.: Towards flexicurity thanks to active labor market policy:.

.: in Central and Eastern Europe :.

.:: Master thesis ::.

European Studies

Aalborg University

Denmark

Supervisor: Professor Per Kongshoej Madsen

October 2008

Author:Iwona Mertin, Poland

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Table of Contents

Introduction..................................................................................................3In search of happy medium.........................................................................................3Central Eastern European Countries and scientific disputes on flexibility-security nexus...............................................................................................................5Methodology.................................................................................................................9

Theoretical and conceptual framework.....................................................13Flexicurity first and foremost...................................................................................13

Activation in flexicurity concept...........................................................................17Flexicurity and active labor market policy in CEEC.........................................22

Active alternative of labor market policy in neo-classical dimension...................24Estonia and Poland- winners and losers...................................................31

Recent trends of labor market..................................................................................31Unemployment or activity- which way to go?........................................................36European Union on labor market policy.................................................................40Overview of labor market policies in EU member states.......................................42Estonian and Polish labor markets- flexicure enough?..........................................45

Security and flexibility background in Poland....................................................46Flexibility and security background in Estonia..................................................47

Active labor market policy towards flexicurity and labor market needs...51Active labor market policy and flexicurity- national viewpoint............................51Peculiarities of active labor market policy...............................................................53Employment service...................................................................................................54Target ‘theory’ – declared goals...............................................................................57Flexicurity configurations by active labor market measures.................................58

Estonia- in favor of a worker?..............................................................................59Poland- for whose the sake?..................................................................................61Estonia, Poland and the.........................................................................................63

Active labor market policy and labor market reality.............................................65To meet labor market needs..................................................................................66

Popular conception.....................................................................................73Conclusions and recommendations...........................................................76Annex 1.......................................................................................................83List of Abbreviations...................................................................................88List of Figures.............................................................................................90List of Tables...............................................................................................91References...................................................................................................92

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Iwona Mertin, European Studies

How can active labor market policy contribute

to development of flexicurity in Central Eastern European Countries?

Analysis of active labor market policy in post-communist EU member states

with focus on flexicurity configurations and labor market needs

0. Introduction1. In search of happy medium...

According to the demands of optimal currency area (OCA) and the postulates of

Economic and Monetary Union (EMU), European dream is to increase flexibility of its

labor markets, since it assures to deal better with asymmetric shocks (Berlińska 2005).

However, the European Union (EU) wants not only to provide societies with sustainable

economic growth thanks to provided flexibility of labor markets, but also to assure

citizens the social security in form of ever-improving living and working conditions.

With help of European Social Model (ESM) its goal is to induce full employment, good

quality jobs, equal opportunities, social protection for all and social inclusion (European

Commission 2008). On the one hand, there is desired flexibility to perform better in

global arena and to improve competitiveness, on the other hand, the everlasting need of

welfare insurance. Is this idea of flexible-secure approach to Europe’s labor

performance a pure utopia or long-term perspective of development?

Compilation of flexibility and security is not a new approach to conduct internal

policies. The need of application of this specific attitude has appeared already in White

Paper on growth, competitiveness and employment (1993), where the European

Commission has underlined the meaning of flexibility for efficiently functioning labor

market, since it is a fact, that: “labour markets do not work efficiently with a lack of

flexibility (..) in terms of the organisation of working time, pay and mobility - and

[moreover with] an inadequate match of labour supply to the needs of the market,

especially as regards workforce skills and qualifications” (Ibid. Chapter 8).

In the same document, however, a set of remedies to heal the above-mentioned situation

has been indicated, namely speaking the reforms of the labor market within such fields

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as organization of work, distribution of working time, labor costs, level of skills and

pro-active labor policies. Especially, the latter is important, since it reflects the essence

of current disputes on the shift from passive to active labor market policy. Some of the

concepts regarding influence of active labor market policies on labor market flexibility

centre on employment services- through improvement and redefinition of role of

employment agencies or enhancement of labor market’s ‘demand-supply match’. The

others refer to better match of passive and active labor market policies to labor market

needs, since social benefits ought to be more closely geared to the specific market

situation and expenditures should concentrate the efforts more accurately on citizens in

real need (Ibid. Chapter 8).

The idea to put together flexibility and security has not been abandoned since

then, being gradually analyzed and taking more into account the necessity of reforms in

different policy fields such as taxation or labor market policy. However, when

conducting such changes one should bear in mind the search for flexibility-security

balance, as it supposed to be a heart of new organization of work (European

Commission 1997: 11-12). The concept of flexicurity has been appearing on a constant

basis also during EU summits (Essen 1994, Florence 1996, Amsterdam 1997,

Luxembourg 1997, Lisbon 2000). Moreover, it has found its reflection in EU legislation,

precisely in Amsterdam Treaty, and further in documents on sustainable and efficient

development of EU such as Lisbon or European Employment Strategy.

Strong supportive actions from EU officials’ side and provided legal basis allow

thinking of implementation of flexicurity nexus as about obligation referring not only to

old EU-15, but also to new EU member states (NMS) that joined Community in 2004

and 2007. What is crucial in this aspect is the fact that majority of NMS are former

command economies, which are currently in less favorable condition with respect to old

Europe when taking the elementary labor market indicators into consideration. It is

assumed that a burden related to transition from socialist to open-market economy has

significantly weakened position of these countries. Coping with transformation

communist states have had to face the growing competition from other states’ side not

only in fields of economy but also in employment area. Implemented reforms within

conducted policies have been giving various results so far, providing either success or

failure. Moreover, long period of socialist steering of Central Eastern European

Countries (CEEC) has caused many implications not only in functioning of economy but

also in society. People, who- until transformation- were always provided with job and

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artificially created feeling of security, suddenly have met the reality of capitalist

economy, ubiquitous competition and unemployment phenomenon. On the one hand,

there is relief of being finally released from communist chains. On the other hand, the

feeling of insecurity and fear ‘do we manage to cope with the shift’ appear. The socialist

attitude has influenced not only every dimension of policy, but also labor market

condition, what has found its reflection in change of employment indexes during

transformation. Growing unemployment- being a result of since always hidden

weaknesses of closed, centrally planned economy such as over-employment, persistent

structural unemployment, inefficient industries or poor qualified employees- has left its

stamp that accompanies CEEC up to this day and makes catching-up even harder.

2. Central Eastern European Countries and scientific disputes on flexibility-

security nexus

The idea of combined flexibility and security has found its reflection in multi-

dimensional flexicurity approach, which originally has its roots in the Dutch labor

system. Observation of policies conducted in EU member states, especially in Nordic

countries, has nearly confirmed the statement that one of the keys to healthy labor

market is its high flexibility alongside feeling of security both amongst employers and

employees, since only these aspects, when together, may contribute to development of

both equity and efficiency (Sapir 2006: 369- 390). Why it is a matter of flexibility? With

high probability as a result of the fact that thanks to flexible solutions within the labor

market- such as part-time work or fixed-term employment- it is possible to take

advantage of still unused labor potential, given the solutions are well implemented and

perform efficiently. Flexible forms of employment become more popular throughout not

only ‘old’ but also ‘new’ Europe (Turmann 2006: 15-18). Nevertheless, despite the fact

that fixed-term employment may contribute to activation of hidden resources of labor, it

does not mean there are no weaknesses in concept of flexicurity and its ingredients1. On

the one hand, there is flexibility- desired mostly by employers, on the other hand,

feeling of security- supported and wanted by employees. Their simultaneous

performance in EU member states (MS), assurance of the highest possible security to

workers as well as the space for structural adjustment (Eamets&Paas 2007b: 2) are the 1 One of such weaknesses is unequal treatment of short-term workers regarding participation in active labor programs. Workers on short-term contracts receive less on-the-job training than those with permanent jobs (European Foundation of the Improvement of Living and Working Conditions 2002).

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goals the MS obviously would like to achieve. Unfortunately, the road to labor market

success is bumpy and demands to make sacrifices. That is why the point in this case

would be to identify what may improve employment indicators and bring country closer

to as much-praised flexicurity, so to the better functioning of national and European

labor market.

According to employment features specific to national labor markets, the EU

demands from its members- so also from the CEEC- to present national action plans

(NAP). These are supposed to be followed alongside the set of non-binding

recommendations and joint employment reports prepared by the European Commission

(EC) and the Council. Supported additionally by EURES2 overall, it ought to enhance

the labor market performance (Hix 2005: 258), since:

“Member States and the Community shall (...) work towards developing a

coordinated strategy for employment and particularly for promoting a skilled,

trained and adaptable workforce and labour markets responsive to economic

change” (Amsterdam Treaty 1997 Title VI: Employment: Article 109n).

Nevertheless, it is not a mystery that majority of Central Eastern European Countries

suffer from unstable labor market situation and high unemployment rates, what used to

be claimed as a result of still present- even despite progressive flexibility- rigidity of

labor markets. Scientists from International Labor Office have also noticed that

flexibility measures in CEEC differ from these in industrialized countries being

probably the effect of large variety of solutions within conducted employment polices,

where while post-communist states experience insecurity and weak labor assistance,

their Western neighbors are provided with significant support of national welfare states.

At the beginning of the nineties, it was a great challenge for policy makers to cope with

the shift from command to open-market economy, from 150% of norm to real

purchasing utility and market value of labor. Those difficulties did not result only from

official transition of government. Still the greatest challenge is to change the ordinary

people’s way of thinking. Sober clash with free-market reality has provoked significant

modifications in employment and economic system. Amendments in national labor

legislation, public employment services, passive and active labor market policies have

been supporting the shift. However, there is still a lot to be done (Cazes&Nesporova

2004: 23-24). One of the solutions, good for the labor market and strongly supported by

2 The European Employment Services- provide information, advice and job-matching both to employees and employers, so they could profit the most from free movement of labor (EURES 15 May 2008).

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EU officials and scientists is activation of labor force with help of active labor market

policy (ALMP) - an inseparable ingredient of flexicurity model. If focusing on the latter,

active labor market policy matters when it comes to the creation of flexible and secure

labor market, but- here again- it depends on a country, so on differences in number of

participants, resources devoted to, distribution between different active programs etc.

There are Central Eastern European Countries, where ALMP through job mediation,

labor market training or job creation stands for an important element of reforming

policy, while there are other member states, which have diminished national spending

on that form of labor market policy (Nesporova 1999). Despite different approach to

activation aspects, Cazes and Nesporova claim that dimensions of employment,

unemployment, as well as labor market participation have been positively affected by

active labor market policies (2004: 49-50), what adds the healing character to that

instrument, provided it is efficiently implemented and then applied.

Since the positive influence of active labor market policy on labor market,

especially as an ingredient of flexicurity model, was already assumed, this activation-

equilibrium-flexicurity relationship has begun to be in the limelight of scientists. High

complexity of flexicurity phenomenon has given a broad room to display the creativity

with reference to both concepts and terminology. Thanks to numerous research, a wide

range of interdependencies between particular flexibility and security forms has been

noticed and developed. Regarding different flexibility forms, one can mention:

according to Cazes and Nesporova (2007: 2-3)

external flexibility (labor mobility and job changes within new employer),

internal flexibility (job changes within the current employer),

numerical flexibility (changes in the number of workers),

functional flexibility (occupational changes and mobility within enterprise),

according to Wilthagen and Tros (2004)

external-numerical flexibility (the ability of employers to adjust the number of

workers to current needs of production),

internal-numerical flexibility (the ability of employers to modify number and

distribution of working hours while not changing the number of workers, called

also working time flexibility),

functional flexibility,

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variable pay flexibility (the ability of employers to alter the wages when facing

the changes in the labor market or growing competition, called also wage

flexibility),

according to Madsen (2006a: 7)

numerical flexibility,

working time flexibility (called also internal-numerical flexibility),

functional flexibility,

wage flexibility (called also variable pay flexibility).

Amongst security dimensions, four have been numbered as the most relevant, namely:

job security (the intensity of employment protection and tenure that identify the

security of being able to stay by the same employer and in the same job),

employment security (affected mainly by ALMP and educational policies that

help a person to stay employed in overall terms),

income/social security (dependent in particular on public transfers that assure to

receive an income in case of unemployment, sickness etc.)

combination/combined security (so the level of security of a worker to be able

to reconcile professional life with private responsibilities such as having family

what may be supported with help of retirement schemes or maternity/paternity

leaves) (Ibid.: 6).

Such high number of flexicurity configurations gives social actors a space to maneuver

and assures numerous channels of influence to active labor market policy.

Being already aware of researchers’ opinions and of the official EU statements,

it would be valuable to attempt at answering the question:

how can active labor market policy contribute to development of flexicurity

in Central Eastern European Countries.

If put the research question in other words the aim is to identify what kind of tools or

measures of active labor market policy contribute to developing of flexicurity

configurations such as different forms of flexibility and security and how the structure

of national active labor market policy corresponds with labor market imperfections.

Indeed, the flexicurity alongside active labor market policy are current highlights of

European debates, because they are supposed to help countries to reach Arcadia where

all people have decent job being protected from poverty and unemployment. These two

concepts awake at the same time a lot of concern, especially among Central Eastern

European Countries, which deal with the doubts, to what extent socialist welfare state in

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communist Europe was close to western welfare standards and if reforms in transition

period are parallel to the European Union’s labor requirements. The nuances of

transformation reality of CEEC, but not only them, suggest that solutions mindlessly

copied from other countries not always pay off. For example, idea of immensely high

expenditures on active labor market policy in order to improve flexibility or security

within national labor market, as it takes place in Nordic states, transferred to country

with unstable economy as most of CEEC, may bring negative results. That is why it is

essential to point out existing features in fields of active labor market policy. Not only in

order to realize, how active labor market policy can contribute to development of

flexicurity configurations in Central Eastern European Countries, but also to identify

successful solutions and weaknesses within conducted ALMP, since cuiusvis hominis

est errare, nullius nisi insipientis in errore perseverare. It may help also to understand

why particular solutions in fields of ALMP bring country closer to success, so to decline

of unemployment, higher flexibility and growing security of labor market.

3. Methodology

In order to conduct proper analysis, reflect the role of active labor market policy

in development of flexicurity elements and labor market improvement, it will be crucial

to introduce an adequate characteristic and terminology regarding mentioned concepts

and relationship between flexicurity, active measures and labor market. It will help to

understand the assumed linkage between activation approach, flexibility of labor market

and security. Based on literature on flexicurity and on policy documents of Central

Eastern European Countries alongside European Union, active labor market policies in

post-socialist countries will be analyzed in order to identify the role of activation

measures in development of flexicurity phenomenon and in current labor market

performance.

Issue of activation together with flexicurity concept reflect multi-dimensional

relation that will be investigated in two EU member states with communist heritage, in

Estonia and Poland since these countries represent extremes of cases. On the one hand,

there is Estonia that has currently one of the lowest unemployment indicators not only

amongst post-communist states, but it is also in the lead of EU regarding low

unemployment rates. The Estonia’s opposite in this aspect is Poland with one of the

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highest amounts of unemployed and- what more disturbing- not only amid CEEC3. What

may be found, however, surprising is the fact that Poland, despite spending in 2005 the

highest percentage of its gross domestic product (GDP) on active labor market policies

amongst all Central Eastern European Countries (Eurostat: Population and social

conditions), has reached so far relatively poor improvement of its labor market

performance. Meanwhile Estonia, even though spending lower percent of GDP on

ALMP than Poland, has been able to decline its level of unemployment remarkably4. Is

it thanks to active labor market policy and its influence on development of flexicurity,

what further has contributed to better performance of labor market and improvement of

its indexes?

In the present project the choice of cases is a result of selected strategy of

comparison of natural groups, so in this case of two Central Eastern European

Countries, since both Estonia and Poland share communist heritage. As a research

method, the comparative analysis is applied, because thanks to it the similarities as well

as the differences become more evident. Flexicurity alongside active labor market policy

is analyzed mainly through configurative approach, as thorough description of cases

allows to comprehend better the essence of issue touched in the project - in this case the

logic of existing ALMP with reference to flexicurity and labor market imperfections

(Peters 1998: 5-8, 74-77). According to the research question:

how can active labor market policy contribute to development of flexicurity

in Central Eastern European Countries,

the dependent variable is the presumed influence of active labor market policy on

development of flexicurity phenomenon so on different configurations of flexibility-

security nexus or on its ingredients separately (Ibid., 30-31).

What kind of evidence is needed then to prove the advanced hypothesis and what

is the cause of the assumption in question? In the next chapters the ALMP measures are

going to be investigated according to the division into those most popular ALMP tools,

however bearing in mind their final influence on different configurations of flexicurity

(table 1.1: 14). In order to indicate potential effectiveness, although not in statistical

terms, the analysis of ALMP measures will be conducted also with reference to labor

market imperfections.3 Unemployment rate amongst CEEC: Estonia 4.7%, Poland 9.6%, the lowest Lithuania 4.3%, the highest Slovakia 11.1% (Source: Eurostat 2007).4 Unemployment rate in Poland: 16.1% in 2000, 17.7% in 2005 and 13.8% in 2006. Unemployment rate in Estonia: 12.8% in 2000, 7.9% in 2005 and 5.9% in 2006 (Source: Unemployment rates represent unemployed persons as a percentage of the labor force. Eurostat).

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Regarding the structure of the project, this section introduces the role of active

labor market policy and selected issues of flexicurity. Moreover, it contains a draft of

how the research is conducted.

Theoretical part included in Chapter 1 assures an overview of interdependencies

between active labor market policy, flexicurity and labor market, when at the same time

it brings closer the EU and CEEC statements on these particular issues of concern.

