Employment and Social Developments in Europe (ESDE) 2024

3. Selected types of social investment

3.4. Investing in Active Labour Market Policies

Well-functioning and effective active labour market policies ⁽¹⁸¹⁾ can provide economic and social returns in the medium to long term. Research suggests that investment in ALMPs is associated with economic growth and positively impacts employment by helping to reduce labour mismatches and shortages, equipping workers with relevant skills, supporting job transitions, and strengthening labour market participation of underrepresented groups. ⁽¹⁸²⁾ Evidence shows that job search assistance programmes are more effective for disadvantaged participants, while employment subsidies and training work better for long-term unemployed people. A review of studies on evaluations of ALMPs found that the average impact of ALMPs increases in the medium to long-term, that women and long-term unemployed people tend to benefit more than other demographic groups, and that ALMPs have more positive effects during recessions. Design and implementation of programmes also play a role in ALMPs’ efficacy, which may depend on the availability of other social policies, including access to ECEC. ⁽¹⁸³⁾ In light of rapid technological advances and changing skills needs, reinforcing investment in ALMPs through lifelong learning policies is key to maximise returns.⁽¹⁸⁴⁾

According to impact evaluation studies, spending on ALMPs can yield positive returns in the longer term, including longer working careers, with corresponding tax revenue, social security contributions and better pensions for workers. ⁽¹⁸⁵⁾ A recent evaluation identified positive fiscal effects for a direct job creation scheme in Austria in the long run, focused on disadvantaged groups. ⁽¹⁸⁶⁾ For social outcomes, ALMPs have poverty-reducing effects, particularly for those with lower levels of skills.⁽¹⁸⁷⁾ Recent policy impact evaluations in Germany also found positive effects of ALMP participation on well-being. ⁽¹⁸⁸⁾ However, more evidence is needed from microeconomic evaluations of the social outcomes of ALMPs to better understand their social investment returns for health, well-being, and education-related outcomes, as well as to compare the efficiency of spending on different types of ALMPs.

Investment in ALMPs can have positive effects on employment and GDP well beyond the timeframe of the original investment.Simulations using the RHOMOLO model (Box A3.2 in the Annex) estimate the long-term effects of increasing the labour supply through ALMP interventions funded through ESF+ in the 2021-2027 programming period. Regional ESF+ investments in ALMPs are expected to improve employment outcomes in the 20 years following the original investment, reaching a peak of +0.11% in 2027 (Chart 3.11). The investments are also projected to raise economic activity in the long-term, more than offsetting the initial investment, increasing EU GDP by approximately 0.029% per year, even 20 years after the start of the programme (Chart 3.12). ⁽¹⁸⁹⁾

Targeted investments in ALMPs at regional level can contribute to socioeconomic convergence between regionsIncreases in labour supply in the targeted regions are projected to lead to a reduction in regional disparities in GDP per capita, with EU regions with lower baseline GDP per capita growing faster, prompting a catching-up effect. That catching-up effect is expected to be sustained in the long term, with regions with lower baseline GDP per capita still projected to have stronger increases in per capita GDP 20 years after the beginning of the investment period (Chart 3.13, left). ⁽¹⁹⁰⁾ The rate of change towards upward regional economic convergence is stronger in the short term. ⁽¹⁹¹⁾ The analysis also points to increased employment and upward social convergence in employment levels during the period of deployment of funds and beyond. ⁽¹⁹²⁾ Regions with lower initial employment rates are projected to witness stronger increases in employment for the years where the funds are disbursed, ⁽¹⁹³⁾ leading to a reduction in disparities between regions during the programming period. However, this catching-up effect is not expected to be sustained in the long term (Chart 3.13, right).

Investments in ALMPs also have positive impacts on employment-related earnings and social outcomes.A European Commission-OECD project applies CIEs to generate new causal evidence based on national administrative and survey data. The evaluations showed positive impacts of vocational training programmes in Lithuania and Finland on employment and income, particularly for women and older jobseekers. ⁽¹⁹⁴⁾Recently, CIEs were conducted for wage subsidies and training programmes in Greece (Box 3.5) and public work programmes in Ireland (Box 3.6).