Participants agreed that ‘atypical forms of work’ provide a particular set of challenges, and there may not be systems in place to collect and record reliable data. In addition,

8 Nicoletti, Giuseppe, and Stefano Scarpetta (2003): "Regulation, productivity and growth: OECD evidence." Economic policy 18, no. 36, 9-72 9 Bassanini, A., & Venn, D. (2007). Assessing the impact of labour market policies on productivity: a difference-in-differences approach (No. 54). OECD Publishing 10 Botero, J. C., Djankov, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2004). The regulation of labor. The Quarterly Journal of Economics, 119(4), 1339-1382 11 Besley, T., & Burgess, R. (2004). Can labor regulation hinder economic performance? Evidence from India. The Quarterly Journal of Economics, 119(1), 91-134

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Annual Thematic Synthesis Report supervision and enforcement of labour laws in such areas may need to be increased. This is challenging given resource (human resource and budget) limitations. Furthermore, governments may need to look at the underlying causes of the increased use of ‘atypical forms of work’ and, where possible, create innovative solutions to addressing these challenges. One particular issue that was highlighted was that the cost of employer contributions and social security contributions may increase the likelihood of employers to misuse certain types of contracts. 2.2.1.2 Key policy approaches The Learning Exchange identified a number of effective policy approaches.

Box 3: Reforms to address labour market segmentation in Slovenia Prior to 2013, the Slovenian labour market was highly segmented. This was mainly due to high level of employment protection for workers on open-ended contracts and the high flexibility and the low costs of fixed-term contracts for employers. In the 2012 Country Specific Recommendations Slovenia was asked to adjust employment protection legislation as regards to permanent contracts in order to reduce labour market segmentation, in consultation with social partners. As a result, the government negotiated with stakeholders and reached consensus in March 2013. The resulting proposal was for single open-ended contracts and a series of measures to simplify administrative procedures for dismissal. One of these measures specifically focused on providing workers, including retired individuals, with more options to undertake training. This aimed to support Slovenia’s ageing workforce. The reforms have been effective as they have reduced labour market segmentation and narrowed the gap in protection between open-ended and fixed term contracts. As a result of these moves, employers are less reluctant to use permanent employment contracts and notably, the proportion of permanent contracts in all employment contracts has increased. In addition, the labour market has become less segmented, particularly for young workers.

A reform took place in Spain in 2012 to address employment duality by readjusting EPL relating to permanent contracts. It also sought to address regulatory rigidity in relation to permanent employment, and consequently deal with the high level of use of temporary contracts. Key measures included the simplification of procedures for individual and collective dismissal, reduced severance payments, revised occupational classifications and amendments to regulations. It was hoped that these moves would allow for more internal flexibility and adaptability in collective bargaining. A key aspect of the reform was that employers were allowed to opt out of high level agreements. It is worth mentioning that the reforms were part of wider measures to promote activation in Spain, particularly relating to training (or retraining) and the promotion of the youth guarantee. The results of the Spanish reforms were not immediate, however, and the gap in employment protection between permanent and fixed term contracts has closed and there has been an increase in the number of new permanent contracts in the private sector. There has also been an increase in the number of training contracts for young people who have no or few qualifications. In addition, collective bargaining is considered to be more dynamic and new collective agreements have emerged between employers in different sectors, resulting in greater flexibility within the labour market. In Austria there are different forms of self-employment, e.g. independent contractors, new self-employed workers, but there is no clear definition on the term ‘false self- employment.’ The number of self-employed workers was relatively stable between 2000 and 2011 (around 13%) however during this same time period, the number of single person companies increased dramatically. It is understood that this is because of the

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Annual Thematic Synthesis Report liberalisation and extension of the trade register in 2003. This reform resulted in the introduction of professional licenses for a higher number of specific occupations. Several options are available in Austria to address false self-employment but no data on the numbers of those committing false self-employment is available. The lack of data is particularly challenging to tackle this problem, although possible solutions include more effective law enforcement (including monitoring and supervision and by extending collective agreements on wages and working conditions to self-employed workers). 2.2.1.3 Emerging policy recommendations The key learning points from the event can be summarised as follows:  Reforms in Spain and Slovenia include the simplification of procedures for dismissal, the reduction of severance payments, and active labour market measures.  Both Slovenia and Spain have sought to create a level playing field on EPL for all employment contracts, and to introduce flexibility measures to encourage employers to hire workers permanently. However, it is worth noting that a ‘job for life’ mentality still appears to be prevalent in both countries.  It was agreed that legislation needs to be better enforced to tackle atypical forms of work by strengthening supervision of the labour market and effective implementation of labour laws. It was also agreed that public authorities need to understand why false self-employment and atypical forms of work have progressed so much in recent years, or the reasons which encourage employers to resort to such alternatives.  Data collection is a challenge, and it is presumed that undeclared work and false self-employment is underestimated.  Another challenge is technological change as a driver of self-employment. For instance, the boom of the IT sector has resulted in the emergence of many new self-employed . 2.2.2 Reform of unemployment benefit (UB) systems Important design features include the conditions placed on the entitlement to unemployment benefits (encompassing employment/contribution record and sanctions for voluntary unemployment), job search and availability requirements, job search monitoring, demands on occupational and geographic mobility and sanctions for refusing jobs or taking part in ALMP measures such as training. Recent discussion of the strictness of eligibility criteria for unemployment benefit can be found in Venn (2012). Immervoll and Scarpetta (2012) agree that eligibility and other criteria are important to support an ‘employment incentive’, including in countries with relatively high unemployment benefit entitlements, and point to the need to take into account the extent to which rules are actually implemented on the ground (both through the practical implementation of commitments through individual action plans and the actual use of sanctions). The role of individual action planning has become more important within UB systems in recent years, and PES have introduced more personalised provision for job seekers relying on ‘mutual obligations’ set out in individual action plans. Whilst such action plans are generally the result of profiling of the specific requirements of job seekers, there are differences in whether the plans are binding and in terms of the sanctions imposed for non-compliance. Research suggests that only a minority of countries impose legally binding arrangements. The main benefit sanctions are insufficient personal effort (usually lack of sufficient job search), followed by voluntary quits and non-compliance with instructions, mainly job or programme refusal (OECD 2010). Only limited data are available on the actual rate of UB refusal and the use of the sanctions and national data is not strictly comparable.

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Konle-Seidl (2012) found that sanctions rates (excluding voluntary quits and early registration requirements) range from about 2% in Austria and Germany to about 6% in Switzerland and up to 12% in Denmark. Sanction rates for welfare clients are generally higher due to stricter eligibility criteria (e.g. to accept any job). They are about 4% in Germany, about 10% in the UK. In most countries power to impose sanctions lies with the PES employment counsellor, but has to be referred to a higher authority in a number of countries (e.g. in the UK and DK). 2.2.2.1 Main lessons of MLP activities A Learning Exchange in Norway focussed on activation strategies in UB and the role of different eligibility criteria and sanctions in achieving successful labour market integration. ‘Suitable work’ criteria include requirements for occupational mobility and considerations regarding expectations, as well as mobility criteria. Although individuals are – either immediately, or after a period of unemployment – required to accept jobs in larger geographical areas and ultimately in occupations and at distinct from those in their former employment, various factors are taken into account when considering whether work is indeed ‘suitable’. For instance, social and family considerations can be taken into account. In practice the importance of achieving a good match between a job seeker and a new occupation was also emphasised, as unsuitable matches were not considered in the interest either of employers or employees and often led to a lack of sustainability of new employment. The definition of suitability was therefore often based on the interpretation of job counsellors at the local level. Significant differences exist at Member State level in relation to criteria for job search monitoring. While some countries emphasise frequent face to face meetings and the availability of a clear record of job search activity, this is not currently the case in all countries. Data protection considerations in some countries hamper PES access to such job logs, while other countries have overcome such obstacles. The role and impact of sanctions was also one of the central themes of the Learning Exchange. Different degrees of strictness, for instance, apply in relation to sanctions for voluntary unemployment, which in some countries leads to a temporary of benefit entitlements, whereas in other it disqualifies individuals in principle form receiving UB. Research studies raise the question about the impact of sanctions on the quality of subsequent job matches. Local PES officers are also often reluctant to apply sanctions for fear that disputed sanctions will lead to significant administrative effort, or for fear of imposing further financial hardship on job seekers. Sweden recently amended its sanctioning regimes to increase the number of possible grounds for sanction, but making them less strict. This led to an increase in sanctions being imposed. In addition, a system is in place which automatically issues warnings when a requirement is not met (triggered by UB insurance fund directly, not by the counsellor – but is based on the information supplied by them). Warnings which are not responded to – or where a response is not considered valid group to justify not meet the required criteria – automatically result in the imposition of the sanction. 2.2.2.2 Key policy approaches Use of sanctions EU evidence suggests that sanctions on UB claimants play a role in raising unemployment benefit exits and job entry (although potentially at the risk of poorer quality employment with lower earnings and greater job instability). Sanctions can be used in relation to a number of issues, including voluntary job quits, failure to attend at PES, failure to take up suitable job offers or refusal to take part in ALPMs being offered. In some countries, refusal to sign an individual action plan (or to abide by all the steps outlined therein) is also sanctionable.