In the empirical part, the following areas are analyzed:

- performance of labor markets and flexicurity state of affairs in Estonia and

Poland (Chapter 2: analysis with help of statistics and literature on the

subject),

- the most popular elements of active labor market policy with regard to

development of particular flexicurity forms (Chapter 3: bearing in mind the

participation in, expenditures dedicated to and targeting of activation

measures),

- the activation measures by influenced groups with regard to meeting the

requirements of labor market (Chapter 3 and Annex 1: bearing in mind the

participation in, expenditures dedicated to and targeting of activation

measures),

- the popular conception of labor market issues (with help of results from

Eurobarometer, the issues- directly or indirectly related to ALMP and

flexicurity concept- have been submitted to evaluation to the group of

interviewees from Estonia and Poland in order to know society’s approach to

development of flexicurity thanks to active labor market policy).

As supportive tools of analysis to all elements in empirical section the policy

documents, legal basis and statistics are taken into account when needed.

It will be crucial to investigate the concept of active policy in two extreme

Central Eastern European Countries not only because of likely identification of

contribution of ALMP- or lack of it- to development of particular configurations of

flexicurity. Also because of possible diagnosis of errors or efficient solutions within

ALMP, which could be avoided or suitably implemented in transformation reality of

other countries. So at least they would be partially transferable from more successful

post-communist economies to other socialist countries still combating with relics of the

past.

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Chapter 1.

Theoretical and conceptual framework

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Chapter 1 provides review of interdependencies between flexicurity, active labor

market policy and labor market. At the same time it brings closer the EU and CEEC

statements about these particular issues of concern. Discussion included in this section

refers mainly to the concept of healing influence of active labor market policy on

unemployment spell and labor market stabilization. The theoretical approaches to this

linkage facilitate to understand where the success of ALMP lies and why it is an

inseparable element of flexicurity model.

1.1. Flexicurity first and foremost

Flexicurity demands to find a balance between flexibility and security of the

labor market in order to enable Europe to exploit advantages of synergy effect between

the employment, competitiveness and social security (Council of the European Union

18.05.2006). This definition provides understanding of flexicurity as a concept.

Flexicurity might be perceived also as:

a strategy helpful in conducting internal policies, because “[it] attempts,

synchronically and in a deliberate way, to enhance the flexibility of labour

markets, work organisation and labour relations on the one hand, and to

enhance security – employment security and social security – notably for

weaker groups in and outside the labour market, on the other hand”

(Wilthagen&Rogowski 2002: 250)

or as an analytical tool needed to understand the condition of economy, since it

reflects “a degree of job, employment, income and ‘combination’ security that

facilitates the labour market careers and biographies of workers with a

relatively weak position and allows for enduring and high quality labour

market participation and social inclusion, while at the same time providing a

degree of numerical (both external and internal), functional and wage

flexibility that allows for labour markets’ (and individual companies’) timely

and adequate adjustment to changing conditions in order to maintain and

enhance competitiveness and productivity” (Wilthagen&Tros 2004: 170).

According to Wilthagen and Tros (Ibid., 166-186) flexicurity helps to improve the

flexibility- so the adaptability- of labor markets, work organizations and the functioning

of employment relations, while at the same time it enhances security in fields of

employment and social assistance. This statement indicates that flexibility and security

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have not only a lot in common, but have been created to cooperate and provide support

to each other that is why flexicurity does not function if its ingredients exist separately

in national labor or economic reality. Because of its complexity, flexicurity reveals in

divergent forms, starting with those introduced by Atkinson’s model that referred to

company reality. Since there is high level of interdependence between flexibility and

security the following trade-off matrix has been introduced as a relevant tool to

understand the flexicurity nexus itself.

Table 1.1. Flexibility-security matrix based on Atkinson’s model

Security

FlexibilityJob Employment

Income/

Social

Combination/

Combined

Cazes and

Nesporova

External

Internal

Numerical

Functional

Wilthagen

and Tros,

Madsen

External-

numerical

Internal-

numerical/

Working

time

Functional

Variable

pay/ Wage

Source: based on Cazes&Nesporova 2007: 2, Wilthagen&Tros 2004: 171, Madsen 2006a: 7

The introduced by the scientists’ artificial division provides a wide range of

trade-off possibilities between particular flexibility and security forms. In each of these

brackets conducted policy, undertaken actions or regulations could be placed and

analyzed according to effects they bring. In addition, Wilthagen (12 May 2008) argues

that flexicurity might be not only perceived as a strategy or analytical framework as it

has been already pointed, but also as state of affairs. When it is perceived as a state of

affairs, there are separate policies that exist at that particular moment and contribute to

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TRADE-OFF

the development of flexibility and security. However, when flexicurity is adopted as a

strategy, than the existing policies have joint goal to find a balance between flexibility

and security, and they are implemented to reach simultaneously both flexicurity

dimensions (Wilthagen&Rogowski 2002, Wilthagen&Tros 2004). Indeed,

such policy targeted both at flexibility and security is often seen as a precondition to reach balanced flexicurity nexus (Madsen, 2006a).

Regarding flexibility, divergent perceptions have been introduced. Cazes and

Nesporova appeal to in-discord of flexibility dividing it into external (which refers to

labor mobility and job changes within new employer) versus internal flexibility (job

changes within the current employer) and into numerical (what means changes in the

number of workers) versus functional flexibility (what means occupational changes and

mobility within enterprise) (2007: 2-3). Different studies have proposed also other

terminology of flexibility. There is external-numerical (the ability of employers to adjust

the number of workers to current needs of production), internal-numerical/working time

(the ability of employers to modify number and distribution of working hours while not

changing the number of workers), variable pay/wage flexibility (the ability of employers

to alter the wages when facing the changes in the labor market or growing competition)

(Wilthagen&Tros 2004, Madsen 2006a: 7). Amongst security dimensions four have

been numbered as the most relevant, namely: job security (means the intensity of

employment protection and tenure that identifies the security of being able to stay by the

same employer and in the same job), employment security (affected mainly by ALMP

and educational policies that help a person to stay employed in overall terms),

income/social security (dependent on public transfers in particular which assure to

receive an income in case of unemployment, sickness etc.) and last but not least the

combination/combined security, so the level of security of a worker to be able to

reconcile professional life with personal responsibilities such as having family (what

may be supported with help of retirement schemes or maternity/paternity leaves)

(Madsen 2006a: 6). Such wide spectrum of flexicurity configurations gives social actors

a space to maneuver and the right of choice (The European Expert Group on Flexicurity

2007: 11).

However, invariably the core of flexicurity is still to adjust labor market and

employment policy in such way in order to be able:

to make ‘regular employment’ more flexible and at the same time not resign from

desired security level,

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or

to provide work with common standards of security but not give up flexibility.

In this description, the challenge for labor market’s actors is clearly visible. That sort of

‘flexibility/security’ joint venture demands from employers, employees, government and

social actors a lot of effort and constant search for compromise, what is not easy to

achieve. In some opinions in economic terms it is even said to be impossible to

synchronize flexibility together with security in the labor market, although it is not out

of question that this kind of match could be manageable in political terms (Eamets 20

April 2008: slides no. 10-11).

What kind of tools countries have been implementing or are going to introduce

in order to make their way towards flexicurity less risky? According to European

Commission’s report, four components may help to make flexicurity work.

These are:

flexible and secure contractual arrangements and work organizations,

effective active labor market policies,

reliable and responsive lifelong learning systems,

modern social security systems (25.01.2006: 19-20).

As the main point of interest in this project is the concept of activation, from the above

given list the second field and its influence on flexicurity is going to be thoroughly

analyzed.

While flexible labor market and social security stand for a main axis of the

flexicurity model, the active labor market policy is rather a measure that reflects the

condition of labor market. On the one hand, it provides motivation effect, on the other

hand, the qualification effect. Those effects are potential micro-effects of ALMP

implementation (Madsen 2005b: 5-6). What are motivation and qualification effects

then? How the influence of active labor market policies on labor market condition and

elements of flexicurity has been explained so far? Some claim that activation policies

evoke a motivation feeling amongst unemployed, who are so unwilling to take part in

active programs, that they are ready to increase their commitment in process of job

search just not to be numbered among ALMP participants (Rosholm&Svarer 2004: 2).

However, majority supports an idea that activation programs may upgrade skills of

unemployed and help them to find balance within variable labor market. It reflects the

cause-and-effect chain known as a qualification effect. Word ‘may’ has been used here

on purpose, because- on the one hand- one can find supporters of healing influence of

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ALMP on labor market, while at the same time there are opponents who express their

deep skepticism to initiatives of activation. Nevertheless, the biggest optimists when it

comes to active labor market policy are invariably the European Union’s officials.

1.1.1. Activation in flexicurity concept

The activation policy has been given a great role to play. Through active labor

market policy a country is supposed to increase the level of social inclusion and labor

market participation5. In his work, Weber has stated that, if:

“the participants expect that the admission of others will lead to an improvement

of their situation (...) their interest will be in keeping the relationship open. If, on

the other hand, their expectations are of improving their position by

monopolistic tactics, their interest is in a closed relationship” (1968: 43).

When shifting above given statement into the labor market grounds, one could come to

conclusion that employed will allow unemployed to join the labor force, only if it pays

off. The core is to make the already employed aware of a burden which the country and

its citizens are carrying with constantly growing amount of unemployed and increasing

expenditures on social benefits. However, once the employed are aware, it brings no

solution yet. The unemployed have to show their eagerness to join the active labor force,

because- as some have noted- excluded persons should take responsibility for their own

lives, instead of “alleged unwillingness to be activated” (van Berkel&Møller 2002: 31).

The active labor market policy, as the opposite of passive one, is supposed to enhance

the shift from being excluded from the labor market into inclusion through participation

(figure 1.1: 18).

Figure 1.1. Inclusion vs. exclusion

5 It means that labor market policy may influence the level of flexibility with help of shortening the period of receiving the unemployment benefits, or the level of security by putting more stress to active labor market programs.

17

Source: author based on van Berkel&Møller 2002: 27-28

Being more familiar with activation-inclusion linkage, it is high time to have a closer

look at the theoretical backgrounds of active labor market policy-flexicurity

relationship. As it has been already mentioned, the ALMP is a part of flexicurity model

and a part of flexicurity strategy. With reference to figure 1.2, it is visible that active

labor market policy has a supportive character in flexicurity model, influencing

flexibility of labor market on the one hand, while being affected by generous welfare

system on the other hand.

Figure 1.2. Flexicurity model - the golden triangle

Exclusion

Marginality

Inclusion

ALMP

18

Source: Madsen 2005a: 9

Indeed, especially through improvement of skills and upgrading of qualifications

amongst unemployed, the ALMP enhances their chances for reemployment and

rejoining the active labor force, what- if followed- adds security ingredient to flexicurity

model (Madsen 2005b: 17-18). Because of shortage of relevant literature on motivation

effects of active labor market policy, the empirical analysis is focused on ALMP

qualification effect only.

How the contribution of active labor market policy to development of flexicurity

model has been explained so far? What relationships have been indicated? According to

Wilthagen and his interpretation of matrix, active labour market policy primarily

supports employment security. Thanks to training or employment subsidies, it

contributes as well to development of external-numerical, internal-numerical or

functional flexibility, while with help of employment subsidies it can support wage

flexibility. Nevertheless, the existence of ALMP is focused on improvement of

employment security mainly and this approach predominates.

Wilthagen argues that active labour market policy and its measures contribute

primarily to enhancement of employment security. However, the training supports not

only the development of employment security, but also of external-numerical flexibility,

internal-numerical flexibility or functional flexibility. It can also assure job security to

some extent. Employment subsidies, on the other hand, may encourage the employers to

make wages more variable so to improve wage flexibility. Also support for further

19

Flexible labor market

Welfare system = security

ALMP

The main flexicurity axis

Qualification effect

Motivation effect

Motivation effect

education may be an incentive and, on the one hand, increase income security- since the

employee can afford courses that improve his or her qualifications, while on the other

hand it enhances internal-numerical flexibility (table 1.2).

Table 1.2. ALMP in Wilthagen’s matrix

Security

FlexibilityJob Employment

Income/

Social

Combination/

Combined

External-

numerical

employmentservices/ALMP,

training/life-long

learning,

Internal-

numerical/

Working time

employmentprotectionlegislation,

training/life-long

learning,

part-timesupplementary

benefits,study grants,

sickness benefit

Functional

job enrichment,training,

labour leasing,subcontracting,

outsourcing,

training/life-long

learning,job rotation,

teamwork,multiskilling,

Variable pay/

Wage

changes in socialsecurity

payments,employment

subsidies,in-work benefits

Source: Eamets, et al. fig. 1.5, 2006: 10

It should be highlighted that there is more than one way to reach desired level of

flexibility and security, what means there is no one set of solutions in fields of ALMP

that bring country closer to flexicurity. Going more in depth it means also that in case of

every country there may exist not only different, but even divergent solutions. New

solutions may appear while working on development of flexicurity phenomenon on

national grounds. With reference to works of the European Group on Flexicurity, there

are four different pathways and within these, different input of ALMP may be noticed.

20

The role of active labor market policy reveals in numerous ways. If there is a

case to increase the flexibility at the margin of the labor market, what means also the

reduction of asymmetries between non-standard and regular job, the role of ALMP is to

develop and enhance the effective job search, improve cooperation between

employment services- both private and public ones, disponents of unemployment

benefits and local authorities.

On the other hand, if the problem mirrors in poor ability of employers and

employees to adapt to variable conditions of economy, the activation policies will have

to strengthen transition security or, if it does not exist, to develop this form right from

the scratch. It is possible when active policies or programs are linked with passive side

so with financial assistance provided benefit recipients (e.g. unemployed). When

requirement to receive passive support (e.g. unemployment benefits) is the participation

in activation measures, the net effect of undertaken activities among unemployed may

strengthen. In addition, support of the job-to-job transitions from side of public

employment services would be valuable and appreciated assistance too.

If the economy is developed enough, the ALMP may focus on enhancing the

investment in skills and research&development (R&D), while not forgetting of course

about keeping the labor market open for citizens endangered with exclusion. In such

case, activation policies should take the direction of adjustment of provided activation

services (e.g. training) to the upward tendency in the labor market. Here again

cooperation between public employment services (PES) representatives, companies and

other labor market institutions is of great importance.

However, what if the problem are not the marginalized groups, adaptability or

move upward but the high dependence of citizens on social welfare? Especially the

latter is the case of major Central Eastern European Countries, where many people rely

on social benefits and where economies face the increasing burden of passive supports.

The solution here could be the introduction of such solutions in fields of active labor

market policy that improve employment opportunities amongst benefit recipients. That

is why the following recommendations should be fulfilled.

First, the ALMP should be focused more on the labor groups that are more

dependent on social assistance, such as the long-term unemployed or disabled.

In this case, the ALMP will affect the result of marginalization process.

However, in order to prevent the future overdependence on social assistance,

21

the activation policies shall focus on help for employees just threatened with

dismissal.

Secondly, there should be better cooperation between labor and benefit

institutions, as they together can react more adequately to labor market needs

and introduce better targeting of ALMP.

Thirdly, the intense ALMP should be used to reduce the inactivity amongst

endangered or already dependent social groups. The intensity of activity may

increase, when there is a linkage between participation in active procedures

and receiving of unemployment benefits.

Finally, in order to upgrade active labor market policies and strengthen transition

security, it is needed to improve the performance of public employment

services (PES) alongside public-private partnership and assurance of better and

equal access to information on employment opportunities (The European

Expert Group on Flexicurity 2007: 23-34).

1.1.2. Flexicurity and active labor market policy in CEEC

It is assumed that one can find an explanation of growing unemployment rates in

Central Eastern European Countries in rigidity of their national labor markets so in lack

of flexibility (Cazes&Nesporova 2004: 23) and in poor security background. Majority of

countries notice difficulties during re-entering the labor market by youth, low-skilled,

older, ethnic minorities, or women coming back from maternity leaves who face lack of

flexibility of labor market and who in result are forced to take advantage of available

social welfare schemes. Obviously, such schemes provide kind of income/social

security. Nevertheless, in case of lack of relevant external or internal flexibility their

comeback to labor market activity has been additionally made more difficult to

accomplish. A bit optimistic is the fact that still in CEEC the share of temporary

employment grows, what reflects increasing working time flexibility. However,

marginalized groups such as older or disabled workers most often occupy this form of

employment so, on the one hand, it gives a picture of harming segmentation of workers,

but, on the other hand, it assures higher combination security to those interested in it.

The CEEC reality is also characterized by relatively low job and employment security,

since the enterprises are unable to create new vacancies and even when such are created

the workers are less eager to change their current employment because of lack of trust in

22

stability and durability of a new workplace. It can be presumed that result of such

worker’s approach is lengthening of average job tenure. Majority of Central Eastern

European Countries have decided to focus on increase of employment security thanks to

active and passive labor market policy, what took place mostly at the expense of lower

workplace security (Cazes&Nesporova 2007: 235-239). Although indeed there are

rigidities in the labor market that contribute to considerably high numbers of

unemployed it is necessary for Europe and for CEEC especially to rearrange the

performance of their labor markets in order to deal better with unemployment aspects

(Nickell 1997: 55). Following the tendency towards increasing flexibility and security of

labor markets, the CEEC have to take a long way from being currently rather inflexible

and insecure- with a few exceptions- to full flexicurity. That is why these countries have

already implemented and are still working on introduction of varied improvements

amongst which one can find the active labor market programs, since they are supposed

to help the CEEC governments to cope better with appearing difficulties. Most of the

activation measures, which have been transferred from solutions applied in OECD

countries, include job mediation, labor market training, public works, job creation,

subsidized employment and mobility measures (Cazes&Nesporova 2004: 42- 44).

