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Employment and Social Developments in Europe 2014
Chart 29: Employment impacts of policy mix support to young people in Slovakia
Simulation with DG EMPL’s Labour Market Model: Policy Mix of firm subsidy for the training of young workers
(15–24 years), combined with tertiary education scholarships for tertiary education (20–24 years), Slovakia.
Magnitude: 0.05 % of GDP each — employment effect
1 0.45
0.8 0.35
0.6 0.25
% %
0.4 0.15
0.2 0.05
0 -0.05
All Young All Low-skilled Medium-skilled High-skilled
Source: Own calculations based on DG EMPL’s Labour Market Model.
4.3. Using HC: Labour subsidy simulated for Slovakia above, to the training-example for Slovakia: with
demand incentives to youth we assume that the measure is financed half of the 0.1 % of GDP devoted to low-
employment — the case by an increase in the VAT rate. This is in ering labour costs — the other half being
of Italy order to reflect more popular strategies of spent on support for tertiary education, all
shifting the tax-burden away from labour funded through higher VAT. In fact, Italy’s
As hysteresis is seen to be particularly towards consumption. That is, we assume share of young people aged 30 to 34 years
harmful for those who become unemployed tax-reform away from labour towards VAT. holding tertiary degrees is the lowest in
early on in their working lives, there are the EU: only 22.4 % — way below the EU
arguments in favour of including measures As the subsidy is restricted to young work- average (some 38 %) and the country-
that strongly encourage employers to hire ers, employment gains concentrate almost specific target for the year 2020 (26 %).
young people. exclusively on the 15 to 24 years age Hence, further efforts to increase educa-
group. Compared to the situation where tion attainment seem necessary, despite
Previous analyses ( 139 ) revealed that labour- the wage-cost subsidy is not restricted to a recent progress.
cost oriented policies have a strong poten- specific age group, the overall employment
tial to generate pronounced employment impact is substantial because the given The long-term effects of such a policy-mix
gains, particularly among vulnerable groups subsidy has a stronger relative impact are displayed in Chart 32. Total employ -
of workers, such as low-skilled, young or where wages are low, as is the case for ment shifts quite significantly, by 0.12 %,
low-income workers. However, these poli - young workers. As the initial stimulus is compared to the reference scenario — the
cies come at a cost in so far as they pro- clearly demand-driven (decreasing labour increase being twice as strong as in the
vide demand and supply-side incentives costs), the strong employment effect is in case of only reducing labour costs. On the
for stronger low-skilled employment at the fact the endogenous result of higher labour other hand, looking at young workers, their
expense of higher skill groups, which could market participation (and lower unemploy - employment gains are less pronounced
lead to lower investment and lower eco- ment) within the group of young people. than in the scenario where all resources
nomic growth in the long run. This is because young workers’ wages shift are devoted to reducing labour costs. This
pronouncedly, following stronger demand. result appears logical, only half of the
Italy is a country where young people face 0.1 % of GDP is now devoted to reducing
severe labour market problems as their The measure’s side effects are revealed young workers’ labour costs, whereas total
unemployment rate reaches 40 %. In the by Charts 30 and 31. Concentrating labour employment takes advantage of a chang-
2014 Country Specific Recommendations, cost subsidies to young people will change ing educational mix when young people are
Italy is urged to take further steps ‘in line with the educational composition towards the subsidised into tertiary education (where
the objectives of a youth guarantee’. Policy low-skilled — an effect already seen in the they are assumed not to be employed).
that addresses the low youth labour market previous section on the training subsidy.
140
participation appears to be ‘limited’ ( ). As higher wages make employment more The education-subsidy is a strong incen -
attractive to young people, more of them tive to take up tertiary education, so the
Chart 30 reproduces the long-term result decide not to invest in higher education number of highly skilled workers increases
of a 0.1 %-of-GDP subsidy to lower young but take up employment — remaining markedly, whereas medium-skilled
workers’ labour cost by lowering employ- medium- or low-educated. The changing employment declines. In so far as there is
ers’ social contributions for the case educational composition would drag down currently a shortage of skilled labour rela-
of Italy ( 141 ). In contrast to the training investment (and hence GDP), following the tive to supply, and a surplus of unskilled
capital-skills-complementarity. labour relative to supply, this would boost
( ) European Commission (2012b), section 4 total labour productivity (despite strong
139
and European Commission (2012a). To avoid this side-effect on the skills-com - employment gains), as the additional com -
140
( ) European Commission (2014c), paragraph 13.
( ) European Commission (2012b), especially position, the Italian government may decide plementary physical investment triggers
141
p. 277–279. to split the subsidy in two parts, similarly faster GDP growth.
