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ISSN 1977-4478 Stimulating job demand: the design of effective hiring subsidies in Europe EEPO Review Social Europe
This publication is based on national articles provided by the EEPO Malta: Manwel Debono, Centre for Labour Studies, L-Università
expert network. National articles are the sole responsibility of the ta’ Malta (University of Malta)
author(s). The contents of this publication do not necessarily reflect the Msida
position or opinion of the European Commission or ICF GHK. Neither the
European Commission nor any person/organisation acting on behalf of Netherlands: Sonja Bekker, ReflecT Institute, Universiteit van Tilburg
the Commission is responsible for the use that might be made of any (University of Tilburg)
information contained in this publication. Tilburg
European Commission Austria: Ferdinand Lechner, Lechner, Reiter & Riesenfelder OEG
Vienna
Loris di Pietrantonio, Federico Pancaldi and Monika Kalocinska
(Employment, Social Affairs and Inclusion DG, Unit C.1) Poland: Łukasz Sienkiewicz, Szkoła Główna Handlowa w Warszawie
(Warsaw School of Economics)
Belgium: Robert Plasman, DULBEA — Université de Bruxelles Warsaw
(University of Brussels)
Brussels Portugal: Reinhard Naumann, DINÂMIA — Centro de Estudos
sobre a Mudança Socioeconómica (Research Centre on
Bulgaria: Pobeda Loukanova, Economic Research Institute Socioeconomic Change)
Sofia Lisbon
Czech Republic: Daniel Münich, CERGE-EI — Centre for Economic Romania: Cătălin Ghinăraru, National Labour Research Institute
Research & Graduate Education (Charles University) — Economics Bucharest
Institute (Czech Academy of Sciences)
Prague Slovenia: Miroljub Ignjatović, Fakulteta za druzbene vede, Univerza
v Ljubljani (Faculty of Social Sciences, University of Ljubljana)
Denmark: Per Kongshøj Madsen, CARMA — Centre for Labour Ljubljana
Market Research, Aalborg Universitet (Aalborg University)
Aalborg Slovakia: Luboš Vagač, Centrum pre hospodársky rozvoj
(Centre for Economic Development)
Germany: Nicola Düll, Economix Research & Consulting Bratislava
Munich
Finland: Robert Arnkil, Työelämän tutkimuskeskus Tampereen
Estonia: Reelika Leetmaa, Praxis Centre for Policy Studies yliopisto (Work Research Centre, Tampere University)
Tallinn Helsinki
Ireland: Seamus McGuiness, Economic and Social Research Institute, Sweden: Dominique Anxo, CELMS HB — Centre for European Labour
Dublin Market Studies HB
Gothenburg
Greece: Dimitris Karantinos, EKKE — National Centre of Social
Research United Kingdom: Kenneth Walsh, TERN — Training & Employment
Athens Research Network
Kidderminster
Spain: Elvira González Gago, CEET — Centro de Estudios
Económicos Tomillo, SL (Tomillo Centre for Economic Studies) Iceland: Sveinn Agnarsson, Viðskiptafræðideild, Háskóli Íslands
Madrid School of Business, University of Iceland
Reykjavik
France: Sandrine Gineste, Bernard Brunhes Consultants
Paris The former Yugoslav Republic of Macedonia:
Nikica Mojsoska-Blazevski, School of Business Administration,
Italy: Giuseppe Ciccarone, Fondazione Giacomo Brodolini University American College Skopje
(Giacomo Brodolini Foundation) Skopje
Rome
Turkey: Hakan Ercan, Orta Doğu Teknik Üniversitesi
Cyprus: Louis N. Christofides, University of Cyprus (Department of Economics, Middle East Technical University)
Nicosia Ankara
Latvia: Alfreds Vanags, BICEPS — Baltic International Centre Serbia: Mihail Arandarenko, FREN — Fond za razvoj ekonomske
for Economic Policy Studies nauke (Foundation for the Advancement of Economics)
Riga Belgrade
Lithuania: Boguslavas Gruževskis and Inga Blaziene, Institute Norway: Sissel C. Trygstad, Fafo Institutt for arbeidslivs- og
of Labour and Social Research velferdsforskning (Fafo Institute of Labour and Social Research)
Vilnius Oslo
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Academy of Sciences) Editors: Joanne Moore, Anna Manoudi, David Scott, Lucy Arora,
Budapest Julie Farrell, Sein O’Muincheann, Jane Sanderson, Leona Walker FinlayEuropean Employment Policy Observatory Review
Stimulating job demand:
the design of effective
hiring subsidies in Europe
2014
European Commission
Directorate-General for Employment, Social Affairs and Inclusion
Unit C.1
Manuscript completed in May 2014Neither the European Commission nor any person/organisation acting on behalf of the Commission is responsible
for the use that might be made of any information contained in this publication.