Crucial, however, is the issue of division of expenditures on ALMP and, further, the

profile and number of participants. What is important here, however, it is the fact that

two selected to analysis countries are claimed to represent different stages of advance in

fields of flexicurity nexus. That is why, while for one it might be easier to reach proper

level of flexicurity development, another might have still a long way to go. According to

studies on flexicurity (for more see: Eamets&Paas 2007b), labor markets of Baltic

states- so also Estonia’s- are characterized by relatively higher flexibility accompanied

by lower security. At the same time in the rest of CEEC, either in Poland, the level of

flexibility of labor markets is even lower, however, with slightly better developed

security. Bearing mentioned fact in mind Baltic countries should aim more at the

increase of their security maintaining the flexibility at least on already achieved level,

while the other NMS should do quite the reverse.

That is why countries, in order to overcome the weaknesses related to security

and flexibility of national labor markets, have to enhance active labor market policy,

although it needs time and a lot of effort from both government and society’s side to

accept the already implemented and forthcoming changes. The long-term projects of

reforms are often a subject to criticism by successive governments and as a result, they

23

may change together with ruling party, but it is even harder to convince the citizens of

purpose of conducted reforms. Most CEEC suffer from still underdeveloped measures of

active labor market policy. Employers, who in most cases own small and medium

enterprises, are hardly interested in ensuring workers with in-company training.

Additionally, there is shortage of state labor policy and competent institutions to support

the implementation of activation measures.

Regarding the redistribution of financial resources in CEEC, most transition

countries dedicate high amounts of their expenditures to employment services,

providing at the same time support to labor market performance. This approach has

found its confirmation in the assessment of reality, since recent evaluations indicate

great importance of public employment services for reduction of unemployment,

especially- but not only- amongst the long-term unemployed (the case of the Czech

Republic or Romania). This group of unemployed profits also significantly from

training, where strong and positive influence on probability of being re-employed has

been identified (the case of Bulgaria, Poland, Slovakia, Romania). While above-

mentioned activation measures seem to have important and soothing impact on general

labor market performance, the wage and employment subsidies- especially in Slovakia

and Poland- have no or even negative effect on unemployment rates. There are cases

where a person gains more from non-participation in ALMP than from this particular

method of activation. Similarly, when it comes to public works programs. They are in

general inefficient, contributing even to negative influence on future way towards

employment6 (Betchermann, et al. 2004: 75-93).

1.2. Active alternative of labor market policy in neo-classical dimension

Primary goal of labor market policy is to identify solutions that could be applied

in case of lack of balance between labor demand and labor supply. Moreover, it is

needed also to cope with difficulties being a result of existing imbalance. Labor market

provides a search for better match between expectations of the employees (NS) and

demand declared by employers (ND) - see figure 1.3 (26). Since labor supply and labor

demand are the determinants of labor market’s condition, they might be affected by a set

of measures that help to bring the labor market to the equilibrium (E). When labor

6 The estimates of that type of programs in Slovakia and Slovenia bring positive results, however only short-term.

24

demand grows (what means there are more job offers posted by employers) then the

level of wage declines in order to balance the forthcoming changes and stabilize the

labor supply-labor demand relation at acceptable level. Such tolerance threshold is wage

level of wr1, since it is the highest wage accepted by employers. To the elements, the

most affecting the structure of labor demand so the preferences of employers belong:

demand for products or services, which are offered by enterprise; existing technology

and R&D; prices of capital and labor. Opposite to labor market demand stands labor

market supply so an amount of people willing to work for a particular pay. Their

approach and eagerness to work depend on: personal preferences regarding job and free

time; offered wage and other alternative sources of financial support; economic and

labor market activity; demographic and social indicators; general condition of labor

market. From the list of factors influencing both labor demand and labor supply one

however important conclusion might be drawn. Thanks to labor market policy, the

government with higher probability should impose changes within labor supply than

labor demand, although there also is a space to act.

Labor market policy (LMP) consists of:

LMP services,

active LMP measures

o training,

o job rotation and job sharing,

o employment incentives,

o integration of the disabled,

o direct job creation,

o start-up incentives,

passive LMP supports

o out-of-work income maintenance and support,

o early retirement.

Therefore, it can stimulate the activity of labor force, shape the condition of labor

market and behavior of entrepreneurs.

If both labor demand and supply are variable, each change will be followed by

appearance of new point of equilibrium with different wage level and amount of

employed (e.g. in points E and R, figure 1.3).

25

Figure 1.3. Equilibrium in the labor market

Source: Wojciechowska 2004

Where:

Wr – real wage

N1 – full employment

N2 – actual employment

ND – labor demand

NS – labor supply

UN – natural unemployment

Lmax - full employment

F – actual unemployment when the real wage is higher but labor demand is lower than labor

supply

R – labor market equilibrium when there is no frictional or structural limitations, ND1= NS1

E – full employment where labor supply draws level with labor demand, ND2= NS2

The utmost importance in combat with imperfections of labor market has been

attributed to active elements of labor policy, since they make the match between labor

supply and demand more efficient so they increase the effectiveness of job search.

26

wr

wr1

N1 UN N2

wr2

Real wage (Wr)

ND2

ND1

NS2

NS1

E

R

F

Labor force (L)

Lmax

The ALMP (figure 1.4: 28), stimulating the shifts in labor market supply (direction no.1

and no.2= wage-setting effects) or in labor market demand (direction no.3= labor-

demand effects) may contribute:

to decline of disutility from being unemployed (1);

to better vacancy search, job-seeker match and/or stronger labor force

attachment (2);

to better vacancy search or job-seeker match, higher productivity of labor

and/or direct subsidies to job creation (3).

In other words the ALMP may contribute either to increase or to decline of employment,

either to higher or lower wages but even though its influence remains bias, it can

improve the match between job seekers and employers thanks to training programs or

more efficiently advising employment agencies both public and private. It can increase

the labor market participation of unemployed too with help of direct job creation or

employment incentives, what will contribute to the raise of employment. It can increase

labor force productivity too by shifting up the labor demand, employment and wages or

make the wages go down when keeping unemployed still attached to the labor force7

(Estevão 2007: 113-117).

Figure 1.4. ALMP influence on labor market equilibrium7 It will increase the competition for vacancies and cause higher employment but by reduced wages. While keeping up the unemployed and their labor skills, the workers may demand higher wages what will force the employers to cut the size of employment.

27

Wage-setting effects

Labor-demand effects

Real wage (Wr) Labor force (L)

Source: based on Kwiatkowski 2005 and Estevão 2007

Where:

NP - number of ALMP-non-participants

a – total unemployment without ALMP participation

b – total unemployment with ALMP-non-participants at the level of NP1

c - total unemployment with ALMP-non-participants at the level of NP2

According to the figure 1.4, it is noticeable that in theory participation in active

labor market programs may contribute to decline of unemployment. In case if there are

no ALMP participants at all, the level of unemployment will be reflected by the

difference between the number of employed (N1) and the level of full employment

(Lmax). With growing number of active labor market participants (e.g. from Lmax-NP1 to

Lmax-NP2), a measured level of unemployment declines.

Since the ALMP influence on labor market stability may be so healing in theory, it is

worth analyzing how it affects the labor reality and how it contributes to development of

desired flexicurity phenomenon. The main role of ALMP is to improve and enhance the

flexicurity development thanks to its influence on:

ND

NS

1

2

3

E

a

b

c

28

N1 NP2 NP1 Lmax

labor market demand e.g. with help of public works8,

labor market supply e.g. with help of training programs9,

performance of labor market by proper adaptation of employment services

(Betchermann, et al. 2004:1-6)10.

Analysis of ALMP measures will help to identify how they, directly or indirectly, affect

the labor market and particular elements of flexicurity nexus.

***

An idea of flexicurity reflects deeply rooted need of labor market flexible enough

to meet the challenges of today’s economy and to cope with market’s variability. In

order to reach desired level of flexibility and to allow better match of labor demand and

labor supply the active labor market policy measures have been introduced. If they

contribute to flexicurity or not it is still an open question since the complexity of labor

market indicates on different influencing factors affecting its condition. However, the

active labor market policy indeed stimulates the flexibility of both employees and

enterprises and at the same time, it induces the feeling of security. Although, maybe not

in traditional understanding of flexicurity concept so through employment protection

legislation, but through improvement of adjustment opportunities of unemployed person

8 Programs that lead to job creation. Within this tool there are three types of support:- subsidies to wages or employment, which are meant for employees and may help the employers to make a decision to hire new workers and/or to maintain already existing labor force,- jobs in a public sector, which are created to activate groups mostly affected by unemployment in order to retain their connection with the labor market. Through public works, the unemployed- while learning by experience- lead to production of new public goods and services, what improves the standard of living of the whole society. One should bear in mind, however, that it is rather a temporary solution, because of rising financial burden for a country. - support for self-employment and micro-enterprises, which provides assistance in form of financial subsidies or advisory services for unemployed who decide to set their own enterprise. Thanks to assistance the individual as a beneficiary can gain and increase its activity, but it has to be prepared also for monitoring and evaluation conducted by the donor.9 Labor market training is not directed to all unemployed but rather to narrow target groups such as young unemployed, women or disabled. In reality, it has a form of direct provision- when creating public training institutes, or a form of financial subventions for trainees. Participation in training can be very fruitful if there is enough space to increase the labor demand. If there is not, the growing costs of training may overwhelm even developing economy. 10 The employment services refer to brokerage functions that help to connect employers with potential employees. These services can be provided by institutions both from public and private sector. While the first assures assistance to unemployed in order to protect them from social exclusion (so it refers more to survival aspects and to problematic issues of labor market both with respect to economic and social side), the latter provides services for employed, already well-skilled, white-collar workers (and at the same time it refers to the goal of ‘better match’ and higher quality within the labor market). Although expenditures on that kind of services do not belong to the highest, the existence of employment services is very important, since it allows to adjust and to find the best match between job seeker’s skills, employer’s expectations and changeability of labor market through the application of interviews, labor assistance or exchange of experience between employers and employees.

29

it increases employment, job or combination security. That is why the activation

measures may contribute to flexicurity development.

Chapter 2.

30

Estonia and Poland- winners and losers…

Chapter 1 allows developing opinion on labor market condition of both Estonia

and Poland and it brings closer their placement in flexicurity nexus with reference to

numerous opinions of scientists.

2.1. Recent trends of labor market

The period after shift into capitalist system has been in general fruitful for all

transition economies bearing in mind, however, the economic growth primarily.

Especially the time after 2000 has been abounded with high pace of economic growth.

At that time, most of the NMS have begun to overcome the negative consequences of

number of crises, which have touched also the countries that are subject to analysis.

While Estonia had to face the Russian financial crisis, its Visegrad counterpart, Poland

had to deal with transient economic recession. Between 1996 and 2007 Estonia’s

average annual growth rate of GDP per inhabitant accounted for 8.2% and was almost a

half higher than value of the same indicator in Poland (4.7%). It is evident that changes

of GDP growth rate and employment growth were compatible in both analyzed

countries, but unfortunately, high economic growth has not been transferred into full

employment recovery. That is why scientists call it nearly jobless economic growth

(Cazes&Nesporova 2007: 10-12). Nevertheless, while in Estonia the phenomenon of

employment and GDP growth has weakened since 2006 and according to the latest news

it is close to “0”, Polish GDP and employment displayed constantly positive, even if

very weak, tendency.

31

Figure 2.1. Estonia- growth rate of real GDP per inhabitant and total employment

growth, 1996-2007 (%)

-5

0

5

10

15

1996 1998 2000 2002 2004 2006

%

GDP Employment

Source: Eurostat, Economic background, Population and social conditions

When comparing the average employment growth in years 1996-2007, Poland has

reached the level of 0.3% per annum and Estonia’s indicator has accounted for 0.1% per

annum. Despite these differences, each country has the advantage over another. The first

dominates in fields of average employment growth and intensity of change of this index,

while the latter tends to move toward high GDP growth (figures 2.1 and 2.2). Moreover,

the statistics allow drawing conclusion on the existence of relation between changes of

GDP and total employment (Hishow&Mertin 2007: 70-72, for more see: Dornbusch, et

al. 2001).

Figure 2.2. Poland- growth rate of real GDP per inhabitant and total employment

growth, 1996-2007 (%)

-4

0

4

8

1996 1998 2000 2002 2004 2006

%

GDP Employment

Source: Eurostat, Economic background, Population and social conditions

32

An interesting view of the labor market is to notice when division by gender is

introduced. In both countries, the average employment growth rate for females was

higher than for males, what might be an effect of pressure exerted on greater access of

women to labor market and limitation of barriers through implementation of these labor

forms that allow to reconcile family with professional life (so they contribute to higher

combination security). Nevertheless, Estonia as a first got out of recession and started to

reach positive tendency in employment growth rate of both females and males (figure

2.3).

Figure 2.3. Employment growth rate by gender in Estonia and Poland, 1999-2007 (%)

-6

-3

0

3

6

1999 2001 2003 2005 2007

-8

-4

0

4

8

EE females PL females EE males PL males

* Estonia-females’ growth rate in 2007 amounted to zero

Source: Eurostat, Population and social conditions

Being already aware of common tendency prevailing in selected countries, it

would be valuable to take a closer look at fluctuations of employment rates, as it reflects

the condition of Estonia and Poland with reference to other European countries. The

Estonian levels of employment in years 1998-2007 were immensely satisfying, since

they were close to employment rates recommended by the Lisbon and the European

Employment Strategy. This country seems to deal well with difficulties. In comparison

to 1998, in 2007 it has increased its index of total employment by 4.8 p.p., within

females and males employment rate respectively by 5.6 p.p. and 3.6 p.p. In the same

year, Poland has provided more disturbing results and, what awakes a lot of concern,

performance of its labor market has been additionally weakening in recent years (table

2.1).

33

Table 2.1. Employment rate, total and by gender, 1998 and 2007 (%)

 Total Females Males

1998 2007 1998 2007 1998 2007EU27 61.2 65.4 52.0 58.3 70.3 72.5EU15 61.4 66.9 51.6 59.7 71.2 74.2Estonia 64.6 69.4 60.3 65.9 69.6 73.2Poland 59.0 57.0 51.7 50.6 66.5 63.6

Source: Eurostat, Labor Force Survey

Regarding the division into age groups, it reflects stronger position of men in any

of investigated age groups when annual average employment rates are taken into

account. The highest level of employment was noticed in prime-age group so amongst

citizens between 25 and 54 years old. People less than 25 years old are rarely a subject

to employment both in Poland and in Estonia, where their total employment rates are not

exceeding the barrier of 40%.

Figure 2.4. Annual average employment rates by age and gender, 1998-2007 (%)

Source: Eurostat, Labor Force Survey

34

Last but not least, a similar situation can be observed in the oldest group;

however, it refers only to Poland. On the contrary, Estonia has activated the labor force

aged 55-64 more efficiently (figure 2.4). It is important to refer to the levels of

employment amidst older workers since this part of labor force possesses great potential

of knowledge and experience, that unfortunately, partly compulsory and partly

voluntarily, is still unused and neglected in the majority of the Central Eastern European

Countries. In addition, within this labor dimension the advantage of Estonia is again

more visible. Estonian government, thanks to the number of conducted sectoral policies

and high pace of economic growth has managed already in 1998 to bring the

employment rate of older workers, so aged 55 to 64, to the level of 50.2%. Next years

show it was not only a coincidence, just a clear vision to implement strategy that allows

older part of population to return to the labor force. When reaching, in 2007, an

employment rate of older workers at the level of 60.0%, this country has reached the

high standard of stability and once again has fulfilled the statistical postulates of

European Employment Strategy, even though, it refers with its requirements to the

member states of old EU15. In comparison with the indexes of EU15 and EU27, only

Estonia did well, because its results were better than average European levels, as well in

the first as in the last analyzed year. Additionally, the majority of Estonian employment

rates have noticed an increase between 2000 and 2007. In contrast to Poland where

indexes of employment of older workers have declined in investigated time span from

32.1% to 29.7% and are lower than average indexes for EU. Fortunately, this EU

member state since 2005 has managed to shift into path of upward trend. In both

countries, the changes of employment indicators with reference to females reflect trend

of growth. Amongst males, however, the decline was noticed- in Estonia from 62.0% in

1998 to 59.4% in 2007, while in Poland respectively from 41.5% in 1998 to 41.4% in

2007.

When touching already the issue of activation of older part of population it

would be worth remarking when workers decide to leave the labor force. Again, the

discrepancy between Poland and Estonia reveals. Although, in both countries the

average exit age weighted by the probability of withdrawal from the labor market has

lengthened, in Poland it is still lower than in the EU. In Estonia it was 61.1 years in

2001 and 62.6 years in 2006, when in comparison to Poland it was 56.6 years in 2001

and 59.5 years in 2005 (Eurostat).

35

2.2. Unemployment or activity- which way to go?

The greatest challenge for most Central Eastern European Countries is struggle

with high unemployment rates. This is the case also of Estonia and Poland. However,

while the first has coped efficiently and contributed to decline of unemployment rate by

4.5 p.p. (from 1998 to 2007), the latter has managed to decrease its still high

unemployment rate only by 0.6 p.p. What is more disturbing is the fact that this, all in

all, positive numbers in the Polish labor market refer only to total and female

unemployment rates, meanwhile males suffer from increasing scarcity of vacancies

(increase of UR amongst males by 0.5 p.p). According to the majority of indicators

found in table 2.2, the remarkable progress of Estonian labor market can be especially

noticed. Firstly, because already in 1998 its unemployment levels oscillated close to the

European average levels and secondly, because in 2007 either unemployment rates in

total as percentage of active population or in division by sex were better than the

average level of EU27 and EU15 indexes.