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Job search and availability requirements Suitable work criteria varies across countries. In Denmark an unemployed person generally has to accept a total of 3 hours daily travel-to work time using public transportation. In Germany an unemployment benefit recipient may be expected to accept any job corresponding to his working capacities to the extent that general or personal reasons are not incompatible with the reasonableness of the job. Mobility requirements are determined on the basis of remuneration. The Netherlands is an example of a Member State where current UB reforms imply increasingly stricter conditions on job search and availability requirements in future (Box 4).

Box 4: UB Reform in the Netherlands The UB benefit system in the Netherlands covers all employees who have worked at least 26 weeks during a period of 36 weeks before the first day of unemployment and has lost a minimum of 5 working hours (and corresponding wage). Duration of UB is currently between 3 and 38 months depending on labour history. UB is paid at a level of 75% in first 2 months and afterwards 70% of the lost daily wage (with a maximum of 50.000 euro). Under current job search and availability requirements, UB claimants must actively make 4 job applications or other job seeking activities each month and have to report to the PES. In general, the unemployed should look for adequate work, the definition of which is dependent on individual circumstances, such as the wage level before the person became unemployed, the nature of the activities, and travel time to work. Non-binding guidelines suggest that the unemployed should get six months to find a job in their former occupation, educational- and income-level. After 12 months of unemployment, all kinds of work will be considered as adequate (including lower wage, lower education or longer daily travelling time). Recently parliament in The Netherlands has agreed changes to the unemployment benefit system, with the aim of increasing the focus on activation and securing fiscal savings to reduce the government deficit. Changes will be introduced incrementally and include: The gradual reduction of maximum benefit duration from 38 months to 24 months (starting from 2016). Stricter jobs search requirements (all jobs will be considered suitable after 6 rather than 12 months). Deduction of income: the income out of a new job is deducted from the unemployment benefit instead of the working hours in a new job. Extension of a special benefit scheme for older unemployed (60+). The unemployed will be penalised if they do not sufficiently look for work or hamper the process of finding adequate work. The sanction will be 25% of the benefit the person receives for a period of at least 4 months. If the unemployed person receives a sanction and within a period of 2 years neglects the same obligation, the sanction will increase to 50%.

Job search monitoring conditions Job search monitoring is considered to be strictest in Portugal, the Slovak Republic and the UK. On the other end of the scale, Bulgaria, Cyprus, Greece, Italy, Spain and Sweden (among others) only have limited or no requirements of proof of job search. In the UK the unemployed participate in Fortnightly Jobsearch Reviews (FJRs). The FJR provides regular opportunities to make sure people are actively seeking work and remain entitled to benefits. A variable sanction of 1-26 weeks (depending on the

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Annual Thematic Synthesis Report circumstances of the case) will apply when a jobseeker refuses employment without good cause. A variable sanction of 1-26 weeks (depending on the circumstances of the case) will apply when a jobseeker refuses employment without good cause. Unemployment benefit sanctions (for refusing a suitable job or participating in ALMP) are seen to be strictest in Greece, Slovenia, Romania, Portugal, the Slovak Republic, Luxembourg, Italy and Ireland where refusal can lead to a full suspension of benefits. In the Netherlands such suspensions are among the most financially and time limited. Sweden, the UK, Denmark and Norway are also seen to be below average in terms of the strictness of sanctions. 2.2.2.3 Emerging policy recommendations Significant leeway exists in many countries at the local level on whether to apply sanctions or not. It is important to reach a balance on devolving responsibility for sanctioning to the level closest to the job seeker and centralising (automatic) sanctioning regimes, both of which have their own advantages and disadvantages. 2.2.3 Systems of wage formation Wages and wage distributions are key aspects of the Europe 2020 employment social cohesion targets. Whilst on the one hand the European Commission has promoted decent and sustainable wages to address social imbalances and support demand at the margins, a number of developments have committed Member States to wage restraint and decentralisation of collective bargaining (although national wage setting mechanisms are outside the direct remit of the European Union). For instance, the EU Economic governance measures aim to enhance economic and fiscal surveillance. The Economic and Monetary Union (the EMU) has led to increased focus on the role of wages as a policy instrument (Eurofound, 2000). The reform of the Stability and Growth Pact adopted in December 2011 included six directives and regulations on budget deficits, spending levels, and tax levels, aimed at safeguarding financial stability through effective preventative surveillance. These developments have led to concerns about the increasing political influence on national autonomous collective bargaining systems. Social partners have expressed concerns about the continuance of free collective bargaining. The European Commission brought forward recommendations on the need to ensure that wages support competitiveness and develop in line with productivity; that wage setting systems are reviewed in consultation with social partners, and that wage indexations systems are reformed. France for instance received a recommendation to ‘make sure that the level of the minimum wage supports job creation and competitiveness’; and Germany received a recommendation on ensuring that wage growth supports domestic demand. At the same time, several labour market trends have led to an increase in the importance of the minimum wage (MW) to ensure the protection of workers. These include, for instance: lower wages to EU migrant workers; concerns about ‘social dumping’; new forms of employment contracts such as limited hours part-time work, temporary jobs and ‘atypical’ contracts (e.g. zero hour contracts); and issues around in-work poverty across Member States. Eurofound (2014), describes the MW as “…a cornerstone of the ‘European Social Model’” (p. 5), and emphasises its role in social policy in tackling wage in-equalities and in-work poverty; incentivising people into the labour market and raising labour supply. Most (21 of the 28 Member States) have a National Minimum Wage (NMW), whilst 12 member states have wage setting systems based on collective bargaining (this includes Germany which will introduce a National MW in 2015). The Peer Review hosted by the UK Department of Business, Innovation and Skills in April focused on the introduction and continuous review of NMW provisions and their impact on wage trends, employment and economic developments.

