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Long-term unemployment scarring and the role of labour market policies: The case of Sweden in the 1990s
Umeå University, Faculty of Social Sciences, Department of Sociology.
2010 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

The experience of unemployment puts individuals at risk of long-term negative scarring and the longer the unemployment spell, the greater the risk of negative scarring. In Sweden, labour market policies aim at reducing such risks in the form of unemployment benefits, active matching and active labour market policy programmes (ALMPs). However, there is frequent discussion regarding the extent to which these kinds of policies actually reduce the risk of negative scarring. It is often argued that the programmes are of poor quality, particularly during economic downturns, and participants are often not motivated for the task. Likewise, it is claimed that unemployment insurance tends to counteract a quick return to the regular labour market. One problem related to labour market policies is that it has been difficult to examine the impact of such policies. Studies often present results that appear scattered due to differences in what is actually being measured and methodological problems.

The uniqueness of this thesis is that it is based on a large-scale longitudinal register of data that has provided important empirical information regarding the long-term effects of labour market policy investments. The quality of data has also enabled the use of evaluation techniques which largely can help to reduce the uncertainty of the findings. More precisely, the research questions examine (1) in what way the level of unemployment benefit functions as protection against unemployment scarring, (2) in what way the ALMPs protect long-term unemployed people from long-term unemployment scarring, (3) at what point in a business cycle the ALMPs are efficient and finally, (4) for whom do the ALMPs function to reduce the risk of negative scarring. In this thesis, scarring effects are measured as the risk of labour market exit, the risk of labour market instability and the risk of future negative wage trajectories. The methods used in most studies are Cox regressions in combination with instrumental variable analysis (the Heckman two-step procedure).

The empirical findings indicate that ALMPs worked well to reduce such negative effects both in times of booms (1999) and recessions (1993) and particularly among the youngest and oldest actors on the labour market. They also function particularly well for people with a low level of education. However, it is important not to exclude unemployed people who have a high level of education, in the belief that ALMPs have nothing to offer them, since such people are particularly helped by ALMPs as regards reducing the risk of future labour market instability. It was also found that generous unemployment benefit helped to reduce the risk of future negative wage scarring. In addition to these findings, some mechanisms were identified which proved to be important tools for transforming policies into valuable resources for the unemployed. In this thesis, the value of the findings of these mechanisms is discussed from the perspective of the capability approach. Even if the same investments were made in all unemployed persons, the participants would respond differently to the investment. Some reasons for the inequality in outcomes were found within the programmes and were due to heterogeneity in the unemployment group but some reasons can actually be explained by the converters (mechanisms) that were identified in the studies.

Thus, the results emphasise the importance of investing in labour market policies, particularly during economic downturns. This is the time when cuts in unemployment benefit do not help the unemployed back to the labour market since there are very few available jobs to apply for. It is also the time when the long-term unemployed should participate in ALMP-training in order to be prepared for new challenges when the labour market improves again. As a matter of fact, the results show that skills from ALMP-training have a bridging effect which indicates that these skills will be valuable on the labour market for at least another five years after the year of investment.

The findings in this thesis are controversial since they differ from most research findings from the beginning of the 1990s which point to poor micro level outcomes. However, the long-term approach of this thesis is the main explanation for these new and different results.  It is argued here that a long-term approach is needed to find out the long-term effects because ALMP participation, particularly ALMP-training, is meant to be a long-term investment in human capital. A long period of time needs to pass between ALMP-investment and evaluation before the effects can show. Reported effects from ALMP investments at the beginning of the 1990s have often been measured on a short-term basis. It is not suggested that short-term effects should be ignored but it is argued that a short-term analysis provides only a fragmental description of reality, and long-term effects should be given greater priority than is usually the case since they affect the labour market prospects of the individuals over a long period of time. This thesis dispels the “myth” about the negative effects generated from ALMPs during the 1990s.