Table 2.2. Unemployment rate- total, by gender, youth, long-term, 1998 and 2007 (%)

  EU27* EU15 Estonia Poland

Total 1998 8.6 9.3 9.2 10.22007 7.1 7.0 4.7 9.6

Females 1998 9.8 10.7 8.3 12.22007 7.8 7.7 3.9 10.3

Males 1998 7.8 8.2 9.9 8.52007 6.6 6.4 5.4 9.0

YUR** 1998 17.3 18.1 15.2 7.62007 15.3 14.7 10.0 21.7

LTUR*** 1998 4.0 4.4 4.2 4.72007 3.0 2.8 2.3 4.9

*EU27- data from 2000 instead of 1998

**Youth unemployment rate- unemployment rate of population aged less than 25 years

***Long-term unemployment rate- long-term unemployed (12 months and more) as a percentage of the

total active population

Source: Eurostat, Labor Force Survey, Population and social conditions

On the other hand, except other diversified disturbances the Polish labor market looks as

if it was unable to find solutions to unemployment amongst youth, who are experiencing

constant growth of youth unemployment rate (YUR) to worryingly high level of 21.7%.

Moreover, in 2007 the increase of long-term unemployment rate (LTUR) has been

36

noticed in comparison to previously examined year. In Poland, similarly as in Estonia,

LTUR still accounts for about 50% of regular unemployment rate.

When focusing on tendency of unemployment rates in recent years, the

dominance of Estonia is evident. In the first investigated year, the amount of

unemployed was close to 10% of total labor force. With the exception of little move

upward between 1998 and 2000, Estonia has been constantly declining its

unemployment rate to very decent level of 4.7%. On the contrary, Poland displayed

negative tendency, representing gradual growth of unemployment rate until 2002. Since

then only quite modest decline of unemployment is noticed (figure 2.5).

Figure 2.5. Unemployment rates- total, 1998-2007 (%)

0

5

10

15

20

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

%EEPL

Source: Eurostat, Labor Force Survey, Population and social conditions

The division into gender in these two analyzed countries reflects similar trend as in total

terms. However, the discrepancies in years 1998-2007 between unemployment rates

amongst females were more striking than differences in total or male unemployment

indexes. Poland was again in worse condition with regard to the high levels of

unemployment, even when not paying attention to the method of perception of this

phenomenon (figure 2.6).

Figure 2.6. Unemployment rates by gender, 1998-2007 (%)

37

0

5

10

15

20

25

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

%

0

5

10

15

20

25

EE females PL females EE males PL males

Source: Eurostat, Labor Force Survey, Population and social conditions

Even more important indicator that allows evaluating labor market condition is

activity rate, since it reflects the level of society’s commitment to the national labor

market. In particular, the activity rate is defined as the percentage of the population that

is either working or seeking for work, so it is in the labor force (source: International

Labor Office). When having a look at the total activity rates, one can come to the

conclusion that while labor activity of Polish society is constantly declining, the

Estonians with 72.9% of active population have once again placed themselves above the

average European level (figure 2.7). Their advantage over EU27, EU15 and Poland in

all investigated periods is especially visible among females aged 15-64 (growth from

66,4% in 1998 to 68,7% in 2007), in age group 25-54 (total: growth from 88% in 1998

to 88,5% in 2007, females: even despite decline from 84,2% in 1998 to 83,7% in 2007,

males: from 92% in 1998 to 93,6% in 2007), and among citizens between 55 and 64

years old (total: growth from 53,5% in 1998 to 62,2% in 2007, males: even despite

decline from 68,1% in 1998 to 63,7% in 2007 and females: growth from 43,1% in 1998

to 61% in 2007). In prime-aged group, the activity of women in Estonia has grown,

while among men it looks as if they have shifted into passivity.

Figure 2.7. Activity rates, aged 15-64, total, 1998-2007 (%)

38

55

60

65

70

75

1998 2000 2002 2004 2006

%

EU27EU15EEPL

*EU27 1998-1999 data not available

Source: Population, activity and inactivity- annual averages, LFS main indicators, Employment and

unemployment (Labor Force Survey), Labor Market, Data, Population and social conditions, Eurostat

According to Polish statistics, the indexes of activity are far below EU average.

The negative difference between total activity rates of Poland and EU27 or EU15 has

been growing gradually since 1998, achieving in 2007 respectively 7.3 p.p. or 8.8 p.p.

What awakes more concern, however, is the fact that both activity amongst women and

men aged 15-64 has declined in recent years. Additionally the male activity reflects high

pace of falling. The greatest discrepancies between Poland and Estonia are visible when

measuring the activity of the oldest group, namely population aged 55-64. Total activity

of this group in Poland in 1998 accounted for 34.1%, while in 2007 it was only 31.8%.

In the same years in Estonia activity rate of population aged 55-64 accounted for the

level of 53.5% and 62.2%. Not less worrying is the situation when division by gender is

introduced. Activity rate of females in Poland has noticed decline from 25.6% in 1998 to

20.6% in 2007, when on the contrary, in Estonia the growth has been remarked from

43.1% in 1998 to 61.0% in 2007. Diverse situation has been noticed amongst males,

where in 2007 Estonia has experienced decline of activity of men aged 55-64 to 63.7%,

meanwhile Polish men displayed activity rate at the level of 44.7%, so slightly higher

than before. In other age groups, Polish-Estonian gap is perceived to a lower extent than

in this already mentioned case of people aged 55-64.

To sum up, the picture of Estonian labor market looks much more peaceful. It

awakes less anxiety than its Polish counterpart, where not only levels of unemployment

and activity stand for a great challenge, but also negative tendencies in such fields as

employment total and by gender or incline of unemployment amongst male and young

39

part of society, especially with regards to long-term unemployment rate. Nevertheless,

despite optimistic vision of the Estonia’s past and the presence, and pessimistic

evaluation of further developments in Poland, it is Estonia where employment and GDP

growth have lately weakened and it is Poland where employment growth trends have

begun to follow the positive path. With regard to gender division in these two national

labor markets, the situation of females presents more favorably than males. Women’s

participation has increased in the majority of the investigated fields of the labor market.

However, what is the most concerning, it is the condition of employment and activity

amongst the youngest and oldest part of the labor force. The search for a solution of this

situation ought to be the essence of forthcoming political solutions.

2.3. European Union on labor market policy

When touching on the issues regarding employment, it should be highlighted that

there is no such common concept of European labor market policy, as it is in case of

monetary policy on European level. Therefore, the EU cannot impose a set of rules to all

member states as a supranational level. However, a helpful space to maneuver has been

left and the European Commission can give recommendations, which, if conducted, can

improve the labor market condition (so called OMC Open Method of Coordination).

What kind of recommendations with regard to labor market policy gives the EU?

The official documents regarding the Lisbon Strategy refer mainly to the active side of

labor market policy (ALMP), because it is believed that ALMP together with training

and social support may increase the level of employment (European Commission 2004:

Chapter 2). The EU tries to encourage its members to promote the practices that increase

level of employment amongst women, youth and older people so amongst the most

sensitive and endangered groups of society, in order to assure flexible and secure labor

market so ‘flexicurity’.

According to the High Level Group chaired by Wim Kok, in order to build inclusive

labour market for stronger social cohesion (2004: 31), proper steps have to be

undertaken.

In the first place disturbing disincentives ought to be removed in order to allow

marginalized groups to join the labor force. As an example of the Netherlands

shows, where the share of part-time work in total employment belongs to the

highest in Europe, women are more eager to take up part-time jobs, because it

40

Figure 2.8. Total expenditures on labor

market policy (% of GDP)

0 1 2 3 4 5

DK

BE

NL

DE

FI

FR

SE

EU15

AT

ES

PT

IE

IT

PL

BG

SI

HU

UK

LU

SK

RO

LV

GR

CZ

LT

EE

% of GDP

2004 2005

ª For Slovenia, Luxembourg and Poland data from 2004 unavailable. Lack of data for Cyprus and Malta. Source: Eurostat, Population and social conditions

allows reconciling professional

life with family duties. Job

sharing is perceived similarly

since it assures combination

security.

Secondly, the High Level Group

underlines the linkage between

job creation and increasing

adaptability of workers and

enterprises, what should be in

interest of society as a whole.

Thirdly, it is relevant, for any

group within society, to be able

to combine work and non-work

responsibilities in the most

efficient way.

What is more, instead of

preservation of old employment

forms (e.g. jobs for life), people,

both from and outside the labor

force, should participate in life-

long learning programs and

training in order to be able to

stay in the labor force as long as

possible. It will provide desired

employment flexibility then and

assure citizens the headway in

existing labor market.

Finally, the scales have to fell back from people’s eyes. The governments of EU

member states have to realize at last the importance of older workers.

Significant shift within mentality has to take place in order to provide societies

with efficient and experienced labor force and to decline the size of pension

burden by limitation of participants of early retirement systems (The High

Level Group chaired by Wim Kok 2004: 31-34).

41

To outline, the statement of European Union focuses on the great importance of active

labor market policies (ALMP), while diminishing the role of passive labor market tools

such as early retirement or social benefits. In the latter aspect, the European

Commission goes even further and demands from EU members declining of that type of

expenditures.

2.4. Overview of labor market policies in EU member states

Member states’ approach to labor market policies is diversified, while some

dedicate high percentage of their GDP to labor market policies, for the others it looks as

if it is not a matter of great importance to spend a lot on LMP. Both approaches might

be result of the past that has learnt the governments to conduct policies in particular way

or simply countries may pay greater attention not to the level of expenditures, but to

redistribution of this spending and efficiency of applied measures (what is by the way

more reasonable approach). When having a closer look at statistics regarding

expenditures on labor market policies (figure 2.8) it is visible, that great majority of

countries have decreased their spending with comparison to the previously evaluated

year11. Among the exceptions, one can notice Lithuania, Latvia, Slovakia, Hungary,

Portugal, Spain and Austria. These six member states found themselves below the

average level of LMP expenditures of ‘old’ fifteen, so the increase might be the result of

currently existing pressure on higher intensity of LMP spending. Above the average

indeed old members were identified: the representatives of Scandinavia alongside core

of EU-founders as France, Germany, the Netherlands and Belgium. Millions of euros

are distributed among LMP services, active labor market policy and passive labor

market measures, however with different weight being assigned. When one considers

the labor market service, the Netherlands spends the most. While on the opposite one

can find Greece with 0.012 % of GDP to finance its LMP. According to the division into

old and new member states most of old EU-15 oscillate round the average level of

European spending, meanwhile newies are far below this level. This drawn distinction

between old and new countries becomes more evident when comparing expenditures on

active labor market policy. Here unquestionable leader is EU-15 less Greece and the

United Kingdom. However, old Europe- despite being the leader in mentioned field- at

11 The latest available data regarding LMP refer to 2005. The figure 2.9 does not refer to Slovenia, Luxembourg and Poland because of lack of comparable data from 2004 and to Cyprus and Malta because unavailability of adequate statistics.

42

the same time seems to suffer from high spending on passive labor market measures

such as out-of-work income maintenance or early retirement. This real situation could

be partially attributed to high unemployment rates- e.g. in case of France or Germany,

and to ageing-society phenomenon12 that is experience of majority of member states of

the old EU15 (figure 2.9).

Figure 2.9. Expenditures on LMP by type of action (% of GDP)

0

1

2

3

4

5

DK BE NL DE FI FR SEEU15 AT ES PT IE IT PL BG SI HU UK LU SK RO LV GR CZ LT EE

% o

f GD

P

LMP services ALMP Passive LMP

Source: Eurostat, Population and social conditions

The European Commission in its studies has already indicated the importance of

active labor market policy and its contribution to increase of employment rates. Basing

on data from period 1997-2002, it has been assumed there is a linkage between ALMP

and employment rate (European Commission 2004: Chapter 2). As an explanation was

given that increase of intensity of ALMP expenditures13 may enhance employment

growth rates by 10%-20%. This relationship could be the case of Scandinavian

countries, where training and active support for unemployed play very significant role.

On the other hand, however, as the examples of the UK or Germany14 show, there is no

clear relation between total labor market policy’s spending as a percentage of GDP and

the level of unemployment (see figure 2.9). Some countries, despite spending relatively

12 The case of Sweden shows, how serious the issue of ageing society is and how strong tensions may cause the imbalance between shrinking amount of active prime-aged labor force and increasing number of pensioners dependent on them. It is presumed that until 2050 old-age dependency ratio in Sweden will increase half as much again of current number to 45% and total dependency ratio to 85% (Source: Eurostat, National projections, UN, World Population Prospect 1950-2050).13 ALMP spending as a percentage of GDP divided by the unemployment rate.14 In 2006, employment rate for the UK 71.5% and for Germany 67.2%. Source: Employment rate, Population and social conditions, Long-term indicators, Eurostat.

43

a lot on active labor market programs, cannot fight high unemployment rates (e.g.

France or Germany). However, among them there are member states too that pursue a

goal of reduced labor market expenditures, stressing the minimal expenditures on

ALMP especially (e.g. the UK or Ireland).

Figure 2.10. Relation of total public expenditures on LMP (as % of GDP) to

unemployment rate- unemployed persons aged 15-64 as a share of the total active

population (2005)

0

1,5

3

4,5

DK NL DE FR SE PT IE PL HU UK SK CZ EE

LMP

expe

nditu

res,

%

0

4

8

12

16

20

Une

mpl

oym

ent r

ate,

%LMP expenditures UR

ª For Poland – OECD data

Source: Labor Market Policy, Labor Market, Population and social conditions, Eurostat; Labor market

policy expenditures, OECD

Obviously, the increase of active labor market spending itself will not provoke

sudden decline of unemployed, since the level of unemployment results from very

different driving forces and application of labor market policy is only one of healing

approaches. However, as researchers claim, behind the success of ALMP are not

growing expenditures on activation, but understanding how ALMP helps people to cope

with sudden change, unemployment, reinclusion and transition within labor market and,

as a result of the preceding, how it contributes to development of flexibility and/or

security (The European Expert Group on Flexicurity 2007: 17). When country decides

on implementation of active labor market programs, it should recognize the nuances of

its own groups of unemployed in order to develop the best adjustment to their skills and

reality.

44

2.5. Estonian and Polish labor markets- flexicure enough?

Flexicurity phenomenon mirrors in both national and international governance

systems, in the Danish and Austrian labor market tradition, in Dutch law, in the Lisbon

Strategy and in the International Labor Office (ILO) Global Employment Agenda

(Cazes&Nesporova 2007: 4-5). Nevertheless, it should be highlighted that in countries,

where flexicurity is functioning indeed, it is an effect of deeply rooted tradition of

tripartite cooperation and social dialogue, which have been evolving within the space of

last years. It should not be hidden that there is lack of such tradition in Central Eastern

European Countries. Flexicurity is perceived as a new concept there that is why

implementation of some solutions may be difficult and unacceptable within society

(Leetmaa 2006: 2). While in Estonia the reforms in labor market are created in

order to fight the difficulties treating them as separate problems instead of joint reviving

strategy, the Polish government and society seem to have completely neglected the

thinking of flexibility and security of its labor markets. In Poland, the only ones who

display awareness of importance of joint flexibility-security nexus and advantages of

flexicurity concept are entrepreneurs (Kryńska 2006: 2). However, this initiative might

weaken when meeting the reluctance and lack of support from the side of other labor

market actors.

Regarding the stage of flexicurity development, both Estonian and Polish labor

markets may be characterized as fairly flexible, accompanied with level of insecurity

however. Although since 1990s adjustment to a large extent has taken place to make

labor markets work more efficiently and flexibly, after the end of Soviet age the feeling

of insecurity was especially noticeable, because of weak labor market institutions, lack

of social dialogue and scarcity of solutions on legal level, what all together has

contributed to low intensity of security (Cazes&Nesporova 2007: 6-7). Nevertheless,

still Polish labor market assures its participants higher level of security than the Estonian

one mostly at the expense of lower flexibility than in the latter country.

2.5.1. Security and flexibility background in Poland

45

When conducting the analysis of flexicurity in its four basic dimensions,

through:

flexible and secure contractual arrangements and work organizations,

effective active labor market policies,

reliable and responsive lifelong learning systems,

modern social security systems,

it becomes more evident that Polish labor market has still a long way to go.

Regarding flexible forms of employment, Polish labor law provides numerous

solutions with respect to temporary, part-time or casual work contracts, nevertheless still

both the employers and employees do not take advantage of those employment forms on

a large scale. Among the most often pointed obstacles in application of flexible forms of

employment are rated: insufficient flow of information between entrepreneurs and

workers, fear of lack of control of employee on the employers’ side and fear of losing

the stability and durability of a workplace that exists on the employees’ side. That kind

of resistance on both sides of labor market causes serious implications in form of

inactivity or low combination security. It may even contribute to slow down of

economic growth. Such reluctance to take up job results in high unemployment but it is

not the only cause. In case of lack of studies on further developments of economy and

its sectors, the labor markets will not be able to adjust to forthcoming changes and

response with well-skilled labor force.

More pessimistic view presents active labor market policy since in opinions of

representatives of entrepreneurs, so one of the crucial actors of labor market scene, it

still remains underdeveloped and underestimated tool of sectoral policy (PKPP

Lewiatan, BUSINESSEUROPE15). The main labor fund (pol. Fundusz Pracy) is in 90%

financed from the resources of employers. Nevertheless, those still seem not to be

interested in taking advantage of financial support collected in such fund. Moreover, the

labor market institutions responsible for allocation of financial resources are focused

rather on registration of unemployed instead of their activation.