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2.2.3.1 Main lessons of MLP activities The NMW has the potential to act as a wage floor or a . The extent to which a living wage underpins a MW is unclear and the notion of adequacy does underpin the setting of minimum wages. The UK and Ireland for instance have wage floors which do not ensure living wages on their own (but should be considered in the context of the wage, tax and benefit system). The UK approach to the NMW is characterised by a focus on what employers can pay without job loss, rather than on what employees need. The economic crisis from 2008 has challenged the pattern of annual increases in the UK NMW and there has been a decline of its real value. The adult rate was increased whilst the rate for young people was maintained. This was considered necessary as a means to improve the labour market position of young people. From 2015 Germany will introduce a NMW based on a wage floor, but this will be with a view to stimulating collective bargaining for potentially enhanced sector specific minimum wages. Although a wage floor is intended to prevent exploitation, the difference between a minimum wage based on the wage floor or on exploitation may be unclear. From the perspective of the ILO it also remains clear that a MW should take into account the level of living wages as an indicator, and be adjusted regularly – this also aligns with the ILO concept of decent work. Defining a living wage would, however, raise issues about what to include in ‘decent living standards’; the in the UK for example includes specific items that people need to afford to have a decent living wage. In the UK, regional differences are also of importance when calculating a living wage, although in setting the MW, regional distinctions have been avoided in most countries, partly because wage differences can be more significant within a region than between regions. There are limits to the scope of a NMW; a NMW may be one tool to solve wage- inequalities and in-work poverty, but it has to go hand-in-hand with other policy tools to reach the full effect. The scope of the minimum wage is highly dependent on the wider policy context in the country, and that wage policies alone cannot solve issues surrounding in-work poverty or wage inequality, but must be supported by a range of measures. No definitive conclusion on the question of living wages versus wage floors was reached at the Peer Review, although many participants agreed that some kind of consideration of the living wage should be integrated into the definition of the minimum wage. One lesson was the need for the NMW to include various mechanisms for implementing and operating a NMW (collective bargaining or set by government with consultation with social partners). Reviews of the NMW level can relate to cost of living/wage changes or use a range of data and analyses. The Low Pay Commission (LPC) in the UK was set up in 1997, and functions as an independent body which is responsible for developing recommendations to the government on wage setting in the UK, with the objective of preventing exploitation. The research undertaken by the LPC provides useful learning for other countries, particularly in terms of the evidence-based approach applied, in context (see Box 5 below). The impact of each form of indexation must be clearly understood. An assessment carried out in the UK shows that its evidence based approach has led to a significantly greater increase in the NMW than an indexation scheme would have done (although it has to be borne in mind that that the NMW was introduced at a very cautious level). The impact of national minimum wages is typically measured in terms of employment effects, wage/non-wage costs, working hours and wage compression. Particular challenges exist for wage earners just above the minimum wage floor as wages may be compressed. The impact of the NMW on employment is a disputed issue as it may be tempting for employers to cut labour costs following the introduction of a NMW. Existing evidence, however, suggests that the introduction of a NMW does not have a significant impact on employment (Card and Krueger, 1995; 2000, Allegretto et al, 2011, Dolado et al, 1996; Vaughan-Whitehead, 2010). At the same time the evidence indicates that

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Annual Thematic Synthesis Report productivity is proportional to wages, and that productivity benefits from higher wages (Schmitt, 2013). The NMW in the UK has benefited low-paid workers, women in particular (two thirds of those who benefited were women). This significantly contributed to a decrease in the gender pay gap in employment. However, there appears to have been an impact from having and hourly NMW on working hours - the number of working hours have been reduced and standardised. In the Netherlands migrant workers especially benefited from the NMW. The general wage structures in an enterprise may be affected by the introduction of a NMW. Wage compression to just above the NMW level has been identified; this constitutes a challenge as there are no policies targeted at those workers who earn wages just above the minimum level. The NMW has thus not necessarily led to a ripple effect in wage structures. Ripple effects have mainly developed in countries with wage setting systems based on collective bargaining and with a strong skills structure and a good opportunity for individual bargaining at company level. Generating ripple effects thus depends on the context. The NMW may have an impact on boosting domestic demand, although this should be measured in connection with other benefits which may supplement income. Boosting domestic demand through the NMW has in particular been an issue in Germany with a generally large share of low-income workers and issues have been identified around boosting demand. In the UK, wage compression may have impacted the general wage structures. Wage compression tendencies also appear in Belgium, although no clear empirical evidence is available. The impact of a NMW on domestic demand remains an under-researched field. There is a general concern in the EU emerging from the Country Specific Recommendations in the European Semester that if minimum wages increase without any rise in in productivity, companies based in the European Union will be put at a disadvantage compared to the EU’s global competitors, especially those in labour- intensive industries. However, research suggests that increases in minimum wages tend to foster increases in productivity. Analysis of low-paid employment suggests that this tends is concentrated in trade-intensive industries like manufacturing which means that minimum wages may only have limited impact on international competitiveness in Europe (in the context of the overall decline in such sectors in the EU). The overall economic impacts appear to reflect whether employers can mitigate potential negative effect on employment levels by compensatory measures – e.g. changing overall pay structures, reducing non-wage costs, passing on the cost in higher prices or lower profits. Exchange rates and inflation will be additional macro-economic compensatory mechanisms when it comes to international competiveness. 2.2.3.2 Key policy approaches Mechanisms for setting and reviewing the NMW Across the EU Member States various approaches are taken to setting the level of the NMW and reviewing it over time. The UK approach is rather unusual in that setting the level of the NMW is based on evidence, and is not a formula-driven approach (see Box 4). In other Member States adjustments tend to relate to applying a formula. In Latvia a previous "moving-target” approach was replaced in 2011 by having an initial minimum wage proposal defined by a group formed by representatives of three Ministries and then discussed in the National Tripartite Council. Recently the austerity approach coupled with increases in tax rates and reductions in non-taxable allowances have had a negative impact on changes in the minimum wage. In Greece the NMW is now set by the Government (compared to agreement by the social partners at national level in the pre-crisis period). Structural reforms have been introduced with a particular emphasis on MW policy and Employment protection legislation (EPL): the National Collective Agreement ‘EGSEE’ was suspended, sectoral

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Annual Thematic Synthesis Report agreements were not renewed and bargaining was delegated to the company level. Preliminary indications based on the evolution of the unemployment rates (total, gender and youth) seem to question the success of the MW reform in terms of containing the deterioration of labour market conditions.

Box 5: Setting the NMW in the UK The work of the Low Pay Commission (LPC) runs on an annual cycle starting between April and June when the government requests the LPC to review specific issues when developing recommendations on the NMW for the following year. Evidence is produced (primarily by the LPC) through research on the impact on the NMW so far and the state of the economy and its prospects, as well as widespread consultation with key stakeholders across the country. The LPC uses evidence derived from: in-house analysis; commissioned and independent research; consultations; on-site visits; meetings with stakeholders; and review of international developments. The period between June and October forms a consultation period where LPC Commissioners carry out visits across the UK, as well as receiving written presentations. Following the consultation period, briefing papers are prepared, and formal oral hearings take place in November. In December the LPC discusses the gathered evidence and draws up its recommendations which are presented in a report to the government by the end of February; the government then considers the recommendations in March and April, and decides whether to accept them. LPC research on the development of the NMW and compared what its rate would have been using different formulas (cost of living increase, increase in line with median earnings etc.) suggests that the UK NMW has increased more using the evidence based approach than it would have done using a formula.

Enforcement of national minimum wages Countries vary with regard to enforcement of the NMW, and there are debates about whether enforcement of the NMW is an individual or institutional responsibility. In the UK Her Majesty’s Revenue and Customs (HMRC) is responsible for enforcement, based in particular on intelligence and exchange of information between enforcement bodies, backed up by education, for instance through awareness raising activities. A helpline exists to allow for individual referrals; all of which are investigated. The UK NMW is relatively simple in having only a small number of age-related MW rates, with no sectoral or regional differentiation which makes detection of non-compliance relatively straightforward. Penalties have been increased, and will increase further as a result of being linked to the number of employees, rather than per business. In the Netherlands individuals with concerns about low pay need to raise them with their employer or union. Information campaigns have been used to ensure that individual are fully informed. The information materials have been translated in different languages to support migrant workers. The labour inspectorate investigates large and systematic violations. Difficulties such as a high number of ‘envelope’ wages and high incidence of tax evasion, have made it hard to enforce the NMW in Latvia, and in Italy the high number of SMEs which are difficult to reach and control, has made it difficult to enforce in particular with regard to the reporting of working hours, and hence the payment of minimum wages. 2.2.3.3 Emerging policy recommendations Key aspects of setting and using a NMW were identified for consideration by the Member States when setting or implementing a NMW approach:  The MW can play a role either as a wage floor or a living wage, in the context of the tax and welfare system.  The method of MW setting and review and its impact varies, and will generally depend at least in part on the industrial relations framework.