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Luxembourg: Publications Office of the European Union, 2014
ISBN 978-92-79-38025-9 – doi:10.2767/22824 (online)
ISBN 978-92-79-38026-6 – doi:10.2767/23 (epub)
ISSN 1977-4478
© European Union, 2014
Reproduction is authorised provided the source is acknowledged.Table of contents
1. Introduction to the Review 5
2. Policy context and the scope of hiring subsidy measures 6
2.1. Defining hiring subsidies 6
2.2. European policy context 6
2.3. The scope of this Review 7
2.4. The benefits of hiring subsidies 7
2.5. Key rationales for the use of hiring subsidies 8
2.6. National contexts — why countries use hiring subsidies 9
2.6.1. Institutional or structural barriers addressed by hiring subsidies 10
2.6.2. The significance of hiring subsidies in Active Labour Market Policies across the EU 11
3. Mapping of existing measures 15
3.1. Types of hiring subsidy measures 15
3.1.1. Subsidies to support labour demand 15
3.1.2. Supporting disadvantaged groups into jobs 18
3.1.3. The employment of young jobseekers 20
3.1.4. The employment of primarily older workers and the long-term unemployed 22
3.1.5. The employment of people with disabilities and reduced capacity for work 24
3.1.6. Voucher schemes 25
3.1.7. Direct job-creation subsidies/public works 26
3.1.8. Supporting up-skilling 27
3.2. Targeting of hiring subsidies 29
3.3. Duration of hiring subsidies 31
4. Comparative analysis 32
4.1. Complementarity with other measures 32
4.2. Combining hiring subsidies with training 33
4.3. Evidence of successful approaches 34
4.3.1. Effectiveness of hiring subsidies — findings from existing literature 34
4.3.2. Limitations and challenges — findings from existing literature 34
4.3.3. Effectiveness of hiring subsidies — findings from the current Review 35
4.3.4. How hiring subsidies are judged 36
4.3.5. Deadweight effects of hiring subsidy measures 37
4.4. Evidence of successful/detrimental factors 38
4.4.1. Types of incentive 39
4.4.2. Level of incentive 39
4.4.3. Conditionality placed on employers to be involved 40
4.4.4. Sectors where job opportunities are offered 42
4.4.5. Other design features 43
5. Conclusions and recommendations 44
5.1. Emerging conclusions on the features of successful hiring subsidies 44
5.2. Employment benefits of hiring subsidies 45
5.2.1. Hiring subsidies and job creation 45
5.2.2. Using hiring subsidies to support labour demand 47
5.3. Need for further research 49
6. Annex: Findings of national evaluation studies 50
31. Introduction to the Review
The employment crisis in Europe has made it par- wage costs or reductions in employers’ social
ticularly compelling for Member States to set up security contributions. The Review does not aim to
effective measures to stimulate labour demand, cover measures for maintaining existing jobs, nor
alongside supply-side measures. Among other direct job creation such as public works measures.
tools, in the 2012 Employment Package (1) the In this document, hiring subsidies are used inter-
European Commission emphasised the role of changeably with the terms ‘employment incen-
hiring subsidies targeting new hires as a relevant tives’ and ‘recruitment incentives’.
measure extensively used by Member States to
promote employment in disadvantaged-worker This Review summarises the key messages
categories, such as young and older people, the emerging from 33 national articles prepared by
long-term unemployed and women. the European Employment Policy Observatory
(EEPO) national experts, on the theme of stimu-
The objective of this Review is to map the lating job demand through the design of effec-
detailed design of hiring subsidies across EU tive hiring subsidies across Europe. The experts’
Member States and identify good and effec- articles have been complemented by existing
tive practices in targeting, funding, monitoring literature. The national experts were asked to
and integrating incentives with other policies. consider the following aspects in their national
The Review is intended as a source of mutual articles, in order to contribute to an overview
learning and transfer of good practices between of Member States’ measures to stimulate job
Member States. The Review aims to provide an demand through hiring subsidies:
overview of the use of hiring subsidies in the EU;
examples of interesting practices and practices • Describe measures for incentivising new job
in need of improvement; results of evaluation creation for different target groups, either cur-
reports and academic studies testing the effec- rent or significant measures adopted during
tiveness of existing hiring subsidies over time; as the 2000s;
well as recommendations on how the Commission
might use the findings of this Review. • Report on evaluation results testing the effec-
tiveness of existing hiring subsidies over time;
This Review focuses on ‘hiring subsidies’ aimed at
facilitating the creation of new jobs for unem- • Provide an assessment of the main suc-
ployed persons. This includes job creation and cess factors, or the main shortcomings,
opportunities for improving employability through in the design and implementation of the
work experience, via subsidising the employers’ described measures.
(1)
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.
5EEPO Review – Stimulating job demand: the design of effective hiring subsidies in Europe, 2014
2. Policy context and the scope
of hiring subsidy measures
2.1. Defining hiring subsidies Hiring subsidies are distinct as they exclusively
focus on the creation of new jobs, or promoting
The Organisation for Economic Co-operation and opportunities for improving employability through
Development (OECD) (2) has noted a shift over work experience.
recent decades towards labour market policies
that are active rather than passive across many In the context of major job losses during the
European countries. Typical aspects of ‘activa- recession, many OECD countries have introduced
tion’ strategies include introducing new job-search or scaled up subsidies that encourage firms to
requirements and conditions for benefits recipi- retain or hire workers (6). The OECD suggests that
ents, emphasising a greater role for public employ- in addition to programmes that seek to preserve
ment services (PES) and encouraging partnerships jobs at risk, there may be an expanded role for
between different labour market stakeholders. hiring subsidies that concentrate on the creation
of new jobs, as these have been proven to be
Hiring subsidies are symbolic of this shift. They quite effective.
are demand-side labour market measures that
include providing employers with wage subsidies, In the face of the current downturn, the large
or targeted (as opposed to ‘across the board’) majority of OECD countries have expanded exist-
reductions in social security contributions for ing hiring subsidies or established new ones, typi-
employers (3). Hiring subsidies are also understood cally targeted at specific vulnerable groups (7).
as measures that aim at favouring the conversion
of temporary contracts into open-ended ones.
2.2. European policy context
Generally, hiring subsidies focus on reactivating
the long-term unemployed, or supporting groups It is possible to draw a distinction between
at risk of labour-market exclusion (such as young employment incentives that facilitate the hiring
people, people with disabilities, women, older of unemployed people (recruitment incentives,
workers, etc.) (4). used in particular to improve employability by
providing some work experience) and employment
The OECD Employment Outlook 2009 report incentives that assist in continuing the employ-
refers to hiring subsidies as one of a number ment of persons at risk of losing their jobs due
of active measures for labour demand support, to restructuring or economic pressures (employ-
which alongside hiring subsidies, includes training ment maintenance incentives) (8). This Review
measures, public sector job creation (and other focuses on the former, i.e. on recruitment incen-
forms of subsidised work experience), and short- tives or hiring subsidies that contribute to net
time working arrangements. new recruitment.
To limit the social and economic costs of the The Communication, Towards a job rich recovery,
current jobs crisis, the OECD notes that govern- suggests that hiring subsidies are a way of cush-
ments should prioritise the scaling-up of effective ioning the unemployment effects of economic cri-
active labour market policies to provide increased sis, especially for disadvantaged groups. It states
numbers of jobseekers with the re-employment that: ‘Creating the right kinds of incentives and
assistance they require and minimise the build hiring subsidies should motivate employers to
up of long-term joblessness (5). This may require engage in net new recruitment, thus creating jobs
greater emphasis on labour demand supports to that would otherwise not be created. Targeting
shore up activation regimes and ensure that more vulnerable groups such as young people or the
disadvantaged jobseekers do not become discon- long-term unemployed can have positive effects
nected from the labour market. particularly where hiring subsidies are com-
bined with additional efforts to help the target
(2)
OECD, OECD Employment Outlook: Tackling the Jobs population.’