The system of life-long learning, another important flexicurity branch, leaves a

lot to be desired too. Poland- with the lowest participation rate in life-long learning

schemes in whole EU faces difficulties when adjustment of employees’ qualifications to

15 PKPP Lewiatan- Polish Confederation of Private Employers Lewiatan; BUSINESSEUROPE- European Business Confederation

46

the labor market needs is demanded. In result, Polish companies have to double their

efforts in order to meet the requirements of today’s global competition.

To end with a bit of optimism, the social security system assists Polish citizens

in form of welfare benefits, child benefits, healthcare, unemployment benefits and active

support measures consistent with requirements of European Union and International

Labor Office, although in a way it provokes relatively high social system dependence.

Application of social assistance depends on income criteria and social risk. What is

important the institutions responsible for their redistribution belong already to both

public and private sector. Nevertheless, the size of assistance and quality of services still

leave a room for improvement (Anam 24.06.2008).

The above given review of Polish labor market’s characteristics allows to draw

conclusion that Poland still has to work on flexibility, while having relatively developed

security- a heritage of post-socialist system.

2.5.2. Flexibility and security background in Estonia

Estonia, despite having made the greatest progress amongst all new EU member

states and although being classified as 27th most competitive country in the world (to

compare, Poland is 48th according to Kalinowska 01.11.2007 and A.T. Kearney report16),

seem to have lost its spirit. High internal demand, growth of import together with low

unemployment and scarcity of labor force have contributed to the growth of real wages

what- except other significant economic disturbances- has weaken profitability of

companies and has imposed increasing inflation (Baj 2008). In order to prevent potential

job losses and unemployment growth, flexicurity as an important tool could be applied.

Reforms within such fields as labor protective legislation, social dialogue, social policy

and labor policy can affect both flexibility and security of labor market.

The flexibility and security of- not only- Estonian labor market will grow:

first, if the notice time is shorten and severance payments are lower, provided

that temporary workers by employment agencies will be given better

employment protection,

16 Globalization Index 2007 based on 12 indexes related to economic integration, social relations, technological connections and political commitment.

47

second, if flow of labor force between EU member states is facilitated and

marginalized groups such as temporary or part-time workers are given

collectively agreed guarantees,

third, if early retirement schemes are reduced but at the same time those in need

are provided with reasonable assistance,

finally, if the shift from passive to active policy is efficiently conducted

(Eamets 20 April 2008).

The Baltic States are rather flexible but insecure, quite in contrary to other new EU

member states such as Poland (figure 2.11).

Figure 2.11. Estonia in the flexicure dimension

Source: Eamets, et al. 2007

The greatest challenge for Baltic States, so for Estonia either is to increase the security

of national labor markets, since according to Vladimir Spidla, EU Employment and

Social Affairs Commissioner, “the flexibility of labour markets (will come) about

anyway but security requires a lot of work” (Taylor 02.06.2008). Existence of trade-off

in flexicurity nexus suggests that in order to improve security, first Estonia ought to

build more rigid labor market with help of tax or labor law regulations and after

achievement of desired security level it should implement adequate measures to regain

the flexibility (Eamets&Paas 2007a: 12-15). Nevertheless, when comparing the data on

labor protection, Estonia remains on the same level as average EU member state, so over

2.5 total, while Poland holds its index around 2.0 total. Collective agreement coverage

rate in Estonia is close to EU index and refers to about 20% of labor force in comparison

48

Scandinavia

Baltic States

CEEC, CSEE, South Europe

Continental Europe

Security

Flexibility

to Poland’s 35%. However, trade union density rate in Estonia is six times lower what

additionally proves the weakness of trade unions in this country (index for EU around

65%, for PL around 16%). The greatest advantage of Estonia in comparison to Poland

and other CEEC is higher intensity of job creation at the level of 13% of employment,

while in Poland it stands at the pace of 3%. Although, job destruction is characterized

with greater share in employment too, still Estonia’s net change as percentage of

employment is better than in Poland (Source: Eurostat, OECD, data for Estonia from

1995-2006, for Poland from 1994-2007).

***

The time after the beginning of transformation turned out to be positive for

Estonia and Poland, since it has helped to reveal weaknesses of centrally planned

economy, such as over-employment, and has mobilized the authorities to undertake

proper measures to be able to compete in the free-market reality. Nevertheless, Estonia

is performing better when statistics are taken into account (despite lately noticed serious

economic standstill) and Estonia meets the postulates of European Employment

Strategy. Meanwhile, Poland still has lower employment rates and GDP growth rate

accompanied by immensely high amounts of unemployed. The only positive evaluation is

that while during last years Estonia has shown the falling tendency of GDP (currently

close to zero) and of employment growth, in Poland the same indexes have moved

upward. From the evaluation of available data, one can state that rates referring to

females represent positive direction of changes than the same indexes concerning males.

Regarding employment rates amongst different age groups in both countries, the highest

employment is amid prime-aged group. In Poland employment of young and older

workers awakes a lot of concern, although in the last group slight growth is noticeable

since 2005. On the contrary, in Estonia employment rate of older workers is high while

youth employment has fallen similarly as in Poland. Both in Polish and Estonian labor

markets the amount of people who are unemployed longer than 12 months (long-term

unemployed) accounts for a half of all unemployed, what indicates on disturbing

character of this phenomenon, if no remedial steps are undertaken on time.

The steps bringing a country closer to labor market equilibrium have found their

reflection in the assumptions of flexicurity concept. While Estonia seems to be aware of

its advantages although lack of common and general flexicurity strategy, in Poland only

scientists and entrepreneurs encourage to adopt the flexibility-security nexus in the real

life. In the meantime, government and legislators remain in a standstill, however,

49

fortunately gradually implementing the solutions that bring country closer to efficient

labor market performance. What surprises, Estonia, despite more restrictive

employment legislation than Poland, moves towards more lose employment protection,

while Poland other way around. An obstacle for the flexicurity nexus could be poor

developed social dialogue between actors on different levels and resistance of actors in

the labor market sphere.

50

Chapter 3.

Active labor market policy towards flexicurity and labor market needs

Chapter 3 is an analysis of active labor market policy with help of configurative

approach. Thanks to research of legal acts, official statements, statistics, it is possible

to acquaint with ALMP, its legal background or employment services. Finally, it allows:

to notice the preferences of Estonia and Poland to particular forms of measures; to

understand which flexicurity elements have a chance of development with implemented

ALMP structure; to realize if the structure of ALMP corresponds with the labor market

needs and weaknesses of the past and the presence.

3.1. Active labor market policy and flexicurity- national viewpoint

Numerous studies indicate the importance of active labor market policy for labor

market performance. Taking unemployment rate as a dependent variable, active LMP

contributed the most to decline of unemployment in majority of OECD countries. In

2003 the regression explaining the total unemployment rate (UR) was at the level of -

0.04, long-term unemployment rate (LTUR) -0.06 and youth unemployment rate (YUR)

-0.05 17. However, the increase of expenditures on active labor market policy displayed

opposite features too, namely speaking, the higher expenditures the higher employment

but accompanied with higher labor tax (Cazes&Nesporova 2007: 44-53).

Figure 3.1. Public expenditures on labor market policy measures, 2006 (% of GDP)

17 Function of regression , where:- theoretical value of dependent variable Y, - empirical value of independent variable X,

a – regression coefficient (slope), if value of independent variable X grows by unit, then value of dependent variable Y grows (if a>0) by |a| units or falls (if a<0) by |a| units, b – absolute term, constant level of value of dependent variable Y from changes of value of independent variable X.

51

Source: Eurostat, Labor Force Survey

Estonia in 2006 has minimized its LMP spending to 0.15% of its GDP,

dedicating the highest share to LMP supports so to passive measures (50.67% of all

expenditures), when to ALMP 34% and to labor market services 15.33% only.

Regarding the last tool, Poland as a share of overall expenditures spent to labor market

services a half of Estonian share and even less than EU average so 8.09%, redistributing

the majority of financial resources to passive LMP (61.07%). The rest of resources has

been transferred to active measures (30.83%). Both Estonia and Poland have been

moving in opposite direction than average European member state. It means that

regarding expenditures on passive labor market policy they have stabilized their

spending below EU27 and EU15 levels what is positive and indicates on relatively

young structure of society, while in fields of ALMP spending they were able to stay

above European average.

In Estonia although the share of unemployed taking part in active labor market

programs has been gradually growing in years 2003-2006 from the level of 1.21% to

4.76% of all unemployed, it is still maintained on a very low level, especially when

Poland with its active participants in amount of 19.35% of all unemployed is taken into

account. Moreover, Poland has experienced growth of this index at the pace of 4.13 p.p.

per annum when one data from 2005 and 2006 compares (Source: Eurostat, LFS).

Despite noticeable growths, none of these countries have fulfilled the requirements of

EU regarding the involvement rate at the level of 20% (Draft Joint Employment Report,

2001).

52

Thanks to application of activation measures such as training, job creation or

employment subsidies for disabled labor market actors may balance their labor demand

or labor supply and at the same time, they can increase the flexibility of labor market or

security of employees. According to the flexicurity matrix based on Atkinson’s model

(see table 1.1: 14), ALMP may presumably influence directly or indirectly wide range of

flexibility and security forms. How looks this contribution of ALMP in reality it

depends on the fact that flexicurity arrangements depend on the type of measure, level

of undertaken actions, actors involved in the implementation of measure and tools used

to its application and they vary very often upon the country where the active labor

market policy is conducted. That is why each country may have different, already

preferred configurations of flexicurity. There are countries like Germany and Belgium

that prefer to focus more on traditional forms of flexibility such as working time or

functional flexibility and on security in form of income replacement and job

maintenance. There is the UK that puts the greatest emphasis on numerical flexibility

and employment security or finally there is Denmark where numerical flexibility

combined with income security and employment security dominate (Madsen 2006b:

slide no.10). What kind of approach to flexicurity configurations reveal Poland and

Estonia with regard to applied active labor market policy? Do they focus on single

dimension of flexicurity so on flexibility or on security only, just like the USA or can

they be assigned to one of the trade-offs or configurations in flexicurity matrix?

3.2. Peculiarities of active labor market policy

Active labor market policy in Estonia as a field of sectoral policy has strong legal

background. Its role has been highlighted in Estonian Joint Assessment Paper, in

National Action Plans for Employment from 2001 onwards and in the Lisbon Reform

Programme from 2005 so in the legislation at the national level. Lately, in January 2006,

government has implemented the Labor Market Services and Benefits Act, which

through analysis of weaknesses is supposed to guide and assure each unemployed an

individual job search plan in order to prevent long-term unemployment. The same act

has introduced a new set of active measures targeted mainly at disadvantaged groups of

society such as disabled or youth unemployed (Leetmaa 2006: 6-8). These

recommendations suggest that thanks to law on the national level and with help of

53

individual employment contracts Estonia wants to support not only whole labor market

but also specific job groups such as long-term unemployed, disabled, youth and women.

Legal basis of Polish labor market policy one can find in the Act of 20 April 2004 on the Promotion of Employment and Labor Market Institutions, which has been focused on improvement of PES (public employment services) performance, enhancement of employment promotion and social partners’ commitment. All these efforts were undertaken in order to adjust already existing system to the requirements of EES. What might be perceived both as an obstacle and a chance for higher efficiency of ALMP, however, is the fact that decision about application of active measures is undertaken on decentralized level, so locally in districts (Kryńska 2006: 5-6). That is why if the activation is not in the area of interest

of local municipalities such measures will not be implemented. In case of Poland despite

national labor law has given grounds to existence of active labor market policy, the

complete decision-making process is in regional and local authorities’ hands. Moreover,

Polish government seem to put more emphasis on improvement of performance of

institutions involved in the process of application of active labor market policy than on

improvement of activation measures.

3.3. Employment service

In order to improve performance of the labor market an adequate and efficient

system of employment services should be introduced that would stand for a valuable

support to changes within the labor market and mutual expectations or obligations of

both employees and employers. The step forward has been made at the European level

when in 1997 the network of European Public Employment Services was implemented.

To allow better coordination between national and supranational level, the European

Public Employment Services (EPES) cooperate with national public employment

services, touching the most disturbing labor market aspects, such as long-term

unemployment or recruitment difficulties in selected segments of economy. It seems to

be obvious that implementation of further EPES recommendations at the national level

will be fruitful. The country can gain a lot from integration of EURES with the activity

programs of national public employment services or with new management systems.

54

However, crucial for national labor markets will be to develop efficient

cooperation of public and private employment service providers and further, to focus on

individuals and to enhance quality of provided services (for more see: EU/EEA

04.12.2006).

Although it is said that public employment services (PES) have been existing in

Poland since 1918, the current public employment services in Poland have roots in the

Act of 20 April 2004 on the Promotion of Employment and Labor Market Institutions (Dziennik Ustaw Nr 99, poz. 1001 with subsequent changes). In order to make PES perform more efficient, the management of PES should be shifted from central to more local level. To work it out, the Polish Ministry of Labor and Social Affairs (pol. Ministerstwo Pracy i Polityki Społecznej MPiPS) has introduced two decrees from 2 March 2007: one on detailed conditions of labor market services conducted by public employment services (Dz. U. Nr 47, poz. 315) and another on

standards of labor market services (Dz. U. Nr 47, poz. 314). These two decrees have

brought new quality into labor market reality in such fields as job-match, EURES

services, professional advisory boards, training and activation of those remaining out of

the labor force. Proposed modifications are aimed primarily at better approach to the

entity, so at individual treatment of each unemployed. Institutions of Polish public

employment services were obliged to adjust to proposed recommendations until the end

of June 200818. To facilitate already conducted and forthcoming reforms the legislator

has provided the PES with detailed schedule of actions. Regarding further

improvements, the Polish government wants to increase access to PES, reduce currently

existing bureaucracy and enhance the quality of services thanks, among the others, to

well-qualified civil servants (for more see: “Projekt ustawy” and “Uzasadnienie do

ustawy”, 22 July 2008).

As it has been already mentioned, an individual guidance and personal approach

to unemployed allow dealing more efficiently with unemployment spell. Indeed, Poland

has been practicing career guidance since longer time (Sultana&Watts 2005: 12). The

unemployed, before being given assistance, have to go through long registration

procedure what allows for better description of their situation and needs. Additionally,

Poland has shifted its PES to level of 16 provinces and further to poviats (pol. powiaty-

Polish administrative unit) what has contributed to three-dimensional public 18 Further works on amendments still in progress.

55

employment services at central, regional and local level, where all levels preserve

independence with respect to others. Nevertheless, this may cause serious implications

in cooperation and coordination of activities both between and within mentioned levels.

This is challenge the Polish PES are facing, while another is deficiency of well-skilled

PES-labor force and resignations of current clerks who are moving to private sector

mostly because of low wages in public sector.

All these circumstances induce existing PES to cooperate with other service

providers and such public-private cooperation in this field may be profitable. However,

Polish legislators seem to have forgotten about this aspect allowing for creation of

private employment agencies only in 2004 and having completely neglected outsourcing

(Sultana&Watts 2005: 40-45).

In the meantime, Estonia had to face the scarcity of PES and create it right from

the scratch. Currently, legal basis of the Estonian employment services has source in the

Labor Market Services and Benefits Act from January 2006, while Labor Market Board

Departments and employment offices are responsible for implementation and

cooperation with local social actors in order to provide better quality of services. This

document highlights the role of individual approach and case management system in the

struggle with unemployment spell. Moreover, indicates the importance of prevention of

long-term unemployment and special treatment of endangered groups in society.

According to introduced law, the unemployed is obliged to attend the services of public

employment office and to take advantage of job search activities (Leetmaa 2006: 8).

Nevertheless, small PES offices are still responsible for full package of service,

starting with registration, through search for proper assistance, on evaluation of results

ending, and at the same time, they are forced to give up the specialization. Estonian PES

cooperate also efficiently with trade unions, employers and educational institutions- also

these private ones (Sultana&Watts, op.cit. 60-63 and 73-82). Unfortunately, private

providers of employment services are given a narrowed space of maneuver being

allowed to collect and to give the information about labor market situation, to conduct

job mediation and career counseling, on condition they are licensed by the Register of

Economic Activities.

Being aware of importance of advisory process, majority of introduced

individual programs are directed to endangered groups of society (Ibid. 53-54).

Regarding the PES recipients significant interest are given disabled, the long-term

unemployed and people facing massive dismissals because of company closure or

56

restructurization. Especially the long-term unemployed have been supported with

special set of measures that allow evaluating the current situation of unemployed

persons with help of social workers, teachers or family doctor from their environment.

Despite all efforts, Estonia as well as Poland has not conducted evaluation of provided

services that is why, it is so difficult to assess their influence on unemployment (Ibid.

89-100).

3.4. Target ‘theory’ – declared goals

Some suggest that each unemployed should be the subject to active labor market

policy, the others claim that only proper targeting at particular groups contributes to the

efficient performance of labor market and to the decline of unemployment threat. Poland

belongs to countries that prefer targeting of active labor market programs at particular

groups, where over 50% of ALMP recipients fulfill special target requirements. An

explanation of this interest has grounds in the activation of all available resources and

readiness to counteract the ageing society phenomenon. Bearing in mind the future it is

important to make use of a market value of older workers, of their knowledge and

gathered experience. Active programs give indeed the possibility to awake so far

neglected resources. There are either programs designed for the disabled - that help this

group to combine physical or psychological limitations with their willingness to work,

or for parents on parental leave which provide reconciliation of family life and

professional ambitions (OECD 2007: 79-86).

On the contrary, in Estonia it was assumed that activation programs are not well

build, being inadequate to labor market needs. Already in 2001, Joint Assessment of

Employment Priorities has indicated on poor targeting of the active labor market

programs.

In Estonia, main direct recipients of ALMP transfers are service providers so

employment offices and social partners responsible for application of particular labor

market measures such as training or public works. In 2006 it was the most popular

channel of support with transfer at the level of 0.036% of GDP, before transfers to final

beneficiaries so to individual employees 0.008% and transfers to employers 0.007%.