Place, publisher, year, edition, pages
Umeå: Umeå universitet, Sociologiska institutionen , 2010. , 52 p.
Series
Akademiska avhandlingar vid Sociologiska institutionen, Umeå universitet, ISSN 1104-2508 ; 61
Keyword [en]
unemployment scarring, active labour market policy, unemployment insurance, active labour market policy programme, human capital, capability approach, business cycle, job-chances, reempolyemt income, heterogeneity
National Category
Sociology
Research subject
Sociology
Identifiers
URN: urn:nbn:se:umu:diva-33162ISBN: 978-91-7264-987-3 (print)OAI: oai:DiVA.org:umu-33162DiVA: diva2:310269
Public defence
2010-05-07, Norra Beteendevetarhuset, Hörsalen, Umeå Universitet, Umeå, 13:15 (Swedish)
Opponent
Supervisors
Available from: 2010-04-16 Created: 2010-04-13 Last updated: 2010-05-06Bibliographically approved
List of papers
1. Göra illa för att hjälpa eller hjälpa till att göra illa?: Arbetslösas reservationslöner, jobbchanser och återanställningsinkomster
Open this publication in new window or tab >>Göra illa för att hjälpa eller hjälpa till att göra illa?: Arbetslösas reservationslöner, jobbchanser och återanställningsinkomster
2008 (Swedish)In: Sociologisk forskning, ISSN 0038-0342, no 3, 33-54 p.Article in journal (Refereed) Published
Abstract [en]

Economic incentives and their impact on the job search behaviour of the unemployed have been a central focus in the academic and political debate in Sweden. A key con­cept has been the reservation wages of the unemployed, the lowest income at which an unemployed person would be willing to accept a job offer. Unemployment benefit sys­tems have been argued to raise and maintain reservation wages at high levels that lo­wer job chances. This has been supported by a large number of international studies. From this perspective lower reservation wages would function as protection against long term unemployment and the scarring effects associated with it. High reservation wages might however, based on the same behavioural assumptions, have a human ca­pital preserving effect. The possibility to hold out for the right job should reduce hu­man capital losses compared to accepting the first available job offer. In this article we use Swedish longitudinal micro data combining interview and register data in or­der to investigate three central aspects reservation wages in a Swedish context: Factors influencing the setting of reservation wages, the effect of reservation wage on job chances and the impact of reservation wages on reemployment incomes. Our findings show that benefit level and pre-unemployment position in the wage structure are central factors for setting the reservation wage. The effects of reservation wages were however not the expected. No effects were found on job chances, while a strong positive effect was found on reemployment income. This together indicates that high reservation wages have a human capital preserving effect in Sweden.

Place, publisher, year, edition, pages
Uppsala: Sveriges sociologförbund, 2008
Keyword
Reservation Wage, Unemployment Scarring, Human Capital, Job Chances, Reemployment Income
National Category
Sociology
Research subject
Sociology
Identifiers
urn:nbn:se:umu:diva-11140 (URN)
Available from: 2008-11-18 Created: 2008-11-18 Last updated: 2017-12-14Bibliographically approved
2. Active Labour market policy and unemployment scarring: A ten-year Swedish panel study
Open this publication in new window or tab >>Active Labour market policy and unemployment scarring: A ten-year Swedish panel study
2008 (English)In: Journal of Social Policy, ISSN 0047-2794, E-ISSN 1469-7823, Vol. 37, no 3, 357-382 p.Article in journal (Refereed) Published
Abstract [en]

Previous studies have shown mixed results concerning the effects of participation in active labour market policy programmes (ALMPs) on the longer term scars in the form of poor income development and low job stability following the end of an unemployment spell. Most previous studies, however, have been limited both in the time frame used and to particular programmes. We argue that human capital investments are long-term investments and should therefore also be investigated from a long-term perspective. ALMP training and ALMPs as subsidized employment also represent different types of human capital investments that may produce effects that are differently distributed over time. In order to handle these issues, this article uses a longitudinal register-based dataset in which all long-term (more than six months) unemployed Swedes in 1993, who had no labour market problems in 1992, are followed for ten years. We found positive effects of ALMP participation concerning both the probability of reaching pre-unemployment incomes and a reduction in the hazard of exiting the labour market, while the effect on the probability of having an unemployment-free year was mixed. The effects of the two forms of ALMPs were differently distributed over time, with ALMP employment having an immediate effect that decreased relatively quickly and ALMP training having a longer-term effect.

