July 24, 2013 | Contribution by
CLAUDIA SEPULVEDA By Claudia Sepulveda, Lead Economist, Office of the Chief Economist, the World BankPosted on July 24, 2013 Young people continue to face record unemployment levels in many OECD countries—with rates exceeding 60 percent in Greece, 55 percent in Spain, and about 40 percent in Italy and Portugal—according to the latest OECD Employment Outlook. The report says the uneven, weak recovery has failed to generate enough jobs to make a serious dent in joblessness in many OECD countries. Moreover, high unemployment is set to remain high in OECD countries through 2014, with youth and low-skilled labor hardest hit. The report calls for youth to be a top priority for policy action to avoid long-term "scarring" effects as a result of prolonged unemployment and low-income spells early on in their careers.
University students in France checking bulletin board for new schedule 2011 ©Photo_Alto
But what policies can be pursued? And what evidence do we have of their impact on employment in the short and long run? Developed countries are increasingly relying on job search assistance programs to prepare young job seekers for the recruitment process and to connect them with potentials employers. Europe in particular has shown a strong interest in active labor market policies (such as public employment services, labor market training, and subsidized employment). But so far, the verdict on these programs has been mixed. And a new study out on France's experience with this approach offers a cautionary tale. France's Job Placement Assistance for Young Graduates In France, where more than 25 percent of recent graduates cannot find stable work, the Ministry of Labor decided in 2007 to subcontract additional job counseling services to private agencies believed to be more efficient than the French public employment agency, Pôle Emploi. Under the program, private agencies were contracted to provide intensive placement services to young graduates (at least two-year college degree) who have been unemployed for at least six months. The private agencies’ intervention consisted of (i) helping young graduate job seekers to find a durable job—either on a CDI (indefinite-term contract) or CDD (fixed-term contract) with a length of six months or more; and (ii) continuing to advise job seekers during the first six months of the job to help them keep the job or find another one if they resign. The program design included an incentive scheme for the private agencies. In particular, payment was in stages—25 percent when a job seeker enrolled in the program, 40 percent once a job seeker received a contract for a job (within six months of entry into the program), and the remainder if the job seeker was still employed after six months. Evaluating France's Job Placement Program How has this large-scale program worked? That's a question that several economic researchers—Bruno Crépon, Esther Duflo, Marc Gurgand, Roland Rathelot, and Philippe Zamora—recently tried to answer. They conducted a randomized controlled evaluation from 2007 to 2010 covering 250 communities in 10 regions in France, with about 30,000 young educated job seekers randomly selected to participate. The evaluation aimed at:
The evaluation used a two-step randomization: (1) assigning randomly the proportion of job seekers that would receive intensive counseling in a given community; and (2) assigning randomly job seekers in each treated community into the treatment or comparison group. Individuals assigned to the treatment group were put in contact with a private agency for intensive job counseling lasting a year, while those in the comparison group continued to have the option of standard job counseling from Pôle Emploi. Thus, both treatment and comparison individuals were eligible to receive counseling through Pôle Emploi—with the evaluation measuring the impact of supplementing public employment counseling with more-intensive counseling from a private provider. A Disappointing Outcome So what do the results show? In a recent paper titled "Do Labor Market Policies have Displacement Effects? Evidence from a Clustered Randomized Experiment," the researchers report that overall the program had little effect on long-term employment.
||Assessing whether job seekers assigned to the treatment group were more likely to have found a stable job than those who were not. |
||Assessing whether offering job counseling displaced job seekers who did not benefit from the program—and if so, quantifying how large this effect might be. |
This evaluation suggests that the enthusiasm among OECD governments for active labor programs should be re-examined. The main problem appears to be that once externalities are taken into consideration, labor policies that seem to reduce unemployment aren't really accomplishing their goals.
||After eight months, job seekers in the treatment group were 2.5 percentage points more likely to have found employment, mostly driven by its effect on men. |
||However, this effect came partly at the expense of other workers, mainly in weak labor markets (small pool of jobs). |
||Increases in employment were driven mostly by fixed-term contracts, and there was no increase in permanent employment contracts. |
||All employment gains disappeared after 12 months, and there was no stepping stone effect where a fixed-term job led to a permanent job. |