New approach to activating the unemployed. Polish and international experiences kpmg.pl

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1 KPMG in Poland New approach to activating the unemployed. Polish and international experiences kpmg.pl

2 2 Section or Brochure name Contents 1 The problem of unemployment Unemployment in Europe Unemployment in Poland Unemployment in selected CEE countries Czech Republic Slovakia Hungary Major conclusions and observations 28 2 A new approach to activating the unemployed Profiling the unemployed Assessing the efficiency of activation measures Activation of difficult groups of the unemployed by a non-public operator Expected benefits from the implementation of the new approach 37 3 Examples of actually implemented solutions Poland Introduction The pilot programme carried out by the Ministry of Labour and Social Policy Partnership for jobs The pilot programme in the Małopolskie voivodship Express train to employment an innovative model of activation of the unemployed International experiences United Kingdom The Netherlands Australia France 73

3 New approach to activating the unemployed. Polish and international experiences 3 Introduction The difficult economic situation in many countries worldwide, in Europe in particular, has severely dampened growth rates in the economy which, in turn, has translated into rising unemployment. This global problem has become a major challenge for governments and international organisations alike. The International Labour Organisation estimates that over 200 million people worldwide will remain out of work in Out of this figure, 40 million are long-term unemployed (staying out of work for over 12 months). Those who have remained far from the labour market have even slimmer chances of finding employment. At the same time, governments are forced to seek savings and to improve the efficiency of their policy mechanisms in order to reduce deficits and to balance their national budgets. In the light of the aforesaid, it becomes even more important to fight unemployment and the search for new, more effective forms of activation has become a necessity. As a country which is still trying to bridge the gap between itself and more developed western European economies, Poland has the opportunity to follow the experience of other countries and to adapt selected, proven solutions. Our report presents examples from some countries who have found solutions leading to effective activation of the unemployed. We also identify essential issues, such as profiling of the unemployed, opening up the employment services market, or changing the performance verification of employment services. In our view, those issues need to be addressed to improve the quality and effectiveness of efforts aimed to bring the unemployed back to work. I invite Readers to study our report and to track progress of pilot projects described here, which aim to test new activation tools and methods, adding a new dimension to the collaboration between labour market institutions, both public and non-public. We believe that this will help to encourage decision-makers to introduce the mechanisms described here and to enhance the exchange of international experience in this field. Mirosław Proppé Partner Head of Infrastructure, Government & Healthcare in CEE, KPMG

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5 New approach to activating the unemployed. Polish and international experiences 5 Key findings The high unemployment rates recently experienced in Poland and in many other European countries has brought about the impoverishment of citizens and social tensions. High unemployment also entails greater burdens for the social benefits system (at present) and for the pension system (in future). In view of the alarming situation on the labour market, it becomes crucial to seek new and effective ways to activate the unemployed and, consequently, to curb the rising unemployment. Failure to undertake such activities may bear very serious consequences, both in the social and in the economic domain. If measures to activate the unemployed are to be effective, they should address the needs and specific situations of the unemployed while also taking account of the particularities of local labour markets. The experience of many countries has demonstrated that in order for employment services (both public and private) to undertake effective activation measures, it is crucial to ensure proper profiling of the unemployed and, in consequence, to adapt activation forms, tools and instruments to the needs of specific profiles (groups) of the unemployed. This will help to maximise the effectiveness of measures while minimising the related costs. Another way to enhance the efficiency of efforts to fight unemployment is to open up the employment services market to non-public actors and to tighten the collaboration between all the market participants. The experience of many countries has shown that non-public institutions, such as private employment agencies, may actively play an active part in returning the unemployed to work, in particular by providing services to those who are furthest from the labour market and, as such, most difficult to activate. A number of projects are currently being conducted in Poland where reliance on international experience is combined with tests of models whereby employment agencies are entrusted with the task of activating those unemployed who are far from the labour market. The Polish Ministry of Labour and Social Policy has launched three pilot projects: via the labour offices of the Mazowieckie, Podkarpackie and Dolnośląskie voivodships. The Regional Labour office in Cracow, in partnership with KPMG and six local labour offices, are conducting another pilot project in the Małopolskie voivodship. The tested solutions have one aspect in common: the remuneration for employment agencies is dependent on outcomes, more specifically defined as unemployed citizens taking up and maintaining a job. Conclusions from the current projects should be instrumental in developing amendments to legislation which would help to open up the employment services market and, in consequence, to improve the efficiency of efforts made to fight unemployment. Implementation of such solutions should bring benefits to all the stakeholders: the government, employment services and, first and foremost, all those remaining out of work. Poland needs measures to change the methods which are applied to verify the effectiveness of activities undertaken by employment services. Such change would involve putting emphasis on continuity of the monitoring process and on achieving tangible and measurable outcomes. For employment services to operate effectively, they must be equipped with efficient tools to motivate the unemployed and to apply sanctions. On the one hand, unemployed individuals must be motivated to undertake specific steps and, on the other, they must be aware of sanctioning mechanisms which will be applied in case the unemployed person shirks active participation in the activation process. The proposed changes and amendments described in this report have been put forward by various circles, including public employment services.