Crisis, OECD Publications, Paris, 2009.
(3)
ICF GHK, European Employment Observatory Review: (6)
Ibid.
Long-term Unemployment, European Commission, (7)
Ibid.
Luxembourg, 2009.
(8)
Ecorys/IZA, Analysis of costs and benefits of active
(4)
Ibid. compared to passive measures, final report, European
(5)
OECD, OECD Employment Outlook: Tackling the Jobs Commission, DG Employment, Social Affairs and
Crisis, OECD Publications, Paris, 2009. Inclusion, Rotterdam, 2012.
6A Commission staff working document supporting employability through work experience, often
the [above] Communication (9) suggests that hiring through wage subsidies paid to employers or
subsidies represent a ‘flexicurity’ measure that reductions in the level of social insurance con-
combines external flexibility and employment tributions paid upon the hiring of workers. Hiring
security. Such an approach aims at replacing tra- subsidies are also understood as measures that
ditional job protection with measures enhancing aim at favouring the conversion of temporary
the employability of outsiders to the labour mar- contracts into open-ended ones.
ket, while easing hiring and lay-off procedures
and costs for the employers, backed up by active The Review does not aim to cover measures for
labour market policies. Hiring subsidies function maintaining existing jobs. Similarly, the Review
as a back up in this context. does not aim to cover direct job creation such as
public works measures in detail, nor stock subsi-
Another kind of flexicurity measure combines dies, as described below.
external flexibility with job security. These mea-
sures often contain elements to facilitate hiring Incentives for new hiring entail the subsidisa-
and lay-offs, which are combined with incentives tion of part of the employers’ wage or non-
for employees to maintain their existing jobs wage labour costs. The OECD draws a distinction
(mostly related to regulations on the promotion here between hiring subsidies and broad cuts in
of open-ended contracts). employer social security contributions (or stock
subsidies) (12). Stock subsidies are defined as
Hiring subsidies are particularly relevant for young general reductions in employers’ social security
people. A Council Recommendation on establish- contributions. Stock subsidies are relatively easy
ing a Youth Guarantee (10) suggests the use of to implement and relatively effective in supporting
‘targeted and well-designed wage and recruit- employment in the short run, at least as compared
ment subsidies to encourage employers to cre- with the employment effects of other forms of
ate new opportunities for young people, such as fiscal stimulus (13). Overall, the short-run effec-
an apprenticeship, traineeship or job placement, tiveness in generating new jobs depends on the
particularly for those furthest from the labour responsiveness of labour demand to changes in
market’. unit labour costs. The long-run effect of a reduc-
tion in employer social security contributions on
the equilibrium of employment is likely to be
2.3. The scope of this Review much smaller, due to offsetting real-wage adjust-
ments (14). Typically, deadweight effects tend to be
The 2012 Employment Package (11) presents associated with such subsidies, since they cover
levers that could support a job-rich recovery, all jobs, even those that would have been cre-
addressing both the demand and supply sides ated without the subsidy. Reductions of employer
of the labour market. It notes that besides sup- social security contributions are therefore rela-
ply-side measures, such as skills and activation tively cost-ineffective. For this reason, they should
investment, and labour-matching services, there be a temporary anti-recessionary measure. The
are also a number of tools that impact positively current Review does not cover stock subsidies in
on labour demand. Hiring subsidies to encourage any further detail but rather focuses on marginal
new hiring are one such demand-side tool. They employment subsidies, creating net employment.
have been used to target employers to create new
or temporary employment for vulnerable groups,
supporting youth and older workers in particular. 2.4. The benefits of hiring
subsidies
This Review explores ‘hiring subsidies’ measures
in more detail. These employment incentives are Hiring subsidies can play a positive role in sup-
considered to cover measures aimed at facili- porting labour demand (15). Hiring subsidies,
tating the creation of new jobs for unemployed in particular, can be beneficial for promoting
persons or promoting opportunities for improving employment among disadvantaged groups, and
therefore for better overall equity. This is impor-
(9)
European Commission, Commission Staff Working tant in recessions when there are higher propor-
Document: Open, dynamic and inclusive labour markets, tions of well-qualified job losers and therefore
SWD(2012) 97 final, Strasbourg, 18.4.2012.
increased competition for new jobs.
(10)
Proposal for a Council Recommendation on Establishing a
Youth Guarantee, COM(2012) 0729 final — 2012(0351)
final, Brussels, 5.12.2012.
(12)
OECD, OECD Employment Outlook: Tackling the Jobs
(11)
European Commission, Communication from the Crisis, OECD Publications, Paris, 2009.
Commission to the European Parliament, the Council,
(13)
ibid.
the European Economic and Social Committee and The
Committee of the Regions: Towards a job-rich recovery, (14) ibid
COM(2012) 173 final, Strasbourg, 18.4.2012. (15)
Ibid.
7EEPO Review – Stimulating job demand: the design of effective hiring subsidies in Europe, 2014
The European Commission’s report, Employment at low-wage workers may have longer-
in Europe 2010, notes that ‘in times of economic term impacts through lowering structural
crisis, temporary wage subsidies can be used both unemployment (22).
to ensure a smooth adjustment of employment
to output changes and to address wider social or A report analysing the costs and benefits of
equity concerns’. Subsidies can help by targeting active measures (23) discusses the effectiveness
those most at risk in a crisis situation. of employment incentives prior to 2008. The
evidence suggests that measures have had mixed
The overall benefits of hiring subsidies include results, but that there are several design features
the following. which can inform good practice.