Place, publisher, year, edition, pages
United Kingdom: Cambridge University Press, 2008
National Category
Work Sciences
Research subject
Sociology
Identifiers
urn:nbn:se:umu:diva-33120 (URN)10.1017/S0047279408001955 (DOI)
Available from: 2010-04-13 Created: 2010-04-13 Last updated: 2017-12-12Bibliographically approved
3. What works best when?: The role of active labour market policy programmes in different business cycles
Open this publication in new window or tab >>What works best when?: The role of active labour market policy programmes in different business cycles
2011 (English)In: International Journal of Social Welfare, ISSN 1369-6866, E-ISSN 1468-2397, Vol. 20, no 1, 43-54 p.Article in journal (Other academic) Published
Abstract [en]

At what point in a business cycle do the long-term unemployed gain most from participation in active labour market policy programmes (ALMP), as compared to openly unemployed? In this article, this question is studied from the perspective of individual human capital with the hazard of labour market exit and chances of future labour market stability and equal post-unemployment income as output variables. All the long-term unemployed in Sweden were followed on a four-year basis, with 1993 (recession) and 1999 (boom) as starting years. The study shows mainly positive effects among participants regardless of the state of the market. However, ALMP-training has a “bridging” effect over different labour market conditions and a quick return to the regular labour market is therefore not as important for the success of participation as it is among ALMP-employment participants.

Place, publisher, year, edition, pages
Blackwell Publishing, 2011
Keyword
business cycle, human capital, unemployment scarring, active labour market policy programmes
National Category
Social Work
Research subject
Sociology
Identifiers
urn:nbn:se:umu:diva-33139 (URN)10.1111/j.1468-2397.2009.00683.x (DOI)000284894500006 ()
Note

Article first published online 7 Aug 2009

Available from: 2010-04-13 Created: 2010-04-13 Last updated: 2017-12-12Bibliographically approved
4. Who are the lucky ones?: Heterogeneity in active labour market policy outcomes
Open this publication in new window or tab >>Who are the lucky ones?: Heterogeneity in active labour market policy outcomes
2011 (English)In: International Journal of Social Welfare, ISSN 1369-6866, E-ISSN 1468-2397, Vol. 20, no 2, 144-155 p.Article in journal (Refereed) Published
Abstract [en]

This study focuses on how the effects from investments in Active Labour Market Policy programmes (ALMPs) may be differently distributed due to the age and educational level of participants. Outcomes were measured as the chance of labour market inclusion, labour market stability and post-unemployment incomes. This longitudinal study captures long-term effects among 50,000 Swedes who entered unemployment in 1993. While the youngest gained most from ALMP- training, the oldest were best helped by ALMP-employment in reducing the risk of labour market exit. The lowest educated gained much from ALMP participation, although the effects were weaker than expected: those with a higher education gained more in terms of labour market stability from ALMP-training compared with the less educated persons. This result was interpreted in terms of a springboard effect, meaning that ALMP-training pushes higher educated people into further education in the regular educational arena.

Place, publisher, year, edition, pages
Wiley-Blackwell, 2011
Keyword
heterogeneity, human capital, capability, unemployment scarring, active labour market policy programmes
National Category
Sociology
Research subject
Sociology
Identifiers
urn:nbn:se:umu:diva-33140 (URN)10.1111/j.1468-2397.2010.00740.x (DOI)
Available from: 2010-04-13 Created: 2010-04-13 Last updated: 2017-12-12Bibliographically approved

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