Since the rapid rise in unemployment in Sweden to a record level at the start of 1990, the government has implemented labour market policy measures on a very large scale, offering places to a huge number of participants and requiring very considerable resources. On average, between 1993 and 1997, more than 200,000 people participated annually in a cyclically induced measure. In the 1998 budget, the resources earmarked for these measures amounted to around SEK 20 billion.
Can active labour market policy be pursued at such a level without leading to undesirable side-effects in the economy? One such undesirable effect is displacement, i.e. where labour market policy measures take the place of regular jobs.
A distinction can be made between direct and indirect displacement effects. A direct displacement effect occurs when an employer receives a grant with the help of which he recruits labour that he would also have recruited without the grant. Indirect displacement effects are more complex. They occur when labour market policy measures influence competitive behaviour or wage formation.
In Sweden, the Public Employment Service is obliged to evaluate the risk of displacement before filling a vacancy in the context of a policy measure. This is usually done by seeking the advice of the branch organisation responsible for the job in question. One rule of thumb is that for every five regular employees, not more than one person should be recruited under a policy measure with the same employer. In practice, however, the employment office frequently experiences problems in acquiring the required information, and the difficult current labour market situation and the significant volume of policy measures mean that participation is more likely to be granted than rejected.
The Public Employment Service has conducted a study commissioned by the Swedish government in order to determine the extent to which various labour market policy measures are associated with displacement effects. The study was conducted in the form of two mutually independent surveys, one targeted at employees, the other at employers. Around 11,000 employers and individuals who had participated in various measures were covered by the survey. Among other questions, both groups were asked what would have happened to the tasks performed by participants in the measure if such a measure had not being implemented, that is, if someone else had been recruited instead.
The results of the study suggest that policy measures displaced regular jobs to a limited extent: the closer a given measure is to regular employment, the greater the displacement effect is likely to be.
The most significant displacement effect was measured for the recruitment subsidy. This public subsidy, which was terminated at the end of 1997, aimed to increase the chances of the unemployed in finding a job. Support took the form of financial compensation to the employer. 90% of jobseekers who had participated in the study had been employed by a private-sector employer who benefited from the support. The study revealed that, according to employees, the total displacement effect of public support amounted to 37%. According to employers, the displacement effect represented a total of 35%. Thus, employees and employers are agreed that more than one in three recruitments would have occurred in the absence of support.
The second-largest displacement effect was identified within public temporary employment. The purpose of this measure, which was also terminated recently, was to create jobs that would not otherwise have been created. To this end, the tasks were supposed to have been for a limited time only, for which the employer lacked the necessary resources in his or her standard budget. The support consisted in compensation to the employer. The overall displacement effect of public temporary employment was estimated at 14% by the employing organisations and at 18% by jobseekers. The displacement effects doubled to 28% where the employer was a private-sector company.
Generally, the displacement effects are greater in the private than in the public sector. Even so, displacement - or rather adjustment - effects can be assumed to be a problem in all local authorities. The labour market policy measures are extremely comprehensive: almost 1 in 10 persons working on a daily basis for the local government sector was recruited under a measure. In practice, local authorities adjust their supply of services to the volume of labour market policy measures on which they think they can rely. Unemployed persons obtaining a place in a local government measure regain their entitlement to unemployment benefits, and local authorities thus save themselves the costs of providing social benefits.
It is difficult to draw the line between positive - or at least acceptable - displacement effects in the public sector and unequivocally negative effects. Clearly, though, the effects are frequently unacceptable in humanitarian terms, with many people oscillating between measures, unemployment and short periods of employment. Moreover, the displacement effects that occur when local government activities using labour subsidised by policy measures exert an impact on competitive markets should not be overlooked.
Bosse Ringholm, Director General of the Public Employment Service (AMS), concludes, in a commentary on the report, however, that the extent of this problem in Sweden is relatively minor compared to some of the claims made in the debate on the issue. In some cases, it is necessary to displace regular jobs in order to give young people, the disabled, ethnic minorities and other groups a chance to gain a foothold on the labour market.
10. FOCUS
The "Focus" part of inforMISEP "Policies" is conceived by the secretariat of the European Employment Observatory. The opinions and analyses contained in this section do not necessarily reflect the opinions or views of the European Commission or the correspondents. Signed articles are the sole responsibility of the author(s).
EU – European Commission DG EMPL/A/2 J
II 27,
Rue de la Loi 200, B-1049 Brussels – Belgium
GHK Consulting Ltd 30 St. Paul's Square, Birmingham. B3 1QZ
E-mail: eeo@ghkint.com