Such division of resources between the actors suggests that Estonian active labor market

policy attaches the greatest importance to labor market actors directly obliged for the

implementation of activation measures. Even so, such a great concentration on one

57

group of actors may cause imperfections since these service providers may not be

completely familiarized with specific employers and needs of labor market. Conversely

looks situation in Poland. Here the transfers to employers were the most popular and the

share of reallocation of financial resources accounted for 0.219% of GDP. Next, as the

most popular recipients were individuals (0.127% of GDP) and service providers

(0.015% of GDP). However, also in case of this country a risk appears. On the one hand,

employers are more aware of their demand so they can shape the character and features

of future labor supply, but on the other hand a room to misuse funds appears if there are

no evaluation of results and monitoring of redistribution of funds.

3.5. Flexicurity configurations by active labor market measures

A closer look at active measures with division into participants reflects that in

2006 majority of unemployed were primarily a subject to training, supported

employment and rehabilitation (table 3.1).

Table 3.1. Active labor market measures by participants, 2006

  EE PL

TrainingEntrants 10 168 377 453Exits 10 434 357 114Stock 1 139 98 826

Employment incentives

Entrants 252 231 883Exits 616 136 790Stock 693 97 974

Supported employment and

rehabilitation

Entrants 60 245 180Exits 14 245 180Stock 60 245 180

Direct job creationEntrants 253 103 632Exits 145 101 128Stock 35 8 181

Start-up incentivesEntrants 288 35 405Exits 288 35 405Stock 24 3 378

* Unit=number

** Job rotation and job sharing – data not available

*** Poland- supported employment and rehabilitation, own calculations

Source: Eurostat, Labor Force Survey

According to the statistics from 2006 regarding division on different activation

measures, the expenditures on training (as a percentage of all ALMP expenditures) in

58

Estonia were three times higher than in Poland. On the contrary, in Poland the supported

employment and rehabilitation accounted for the most important share of overall

spending, while Estonia seem to have totally diminished the role of this measure as well

as of direct job creation. In the structure of expenditures of the latter, the dominance of

training is easily noticeable, since spending on that type of measure reached over 80%

of all ALMP expenditures. In the same period in Poland, the structure of activation

measures was more diversified (figure 3.2). Between 2003 and 2006, there was an

increase of expenditures as a percentage of GDP with reference to both countries within

training, employment incentives, supported employment, rehabilitation and start-up

incentives. The only exception was direct job creation where Poland revealed decline of

spending, while Estonia- growth (comparison of data from 2003 and 2004; years 2005-

2006 not available; source: Eurostat, LFS, Expenditures by measure, Estonia and

Poland).

Figure 3.2. Labor market policy expenditures on active measures by type, 2006 (million

EUR)

0%

20%

40%

60%

80%

100%

EE PL

Start-up incentives

Direct job creation

Supported employmentand rehabilitationEmployment incentives

Training

*Job rotation and job sharing – data not available

** Direct job creation – EE: 2004 instead of 2006

Source: Eurostat, Labor Force Survey

3.5.1. Estonia- in favor of a worker?

Training19 is a tool supporting first and foremost the ability of a person to

become employed. That is why directly it affects employment security but indirectly

flexibility too, since on the one hand thanks to training a person will improve skills, so 19 Sections 3.5.1 and 3.5.2 are based on Eurostat, LFS statistics and own calculations.

59

he or she will be more attractive as an employee for a company. While on the other hand

such measure will increase person’s ability to shift from one field of occupation to

another, what at the same time will improve employer’s functional flexibility to move

employees from one task or department to another.

Division of participants and expenditures indicates on the general preferences of

those implementing active labor market policies into the real life. Training is the most

common measure of active labor market policy with regard to the level of expenditures

and participation rate in Estonia. This Baltic State dedicates to this form of activation

over 80% of all ALMP expenditures and allocates there over 58% of recipients. This

remark allows claiming that Estonia indeed wants to improve its low level of security

with the easiest tool to apply that additionally has both-side effect on flexicurity

improving functional flexibility of labor market and employment security of a worker.

Thanks to training measures, this country enhances its labor demand-labor supply match

what helps to find a balance in the labor market. In comparison to 2003, Estonia has

increased expenditures on training measures. Basing on Eurostat statistics from 2006

one can notice the highest participation in labor market training (886 participants),

before work practice (141 participants) and coaching for working life (112 participants).

Number of entrants in these programs has grown mostly in result of appearance of new

forms of training, precisely of coaching for working life and of work practice, while in

overall terms training participation has fallen. The highest amount of exits has been

noticed in labor market training.

In contrast to Estonia, Poland has declined the amount of people attending

training programs to 21.79% of all ALMP participants. The structure of this measure

was much more complex there (in descending order of participation it consisted of:

apprenticeship, vocational training in the workplace, training, scholarships for

continuing education, vocational activation programs for disabled school-leavers and

vocational training organized by Local Labor Offices or by employers). It is visible that

while Estonian training programs were directed to whole labor market, in Poland they

were allocated not only to overall labor market but there were programs targeted at

specific groups such as disabled. Additionally, training measures were applied thanks to

commitment of local authorities and employers. Changes of the intensity of participation

in training programs have indicated the shift from vocational training measures at

different levels to tools supporting disabled.

60

Division of participants by gender has shown that- in 2006- in Estonia amount of

women taking part in training has exceeded amount of men over twice: stock-

respectively 767 women and 372 men; entrants- respectively 6.888 women and 3.280

men; exits- respectively 7.048 women and 3.386 men. Moreover, all these numbers have

grown with reference to 2003. On the other hand, amongst Polish citizens the stock has

fallen for both sexes in comparison to 2005, but also here participation of women was

higher than men: stock: respectively 70.869 women and 26.853 men, entrants-

respectively 226.922 women and 150.327 men, exits- respectively 210.908 women and

146.033 men.

Regarding support assured to youth, the amount of people in Estonia under 25

was given fewer interest in 2006 than in 2005: stock’s decline from 227 to 171, what

referred to both sexes (regarding young females: decline from 132 to 97, regarding

young males: decline from 95 to 73), but still participation of women was higher.

Similarly as in Poland, there was negative change of young participants from 78.190 to

72.534, what was mainly at the expense of male recipients’ reduction from 24.165 to

19.298 and decline of women’s participation in amount of 856 (from 53.888 in 2005 to

53.032 in 2006).

To précis, thanks to training Estonia has a chance to improve its labor market

flexicurity. Depending on perception, training measures may influence external

flexibility, internal flexibility and job security. However, with the highest probability the

functional flexibility together with employment security will be touched. Flexicurity

arrangements within this field of activation involve government as decision-making

body at the initial stage of labor law creation, service providers as a donor-side, and

employees as individual recipients of assistance in form of training.

3.5.2. Poland- for whose the sake?

On the contrary to Estonia, Polish active labor market policy has been

concentrated on supported employment, rehabilitation schemes and employment

incentives where assistance have found over 75% of all ALMP participants. According

to the figure 3.2 (59) it is noticeable that Polish active labor market policy is more

diversified than the Estonian one and therefore its application should not care significant

risk of too high concentration of resources on one specific group of recipients or on one

type of measure.

61

Nevertheless, supported employment and rehabilitation have improved the

employability of disabled, since tools within this measure have been dedicated only to

those with psychological or physical limitations. Poland has given complex structure of

this tool, where amidst forms of supported employment and rehabilitation one could

identify: wage subsidies for disabled workers in sheltered work enterprises (SWE), in

form of which help have received 228.690 persons; support for employers running SWE

(co-financing up to 50% of interest due on bank loans), what in 2006 referred to 14.454

persons; reimbursement of costs of creating and operating the occupational activity

enterprises (assistance in this form for 1.409 persons); vacancies in the public service for

people with disabilities (assistance in this form for 403 persons) and finally the

reimbursement of cost of remuneration of employees assisting the disabled workers

(assistance in that form dedicated to 224 persons). Thanks to diversification of this

instrument, the employers might be more willing to retain current disabled workers- so

the job security increases- and hire the new ones – so the employment security grows.

In general, the most popular recipients of this measure were males over 25. In

both genders growth of wage subsidies for disabled was noticed. Moreover, number of

male participants was almost 50% higher than female ones (137.166 men in comparison

to 91.524 women). However, more women were provided with reimbursement of cost of

remuneration of employees assisting the disabled workers (135 women in comparison to

89 men).

The targeting at disabled employees is also visible in some schemes of

employment incentives that increase job and employment security as in case of

supported employment and rehabilitation. According to number of recipients, there were

wage subsidies for disabled workers (53.229 participants), interventional jobs (26.205

participants) and activation allowances (16.637 participants). Since 2005, all these

numbers- except activation allowances- have been growing: the most the number of

recipients of schemes refunding costs of equipment both for unemployed and for the

workplace where the unemployed person has been placed (2006/2005: growth at the

level of 45%).

In Poland, women outweighed in interventional jobs and adaptation of the

workplace for disabled persons, while men in the activation allowances and wage

subsidies for disabled workers. Additionally, there was increase of participants in the

latter manner in both sexes, what again suggests the growing support for disabled groups

of society.

62

Structure of Polish employment incentives amongst youth provides relatively

optimistic picture. In 2006 majority of indexes have increased in comparison to

preceding year, e.g. stock growth from 10.978 to 11.767 and total entrants’ growth from

28.189 to 32.946. Regarding people under 25, young men predominated as recipients of

the wage subsidies for disabled, while young women as the most interested in

interventional jobs.

Adaptation of the workplace for persons with disabilities, refund of costs of

equipment and additional equipment of the workplace for the placed unemployed person

and already mentioned wage subsidies for disabled workers have presumably

contributed to job and employment security growth. Targeted at specific group of

recipients, demanding the commitment of beneficiaries and companies themselves,

conducted in the majority at company level, give a chance for reintroduction of the

groups from the margin of the labor market.

Employment security- but this time to all participants- is provided also by

different types of interventional jobs since they force unemployed to remain active, what

is positively perceived by potential employers.

Moreover, in Poland if unemployed who is given right to unemployment benefits:

finds employment independently from support offered by public employment

services or by similar institution,

or

finds part-time work thanks to help of employment agency but receives wage lower

than marginal pay,

he or she may apply for activation allowance (pol. dodatek aktywizacyjny) in amount,

respectively, from 30% to 50% of unemployment benefit depending on the method of

job search and gap between received wage and marginal pay (Minister Pracy i Polityki

Społecznej 2006: 2; act of 20 April 2004 on the Promotion of Employment and Labor Market Institutions, Dz. U. 2008 r. Nr. 69, poz. 415, art. 75, pkt.1).

Such interdependence, on the one hand, increases social/income security of a person, but

on the other hand it motivates a person to search for employment possibilities and it

enforces employment security.

3.5.3. Estonia, Poland and the

63

From the analysis of the most popular active labor market measures one can

draw the following. While Estonia focuses its activities on improvement of both security

and flexibility of its labor market with help of various training measures, Polish

activation measures allow only for enhancement of employment, job or income security,

however, the latter only to small extent. If a flexibility-security matrix is perceived not

only as a trade-off options between two flexicurity ingredients, but as a flexicurity

configuration, so combination of one form of flexibility with another form of security,

than it is possible to place Estonian active labor market policy within this given matrix

and the Polish one not (figure 3.3: 64). However, if interpretation of matrix lies in

conception of it as of trade-off possibilities between numerous flexibility and security

types, it would mean that, according to the redistribution of expenditures to particular

activation measures and to division of participants, Poland improves its different arts of

security such as employment, job or social security at the price of declining flexibility.

Figure 3.3. Flexicurity configurations by country

Security

FlexibilityJob Employment

Income/

socialCombination

External

Internal

Numerical

Functional Estonia

Source: author based on Cazes&Nesporova 2007

In addition Estonia seem to fulfill the statement of application of flexicurity as a

strategy, since with regard to the most common activation measures and their influence

on particular forms of flexibility or security, it is visible that those measures are targeted

at both flexi- and –curity. Meanwhile the Polish active labor market policy gives a

feeling of total incompatibility both with current state of affairs and EU

64

Poland

recommendations. Poland perceived rather as inflexible but with higher than Estonia

level of security thanks to most often applied activation measures tries to work on

improvement of its security levels. When instead it should work on policies that are

targeted both at enhancement of flexibility and security since it is a precondition, either

necessary or sufficient, to development of real and full flexicurity.

Apparently, such conclusion cannot stand as a final assessment, if labor market

of a country is flexicure or not since active labor market policy is only one of four

determinants of flexicurity. However, it may show what kind of attitude to flexicurity

elements in fields of active labor market policy prevails and, moreover, how it

corresponds with labor market reality.

3.6. Active labor market policy and labor market reality

Being already aware of the fact where the weakness and strength of active labor

market policy in its way towards flexicurity lies, it would be worth to have a closer look

at the active labor market policy from the side of labor market needs as it may also

indicate efficiency, although not in statistical terms.

According to the data gathered in Chapter 2 and Eurostat statistics (see Annex 1)

the main challenges and weaknesses have been selected with reference to both countries.

At the beginning of analyzed period (years 1998/2000) both countries have been facing

disturbances in form of:

negative employment growth rates both for males and females,

decline of employment rate, total and by gender,

decline of employment rate amongst youth, total and by gender,

decline of employment rate amongst older group so aged 55-64, total and by

gender,

growth of unemployment rates, total and by gender,

growth of long-term unemployment rates, total and by gender.

What might be perceived as surprising, Estonian labor market was additionally suffering

from:

decline of activity rates,

high youth unemployment rates.

How the structure of national active labor market policy corresponds to these

imperfections?

65

Poland declares targeting of active labor market programs at particular groups

what would explain that in this country over 50% of ALMP recipients fulfill special

target requirements. This, at the first sight positive, target practice- or rather practice

theory- embraces the most fragile groups of society that suffer from low or declining

employment rates reinforcing the reserves of unemployed. The opposite of Poland is

Estonia where serious assumption of not well build, inadequate to labor market needs

active labor market programs has been drawn. Already in 2001, Joint Assessment of

Employment Priorities has pointed out poor targeting of the active labor market

programs in this member state.

Overwhelming majority of Estonian recipients of active labor market measures

was a subject to training, meanwhile in Poland the greatest interest was given to

supported employment and rehabilitation and further to training and employment

incentives (table 3.1: 58). These most popular groups of measures with reference to

expenditures and number of participants have been investigated in dimension of

flexicurity approach, but how ALMP structure corresponds to mentioned labor market

imperfections such as growing unemployment rates among youth?

3.6.1. To meet labor market needs...

Analysis of employment, unemployment and activity indexes has allowed to

identify the most fragile areas of labor force (table 3.2). Target practice of implemented

active labor market policy measures ought to correspond with issues of concern since

only then it can neutralize some negative changes that have taken place within the space

of previous years.

66

Table 3.2. Labor force weaknesses by country

Concerns of 1998-2000 Concerns of 2007

Estonia

negative employment growth rates both for males and females,

decline of employment rates total and by gender,

decline of employment rate amongst youth total and by gender,

decline of employment rate amongst older group so aged 55-64 total and by gender,

growth of unemployment rates total and by gender,

growth of long-term unemployment rates total and by gender,

high youth unemployment rates, decline of activity rates,

low employment rates amongst youth part of society so under 25,

decline of employment rate for older males,

unemployment rates with regard to males higher than to females,

decrease of activation indexes amid prime-aged labor force and older males so between 55-64 years old,

Poland

negative employment growth rates both for males and females,

decline of employment rates total and by gender,

decline of employment rate amongst youth total and by gender,

decline of employment rate amongst older group so aged 55-64 total and by gender,

growth of unemployment rates total and by gender,

growth of long-term unemployment rates total and by gender.

decline of employment rates total and by gender,

low employment rates amongst youth so under 25,

low employment rates amongst older group so aged 55-64,

decline of employment rate amongst older males,

increase of unemployment rates for males,

unemployment rates among females still higher than among males,

growth of youth unemployment rate, growth of long-term unemployment

rate, already low, still declining activity rates

total, and by gender accompanied by a high pace of falling.

Source: author’s own observations based on Chapter 2 and Eurostat

From the beginning of 1998 until 2000, Estonia has been suffering from

declining activity indexes, falling employment rates in all their dimensions and growing

unemployment rates. Within the time span of next years, Estonian government and its

actors have undertaken numerous activities in order to fight these imperfections. Thanks

to training programs, most popular activation tool, Estonia has increased the level of

67

participation of women so at the end of 2006 the number of females amounted to 767

participants and exceeded number of male participants over twice. The interest of

women in this form of activation is especially visible when number of female to male

entrants and exits is compared. Moreover, it is evident that Estonia puts a great emphasis

on participation in that form of activation measure, since it dedicates to this tool high

expenditures in order to be able to meet the requirements and demand of participants.

According to numbers, it can be concluded that mature women are more interested in

improvement of their skills. At the same time employment security and functional

flexibility of that group may grow with higher intensity than of other groups such as

males. Despite that positive change, at least in female terms, Estonian social actors have

not given the same or even similar attention to needs and problems of youth males.

Although the number of male participants in general has grown, youth males and

females have noticed declining attendance in training measures. Nevertheless, here also

female recipients of assistance have outnumbered the male ones, what may bring to

similar conclusion as in prime-aged group, namely females are more eager to take up

activity and are more willing to take advantage of provided services. What is worth

highlighting is the fact that thanks to training over 58% of ALMP participants and

2.78% of unemployed can be reached and supported.