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 Creditability and legitimacy of a MW can be built through having an independent body (such as the LPC in the UK) which recommends to government the level (and the structure) of the NMW.  The ‘simplicity’ of the NMW (in terms of few age bands and one national rate) contributes to compliance with the NMW, as well as to ease of enforcement.  The negative impacts on employment were considered marginal or non-existent compared to the benefits for pay equality and poverty reduction.  The NMW should be seen as one tool to be combined with supporting fiscal, social security and training and activation measures. 2.2.4 Effective job creation incentives Job creation incentives have been increasing in importance because the employment crisis in Europe has made it particularly compelling for Member States to set up measures to stimulate labour demand, alongside supply-side measures. Measures include hiring subsidies that are delivered through wage subsidies paid to employers or reductions in the level of social insurance contributions paid upon the hiring of workers. Hiring subsidies are symbolic of the shift over recent decades towards labour market policies that are active rather than passive across many European countries12. Among other tools, in the 2012 Employment Package the European Commission emphasised the role of hiring subsidies targeting new hires as a relevant measure extensively used by Member States to promote employment in disadvantaged-worker categories, such as young and older people, the long-term unemployed and certain categories of women (e.g. women returners). Hiring subsidies also cover measures that aim at favouring the conversion of temporary contracts into open-ended ones. These kinds of incentives are distinct from measures for maintaining existing jobs, direct job creation such as public works, and stock subsidies (broad cuts in employer social security contributions). The Commission Communication, Towards a job rich recovery13, suggests that hiring subsidies are a way of cushioning the unemployment effects of the economic crisis, especially for disadvantaged groups. It states (p.4) that: ‘Creating the right kinds of incentives and hiring subsidies should motivate employers to engage in net new , thus creating jobs that would otherwise not be created. Targeting vulnerable groups such as young people or the long-term unemployed can have positive effects particularly where hiring subsidies are combined with additional efforts to help the target population.’ The Thematic Event on ‘Job creation incentives: how to better integrate policies to create sustainable jobs’ in June 2014 in Belgium focused on job creation incentives and especially hiring subsidy measures. 2.2.4.1 Main lessons of MLP activities Speakers and delegates were in agreement on the positive role that that hiring subsidies can play, particularly in incentivising employers to hire unemployed people from disadvantaged groups in the labour market. Attracting employers to hire disadvantaged unemployed people is one of the key challenges. However, speakers and delegates offered ample evidence that such groups can be successfully integrated through hiring subsidies. This may require employment support services from PES, positive relationships with employers, or adequate compensation for productivity loss. Structural labour market conditions impact on the effectiveness of any job creation incentives, such as hiring subsidies.

12 OECD, OECD Employment Outlook: Tackling the Jobs Crisis, OECD Publications, Paris, 2009. 13 European Commission, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and The Committee of the Regions: Towards a job-rich recovery, COM(2012) 173 final, Strasbourg, 18.4.2012.

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An alternative route for hiring subsidies is to support self-employment for the unemployed. While unemployed people may move into self-employment through necessity rather than opportunity, and are likely to require significant start-up support, start-ups can ultimately secure positive employment outcomes. Dr Udo Brixy, of the Institute for Employment Research, showed that entrepreneurship policy also plays an important role. Business start-ups can increased the overall number of jobs in an economy. Measures which promote self-employment and entrepreneurship can help in this regard. However, the employment potential of start-ups depends on whether start- ups are motivated by ‘opportunistic’ relating to the identification of new market opportunities (as opposed to necessity-entrepreneurship).. A clear message from the event was that hiring subsidies should be closely targeted to the most disadvantaged in the labour market. This can help to ensure that subsidies are not supporting people who would have found a job without the measure. At the same time, there was some suggestion that measures should focus on those that are just below the threshold of employability, since if the beneficiaries are significantly below the threshold, the measure may not be effective. In any case, there was widespread support for measures that are combined with other activation services, such as advice and guidance as this can help to ensure stable labour market integration. A key consideration remains which firms and sectors should be supported by subsidies, as there is a risk that measures support unproductive sectors or contravene State Aid rules. Also, some sectors and occupations may not offer job quality or sustainability, especially at a time when the scope for job creation is confined to the highest and lowest ends of the job quality spectrum. Job quality and sustainability can be enhanced through the combination of training and employment. A general conclusions was that hiring subsidies must reflect the specific country context and be appropriate to the rationale for such measures – in terms of whether the goals are primarily economic (supporting labour demand for job creation), social (targeting disadvantaged groups), or upskilling (enhancing the skills and employability of workers). A key challenge is to minimise the potential adverse effects which include: deadweight (subsidising recruits who would have found a job without the measure, or employees rather than new workers); displacement (job losses in firms that did not receive a subsidy); substitution (replacement of an existing job with a subsidised job); and creaming (selection of only the most favoured workers). Close targeting of schemes at particular disadvantaged groups can help to ensure that only those most in need are supported. Social partners agreed on the need for close targeting; especially where the raison d’être of subsidies is to support some groups at a comparative disadvantage on the labour market. Narrow targeting of measures helps to minimise the adverse effects, but there is a trade-off between the targeting of measures and their ease of use and attractiveness for employers. The need to improve evaluation evidence was repeatedly stressed by delegates at the Thematic Event. There is need for more evidence on the cost-effectiveness of measures as well as on the longer-term labour market outcomes for beneficiaries. 2.2.4.2 Key policy approaches Minimising substitution effects of hiring subsidies Hiring subsidies have tended to come with conditions on employers designed to avoid substitution effects in which there is replacement of an existing job with a subsidised job, or a vacancy filled by subsidised worker at expense of non-subsidised workers. Conditions could be related to the targeting/characteristics of those employed, net job- creation in the company, the level of earnings, and/or post-subsidy employment arrangements. Delegates at the Thematic Event discussed whether some conditions were potentially too onerous (for example, in Spain the Contrato Emprendedores (CAE), a new type of work contract designed to tackle the problem of high level duality in the labour market, requires SMEs to maintain the job created for three years and the person hired for one year). Some schemes, such as Zaposli.me (see Box 6) have introduced

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Annual Thematic Synthesis Report several conditions on employers and achieved good employment retention rates after one year (50% in the case of Zaposli.me).

Box 6: Zaposli.me (Employ.me) measure in Slovenia Zaposli.me introduced several conditions for employers, whereby employers are selected by public tenders, and they have to employ each unemployed person for at least 12 months, with full time working arrangements. It aims to combat high unemployment among disadvantaged groups (long-term unemployed; older-workers; young people), although its specific target groups change according to prevailing labour market conditions, and specifically to achieve at least 30 % of participating disadvantaged persons and 55 % of participating women employed at least 12 months after the subsidy is concluded. Eligible employers receive a subsidy of EUR 5 000 per unemployed person. In the period 2009-2013, 15,000 disadvantaged unemployed people were employed with the subsidy (61 % were long-term unemployed; 47 % were women; 23 % were low-skilled people; 22 % were young people aged under 25; 10 % were older than 55 years; and 5 % were people with ). Half of those included in the scheme was still employed 12 months after the subsidy expired (with the same or another employer). 8% of employment contracts were terminated before the end of the 12 month period; in these cases, the employer had to re-pay part of the subsidy received. An ex-post evaluation, using a control group, found that 17 % were employed without subsidy (deadweight effect). Those aged 16 – 29 (29 %), those with tertiary education (31 %), and those unemployed for less than five months (37 %), were the most likely to have been employed without the subsidy. Older people (6.6 %), long-term unemployed (7 %), and those with elementary education (11 %), were the least likely to have been employed without the subsidy.