• Hiring subsidies tend to be relatively cost- In some countries, wage-subsidy measures have
effective because they exclusively concentrate focused on an increasing share of fixed-term
on newly created jobs (16). contracts, rather than increasing employment as
such. There is evidence for small positive effects
• There is a role for hiring subsidies as a way on permanent job creation and job stability (for
of targeting harder-to-place benefit recipients example in Italy) but no significant change to the
and keeping the growing number of long-term overall employment probability. One US study
unemployed connected to the labour mar- found that workers with a college degree experi-
ket (17). Wage subsidies, in particular, incentivise enced a 10 % rise in the probability of being hired
firms to hire less qualified workers (18). on a permanent basis, compared to 4 % of work-
ers with a high-school diploma, and no significant
• Through targeting harder-to-place benefit change for less educated workers. However, sub-
recipients, hiring subsidies can help to keep sidies for converting contracts are costly because
active labour market policies (ALMPs) credible, permanent employment does not generate higher
at a time when the immediate returns on job- fiscal revenue than temporary employment. Also,
search assistance may be low for harder-to- the increased labour participation of workers may
place jobseekers. Hiring subsidies (and other contribute to heightened unemployment as other
labour demand measures), could be considered workers are displaced.
as a backstop to activation regimes, provided
that there is appropriate targeting to the most The same report discusses employment incentive
vulnerable unemployed. Activation strategies measures introduced after the recession, from
must adapt in order to foster the rapid reinte- 2009 onwards. In this period, employment incen-
gration of job losers into employment, while tives tended to target employers to create new
keeping all unemployed persons engaged in or temporary employment for vulnerable groups.
employment-related activities. Youth, older workers and people with disabilities
have been supported in this way, mostly through
• Subsidised employment provides work expe- reduced employer contributions.
rience and training, therefore increasing the
chances of sustainable employment effects (19).
2.5. Key rationales for the use
• In recessionary conditions, wage subsidies pro- of hiring subsidies
vide firms with opportunities to retain and hire
more workers (20). In general terms, a distinction can be made
between three rationales for hiring subsidies — an
• Wage subsidies reduce market segmenta- ‘economic’, a ‘social’, and an ‘up-skilling’ rationale
tion by promoting inclusion. This can lower — so hiring subsidies can be distinguished by:
structural unemployment and thus decrease
wage pressures in the private sector (21). Also, • an ‘economic’ rationale, where subsidies
targeting employer contribution reductions are intended to support labour demand with
the purpose of creating jobs in the economy;
• a ‘social’ rationale, with the purpose of
(16)
Ibid. shifting recruitment in favour of specific
(17)
Ibid. groups and overcoming potential productivity
(18)
European Commission, Employment in Europe 2010,
Directorate-General for Employment, Social Affairs and
(22)
OECD, OECD Employment Outlook: Tackling the Jobs
Equal Opportunities, Brussels, 2010.
Crisis, OECD Publications, Paris, 2009.
(19)
Ibid.
(23)
Ecorys/IZA, Analysis of costs and benefits of active
(20)
OECD, OECD Employment Outlook: Tackling the Jobs compared to passive measures, final report, European
Crisis, OECD Publications, Paris, 2009. Commission, DG Employment, Social Affairs and
(21)
Ibid. Inclusion, Rotterdam, 2012.
8gaps among new recruits from certain groups has been attributed to the combination of low sal-
(i.e. compensating for lower productivity of ary levels (relative to the fixed costs of commut-
workers in the short term, resulting from their ing, etc.), the unavailability of low-cost childcare,
lack of work experience or other labour market and the tax treatment of married couples with
disadvantages, in order to bring about a redis- children (25). Finally, after women reach the rela-
tribution of jobs in favour of excluded groups); tively low statutory retirement age, the employ-
ment rates of women in this age bracket decline
• an ‘up-skilling rationale’, including hiring faster than in many EU countries.
subsidies designed to contribute to enhancing
the skills and employability of workers (e.g. High youth unemployment is a key concern
when subsidies are used in combination with across the EU and in Turkey. High youth unemploy-
training to address employers’ and workers’ ment combines with high long-term unemploy-
skills needs). ment in Belgium, France and Slovakia, and these
countries have used a variety of hiring subsidies
There are differences in terms of the conceptual to stimulate job demand to combat the large
basis on which different subsidies have been increase in the rate of youth unemployment. A
introduced in different Member States. There main challenge in the Turkish labour market is
have also often been developments within each that working-age population growth keeps out-
country over time in how subsidies have been and pacing employment growth, and educated young
are being used (or planned to be used in the near people have difficulty in finding jobs (26).
future), according to the challenges faced at any
given time during the period 2000–13. Moreover, A number of countries describe challenges related
the scale and importance of different types of hir- to inactivity and the marginalisation of some
ing subsidies as an element of active labour mar- population groups. In Hungary, a shift towards
ket policy varies greatly between Member States. reaching out to the growing inactive population
brought about an increase in measures focus-
ing on activation and supporting labour demand.
2.6. National contexts — why This approach gained a momentum that lasted
countries use hiring subsidies throughout the 2009 crisis, despite the unem-
ployment rate almost breaking its former record
This Review has found that the challenges that of 11.3 % in 2010. The focus of hiring subsidies
EU Member States, candidate countries, Iceland and job-creation programmes has somewhat
and Norway have tried to address through hir- changed from the main objective of combating
ing subsidies reflect all three of the rationales mass unemployment and long-term unemploy-
identified in Section 1.4, discussed in turn below. ment towards more targeted measures to tackle
employment barriers among disadvantaged
A significant share of Member States have groups. In Lithuania, ALMPs that have been
used hiring subsidies in line with the ‘social’ implemented are mainly geared towards assisting
rationale to give incentives to employers to those in the weakest position in the labour mar-
hire groups at a particular disadvantage in ket. A general overview of Lithuania’s experience
the labour market, including young people, in organising ALMPs suggests that in conditions
women and other marginalised groups. of high unemployment, supported employment
and job creation appear to be relatively efficient
Female unemployment is noted as a challenge measures. During the EU accession period there
that hiring subsidies have tried to address, in the was a growth in awareness in Malta about the
Czech Republic and Turkey. With urbanisation in need to increase labour market opportunities for
Turkey and as families have moved out of agri- minority or vulnerable groups. In Estonia, hiring
culture, employment rates for women have fallen subsidies aim to promote the employment of
significantly. Because of their low human capital disadvantaged groups rather than to stimulate
levels, a significant number of women do not work labour demand in general. In Austria, integration
or look for employment after migrating into urban subsidies aim to improve the labour market rein-
areas. In the Czech Republic, there is a low share tegration opportunities of those that are remote
of part-time work, especially for women. In rela- from the labour market.