128
Chart 29: Employment impacts of policy mix support to young people in Slovakia
Simulation with DG EMPL’s Labour Market Model: Policy Mix of firm subsidy for the training of young workers
(15–24 years), combined with tertiary education scholarships for tertiary education (20–24 years), Slovakia.
Magnitude: 0.05 % of GDP each — employment effect
1 0.45
0.8 0.35
0.6 0.25
% %
0.4 0.15
0.2 0.05
0 -0.05
All Young All Low-skilled Medium-skilled High-skilled
Source: Own calculations based on DG EMPL’s Labour Market Model.
4.3. Using HC: Labour subsidy simulated for Slovakia above, to the training-example for Slovakia: with
demand incentives to youth we assume that the measure is financed half of the 0.1 % of GDP devoted to low-
employment — the case by an increase in the VAT rate. This is in ering labour costs — the other half being
of Italy order to reflect more popular strategies of spent on support for tertiary education, all
shifting the tax-burden away from labour funded through higher VAT. In fact, Italy’s
As hysteresis is seen to be particularly towards consumption. That is, we assume share of young people aged 30 to 34 years
harmful for those who become unemployed tax-reform away from labour towards VAT. holding tertiary degrees is the lowest in
early on in their working lives, there are the EU: only 22.4 % — way below the EU
arguments in favour of including measures As the subsidy is restricted to young work- average (some 38 %) and the country-
that strongly encourage employers to hire ers, employment gains concentrate almost specific target for the year 2020 (26 %).
young people. exclusively on the 15 to 24 years age Hence, further efforts to increase educa-
group. Compared to the situation where tion attainment seem necessary, despite
Previous analyses ( 139 ) revealed that labour- the wage-cost subsidy is not restricted to a recent progress.
cost oriented policies have a strong poten- specific age group, the overall employment
tial to generate pronounced employment impact is substantial because the given The long-term effects of such a policy-mix
gains, particularly among vulnerable groups subsidy has a stronger relative impact are displayed in Chart 32. Total employ -
of workers, such as low-skilled, young or where wages are low, as is the case for ment shifts quite significantly, by 0.12 %,
low-income workers. However, these poli - young workers. As the initial stimulus is compared to the reference scenario — the
cies come at a cost in so far as they pro- clearly demand-driven (decreasing labour increase being twice as strong as in the
vide demand and supply-side incentives costs), the strong employment effect is in case of only reducing labour costs. On the
for stronger low-skilled employment at the fact the endogenous result of higher labour other hand, looking at young workers, their
expense of higher skill groups, which could market participation (and lower unemploy - employment gains are less pronounced
lead to lower investment and lower eco- ment) within the group of young people. than in the scenario where all resources
nomic growth in the long run. This is because young workers’ wages shift are devoted to reducing labour costs. This
pronouncedly, following stronger demand. result appears logical, only half of the
Italy is a country where young people face 0.1 % of GDP is now devoted to reducing
severe labour market problems as their The measure’s side effects are revealed young workers’ labour costs, whereas total
unemployment rate reaches 40 %. In the by Charts 30 and 31. Concentrating labour employment takes advantage of a chang-
2014 Country Specific Recommendations, cost subsidies to young people will change ing educational mix when young people are
Italy is urged to take further steps ‘in line with the educational composition towards the subsidised into tertiary education (where
the objectives of a youth guarantee’. Policy low-skilled — an effect already seen in the they are assumed not to be employed).
that addresses the low youth labour market previous section on the training subsidy.
140
participation appears to be ‘limited’ ( ). As higher wages make employment more The education-subsidy is a strong incen -
attractive to young people, more of them tive to take up tertiary education, so the
Chart 30 reproduces the long-term result decide not to invest in higher education number of highly skilled workers increases
of a 0.1 %-of-GDP subsidy to lower young but take up employment — remaining markedly, whereas medium-skilled
workers’ labour cost by lowering employ- medium- or low-educated. The changing employment declines. In so far as there is
ers’ social contributions for the case educational composition would drag down currently a shortage of skilled labour rela-
of Italy ( 141 ). In contrast to the training investment (and hence GDP), following the tive to supply, and a surplus of unskilled
capital-skills-complementarity. labour relative to supply, this would boost
( ) European Commission (2012b), section 4 total labour productivity (despite strong
139
and European Commission (2012a). To avoid this side-effect on the skills-com - employment gains), as the additional com -
140
( ) European Commission (2014c), paragraph 13.
( ) European Commission (2012b), especially position, the Italian government may decide plementary physical investment triggers
141
p. 277–279. to split the subsidy in two parts, similarly faster GDP growth.
128