Amount of incentive The issue of the amount of the incentive was discussed, with an emerging consensus around the need to balance the amount of the incentive with attractiveness to employers (in particular the subsidy amount must be sufficient to compensate them where productivity is affected). This is important to encourage employers to employ disadvantaged groups. In some cases, such as the German example (see Box 7) the wage cost subsidy decreases from 75 % to 25 % over 1.5 years. Employers are more willing to accept such low subsidy rates when they can be assured of finding reliable workers to fill positions. Also, this lower rate is only introduced when the employer will not experience productivity losses. New job creation incentives for long-term unemployed are being combined with a scheme for workers during the subsidy period. This is helping to attract employers and assure them of good worker reliability and performance.

Box 7: Hiring subsidies for long-term unemployed, Germany Hiring subsidies for long-term unemployed people in Germany are of three kinds: General hiring subsidies which last up to 12 months paid at a maximum rate of 50 %; Hiring subsidies for older workers which are up to 3 years paid to employers at a maximum rate of 50 %; and Hiring subsidies for long-term unemployed which are up to 2 years paid at a maximum rate of 75 %. Evaluation evidence shows that the subsidies have had a positive influence on job tenure and earnings; 45 to 60 % of people were found to be in a stable job, following the subsidy. However, there were deadweight effects because measures were not optimally targeted, which also had implications for social inclusion. In light of these findings, the German government is currently designing a new hiring subsidy scheme (ESF Federal Programme) targeting people over 35 years with 2 years unemployment,

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and low-skilled long-term unemployed people receiving basic income support for jobseekers. The measure aims for employment in real jobs and also works with employers to tackle their prejudices in employing long-term unemployed and to motivate them to employ such workers. The measure attempts to achieve sustainable employment integration of the target group by offering a protection period at the end of the subsidy, with support to both employers and employees. For employers, PES offer advice and support concerning funding conditions and qualification needs, and a wage cost subsidy, reducing from 75 % to 25 % over 1.5 years. For employees, workers receive intensive on-the- job coaching (to encourage job retention), conflict resolution and intervention to stabilise the employment relationship, and short-term basic skills qualification.

Meeting the needs of disadvantaged job-seekers Hiring subsidies can be effectively combined with wider ALMPs to ensure that the needs of those most disadvantaged in the labour market are met. Delegates saw a great deal of value in follow-up activities and guidance for employees, as this can help to ensure stabilisation in the labour market. However, the content of this must be well-tailored to needs, when working with the most vulnerable and distant from the labour market. Combining hiring subsidies with training was seen to be particularly important to promote the sustainability and quality of created jobs. Measures could risk being relatively ineffective and too short-term if not accompanied by quality changes in the workforce and if they do not help improve the longer-term prospects of structurally disadvantaged workers. Countries with embedded employer-led training are well placed to promote the benefits of hiring subsidies combined with training, to address labour market issues facing specific groups. In the example of Germany, new job creation incentives for long-term unemployed people are being combined with a coaching scheme for workers during the subsidy period which is helping to attract employers and assure them of worker reliability and performance. In France, the ‘Emplois d’Avenir’ scheme targeting low-skilled unemployed young people combines a subsidy with training and on-going guidance provided by missions locales. Participating employers are selected based on the quality of the training plans they offer and on their mentoring abilities. In Denmark (Lolland) hiring subsidies are combined with adult apprenticeships to tackle the problem of unqualified unemployed people over 25 years old. Adult apprenticeships have been included since employers are keener to take-on adults because they are more equipped to begin work, have more experience, and are more dependable. An external evaluation in 2013 indicated that most participants (60%) were unskilled. There were particularly positive effects for adult apprentices who came from unemployment; for adult apprentices coming from unemployment on social security, one year on from completing the qualification, 62 % were in employment, compared to 37 % in the control group. The positive effect was reduced over time, but even four years after the completion of the qualification, the effect was still positive at 15 %. Most (88 % of those interviewed for the evaluation) said they were better qualified to get a job; and 64 % of employers felt the employees now worked on more demanding duties. Combining work experience and training is especially important for job retention and future employment prospects of young people. The voucher scheme for (re-)entry into the labour market of unemployed people in Greece provides an example (see Box 8).

Box 8: Voucher scheme, Greece The voucher scheme for (re-)entry into the labour market of unemployed people up to the age of 29 targets 35,000 unemployed people (15,000 who are university or technological institute graduates and 20 000 with up to post-secondary level education) and 10,000 additional people in tourism-related activities. The voucher provides formal training and on-the-job training which is aligned to labour market

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needs. Trainees receive a voucher for a training programme of 80 hours, covering horizontal skills and specialised skills; on-the-job training in private enterprises for 500 hours; placement at a private enterprise for up to five months in order to offer young people their first work experience; and counselling services, guidance, educational mentoring. Training providers must meet specific requirements and must be registered. Innovative features include the use of a website to link all partners concerned, freedom of choice for the voucher holder, and training that is relevant to the needs of the company providing on-the-job training. A tripartite agreement/contract is signed with the training provider, who is responsible for the training, matching and counselling of trainees. The Greek measure addresses the risk of deadweight by placing limits on the number of trainees that an enterprise can hire. The assessment criteria for selection of participants at University/Technological institutes are: year of graduation, low taxable income, graduation grade, post- graduate studies, foreign language spoken. Criteria for other levels of education include: age (focus on 18-24), duration of unemployment, and annual taxable income There has been a high volume of applications received (over 125 000) – 31 708 vouchers have been assessed. There is a requirement to monitor the status of trainees six months after completion of the programme. An external assessment is being conducted by the National Centre for Social Research and entails analysis of monitoring data, focus groups and sample survey of beneficiaries. It is anticipated that new vouchers will be announced in the summer 2014, following the results of the evaluation.

Tackling duality in the labour market In Spain, where a high proportion of workers are on temporary contracts, the ‘Contrato Emprendedores’ (CAE) is a new type of work contract that can be used by SMEs, similar to an open-ended contract except for the longer duration of the probationary period. Results suggest that the survival rate of CAEs is similar to ordinary permanent contracts and that subsidies increase the survival rate after one year by 10 percentage points (differences stabilise after eight months, suggesting that dismissal costs are not so important in explaining labour market duality). In Spain however, the lack of legal advice for SMEs and strict conditionality of access may also have limited the take up of the CAE. Only a fifth of SMEs are making use of this contract; it appears that this is because employers need to maintain the job created for three years and the person hired for one year. 2.2.4.3 Emerging policy recommendations Conditions imposed on participating employers can include limited layoffs during the subsidy, net job-creation in the company, and post-subsidy employment. Such conditions can help to avoid substitution effects (where there is replacement of an existing job with a subsidised job). The amount of the incentive must balance cost-efficiency with attractiveness to employers. Direct subsidies of wage costs are more attractive to employers than subsidies of non-wage costs, and the subsidy amount must be sufficient to compensate them where productivity is affected. This is important to ensure that employers are willing to employ disadvantaged groups. Job creation incentives are more effective when combined with other services. Combining hiring subsidies with wider ALMPs can be important to ensure that the needs of those most disadvantaged in the labour market are met. Examples illustrate how the combination of work experience and training is important for job retention and future employment prospects, particularly of young people. Indeed, job creation incentives should promote the sustainability and quality of created jobs.