tion to this, the employment penalty of mother-
hood is very high in the Czech Republic (24). This
(25)
According to the OECD, the Czech Republic is in the top
third when EU countries are ranked by the implicit tax on
returning to work (composed of childcare fees, benefits
(24)
The employment rate of Czech women with children change and of social security and income tax). Czech
under the age of 6 is 41 percentage points lower self-employed people face lower taxes, but most self-
than that of women without such children, while the employed people are men.
corresponding gap is only 12 percentage points in the (26)
World Bank, Turkey Labor Market Study. Washington
EU on average. DC, 2006.
9EEPO Review – Stimulating job demand: the design of effective hiring subsidies in Europe, 2014
Several countries have also used hiring sub- the creation of new jobs, and in Luxembourg, hir-
sidies, according to the ‘economic’ rationale, ing subsidies have constituted an important tool
to address general problems of high unem- to combat unemployment in terms of offering
ployment and — in particular — high long- incentives to employers to create both temporary
term unemployment. In Ireland, the scale of the and permanent jobs. In the United Kingdom, job
unemployment challenge is significant (the unem- creation has targeted the public and voluntary/
ployment rate (27) in the first quarter of 2014 (Q1) community sectors.
was 12.1 %, having fallen from a peak of 15.1 %
in Q1 2012) and there has been increased ALMP In Cyprus, as a result of the banking crisis, the
activity to address these rates over the past three labour market swung from being overheated to
years. Similarly in Greece, ALMPs have attempted one of the slackest in the EU-28. With excess
to mitigate the crisis of rising unemployment demand for labour in the early to mid-2000s,
since 2010. Hiring subsidies have also emerged the emphasis of labour market programmes was
in response to high and growing unemployment on encouraging further participation. Later, with
in candidate countries such as Serbia and in non- the advent of the recession, emphasis changed to
Member States, such as Iceland. unabashed hiring subsidies. Cyprus experienced
a dramatic rise in long-term unemployment, and
The challenge in some countries is more specifi- comparing February 2013 to February 2014, the
cally long-term unemployment. Measures in number of registered unemployed with some ter-
Belgium have aimed to address the country’s tiary education rose by 17.6 %, while the figure for
notably high long-term unemployment levels. In those with degree qualifications rose by 32.5 %.
Denmark, hiring subsidies for the employment
of the long-term unemployed by public and pri- Last but not least, a smaller number of
vate employers are important programmes within countries have used hiring subsidies in
ALMPs. The share of long-term unemployment in accordance with the up-skilling rationale.
total unemployment in Finland is not particularly Deficiencies in education and skills are highlighted
high (23.6 %) compared to the OECD average, but in Finland, where the consequence of restructur-
it is much higher than in the other Nordic countries, ing in the 1990s is still very much felt today. Also,
and long-term unemployment remains a major in Germany, some regions have major concerns
barrier to employment, especially for older work- about overcoming skills shortages. The Ministry of
ers. In France, different kinds of hiring subsidies Labour and Social Affairs has recently formulated
have been implemented over the last 30 years to its priorities in order to cope with demographic
stimulate job demand, now dedicated to combat- change in its strategy to secure future skills (Fa
ing the dramatic increase in the rate of long-term chkräftesicherungstrategie) (28). Spain registered
unemployment. Similarly, the main goal pursued the third-highest proportion of low-skilled workers
by hiring subsidies in Slovakia has been to address among the active population in the EU-28 between
one of highest rates of long-term unemployment 2000 and 2012 (46.6 %). The unemployment rate
in the EU. Legislation implemented in 2000 in Italy of this group and other harder-to-help collectives
introduced incentives and tax rebates for employ- (extra-EU-28 citizens, young people, etc.) has been
ers that hire long-term unemployed workers with significantly elastic in the macroeconomic context.
open- and fixed-term contracts.
Other countries underline the challenge of new 2.6.1. Institutional or structural barriers
job creation and how hiring subsidies can address addressed by hiring subsidies
this to a certain extent. In Romania, generating
jobs has been at the core of labour market poli- Countries have also used hiring subsidies to
cies since the beginning of the 1990s. Romania’s address a number of institutional or structural
unemployment insurance law of the early 2000s barriers that prevent people from entering the
facilitates hiring subsidies as a means of incen- labour market, including lack of work experi-
tivising employers and especially small and ence, declining demand in specific sectors of the
medium- sized enterprises (SMEs) to generate economy, unattractiveness of work in the low-
jobs and thus compensate for the massive shed- paid sector, and, last but not least, high costs for
ding of jobs resulting from the restructuring of employers dampening labour demand.
former State-owned enterprises. In Portugal, the
2001 Job Offer Stimulus programme confirmed Lithuania, Malta, Portugal, the United Kingdom
the principle of ‘liquid job creation’ and obliged and Norway have addressed the lack of work
companies to maintain employment volume for
four years from the beginning of support. Hiring (28)
See Düll, 2012, for more details:
subsidies in Greece have traditionally targeted www.eu-employment-observatory.net/resources/reviews/
Germany-LTU-July%202012.pdf
See also: www.fachkraefte-offensive.de/DE/Die-Offensive/
(27)
Eurostat. Strategie/inhalt.html
10experience among some unemployed people. is to reduce the tax wedge on low-paid work. Hiring
Portuguese legislation has emphasised the neces- subsidies follow the same objective.
sity to combat unemployment by supporting young
people to get a first job. The law identifies lack of In Spain, the configuration of hiring incentives
experience among the young and the long absence and subsidies since the 1990s has been a public
from working life among the long-term unemployed response to increasing the proportion of perma-
as key barriers. Measures in Lithuania have also nent contracts, given the traditionally high tempo-
focused on unemployed persons taking up their rary contract rates. Moreover, Spanish temporary
first position according to the acquired qualifica- work rates have been one of the main structural
tion. The United Kingdom has also targeted young features of the labour market (29.9 % between
people with limited work experience. Norway has 2000 and 2012, a proportion 2.2 times higher than
attempted to promote opportunities for improving the EU-28 average). Italy and Portugal have also
employability through work experience, especially implemented incentives with the aim of reducing
among those with reduced work capacity. the share of temporary employment contracts.