Second tool in the popularity rank of implemented activation measures in

Estonia are employment incentives that refer to 35.52% of ALMP participants and are

based in principle on employment subsidies to employers. The coverage rate for this

measure has grown from 1.3% to 1.69% of all unemployed. Despite still high share of

recipients, the role of employment incentives is constantly declining what reflects in

falling numbers of participants even when division into age and gender is not taken into

account. An effect of such approach is limitation of incentives to hire additional labor

force. Employment incentives may stimulate both the employability, employment or

even job security of a worker, however, if a decision-making factor to maintain the

current or to employ a new employee is subsidy only, than the efficiency of such tool

will be short-term and unstable.

The influence of next measure described as supported employment and

rehabilitation in form of working with support person is very modest, if not to say poor.

Together with direct job creation through community placements and start-up

incentives, embracing only 6.1% of ALMP participants and 0.29% of all unemployed

(table 3.3), these forms stand for marginal tools of assistance. Because of scarcity of

68

comparable data, these three active labor market measures will not be analyzed in case

of Estonia.

Analysis of target practice in most often-applied active labor market measures

suggests that this member state has focused its active labor market policy especially on

improvement of female access to the labor market. Comparison of weaknesses of

Estonian labor market from the beginning and from the end of research period allows

drawing conclusion that while years 1998-2000 were characterized by weakness in total

terms, year 2007 has been accomplished with negative trends in general amongst youth

and males. Even though many problems existing at the end of the nineties have

disappeared thanks to tools not related to ALMP, the improvement dedicated directly to

ALMP has taken place only in terms of women’s participation. Plausible positive

influence of active labor market measures on this particular group of labor force resulted

in growth of employment rates and decline of unemployment rates. Meanwhile other

groups have been neglected. Even though, it looks as if Estonia has managed to narrow

its labor market imperfections.

Table 3.3. Participants by type (as % of ALMP in 2006 and unemployed)

 

Estonia Polandof ALMP

participantsof unemployed of ALMP

participantsof unemployed

2005 2006 2005 2006

Training 58.38% 2.14% 2.78% 21.79% 3.32% 4.22%

Employment incentives 35.52% 1.30% 1.69% 21.60% 3.29% 4.18%

Supported employment and rehabilitation 3.08% 0.11% 0.15% 54.06% 8.23% 10.46%

Direct job creation 1.79% 0.07% 0.09% 1.80% 0.27% 0.35%

Start-up incentives 1.23% 0.04% 0.06% 0.74% 0.11% 0.14%

Source: author’s own calculations based on Eurostat

What about Poland? Decade ago, Polish labor market was facing similar

problems and challenges as Estonian labor market. However, while the list of

69

disturbances for Estonia has become shorter, the one for Poland neither has shortened

nor even has changed.

Diversified forms of supported employment and rehabilitation are directed to

54% of ALMP recipients what amounts to 10.46% of unemployed. The coverage rate is

relatively high and, what could be optimistic, it has grown in comparison to previous

investigated year. Nothing more misleading. In principal this measure is a field of male

dominance regardless age group (participation rate around 60% and more), although the

number of participants has grown either for men and women. The involvement of youth

starting from 2005 onwards was very low, running at 3.4% to 2.7% in 2006. This short

description suggests that participation increase of none of gender groups was in the

special area of interest of those responsible for implementation of this measure, but

instead there was attitude towards better absorption of disabled in the labor force. As it

has been already suggested, people with disabilities belong to discriminated groups in

social relations as well as in the labor market. In order to overcome this impasse

efficient actions have to be undertaken. However, if in this particular measure are

accumulated around 54% of ALMP recipients, who receive help in the amount of 425.8

million euros what stands for 43.61% of all disposable in fields of ALMP financial

resources responsible for enhancement of employability chances of disabled group of

society only, it would mean that those who are not disabled, in reality receive even

fewer support, since the access of people with psychological or psychical limitations to

other activation measures is not and it should never be restricted. Going more in depth

with these considerations with high probability such division of expenditures and choice

of target groups is more harmful than profitable for the labor market. One additional

assumption might be drawn here. Namely, greater distribution of finances or participants

between different arts of activation measures does not have to imply higher complexity

of influence of particular tools, since just efficient target practice can contribute to

success.

How these presumptions refer to other active labor market tools implemented in

Poland? First look at the division of employment incentives shows that the most popular

tools of this measure are wage subsidies for disabled, interventional jobs and activation

allowances. In the first two- occupied in majority by male recipients- growth has been

noticed, while in the latter- where females predominated- a decline. The most optimistic

conclusion brings youth participation. There has been noticeable growth in total and in

division into gender. Obviously, thanks to these tools employment, job as well as

70

income security may be developed. However, the main feature of employment

incentives in Poland appears to be lack of durability and high cost of implementation

and maintenance, that is why none of mentioned tools can be applied on a long-term

basis. It explains why active labor market policy’s makers should not focus only on such

forms of assistance.

Unfortunately, it is not happening, even though they should not focus and even

if- thanks to development of well-training practices- they could improve the character of

national active labor market policy so far targeted in principle at males, disabled and

security only. Training, as the third in the rank of popularity with share of ALMP

participants at the level of 21.79% and coverage rate of 4.22%, could contribute to

further development of employment security and additionally to higher functional

flexibility of recipients, so overall it could contribute to development of flexicurity as a

joint political strategy. Unfortunately, Poland not only declines the number of all

participants, but it minimizes the share of youth. The only positive perception provides

the fact that still training in Poland has significant amounts of recipients and number of

committed females is still higher than males.

***

Public Employment Services have relatively long history in Poland,

unfortunately, they are hardly perceived as advisory board adequate to solve problems

and reduce inconveniences in the labor market. Both PES of Estonia and Poland face

serious disturbances. They meet the shortage of properly qualified and experienced

official clerks and additionally introduce the limitations for private employment service

activity.

The Estonian legislation claims to protect especially disabled, long-term and

youth unemployed with help of individual job search plans. Poland focuses primarily on

improvement of public employment services and its decentralization. Polish labor

market cares the burden of high expenditures on passive support for unemployed and

retired. It spends almost ten times greater % of its GDP on passive supports than

Estonia, however, what less concerning, both shares are below average European level

of total spending on PLMP. Regarding the share of expenditures on active measures,

selected to analysis countries spend more than average EU level of total spending on

LMP and additionally Estonia more than Poland. It is noticeable that in Poland

dominates support in form of different subsidies that is why the employers are entitled to

the majority of transfers and the most often through the channel of supported

71

employment and rehabilitation. It is understandable also, that in this country approach

towards security dominates. On the contrary, Estonia focuses on service providers as

direct recipients of this form of help and on training as the type of measure, so it leans

more towards development of both aspects of flexicurity.

72

Popular conception

Tool

The research on popular conception is based primarily on Special

Eurobarometer No. 261. It covers the population of the respective nationalities of the

Member States of EU27. The groups consisted of residents of each Member State aged

15 years and over. The basic sample design applied in all states is a multi-stage, random

(probability) one. In each country, a number of sampling points was drawn with

probability proportional to population size (for a total coverage of the country) and to

population density (Source: Special Eurobarometer No. 261, Technical notes).

Perception of active labor market policy and flexicurity by Eurobarometer

The aim of conducted research was to assess the popular conception in Estonia

and in Poland, since efficient performance of active labor market policy and application

of valuable solutions towards flexicurity depend not only on the structure of active labor

market programs, but also on the perception of the programs and undertaken activities

by the population (Philips and Eamets 2007: 6). How European society perceives the

active labor market policy and flexicurity? According to Eurobarometer, majority

believes that training enhances job opportunities (88%) because it allows a person to

change job or occupation more easily (76%). Moreover, jobs for life are matter of the

past already for many respondents and that is why they should not be preserved (76%).

Instead, the contracts between employers and employees should be more flexible, what

will stimulate job creation (72%). Such answers suggest that Europeans agree on

flexicurity, even though maybe indirectly or unconsciously.

What is statement of investigated countries then? In opinion of 85% of Poles,

work contracts should become more flexible to encourage job creation. Estonians feel

similar about this, where 81% of respondents agree that flexibility of work contracts is a

requirement not a privilege. However, they do not feel that their retirees are too young.

73

Only 17% claim that it is indeed the problem. Polish society is more decisive when

saying that its citizens retire too fast (41%).

In both countries, majority declares to have changed employer from 1 to 5 times

(Poland 52%, Estonia 69%). Only very few have changed it more than 5 times. In

Poland, it is often assumed that a person who has variable working life and numerous

workplaces is unable to stable work and is disloyal to employer. Nevertheless, people

believe that ability to change job easily helps people find employment (EE 75%, PL

92%- similar as in Denmark). Varied work life reflects also in tenure of employment at a

workplace. The length of 1 to 5 years by one employer dominates in Estonia (33%) as

well as in Poland (24%). Moreover, longer employment periods are more common than

shorter ones (6-10 years: EE 18%, PL 13%; 11-20 years: EE 13%, PL 15%). Citizens of

both Estonia and Poland are strong connected with a workplace and employer

presumably as a result of former approach of jobs-for-life, but they equally strong agree

that life-time job is outdated (EE 73%, PL 74%).

According to many respondents, qualifications, experience and language skills

are the most important incentives to become employed (respectively: EE 48%, 46%,

47%, PL 61%, 41%, 47%). To improve skills and qualifications, training courses would

be very helpful, unfortunately, in last 12 months majority of respondents have not

participated in any training (EE 69%, PL 79%). Only around ¼ has taken advantage of

that form of activation measure. The more optimistic is the fact that citizens are aware

that training could help them to keep the job (EE 95%, PL 83%). Disadvantage lies

probably in approach that people claim to be enough skilled and enough educated to be

able to retain the current job or to compete in the labor market. Poles indicate also other

reason, namely, inability to cover the expenses of the course (PL 52%, while EE 33%),

while Estonians add to this lack of time because of family responsibilities (EE 29%, PL

21%). It suggests that in both countries the financial support from external sources and

the level of combination security are still too low. Low is also the income provided by

social insurance in case of unemployment. Majority of Poles believe that welfare system

will compensate only less than 50% of current income (22%: 31-50% of current income,

28%: less than 30% of current income). Meanwhile, Estonians think of 51-70% (13%)

or less than 30% of compensated income (13%).

What could be done to make people work longer and more eager? In opinion of

Estonians, the discouraging of early retirement is not very efficient tool or its influence

is not very clear. Greater and more evident influence have: the increase of the gap

74

between work income and income of unemployed or pensioners (EE 57%, PL 65%),

support for the people who want to start their own business (EE 87%, PL 89%), regular

training for people at work (EE 93%, PL 86%) or increase of care facilities for

dependents such as children and elderly persons. Regarding the equality between men

and women, it is also often indicated element supporting labor market improvement in

both countries (EE 78%, PL 79%).

If taken into account the respondent’s statements on training, changes of

employment and flexible work contracts, analysis of results indicates that great majority

of Europeans indirectly supports flexicurity (between 72% and 88%). If consider

members states separately, the countries selected to analysis reflect even stronger

feelings about flexicurity phenomenon: in Poland between 74% and 92% and in Estonia

between 73% and 93%. Poles the most agree that ability to change job easily helps

people find work, while Estonians believe that regular training enhances the chances of

employment (93%). Despite such pro-flexicurity approach, Estonian as well as Polish

citizens do not feel as if they work too short period of time.

75

Conclusions and recommendations

The active labor market policy may contribute to development of flexicurity.

Depending on the extent of this influence, ALMP may be involved in efficient or in

inefficient way. If there is adequate match between labor supply and labor demand, then

the ALMP input to development of flexicurity will be significant. If it is significant, than

the labor market performs better, since workforce skills response to labor market’s

needs. To make ALMP work well, the policy makers have to target policy more

accurately at citizens in real need. However, if such approach does not exist, than there

is no flexibility-security balance in new organization of work either. It is especially

difficult in countries, where citizens were given strong feeling of security thanks to

workplaces in centrally governed enterprises. That is why the whole European

Community ought to work towards joint strategy of development of well-skilled and

adaptable labor force, since then it will be more competitive on the global arena. As it

has been already assumed, active labor market policy may contribute to creation of

flexibility and security. Nevertheless, the progress of creation depends on a country, the

size of expenditures, the type of target groups etc. The weakness of labor market reveals

in incompatibility between labor supply and labor demand, so in unemployment. The

ALMP’s primary goal is to limit this weakness or at least to moderate it. It is country’s

obligation to adjust the policy to existing and to forthcoming difficulties. Indeed, active

labor market policy may affect the labor demand, so employers’ preferences, with help

of measures influencing prices of human capital and labor. Similarly, it can improve the

labor supply through alternative sources of financial support and labor market activity.

If ALMP increases the efficiency of job search, then it will touch both the labor

demand and labor supply. At the same time, it will decline the disutility of being

unemployed. More efficient job search means better match between employers and job

seekers. In order to reach it, training measures are of great importance. In other words,

the more ALMP participants, the lower amount of unemployed. However, what has to

be highlighted is the fact, that number of unemployed may decline with help of ALMP

either in short-term or in long-term perspective, either temporarily or permanently. It

would allow drawing assumption that number of participants itself is not relevant from

76

the point of efficiency, as the examples of Germany or Poland already show. Of course,

it is necessary condition of labor market improvement, however, not the sufficient one.

There are different roots towards flexicurity, but the measures have to be adequate to

labor market imperfections and targeted at groups in real need. Those in real need are

marginalized groups of women, disabled or older people. The latter are especially

sensitive to variability of labor market, especially that the existing labor force should be

active as long as it is possible. Unfortunately instead, Central Eastern European

Countries have one of the youngest retirees in Europe.

The application of ALMP does not contribute to flexicurity and labor market

improvement automatically. It may affect flexibility and security separately, but it will

not release full flexicurity then, since flexibility and security are meant to be compatible.

Such joint existence is important precondition to reach balanced flexicurity nexus. As a

result, a country that is suffering from scarcity of security, should work on improvement

of this field, while maintaining the already gained flexibility. Meanwhile, a country with

rigid labor market should introduce flexibility to its grounds and try to preserve the

existing security. Despite these recommendations, majority of the Central Eastern

European Countries have decided to focus on enhancement of employment security at

the price of declining job security and lower flexibility in different dimensions. That is

why countries belonging to this group are on different stages of advance of flexicurity

development. When Baltic States are equipped with ‘relative flexibility-lower security’

set, the other NMS are in opposite situation.

Thanks to well-built active labor market policy, country may reach not only full

flexicurity but also significant labor market improvement, what shall be in the interest of

all EU member states. Partially aware, partially unaware, the governments of Estonia

and Poland support the implementation and contribute to development of flexicurity

through active labor market policy and its measures. Over 70% of respondents from

both countries say that life-time job is a matter of the past and over 80% claims that

work contracts should become more flexible to encourage job creation. Nevertheless,

there are numerous differences in approach of both countries to the problem:

how can active labor market policy contribute to development of flexicurity

in Central Eastern European Countries.

Indeed, active labor market policy in both countries contributes to introduction of

flexicurity to the national grounds, however it can either contribute significantly or

moderately, it can expand both flexibility and security or it can focus only on one

77

dimension, it can apply efficient solutions or not. Finally, thanks to development of

flexicurity and adjustment to the labor market imperfections it can improve the structure

of labor market or not, so it can either limit the difficulties or not.

As the statistic indexes of labor market indicate, Estonia is in far better condition

than Poland. In theory the active labor market policy is suppose to bring country to

better labor market performance and lower unemployment. If Poland dedicates to active

labor market policy higher expenditures than Estonia and it covers over 19% of

unemployed with activation measures, how it is possible that Poland suffers from high

unemployment rates and numerous labor market imperfections, meanwhile Estonia

presents good labor market condition, even though it minimizes active labor market

policy spending? Such difference indicates that expenditures on active labor market

policy can define either labor market success or failure and it does not depend on their

level. ALMP gives a great opportunity to develop labor market and labor force with

respect to so desired flexicurity. However, the application and structure of ALMP have

to be adequate to reality of a country, it ought to correspond with EU recommendations

and it should not be contradicted but cooperative.

Even though all the assumptions and statements of governments and scientists

are relevant, they will not mean anything until they meet with general acceptance of

society. Since flexicurity is a new concept in Poland and Estonia, it can be especially

difficult to convince society of the needed changes that can contribute to flexicurity

development. That is why some solutions (such as introduction of flexible forms of

employment, part-time or temporary work or lengthening of retirement age in order to

limit the burden of earlier retirement and expand activity rates) might be unacceptable

within society.

The problem of Poland lies in a fact that very few groups are interested in higher

labor market efficiency, preserving the fast run toward earlier retirement so toward

inactivity. Since passive supports are relatively developed there, the temptation to

become inactive and replace work income with unemployment benefits or pension is

very strong. Even though majority of people are aware of the fact that growing

expenditures on passive supports are immense burden for those who are already

working, they are not very eager to believe that discouraging early retirement can

significantly contribute to work longer (42%). However, equality between men and

women in eyes of 79% of Polish respondents has relevant influence on getting more

78

people into work or stay at work longer. Only about 41% is aware that labor force in

Poland retires too early, while 47% is against this assumption.

After the end of Soviet age, in both countries the feeling of insecurity was

especially noticeable, because both countries were not prepared to this shift. There were

no legal backgrounds, no solutions to apply, no institutions and no social dialogue. How

looks the situation nowadays? The institutions such as employment offices in Poland are

more targeted toward registration of unemployed instead of their activation even though

official statements say something else.

Poland has been evaluated as a country where relative security is accompanied

by low flexibility. Indeed scientists point out the rigidity as the greatest obstacle on the

way to flexicurity and labor market improvement. It could be presumed that if Poland

suffers from scarcity of flexibility, it should design its ALMP in such way to gain

flexibility instead of security, or to develop both. Meanwhile, Poland has done

something opposite. Through the application of measures in form of supported

employment, rehabilitation and employment incentives, it has contributed mainly to

development of security (with the highest probability of employment security).

