Portraits of Labor Market Exclusion in Europe

November 24, 2014


Photo: Scott Wallace/World Bank

  • Diverse demographic profiles among the out-of-work population across Europe mean different challenges to labor market inclusion that require specifically targeted social and labor policies.
  • Most economies across the European Union are slowly recovering from the 2008 financial crisis, but pockets of high and long-term unemployment persist, impacting youth in particular.
  • A new study presents portraits of people who are out-of-work in six EU countries – Bulgaria, Estonia, Greece, Hungary, Lithuania, and Romania – and provides recommendations for how to lower the barriers that prevent these people from being active in the labor market and/or finding jobs.

Who are Europe’s unemployed and inactive? Why are they out-of-work? Why are some excluded for extended periods of time? What can be done to enable their active participation in the labor market? 

In the European Union (EU), people who are out-of-work today likely represent very diverse profiles, some of which include: middle-aged men and women who have lost their jobs, young adults who are neither working nor receiving education, individuals who have been searching for a job for a long period of time, people living in rural areas, early retirees, and mothers who remain at home to look after children.

Unemployment remains one of the most significant challenges facing many people. Following the 2008 global financial crisis, EU economies contracted sharply and in 2009 experienced the largest reduction in GDP levels since the Union’s formation. Although most economies have been slowly recovering since then, growth continues to be sluggish and higher levels of unemployment persist.

With today’s constrained government budgets – and demographic trends such as aging populations – a better understanding of the profiles of the out-of-work in Europe is increasingly essential for governments to design effective policies that can enable wider and more inclusive activity in the labor market.

Portraits of Labor Market Exclusion is a joint European Commission and World Bank study that aims to do just that – portraying individuals who are out-of-work in Bulgaria, Estonia, Greece, Hungary, Lithuania, and Romania. Analyzing data from Statistics on Income and Living Conditions (EU-SILC), the report offers a comprehensive description of the distinct profiles of people out-of-work among the working-age population of 16 to 64 years.

Youth unemployment is a major ongoing issue for many countries. In Greece, for example, close to 60 percent of 15 to 24 year-olds were unemployed in 2013. Young adults continue to live in multi-generational households and struggle to enter the labor market. In all six countries surveyed, the percentage of young people aged 15 to 24 who are neither in employment nor in education or training (the so-called “NEET rate”) increased following the financial crisis.

In several countries, more than half of those currently unemployed have been looking for a job for more than 12 months. Long-term unemployment is a major concern because it imposes a significant financial burden on households, adversely affects the long-term health status of jobseekers, and also lowers the overall level of skills among a country’s workforce, with a highly negative impact on productivity. In addition, many people who have been unemployed for exceptionally long periods of time become discouraged and drop out of the labor market altogether.

In most countries surveyed, the number of middle-aged people who have lost a job has grown, especially in Lithuania, Greece and Bulgaria. Rural areas are especially vulnerable. In Lithuania, for instance, the number of rural poor middle-aged people who have been long-term unemployed more than tripled between 2007 and 2011.

In all six countries, the participation rates of older people of working age are among the lowest in Europe. Early retirees often declare themselves to be limited in their ability to work, so retirement and disability are the main reasons for this demographic profile to be out of the labor market. It is worth noting also that growing life expectancy, combined with a shrinking working-age population, will likely increase the fiscal costs of aging.

Labor market inactivity among women in the working-age population is of concern in most countries, particularly Hungary, Romania, Bulgaria and Greece. Inactive women and stay-at-home mothers are identified as distinct categories and can be explained in part by cultural and social reasons, or by the limited availability of formal child care and elder care facilities.

In Hungary and Estonia, the percentage of women who reported being inactive in 2013 because they were looking after children or incapacitated adults was 56.5 and 73 percent respectively, which is much higher than the EU average of 38.5 percent.

The diverse profiles identified in the report can be considered a good starting point for further policy dialogue on ways to help bring about greater inclusion in the labor market. A first step is assessing the activation needs and potential of people out-of-work.

A high activation need is mostly driven by a high poverty risk, while high potential may come from previous work experience or a good educational base. In this sense, market-ready jobseekers – normally, the unemployed with work experience and/or education – have high priority. Activation measures may include the provision of information on job vacancies, assistance with job searches and applications, or job-matching services provided by public or private employment agencies.

Young people and individuals who have been without a job for an extended period of time are also prioritized according to their activation needs and potential. However, given the labor market barriers they face, they will require more intensified activation measures – such as help with job market re-entry, training and mobility. Special consideration should be given to youth, given the potential long-term negative effects of unemployment at an early age.

Demographic groups such as inactive women, people with disabilities and early retirees face different social – non-labor market – barriers and require specific policies to address them.

Inactive women, for instance, would benefit from childcare services near their homes, job-search assistance, and flexible work schedules. A review of the disability benefit allocation may help stem the flow of individuals receiving disability benefits, while the promotion of life-long learning and adaptable work environments could help reduce labor market exclusion of early retirees.

The report concludes that further policy dialogue needs to focus on the level of resources devoted to the labor market as well as on the improvement of services at the local or national level. Tailored policies to address specific problems and barriers can help create a more inclusive labor market in Europe – and also provide hope for the millions of young people who are starting out and eager to be an active part of it.