Germany, Portugal and Finland are addressing
the demand and supply of skills. Given the huge 2.6.2. The significance of hiring
demand for white-collar jobs and workers, a key subsidies in Active Labour
barrier in Finland is how to shift people from Market Policies across the EU
declining branches (traditional male-dominated
big industry) to care jobs, traditionally dominated Eurostat provides data for expenditure on employ-
by women. Some regions in Germany are focus- ment incentives by country as a percentage of
ing on the need to overcome skills shortages. GDP. To complement the information provided in
The approach rests on the principle of increasing the national articles on the importance of hiring
employment rates, improving the labour market subsidies in Active Labour Market Policies across
integration of disadvantaged groups, and reducing the EU, the table below (Figure 1.1) gives an indi-
the skills mismatch. In Portugal, more groups were cation of relative GDP spending on employment
targeted as the accelerated modernisation of the incentives in general.
economy created growing difficulties for older,
less educated workers. This generational gap was It is important to note that the table is based on
deepened with the advance of modern ICT, which Eurostat data for ALMP spending for Category
introduced a digital divide in the workforce. 4 (Employment Incentives) and does not include
hiring subsidies that might fall under other ALMP
Bulgaria, Italy and Iceland have also implemented categories, such as start-up incentives or subsi-
measures that promote work-based training. dised employment and rehabilitation. The table also
includes subsidies for the maintenance of existing
Germany and Austria have used hiring subsidies jobs which are not covered in the current review.
to promote the low-paid sector. Austria aimed to Thus the figures here should only be seen as a proxy
raise the incentive for jobseekers to take up a job of how spending on hiring subsidies has evolved over
in the low-paid sector, and in Germany, the use recent years in the EU, comparing the 2003 situa-
of wage subsidies for lower-income groups or tion with spending in 2007, before the crisis, and in
hard-to-place people is one element of the Hartz 2011, the year for which latest data are available.
strategy, the objective being to promote the devel-
opment of a low-wage sector for means-tested Relatively speaking, in 2011 spending on employ-
Unemployment Benefit II-recipients. ment incentives was greatest for Belgium,
accounting for 0.7 % of GDP, followed by
Slovakia and Finland have identified high costs for Sweden (0.5 %), Denmark (0.4 %), Luxembourg
employers as important barriers to employment. (0.3 %), Spain (0.2 %) and Cyprus (0.2 %). Italy,
In Finland, stimulating demand has concentrated the Netherlands, Portugal and Finland had GDP
more on creating an environment for investment spending shares of around 0.1 % each. Countries
and innovation, lowering taxes and other indirect at the lower end of the spending scale as a per-
means. Finland has a very high tax rate, and the centage of GDP include the UK, Poland, Slovenia,
tax wedge (over 42 %) although lowered somewhat Malta, Latvia and Germany.
in the last decade, remains an important barrier to
hiring. In Slovakia, employers consider high non- Countries experiencing the biggest spending
wage labour costs a crucial barrier to the creation increases as a percentage of GDP, pre- and post-
of new jobs. OECD comparisons suggest that a crisis, that is, between 2007 and 2011, include
high payroll tax burden inhibits employment par- Belgium (rising from 0.3 % to 0.7 %, Denmark with
ticularly among disadvantaged target groups. As the spending share increasing from 0.1 % of GDP
a result, one of the policy recommendations for to 0.4 % of GDP, Cyprus from 0.0 % to 0.2 % and
Slovakia, voiced also by the European Commission, Luxembourg 0.2 % to 0.3 %.
11EEPO Review – Stimulating job demand: the design of effective hiring subsidies in Europe, 2014
Figure 2.1 Total spending on employment incentives (LMP Category 4), in 2003, 2007
and 2011 (as % of GDP)
0.8
0.7 2003 2007 2011
0.6
0.5
% GDP
0.4
0.3
0.2
0.1
0.0 BE BG CZ DK DE EE IE EL ES FR HR IT CY LV LT LU HU MT NL AT PL PT RO SI SK FI SE UK
BE BG
2003 0.174 CZ
: 0.033 DK
0.494 DE 0.003
0.110 EE 0.096
IE 0.035
EL 0.283
ES 0.104
FR HR IT CY
: 0.368 LV 0.040
: 0.012 LT 0.097
LU HU : MT NL 0.061
: 0.033 AT PL PT 0.055
: 0.150 RO SI 0 SK FI 0.400
: 0.189 SE UK :
2007 0.366 0.041 0.026 0.132 0.063 0.001 0.038 0.061 0.278 0.111 : 0.153 0.053 0.040 0.061 0.215 0.101 0.013 0.162 0.058 0.053 0.117 0.042 0.019 0.016 0.138 0.506 0.011
2011 0.723 0.013 0.044 0.403 0.057 0.042 0.071 : 0.263 0.058 : 0.150 0.247 0.058 0.070 0.350 0.098 0.017 0.146 0.032 0.087 0.103 0.021 0.040 0.099 0.126 0.580 :
Source: Eurostat, LMP expenditure by type of action — summary tables (source: DG EMPL) [lmp_expsumm].
NB: The chart has been created based on data on expenditure for LMP Measures 4 — employment incentives. The Employment Incentives category includes recruit-
ment incentives for both permanent and temporary jobs, as well as incentives for the maintenance of existing jobs. The latter are not covered by the current review.
A zero (0) value indicates that data are not available.
Hiring subsidies have been a key fea- subsidies, which have taken on various forms. In
ture of labour market measures in many the 2000s, as Romania broadly finalised major
Member States particularly in Denmark, Spain, reforms designed to transform it from a centrally
France, Croatia, Malta, the Netherlands, Poland, planned into a market economy, hiring subsidies
Romania and the United Kingdom, according to have received ever-increasing attention.
national articles.