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The extent of formal evaluation evidence of national measures is limited. There is need for more evidence on the cost-effectiveness of measures as well as on the longer-term labour market outcomes for beneficiaries. Delegates agreed that the lessons from previous evaluations should feed into the design of new measures, illustrated by some policy examples discussed in the workshops. 2.2.5 Flexicurity and its contribution to dynamic labour markets The concept of flexicurity was developed in the late 1990s and further developed through the Common Principles on Flexicurity, adopted by the European Commission in 200714. The concept is based on a careful balance between providing flexibility for employers and security for employees. A range of flexicurity models exist and they are affected by different country conditions. In France, Germany and Denmark governments use flexicurity where as other Member States do not use the term ‘flexicurity’ (as in the UK), although policies may be directed towards the ultimate goals of flexicurity. Flexicurity models are closely related to labour market characteristics. These include:  Contracts and employment protection legislation;  Internal flexibility;  Social security and activation measures;  Active labour market policies;  Social dialogue; and  Wage formation These aspects were explored in detail in the Mutual Learning Programme activities in 2014. 2.2.5.1 Main lessons of MLP activities The flexicurity discourse emphasises that balancing flexibility and security is not necessarily a question of giving and taking – there could be win-win situations, where more flexibility and more security could be obtained simultaneously. The Peer Review on ‘Flexicurity’ in November 2014 in Denmark explored the relationship between different labour market characteristics and performance during the economic crisis. The Peer Review was designed to explore which flexicurity approaches perform best – and in which contexts - to mitigate the impacts of crisis and place a country on a good road to recovery. The Danish model of flexicurity is rather unique in the EU and has a long and specific history and is closely related to other features of the Danish society like the welfare state and a high level of social capital and trust. Specific elements of the employment system are important in providing balance of flexibility and security, but it is also important to look at the interactions between the different elements of the model, which include the benefit system, EPL, active labour market policy and life-long-learning framework. A key lesson emerging from the Peer Review relates to the benefits from taking a holistic approach to both labour market analysis and the design of labour market reforms. A key policy lessons based on the experience in the Danish case is that a relatively low to moderate levels of EPL for ordinary workers seems to support the inclusion of outsiders (e.g. LTU and young people) into the labour market. The low to moderate level of EPL should be balanced by well-designed ALMP and income support systems, which assist those individuals that are negatively affected by numerical flexibility in the labour

14 European Commission (2007) Towards Common Principles of Flexicurity: More and better jobs through flexibility and security

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Annual Thematic Synthesis Report market (i.e. flexibility in hiring and firing). There is potential for well-designed active labour market policies can help to keep labour market segmentation low, also in times of crisis, and prevent LTU and youth unemployment from soaring. There are several pathways to flexicurity, a point which is stressed by the situations of the Member States before and during the crisis. Flexicurity-oriented reforms must be adapted to the specific circumstances. Achieving a balance of flexibility and security requires a comprehensive approach to avoid the misconception that flexicurity is solely or mainly about lower EPL and more numerical flexibility. Indeed, Peer Review participants stressed that a basic level of security is a fundamental starting point in flexicurity policy as without a basic level of security, there is no flexibility. This balance can contribute to a dynamic and inclusive labour market. 2.2.5.2 Key policy approaches Labour market flexibility can take different forms: numerical flexibility (i.e. hiring and firing), working time flexibility (i.e. flexible working time), functional flexibility (i.e. workers being flexible between different tasks) and wage flexibility (i.e. in relation to labour costs). These four forms of flexibility can be linked with four different forms of security: job security (maintaining in a job), employment security (moving between jobs), income security (when losing a job) and combination security (the possibilities available for combining working and private life, e.g. through schemes, maternity leave, voluntary-sector unpaid work etc.). Various configurations of flexibility and security (or “flexicurity regimes”) are possible. In the case of Denmark low EPL and high external numerical flexibility are combined with income security and active labour market policy. Other examples may have a higher level of EPL combined with functional flexibility and working time flexibility. Flexicurity models are often understood to manage the mix between flexibility for employers and security for employees. In the case of Denmark, the strong emphasis on ALMPs and has led to the model as being referred to as the ‘Golden Triangle.’ Such strong emphasis on ALMPs and lifelong learning means that they can almost be considered a third pillar of flexicurity. All three aspects are considered to be interdependent. Relatively low job security, coupled with strong ALMPs, contribute to high job-to-job mobility and this is supported by a generous social security system. The dynamic nature of the Danish labour market is illustrated by the fact that:  30% of employees move between jobs each year;  20% receive unemployment insurance; and  10% are affected ALMPs, with the majority of unemployed people returning to work within six months.

Box 9: Recent developments in the Danish Flexicurity model Policy initiatives, taken as a response to the crisis since 2008, affected macro- economic policy and labour market policy. Public budgets deteriorated rather dramatically during the crisis, leading to a recommendation from the European Commission to restrict deficits. The package agreed in 2011 combined savings and reallocation of public expenditure with a temporary hold on the indexation of the tax scale, plus the shortening of the duration of unemployment benefits from four to two years and a tightening of the criteria for regaining access to unemployment benefits, once the right to benefits had been exhausted. Changes were made in labour market policy: the element of counselling, training and education in active programmes was reduced significantly, while traineeships and subsidised employment increased. Reforms to shorten the unemployment benefit period from four years to two years were introduced along with some other measures to limit Early Retirement Pay, and restrict permanent wage subsidies for disabled workers.

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The level of income support provided by the various benefit systems has declined, along with pressure on active labour market policy, and the introduction of new elements of severance pay imply a step towards more restrictive employment protection. The balance between flexibility and security will depend on the political developments and the reactions of the trade unions over the coming years. Nevertheless, the Danish version of flexicurity does appear to support the adaptation of the Danish employment system to the changing forces of internationalisation and globalisation since Denmark has been able to keep its position among the top-ten of the OECD-countries measured by Gross National Income per capita (Arbejderbevægelsens Erhvervsråd, 2014).

Contracts and EPL The role of contractual arrangements and the strength of employment protection legislation (EPL) in promoting flexicurity is important. In some countries there may be differences between protection for blue and white collar workers, although these differences have reduced in recent years. At the other end of the spectrum, it was agreed that there is a need to regulate EPL and in-build protection for vulnerable groups, such as pregnant women or those from ethnic minorities, so that they are not penalised in any way. Some countries witnessed an increase in part-time employment and fixed-term contracts during the economic crisis. This is typically associated with lower levels of EPL and limitations to certain rights. Using these types of arrangements can be used to foster flexibility into the labour market, but has an impact on worker protection. Internal flexibility In Denmark collective agreements are used to regulate the weeks and months over which an employee must average working time, but the precise timetable is flexible. This is considered to be a core aspect of Denmark’s internal flexibility. A common response across the participating Peer Review countries has been moves to make it easier for employers to reduce working time. In such cases, government subsidies are sometimes used for the affected employees. Such action can delay or avoid dismissals but participants noted that there is a need to not over-subsidise work as it can lead to high costs and lower productivity (and the artificial maintenance of jobs and sectors which are no longer economically viable). Social security and activation measures In regard to the use of sanctions, it was agreed that a balance between individualised support and available job opportunities, a so-called ‘marriage of needs,’ is ideal. In Denmark, work is undertaken with the jobseeker to find an appropriate job match. The current ‘trust reform’ aims to change the relationships between public employment services and jobseekers towards shared responsibility between the two and targeted support towards jobseekers’ individual needs. A move towards employment security, from job security, is important. Active labour market policies Emphasis should be on cost effectiveness, not on the amount spent. Specifically, participants agreed that developing functional employability skills is an important form of security and activation. Further, skill-based programmes are important to keep jobseekers engaged. Social dialogue A high level of consensus on the flexicurity model between trade unions and employer representative organisations is shaped by historical and cultural traditions and these have shaped the spheres social dialogue affects, including internal and wage flexibility and lifelong learning.