Unfortunately, these measures stand for immense burden for a country and they should

not be applied on a long-term basis. When taking into account that they gather the

majority of available financial resources and majority of ALMP recipients, it becomes

evident, how ALMP contributes there to development of flexicurity and labor market

improvement. It is hard to enhance flexicurity if the ALMP is focused on short-term

tools that only artificially maintain employability thanks to numerous subsidies. These

tools in majority focus on disabled. This is good, since as marginalized group they ought

to be given support. However, measures targeted at this group are in majority and their

share is growing with every year. When we compare it with declining numbers of

training- that supports both flexibility and security since it upgrades skills and makes

labor force more attractive to employer- than it is possible to see why ALMP does not

work there properly. Being focused on one dimension of flexicurity, instead of joint

approach and targeted in principle at one group of recipients who stand for around 70%

of all unemployed activated in ALMP, there is only modest space left for application of

support to other groups. According to official, so government or legal, declarations the

goal of ALMP is: to refine an individual approach to the entity, since it may assure

better support for existing labor force and unemployed; to make work employment

service more efficiently and to work on public-private cooperation in fields of

79

employment services. When compare it with reality, individual approach maybe exists

but only on paper. Has the quality of employment service improved? In people’s minds,

it is still not well perceived. Moreover, what about public-private cooperation? How it is

suppose work efficiently, if Polish legislators seem to have completely forgotten about

this aspect and have neglected outsourcing. Declared target goals also differ from this

what reflects the ALMP structure. Poland still improves different arts of security at the

price of declining flexibility, although it should do quite the reverse. Despite numerous

problems such as growing unemployment, Poland has not decided to focus on any of

gender groups. Still male predominated as it was in 1998 and youth were in minority as

before.

How can ALMP contribute in such circumstances to development of flexicurity

and labor market improvement? ALMP can contribute to positive and significant extent,

nevertheless, it depends on a country. In case of Poland ALMP has contributed rather

moderately to flexicurity development in overall terms since it explores only security

dimension. What in addition is not very well approach since Poland has already

relatively developed security. That is why direction of changes is inadequate to state of

affairs of Poland, which is not following the path pointed by EU and scientists.

Nevertheless, majority of citizens believe that participation in ALMP increases their

possibility to become employed. The popularity of active measures among society

shows that indeed they would like to improve their qualification skills to be more

adjustable to labor market needs and explore their entrepreneurial spirit. Regarding labor

market improvement: if there is no flexicurity it is hard to work on labor market

imperfections since this approach should be the core of future organization of work and

improve labor market performance. Poland has been facing imperfections of the labor

market; unfortunately, ALMP has not been targeted at other groups of concern with

similar attention as e.g. disabled. Concerns of 2007 cover with these of 1998-2000, so

indeed the situation has not changed significantly. This problem has its roots also in

society’s approach and lack of willingness to work. Meanwhile, it can be also a result of

inefficient employment service interested mainly in registration of unemployed instead

of their activation. Poland has built its active labor market policy basing primarily on

supported employment, rehabilitation and employment incentives. These tools to high

extent increase employment and job security and they stand for a kind of incentive to

retain current or hire a new worker, however, they imply immense burden for the

economy. Policy conducted in order to provide constant security is a heritage of the past,

80

when people had not only a right to work but also an obligation. They were always

employed, so they did not feel any fear for scarcity of workplaces. In the end, they had

to face the dismissals, company’s closures and higher requirements of employers.

What picture presents Estonia? It is a country, which is really doing well. Estonian

example allows understanding how positively ALMP can contribute to flexicurity

development and labor market improvement. Estonia is said to be relatively flexible but

insecure. Since flexibility will come about anyway, security requires a lot of work.

According to this statement, Estonia ought to be from the beginning on the weaker

position than Poland, since it should work on enhancement of security when limiting its

focus on flexibility. And what has done Estonia? It has introduced the ALMP consisting

primarily of training that assures development of both flexibility and security. For 93%

of Estonians the regular training for people at work is a determinant of getting more

people into work or staying at work longer, while 95% of respondents are aware that

training may significantly help to keep the job. In addition, Estonia has focused on the

goal of higher participation of females in labor market and has limited the share of these

measures that has been perceived as inefficient such as wage or employment subsidies.

Moreover, Estonia cares lower burden of expenditures on passive supports. Presumably,

the only weakness would be that in this member state just 4.76% of all unemployed

participate in active labor market programs. It is the weakness in terms of EU

requirement since it demands involvement rate at the level of 20%. Nevertheless, high

participation does not mean better quality or higher efficiency as Polish case has already

shown. Despite being aware of the fact that high number of unemployed or pension

dependants can hinder even well functioning economy, the Estonian society does not

agree either that its citizens retire too early (75%) or that discouraging early retirement

is efficient tool in getting more people into work (53%). Nevertheless, if the gap

between work income and unemployment benefit is higher or if care facilities for

dependents are more available, than it will be strong incentive to encourage people to

work.

Estonia prefers to develop both flexibility, in its functional dimension, and

security- in employment terms. If this process proceeds and if undertaken activities:

contribute to better labor market performance,

help to find balance between labor market demand and supply so to reach

better job-match,

decline the disutility from being unemployed,

81

increase the commitment of unemployed to enter or re-join the labor market,

it means they contribute to shift from exclusion, through marginality, to inclusion. It is a

fact that performance of labor market has improved. The area of concern has

significantly shrunken. Thanks to high participation of females in ALMP, women’s low

employment or activity rates are not on the list of Estonian weaknesses anymore.

Training has contributed to find a balance between labor demand (because now

employers are more able to shift a well-skilled worker from one occupation to another)

and labor supply (since employees have currently better qualifications, thanks to training

they can change them and adjust to demand of the market). Estonian citizens are aware

of the advantages the training may bring that is why it is the most often attended

activation measure there. Employment incentives are also desired, but less. It is

noticeable that since 1998, the unemployment has declined and activity rate has

increased. With help of active labor market policy a country affects the flexibility of its

labor market. It has been already confirmed in numerous research on the subject that

active labor market policy evokes decline of unemployment rates, as a result of these

assumptions Estonia has included the active labor market policy in National Action Plan

(NAP) since, if followed, it may help to face and fight the labor market disturbances. To

summarize, although Estonia dedicates smaller amounts to its labor market policy than

Poland, it ought to be highlighted that the structure of its expenditures is better and

direction of further changes can been perceived as highly promising.

82

Annex 1

Active labor market measures by country

83

Training20

Over 58% of ALMP participants in Estonia are recipients of numerous training

measures. Additionally, this Baltic State is constantly increasing its expenditures on that

form of support. In contrast to Estonia, Poland has declined amount of people attending

training programs from 112.376 participants in 2005 to 98.826 participants in 2006 and

here the participation was at the level of 21.79% so over 2.6 times lower than in Estonia.

Nevertheless, the coverage rates in both countries have grown from 2.14% to 2.78% of

all unemployed in Estonia and from 3.32% to 4.22% of all unemployed in Poland.

The dominance of women is evident in case of training measures in Estonia. In

2006, not only the level of participation has increased but also number of women taking

part in training has exceeded amount of men over twice: stock- respectively 767 women

and 372 men; entrants- respectively 6.888 women and 3.280 men; exits- respectively

7.048 women and 3.386 men. Females predominated in fields of labor market training,

coaching for working life and work practice so in all options of training measures.

Although in Polish case the dominance of women in different arts of training was also

visible (participation of women was higher than men: stock: respectively 70.869 women

and 26.853 men, entrants- respectively 226.922 women and 150.327 men, exits-

respectively 210.908 women and 146.033 men), this country has not managed to prevent

decline of participation of both sexes in overall terms. The males as recipients of support

were in majority in training and vocational training organized by local (poviat) labor

offices or by employers, while females in apprenticeship, vocational training in the

workplace, scholarship for continuing education and refund of costs of specialist

training for workers threatened by lay-offs for reasons relating to place of work.

Training measures have also less and less young participants. Both in Estonia

and in Poland this group has been given less interest with every year (Estonia years

2006/2005 stock’s decline from 227 to 171, what referred to both sexes; Poland years

2006/2005 decline from 78.190 to 72.534, what was mainly at the expense of male

recipients’ reduction).

20 Sections from Training to Start-up incentives are based on Eurostat, LFS statistics and own calculations. Data for Job rotation and job sharing- not available.

84

Employment incentives

Estonia helps its citizens to become employed thanks to application of: programs

providing adaptation of premises, special aid and equipment or employment subsidies to

employer. Polish labor market institutions have focused, first, on wage subsidies for

disabled workers, interventional jobs and activation allowances.

Division into males and females has shown that distribution of participants in

2006 in Estonia was not equal (259 men and 434 women), but both numbers have been

declining since 2003. In Poland, women outnumbered interventional jobs and adaptation

of the workplace for disabled persons, while men the activation allowances and wage

subsidies for disabled workers. Additionally, there was increase of participants in the

latter manner in both sexes, what suggests the growing support for disabled group of

society.

Since Estonian employment incentives are focused, first of all, on employment

subsidies dedicated to employers, it is only this measure that can be taken into account,

when considering the support for young unemployed. A decline regarding both sexes

has been noticed comparing data from 2003-2006 period (respectively: from 164 to 135

for total, from 83 to 68 for females and from 81 to 67 for males). Structure of Polish

employment incentives amongst youth provides much more optimistic picture. In 2006

majority of indexes have increased in comparison to preceding year, e.g. stock growth

from 10.978 to 11.767 and total entrants’ growth from 28.189 to 32.946. Regarding

people under 25, young men predominated as recipients of the wage subsidies for

disabled, while young women as the most interested in interventional jobs.

Supported employment and rehabilitation

Entrance-exit statistics provide only one category of this measure for Estonia,

namely speaking the working with support person, what in 2006 referred to 60

participants, out of which 31 were men and 29 women. Poland has given more

diversified structure of this tool. Amidst the forms of supported employment and

rehabilitation in 2006 one could identify: wage subsidies for disabled workers in

sheltered work enterprises (SWE), in form of which help have received 228.690

persons; support for employers running SWE (co-financing up to 50% of interest due on

85

bank loans) what in 2006 referred to 14.454 persons; reimbursement of costs of creating

and operating the occupational activity enterprises (assistance in this form for 1.409

persons); vacancies in the public service for people with disabilities (assistance in this

form for 403 persons) and finally the reimbursement of cost of remuneration of

employees assisting the disabled workers (assistance in that form dedicated to 224

persons).

Because of scarcity of more detailed data for Estonia, except those already

presented above, this passage will focus mainly on situation of Polish unemployed. In

both genders growth of wage subsidies for disabled was noticed, moreover number of

male participants was almost 50% higher than female ones (137.166 men in comparison

to 91.524 women). However, more women were provided with reimbursement of cost of

remuneration of employees assisting the disabled workers (135 women in comparison to

89 men).

Regarding youth unemployed in Estonia, they amounted to 18.3% of all

participants in 2006, out of which 36% were men and 64% women. Data for Poland are

available only for youth in dimension of wage subsidies for disabled workers in SWE.

Here the share of gender has not changed since 2005 and remained in the proportion

males to females: 66% to 34%. Nevertheless, the relation of youth participants in that

type of measure amounted only to 3.4% of all participants, what additionally has

declined in 2006 to the level of 2.7%.

Direct job creation

Between 2003 and 2006, Estonian direct job creation for both sexes concentrated

on community placements, where in mentioned period stability has been noticed at the

annual average level of around 50 participants. In 2006, it was 35 people; out of them

64% were men and 36% women. Statistics for Poland reflect first and foremost the

division into two instruments of direct job creation, namely: socially useful work, where

in 2006 there were 4.898 participants (the proportion: 55% males and 45% females) and

public works with 3.283 persons engaged in this form of activation, where there were

42% males and 58% females.

Here the situation of youth presents more dramatically than by other activation

measures. Since 2003 in Estonia the participation of people under 25 has been declining

and, what awakes a lot of concern, its share in all participants in 2005-2006 was none (4

86

entrants at 253 entrants overall in 2006, the stock since 2005 at zero level). Similar

negative tendency has been observed in Poland in both genders: 571 youth at 8.181

overall in 2006- what gave 6.98%- out of which 261 in public works (55% males and

45% females) and 310 in socially useful works (42% males and 58% females).

Start-up incentives

In order to encourage the entrepreneurial spirit among unemployed, numerous

initiatives are undertaken. On the one hand, an idea to run own business might be the

result of particular person’s real but unconditional interest. On the other hand, however,

an unemployed person might be forced to self-employment by circumstances, since

‘self-employment’ is often a requirement to become ‘an employed’ in reality. The real

‘employer’ then pays no insurance, no personal costs, no social contributions etc.

Estonia’s start-up incentives have a form of employment subsidy dedicated to

unemployed who wish to start a business. The number of recipients in this country has

declined from 28 in 2005 to 24 in 2006, and additionally the share of males has

weakened (downward tendency: males from 10 to 9 and females from 18 to 16). Similar

assistance to Estonia offers Poland. One can receive support within start-up incentives

through grants for the unemployed who are willing to start the economic activity (in

2006: 2.912 persons out of them 1.645 males and 1.267 females) and support for those

starting or already running a business (less popular- 466 persons out of them 332 males

and 134 females). However, while in Estonia a decrease was observed in area of this

particular tool, Poland has experienced growth both total and by gender.

What about age groups? In 2003 young Estonians accounted for 6.9% of total

entrants of start-up incentives, three years later it was only 5.6% (16 at 288 overall, out

of them 56% males and 44% females), while the share in the stock accounted for 8.3%.

Not only share but also real amounts have declined both total and by gender (decline of

male from 13 to 9 and female entrants from 12 to 7). The availability of data regarding

youth in Poland allows making a comparison only in fields of grants for the unemployed

who decide to start economic activity. With reference to general data on this measure

from 2006, youth amounted to 21.6% of entrants, so there were 7.536 persons (4.476

men and 3.060 women). Amount of youth entrants increases regardless of gender, what

is quite inspiring. Unfortunately, this might be a result of either better match to labor

market needs or growing YUR.

87

List of Abbreviations

ALMP active labor market policy

CEEC Central Eastern European Countries

Dz. U. ministerial official periodical containing introduced laws/bills,

available to the public (pol. Dziennik Ustaw)

EC European Commission

EMU Economic and Monetary Union

EPES European Public Employment Services

EPL employment protection legislation

ER employment rate

ESF European Social Fund

ESM European Social Model

EU European Union

EURES European Employment Services

GDP gross domestic product

ILO International Labor Office

LMI labor market information

LMP labor market policy

LMS labor market services

LTUR long-term unemployment rate

MPiPS Polish Ministry of Labor and Social Affairs (pol. Ministerstwo Pracy i Polityki Społecznej)

MS Member States (of EU)

NAP national action plans

NMS New Member States (of EU)

OCA optimal currency area

OECD Organization for Economic Cooperation and Development

PES public employment services

PLMP passive labor market policy

PREA private employment agencies

R&D research&development

88

SWE sheltered work enterprises

UB unemployment benefits

UKIE Urząd Komitetu Integracji Europejskiej

UR unemployment rate

YUR youth unemployment rate

89

List of Figures

Figure 1.1. Inclusion vs. exclusion………………………………….……..…………18

Figure 1.2. Flexicurity model - the golden triangle……………………...…………..19

Figure 1.3. Equilibrium in the labor market……………………………………..……..26

Figure 1.4. ALMP influence on labor market equilibrium…………………………..28

Figure 2.1. Estonia- growth rate of real GDP per inhabitant and total employment

growth, 1996-2007 (%)………………………………………………………………..32

Figure 2.2. Poland- growth rate of real GDP per inhabitant and total employment

growth, 1996-2007 (%)………………………………………………………………..32

Figure 2.3. Employment growth by gender in Estonia and Poland, 1999-2007 (%)…..33

Figure 2.4. Annual average employment rates by age and gender, 1998-2007 (%)…34

Figure 2.5. Unemployment rates- total, 1998-2007 (%)…………………………..…37

Figure 2.6. Unemployment rates by gender, 1998-2007 (%)……………………...…38

Figure 2.7. Activity rates, aged 15-64, total, 1998-2007 (%)………………………..39

Figure 2.8. Total expenditures on labor market policy (% of GDP)………………...…41

Figure 2.9. Expenditures on LMP by type of action (% of GDP)………………….…..43

Figure 2.10. Relation of total public expenditures on LMP (as % of GDP) to

unemployment rate- unemployed persons aged 15-64 as a share of the total active

population (2005)……………………………………………………..………………44

Figure 2.11. Estonia in the flexicure dimension.............................................................48

Figure 3.1. Public expenditure on labor market policy measures, 2006 (% of GDP)…52

Figure 3.2. Labor market policy expenditure in active measures by type, 2006 (million

EUR)………………………………………………………………………………….59

Figure 3.3. Flexicurity configurations by country..........................................................64

90

List of Tables

Table 1.1. Flexibility-security matrix based on Atkinson’s model.................................14

Table 1.2. ALMP in Wilthagen’s matrix.........................................................................20

Table 2.1. Employment rate, total and by gender, 1998 and 2007 (%)………… ……..34

Table 2.2. Unemployment rate- total, by gender, youth, long-term, 1998 and 2007 (%)

………………………………………………………………………………………36

Table 3.1. Active labor market measures by participants, 2006………….……...…….58

Table 3.2. Labor force weaknesses by country...............................................................67

Table 3.3. Participants by type (as % of ALMP in 2006 and unemployed)....................69

91

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