In some countries, hiring subsidies are
In Denmark, hiring subsidies for employing the slightly less prominent in the ALMP policy
long-term unemployed by public and private toolkit but nevertheless remain significant.
employers exist today as important programmes The ‘subsidised employment for disadvantaged
within active labour market policy. Nearly a quar- unemployed’ programme in Latvia represented
ter of full-time ALMP participants were employed 8.8 % of ALMP expenditure during the period
with a standard hiring subsidy in 2013. In Spain, 2007–2013. In Hungary, hiring subsidies have
during the period 2005–2011, around EUR 3 bil- been part of the ALMP policy toolbox since their
lion — between 35 % and 50 % of total ALMP introduction in 1991 although public works have
spending — was annually delivered in subsidising been the dominant approach since 2010; in
recruitment and in the transformation of tempo- 2012, 28 085 new participants were included in
rary to open-ended contracts. France has also ALMPs — 54.5 % of them in direct job creation
seen a proliferation of hiring subsidy measures. (public works) programmes, 19.4 % in traineeship
Different kinds of hiring subsidies have been arrangements, 13.3 % in subsidised employment,
implemented over the last 30 years to stimulate 8.3 % in education placements and 3.6 % in start-
job demand. The current subsidies are mostly up incentives. In the former Yugoslav Republic of
dedicated to combating the dramatic increase in Macedonia, out of the total costs of active mea-
the long-term unemployment rate. sures (employment services excepted) in 2013,
48 % was spent on different hiring subsidies
Hiring subsidies and their functional substitutes programmes (EUR 4 million). About 11 % of the
have been used regularly by subsequent Maltese total participants in active programmes are part
governments since the early 2000s and have of a hiring subsidies programme (1 016 persons),
always been present in active labour market policy with an average cost per participant of EUR 4 000.
in Poland. In Finland, by far the most used direct
job creation measure is a wage subsidy, used both Hiring subsidies have not been a key fea-
in the private and public sector, which constitutes ture of labour market measures in other
about 17–20 % of the total ALMP measures. countries, for example in Ireland, Slovenia and
Over the last few decades, the Netherlands has Turkey. There has been relatively little use of
experimented repeatedly with hiring subsidies as hiring subsidies as a labour market activation
well as tax rebates for vulnerable groups while tool in Ireland. The budgetary situation between
the UK has a long history in the use of hiring 2000 and 2008 was one of surplus, which led to
12expansionary budgets, with little policy movement employment incentives was lower during the pre-
in the areas of active labour market policy (29). crisis years (around 0.06 % in 2006 and 2007,
After the emergence of the financial crisis, the before dropping to 0.037 % in 2008, and rising
2009 and 2010 budgets mainly focused on mea- from there to 0.108 % in 2010) (30). The number
sures aimed at reducing the fiscal deficit; however, of those benefiting from employment incentives
the change in government in 2011 marked a sub- increased during the pre-crisis years and espe-
stantial ramping up of activity with respect to the cially after the start of the crisis. Prior to the eco-
introduction of active labour market programmes. nomic crisis, Greece appeared to rely mostly on
In Slovenia, hiring subsidies, as an active policy passive measures.
to simulate job demand, are a relatively new
measure. Similarly in Turkey, hiring subsidies Hiring subsidies have also played an increas-
only recently appeared alongside the investment ing role in Lithuania since the 2008 crisis while
incentives that have been prevalent in the country. gaining significance in Luxembourg in line with
Employment incentives were introduced in 2008, rising unemployment. There is no indication
and after the start of the recovery in 2010, the presently that unemployment levels are set to
government extended these employment incen- fall, which means that the GDP share of hiring
tives until the end of 2015. subsidies is likely to grow. Between 2007 and
2010, at a time when the impact of the crisis on
Over time hiring subsidies have become unemployment levels was beginning to be felt
increasingly significant, particularly since more strongly, State expenditure on active labour
the economic crisis, in Belgium, Bulgaria, market measures — including hiring subsidies —
Estonia, Greece, Lithuania, Luxembourg, Austria, increased by 46 % to one third of the 1.2 % of GDP
Slovakia, Iceland and Serbia. (EUR 514 billion in 2010) share spent on active
labour employment policies. Hiring subsidies play
In Austria, while the relative proportion of ben- an important role in the Slovak labour market
eficiaries of employment promotion measures policy context. Data on employment incentives
slightly rose in the period between 2007 and indicates a distinct increase in participants and
2012, from 13 % to 15 %, the share of the budget expenditures since the onset of the economic
expenditure was stable (25 %). Within the group of crisis. The number of participants in employ-
employment promotion measures, hiring subsidies ment incentives as a proportion of total labour
represent the majority of beneficiaries (56 % in market measures increased from 5 % to 34 %
2012), while their share of expenditure is less between 2004 and 2011. Employment incentives
than 50 %. In Bulgaria, participants in employment expenditure as a proportion of total labour market
incentive measures as a proportion of total labour measures increased from 11 % to 44 % over the
market policy measures increased from 9 % in same period. More recent national data suggests
2004 to 19.7 % in 2011. In 2013, 15 national that the use of hiring subsidies has somewhat
programmes and 19 measures, from a total of stagnated in the last two years. A recent revision
20 programmes and 28 measures financed from of ALMPs has also restricted the number and pro-
the State budget, contained a component of sub- vision of hiring subsidies.
sidised employment. In the period 2010–2013,
9 of 11 programmes financed by the European In Iceland, hiring subsidies have been a part of
Social Fund also included such a component. the measures offered since the beginning of the
crisis in 2008. The number of individuals hired
In some countries, the increase is linked to the under the subsidy scheme, rose from 1 109 in
economic crisis and to rising unemployment. 2009 to 2 460 in 2013. In Serbia, in response to
In Estonia, out of the total expenditure on high and growing unemployment, hiring subsidy
active labour market policy measures, recruit- programmes have recorded significant expansion
ment incentives accounted for 8 % on average from 2000 to date. This expansion has included
between 2003 and 2012, excluding the years widening the spectrum of measures that could be
2010–2011 when wage subsidies were exten- classified as hiring subsidies and broadening the
sively used to alleviate the unemployment result- target groups, as well as expansion in spending,
ing from the economic crisis. Wage subsidy has at least in relative terms (compared with other
been the largest recruitment incentive both in types of ALMPs).
terms of expenditure and participant numbers.