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Mutual trust and respect is the foundation for such exchanges to take place and steps can be taken to establish it in those countries where it does not exist. Social consensus can be achieved by involving other stakeholders and it can start at sector or company level, depending on a country’s features and traditions. Wage flexibility Wage flexibility allows employers and governments to control wages for employees. Systems of collective bargaining vary significantly between Member States, with collective bargaining taking place either at centralised (sectoral) or decentralised level. This impacts on the level of control which can be exerted on wage bargaining. 2.2.5.3 Emerging policy recommendations The key policy messages from the Peer Review are summarised below:  There are no ‘copy-paste’ solutions. Many features of the Danish model are the product of long-term historical developments and institutional arrangements. There are many approaches to flexicurity that can rely on various modalities of flexibility and security.  Flexicurity is an integrated concept that is based on interdependent policies and complementarities between different institutions in the labour market.  Mutual trust is an important basis for dialogue between social partners and consensus among a wider range of stakeholders. Consensus regarding the flexicurity pathway is important.  Without a basic level of security, there is no flexibility and vice versa.  Moderate EPL appears to facilitate the more favourable labour market outcomes. This must be considered alongside other forms of flexibility in order to encourage job-to-job mobility and prevent dualism and segmentation in the labour market.  ALMP with broad coverage is a key element in flexicurity models.  Wage moderation or wage flexibility is essential to the flexicurity model.  Investing in individuals’ skills is vital to ensure long-term employability and economic durability. A strong culture of lifelong learning is a powerful tool which can help to equip individuals to make smooth career transitions and encourage sustainable employment. 2.2.6 The importance of evaluation in identifying effective ALMPs Despite the high levels of expenditure on ALMP and the increasing pressure to show its effectiveness, the use of counterfactual impact evaluation (CIE) remains limited. Most of the Member States have started piloting CIE only recently and some have not employed the method at all. The interest in CIE remains limited among policymakers for a variety of reasons related to short-termism in political agendas, the perception that if something consumes significant resources ‘it must be effective’, and lack of understanding of the methodologies and the difference between evaluation and CIE. Few evaluations of ESF interventions are CIEs. Most consist of theory based impact evaluations and process evaluations, which do not rely on comparison between treatment and control groups when assessing ALMP measures. Recently, the European Commission has introduced new requirements to prepare evaluation plans for the 2014- 2020 ESF programming period and to conduct at least one impact evaluation for each priority axis of this support. To increase the awareness of possible evaluation methods, the Commission has founded the Centre for Research on Impact Evaluation. The centre aims to support Member States and DG Employment in carrying out CIEs of ESF funded interventions. Among other activities, it provides workshops on this evaluation method for relevant stakeholders.

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The Peer Review on CIE in October 2014, in Prague, focused on the experience of and lessons from CIEs of Active Labour Market Policies in the Czech Republic and other European countries. The discussions took place in the light of the new requirements to include CIE in ESF evaluations, as well as more broadly within a policy environment placing more emphasis on evaluation and CIE in particular. The purpose of the Peer Review was to discuss the data requirements for the implementation of high quality CIE (and limitations of existing data sources); the advantages and disadvantages of different CIE methods for the evaluation of different types of ALMP in different labour market contexts; challenges in applying CIE methods to evaluate ALMPs; and effective ways of including CIE in programme planning; and ensuring CIE results feed into future policy development. 2.2.6.1 Main lessons of MLP activities The Peer Review participants agreed it is necessary to spread awareness of CIE methods and its importance in guiding policy development among policy makers and convince them of its benefits. In particular, it must be emphasized to policy makers that evaluations without a control group are likely to overestimate the intervention impact. A consensus was reached that ‘low grade CIE is worse than no CIE’ because low grade CIEs can produce vastly different and conflicting results for comparable (or even the same) interventions or indeed misleading results. Such results are not credible in the eyes of the policy makers and thus may discredit the use of the method from the very beginning. Availability of detailed, reliable data for both treatment and control groups is an essential precondition for carrying out a high quality CIE. Without such data, it is difficult to identify a relevant control group and compare its outcomes to the treatment group. The analysis is likely to omit important variables affecting the outcomes of both groups and thus produce biased estimates. Reflecting the need for high quality data in CIEs, the European Commission will require the Member States to collect and store micro data on beneficiaries of ESF interventions in the new 2014-2020 programming period. It will also emphasise the importance of being able to link this to register data (of potential control groups). Gathering high quality data is usually easier for the treatment group because data collection can take place as a part of the intervention. Data on the control group poses the major challenge as there is usually no data about this group in the intervention management information and non-beneficiaries may be less willing to participate in research through means as surveys or interviews. There was an agreement that administrative data availability could be improved in many of the Member States. This would typically require upfront investment and consultations with the research community to ensure correct variables are gathered. It was highlighted that data sets collected by different authorities should be linkable – it would be useful to develop national protocols standardizing data collection and recording processes and provide training to responsible individuals. There was a consensus that robust administrative data sets could reduce such costs significantly and that primary data collection should only be used for collection of additional information not available elsewhere, such as behavioural and motivational attitudes. To ensure high quality CIE it is necessary to plan the evaluation in advance and ideally engage researchers with expert knowledge of CIE methods in the process. The advance assessment of data collection feasibility, intervention design and monitoring arrangements allows for tailoring of these aspects to the evaluation requirements. This can reduce costs of the CIE and increase its quality – for example, ensuring that right variables are collected reduces both costs of primary data collection and possible bias of impact estimates. Application of appropriate CIE methods depends on the experience and qualifications of the evaluators contracted for its delivery. They need to prove both the necessary

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Annual Thematic Synthesis Report technical skills and an in-depth knowledge of the intervention area. The commissioning authority can also benefit from expert training for its employees, because it would enable them to precisely assess evaluators’ expertise and outputs. Expert knowledge of CIE also contributes to the quality of evaluation specification. It enables commissioning authorities to allocate sufficient time and resources for the evaluation and ask the right questions regarding the intervention’s impact In contrast, a poorly written evaluation specification can lead to questionable results regardless of the methods used. There are differences between CIE methods, although some general observations emerge:  There is a trade-off between meeting the assumptions of the method (internal validity) and transferability of results to other contexts (external validity). One can select narrowly defined control and treatment groups to assess impacts with precision, but this prevents the application of results to other, more broadly defined populations. The evidence of effectiveness of specific ALMPs needs to be proved in multiple evaluations before it can be considered as a robust finding.  Some intervention designs may preclude CIE analysis altogether. This may happen when the number of beneficiaries is too small or in the opposite case, in which an intervention is accessible to everyone in the target group, which makes it impossible to construct a control group.  Quantitative impact assessment should be supported by detailed qualitative research, implying that multidisciplinary teams may be optimal for CIE delivery. The qualitative research should identify the ways in which the intervention affects supported individuals and provide basis for a broader understanding of the quantitative results. The results should explain not only what happened, but also why to be useful for policymakers.  The presentation of results should be tailored according to the target audience. For policy makers, it is important to present results in a way that encourages constructive action – for example, explaining the causes of negative results can help to change intervention structure in an appropriate way. On the other hand, the details of the methodology and results should be made available to academia to allow for testing and re-running of the analysis. Despite the different modes of presentation, the results must remain clear and unambiguous to ensure transparency. Most of the available CIEs discussed had either limited or no impact on policy making in the Member States. This is linked to the insufficient experience with the method, lack of links between evaluators and policymakers, little desire to change available programmes and concerns about negative findings. One way of increasing the possible policy impact of the CIEs is to educate policy makers about the benefits of this evaluation method and the implications of its results. Direct involvement of policy makers (and other relevant stakeholders) in evaluations ensures their buy-in. The use of CIEs could also be promoted by introducing legal and programme requirements for evaluations (as noted above at the EU level, a requirement of at least one impact evaluation per priority axis in the new ESF programming period has been introduced). Involvement of the media in promoting results of CIEs was regarded as a promising way of spreading awareness, but there was a concern about misinterpreting the evaluation results. Safeguards would need to be put in place to ensure transparent presentation of evaluation results. The Peer Review intensely debated the role of European Commission in promoting CIEs. Two main approaches emerged from the discussion: Firstly, the Commission could assume the position of a ‘critical friend’ and provide guidance through training, methodological publications, and seminars; Secondly, the Commission could attach further impact assessment requirements to the financial support received by individual

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Member States (with moderation because individual Member States may perceive certain restrictions as too intrusive). 2.2.6.2 Key policy approaches The recent emergence of CIEs has rarely been programmed, instead it usually resulted from economic difficulties, of key individuals or chance. In some countries, such as Ireland and Greece, the economic crisis increased the scarcity of public resources and the need for their effective allocation. In turn, this led to increased interest in robust policy impact evaluation. Elsewhere, individuals from the commissioning authorities have promoted the method as a preferred evaluation approach (such as in the case of the Czech Republic). Only a few good practices have been identified in this area – for example, in Lithuania, the evaluation plan for the next ESF programming period includes an agreement that at least a few CIEs will have to take place. The starting point for the discussions in the Peer Review was a presentation of a pilot CIE in the Czech Republic. This was the first CIE project evaluating Czech ALMP on such a comprehensive scale (see Box 9).