Hiring subsidies were and continue to be the main Over time, hiring subsidies have become
active measures in Greece. As a direct result of less significant in Germany and Sweden.
the crisis, expenditure on hiring subsidies has In Germany, participation in hiring subsidies in
increased. The proportion of GDP devoted to the context of job-creation programmes has
decreased over time. Reduction in the use of hiring
(29) Kelly et al., 2012, see Ireland EEPO Review article for
more details. (30)
Eurostat, 2012.
13EEPO Review – Stimulating job demand: the design of effective hiring subsidies in Europe, 2014
subsidies in Germany is linked to the growing pop- measures and public works was higher (33). In
ularity of workfare approaches. In Sweden, labour 2013, the number of ALMP beneficiaries sig-
demand-orientated measures, such as recruit- nificantly increased compared to the previous
ment subsidies and subsidised employment, were years. The number of new ALMP beneficiaries
an important component of Swedish active labour was 42 827 in 2013, out of which 6 282 were
market policy in the 1970s. The mid-1990s saw beneficiaries of hiring subsidies.
a re-orientation of the ALMPs, with an emphasis
on labour supply-orientated measures. The shift Some countries report linkages between hir-
of emphasis was particularly marked during the ing subsidies and other measures. There are
2008 recession when traditional measures focus- ongoing efforts in Lithuania to align employment
ing on labour demand, such as wage subsidies, support measures with other ALMPs (vocational
remained at a much lower level than during previ- training, vocational rehabilitation and social inte-
ous recessions. gration, etc.). In Malta, hiring subsidies are some-
times combined with other interventions such as
The significance of hiring subsidies over time awareness campaigns, training programmes, free
has changed in Croatia: hiring subsidies as an childcare and the covering of costs to improve
ALMP measure were extensively used in a first workplace accessibility. In Portugal, regulation of
National Action Plan for Employment (NAPE) the interaction of hiring subsidies with other types
cycle (2002–2005), and almost 90 % of par- of active measures has been limited to whether or
ticipants in ALMP programmes took advantage not subsidies can be accumulated. The Job Offer
of hiring subsidy measures (31). In the second Stimulus programme created a common regula-
ALMP cycle (2005–2008) the use of ALMPs in tion for different job creation measures, namely
the Croatian labour market was significantly hiring subsidies, local employment initiatives and
reduced (32). Only around 1 % of the unemployed employment projects run by the unemployed
were covered by hiring subsidies programmes, themselves, but the programme did not change
whereas participation in education and training this situation.
(31)
Babić, 2003; Matković, 2008.
(32)
Babić, 2012. (33)
Matković, 2008; Babić 2012.
143. Mapping of existing measures
3.1. Types of hiring employing workers at the company level, thereby
subsidy measures affecting the demand for labour; and as a means
of refocusing employment demand towards those
This section outlines and groups the main types with a productivity level below the prevailing wage
of employer incentive measures adopted across and who might not otherwise be considered by
Member States, as well as the rationale for each employers. At the same time the distinction in
type of measure, and the groups of unemployed terms of the purposes of different subsidies within
people being targeted by each type of measure. these broad general categories remains a use-
ful one, since the Review suggests that differ-
To begin, this section describes how hiring subsi- ent types within these categories display various
dies can fulfil different purposes, and explores the features and characteristics depending on the
problems addressed by different types of subsi- specific approach taken in each case.
dies. It looks at the different types of subsidies,
approaches to targeting, and how subsidies are
complemented or combined with other types of 3.1.1. Subsidies to support
ALMP measures. labour demand
As mentioned earlier, a distinction can be made The primary purpose of supporting job creation in
between three types of rationales for hiring sub- the economy appears to have been a key factor in
sidies, which are designed on the basis of: the introduction of some of the longest-running
and largest-scale hiring subsidies, as a response
• an ‘economic rationale’: subsidies which to the high prevalence of long-term unemploy-
support labour demand in general, and help ment linked to changes in economic conditions.
to create jobs in the economy; For example, hiring subsidies in Denmark date
back to 1979 with the rise in long-term unemploy-
• a ‘social rationale’: supporting disad- ment following the first oil crisis. The response was
vantaged groups into jobs, aiming to to create relatively large-scale subsidy schemes
shift recruitment in favour of specific for the employment of unemployed workers by
groups and overcoming potential productiv- public and private employers, and these subsi-
ity gaps among potential new recruits from dies still exist today as important programmes
certain groups; within active labour market policy (13 400 ben-
eficiaries in 2013, 63 % of whom were insured
• an ‘up-skilling’ rationale: contribute to unemployed).
enhancing the skills and employability
of workers and incentivise training to address A key hiring subsidy in France is the
employers’ and workers’ skills needs. Professionalisation Contract for unemployed
adults. This is a supplementary ‘flat’ subsidy for
The scale and importance of different types of hir- all employers that recruit unemployed adults
ing subsidies as an element of active labour mar- (aged over 26 years). Up to EUR 2 000 per con-
ket policy varies greatly between Member States. tract can be added to the social security contribu-
There is a high degree of variation across a very tion reduction for those on low wages and there
wide range of measures within each category and is an additional subsidy for older workers (aged
the discussion below aims to draw out common 45 years or over), worth EUR 2 000, combined
features regarding how different countries have with a specific exemption from social security
sought to achieve their particular objectives. contributions. State funded, no evaluations of the
measure have been undertaken.
Of course, the functions of hiring subsidies as cat-
egorised above are not distinct and, to an extent, Different types of approaches to hiring subsidies
the compensatory aspects of hiring subsidies (i.e. supporting demand for labour include:
to compensate for lower productivity among some
groups of unemployed workers) emerge out of the • hiring subsidies to support job creation in the
first concern to create new jobs for the groups of private, public and non-profit sectors;
unemployed people who need the most support.
Hiring subsidies fulfil a dual role in the labour • sectorally based hiring subsidies, i.e. directed
market: both as a de facto reduction in the cost of towards more specific occupations in sectors
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