Box 9: CIE of continuous vocational training of employees in the Czech Republic This was a Pilot CIE concerning continuous vocational training of employees under the adaptability pillar in the 2007-2013 ESF Programming Period. The research primarily aimed at assessing the impact of grant projects providing assistance to companies implementing training measures for staff. It evaluated both individual employer projects and a systematic intervention delivered at a national scale. The approach sought to assess the measures’ impact on employment, competitiveness expressed as and profit, investment in training, and staff turnover in supported firms. As it was a pilot exercise, a number of different approaches to CIE were adopted in this evaluation: instrumental variables, regression discontinuity design, and difference-in-differences with matching, making use of different features of the project assessment process. The overall cost of the evaluation was €67 000. The Czech Ministry of Labour and Social Affairs, designed a highly structured and technical call for pilot CIE evaluation and subsequently became involved in the methodology design. This enabled the use of evaluation methods that were closely tailored to the features of the intervention. The ministry has also hired new staff with expert knowledge of CIE and sent its employees to summer schools teaching the method. One of the major issues for the Czech pilot CIE was the lack of appropriate administrative data sets at individual level. While the Ministry of Labour and Social Affairs has access to the employment offices register, it does not have the right to use the Czech Social Security Administration data containing additional individual information. Thus, the pilot CIE needed to focus on firm-level instead of individual outcomes. Results of this pilot CIE were mixed. Most of the evidence suggested that the ESF projects had no impact on most of the measured outcomes of supported companies. The evaluators did find a positive impact of the grant ESF projects on employment in large and medium-size companies. They also found that measures supporting technical skills have larger impact on employment than those focusing on soft skills. However, these findings were not borne out in all methods used. The unclear nature of the results, coupled with lack of policy recommendations provided by the evaluators, resulted into very little impact on policy planning of future ESF support up to date.

A range of approaches to CIE have been used depending on the nature of the measures evaluated. Researchers usually regard the randomised control trial (RCT) as the ‘gold standard’ because it eliminates selection biases and can therefore estimate impacts

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Annual Thematic Synthesis Report precisely using relatively simple statistical methods. However, RCTs are quite rare in the Member States because they raise concerns about unequal treatment and other ethical issues. Nevertheless, there are a few positive examples of RCTs used to evaluate ALMPs – in Norway, randomized assignment was used in training of PES employees and in Estonia, this method was applied to social counselling support. It was mentioned that this type of evaluation should be considered more often for policy evaluation, particularly in the piloting phase. The choice of appropriate CIE method is usually guided by awareness of key features of the intervention, including full understanding of data availability (and its limitations) and identification of characteristics least prone to selection bias. The most popular CIE method is the Propensity Score Matching (combined with Difference in Differences) because it can be adapted to a wide variety of interventions. This method matches similar individuals from control and treatments groups and compares their outcomes to identify the impact of the intervention. It has the most problematic assumptions, because it demands that individuals in treatment and control groups do not differ significantly in unobservable characteristics and that their development over time would have been very similar in the absence of an intervention. It can also be quite data hungry. An alternative to Propensity Score Matching is the Regression Discontinuity design. Its use is more restricted because it requires a clearly defined threshold for participation in support (for example, a certain evaluation score of a project application). The outcomes of beneficiaries slightly above the threshold are compared to non-beneficiaries slightly below the threshold, assuming that these two groups are similar in all observable and unobservable characteristics. For this assumption to hold, the thresholds must not disguise key risk factors in selection bias. Some Member States have evaluated interventions using the Instrumental Variable method, which assumes that there is a factor that affects the probability of receiving support15 but not its outcomes. This factor serves as an instrument to evaluate the impacts of the intervention. If the selected instrument is of high quality, the impact estimates can be robust (although such conditions are rarely met). At least some Member States have already achieved significant progress in making administrative data available for evaluations. In Norway, high quality longitudinal register data is available at individual level, which enables researchers to use matched samples of beneficiaries and non-beneficiaries for the evaluation of ALMP interventions. However, in general the availability of administrative data remains a key limitation, in terms of: the scope and quality of data collected by administrative authorities; cooperation between the administrative authorities and the possibility of linking of their data sets; and data protection issues, which may prevent evaluators from accessing the available data. 2.2.6.3 Emerging policy recommendations The key policy messages from the Peer Review are as follows:  Evaluation, in particular CIE, needs to be programmed into the policy cycle.  Access to high quality data from various sources is the cornerstone of good quality CIE.  Ensuring access to quality data requires upfront investment and consultation with the evaluation community to ensure information on relevant variables is covered. Ideally, administrative databases should be linkable. Political will is required to achieve this. At EU level, the project Data without Boundaries supports equal and easy access to official microdata for the European Research Area.

15 Usually some aspect of support administration, such as the strictness of appraisal experts in the Czech pilot CIE

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 Data should be accessible to researchers while respecting data protection rules. Administrative data must be gathered according to the same protocols.  There is no ideal method for CIE. Method selection must be guided by a clear understanding of the main features of the interventions to be evaluated and key causation chains.  The successful application of CIE and its integration in the policy making process requires the development of a strong evaluation culture. This involves training for ESF Managing Authorities that are called to judge quality of CIE, policy makers and politicians’ awareness of CIE as well as support of the media (to achieve the objective communication of messages from CIE).  The results of CIE need to be clearly disseminated not only to show what works in terms of policy but to build further support for CIE and its added value in the effective and efficient use of scarce resources.

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Annual Thematic Synthesis Report

3 Relevance of the MLP for EU2020 and a look forward to 2015 Countries continue to face common challenges in responding to the effects of the crisis on their labour markets. The topics of the MLP events of 2014 demonstrate the desire for more detailed, focussed learning on key items on countries’ policy agendas as a follow up from Peer Review events. Therefore the institutionalisation of follow-up Learning Exchanges (focussing on the transfer of experience between a smaller number of countries) continues to prove a valued addition to the MLP. In addition, the focus on the priorities set down in the Employment Guidelines and Country Specific Recommendations as part of the European Semester continued. This is particularly true for the activities focussing on addressing youth unemployment and labour market reforms. Work continued in 2014 on the subject of evidence-based policy making, through specific activities (Peer Review on Counterfactual Impact Evaluation) or as a general principle for our activities. The new framework of the MLP allowed for the establishment of a database of labour market practices launched in November 2013. The events of the MLP will continue to yield experiences to add to the database and Member States are encouraged to submit their own successful practices to be included. Efforts will continue to align the activities of the MLP with those of the European Semester and with that in mind there will be an ongoing regular exchange with the EMCO Ad hoc group to identify themes and host countries for the Peer Reviews. Some potential priority topics already identified for 2015 are as follows: young people, older workers and supporting working lives, female participation in the workforce, undeclared work and wage bargaining and wage setting mechanisms.

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