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7 New approach to activating the unemployed. Polish and international experiences 7 1 The problem of unemployment 1.1. Unemployment in Europe The economic situation in Europe has significantly deteriorated, which is reflected in the growth of the unemployment rate in the European Union. Compared with the period before the financial crisis started (2007), the unemployment rate grew by almost 50%, reaching average annual level of 10.5% in Such significant increase of the unemployment in the European Union is largely due to the sudden rise of the unemployment in south European countries, most acutely affected by the financial crisis and the debt crisis, i.e. the so-called PIGS countries: Portugal, Italy, Greece and Spain. The total unemployment figure in the European Union exceeded 25 million people at the end of Figure 1. The number of the unemployed and the average unemployment rate in the EU (according to LFS) 1 12, ,5 10,0 9,0 9,7 9, ,0 7,2 7, , , , , The number of the unemployed (thousands) The unemployment rate (%) Source: KPMG in Poland based on Eurostat data The economic situation, in particular the rate of economic growth in individual countries, is of key significance for the decline or growth of the unemployment rate. Many economists believe that only the economic growth rate at the level of 3 4% (reflected in the the GDP growth) allows to create a significant number of new jobs, which in turn makes it possible to capture those seeking employment and to gradually decrease the unemployment level in a country. 1 Based on Eurostat data

8 8 New approach to activating the unemployed. Polish and international experiences Figure 2. Economic growth in the years in selected EU countries Economic growth (% GDP) 12,0 10,0 8,0 6,0 4,0 2,0 0,0-2,0-4,0-6,0-8, Czech Republic France Germany Hungary Italy Poland Slovakia United Kingdom Source: KPMG in Poland based on The Economist Intelligence Unit data Starting from 2015 we might expect a higher rate of economic growth, which should translate into a relevant change of trends on the labour market. The period of financial crisis and debt crisis had a significant impact on the economies of individual countries. The years 2009 and 2012 brought a recession in many of them, while the years gave an opportunity for just a minor growth impulse. The year 2012, and, most probably, 2013 as well, is another year of very low economic growth, or stagnation, or even recession in selected countries. In such situation, an increase of the unemployment rate is imminent. It clearly leads to increased social tensions, destabilisation of the political situation, loss of credibility in the eyes of investors and, as a consequence, even more acute economic problems. Starting from 2015 we might expect a higher rate of economic growth, which should translate into a relevant change of trends on the labour market. Considering this, it seems essential to seek new and effective ways to activate the unemployed and, therefore, to fight the growing unemployment just waiting for the good old times to return is not enough. Apart from activities intended to restore the financial credibility of the Union and its individual members, to restore the stability in the Union or to stimulate economic growth, governments as well as the authorities of the European Union should also focus on actively combating unemployment. Failure to undertake such activities may lead to very serious consequences, in particular, in the PIGS countries, where unemployment rates are at record levels.

9 New approach to activating the unemployed. Polish and international experiences 9 Figure 3. The forecast economic growth in the years in selected EU countries 5,0 Economic growth (% GDP) 4,0 3,0 2,0 1,0 0,0-1,0-2, Czech Republic France Germany Hungary Italy Poland Slovakia United Kingdom Source: KPMG in Poland based on The Economist Intelligence Unit data The increasing unemployment affects various age groups in different ways. There is no doubt that the skyrocketing unemployment among young people is the most serious problem. Another group that is particularly affected by rising unemployment is are mature citizens (aged 55+).

10 10 New approach to activating the unemployed. Polish and international experiences Figure 4. Unemployment rate in selected age groups in the EU 80,0 70,0 6,7 Unemployment rate (%) 60,0 50,0 40,0 30,0 4,4 5,7 5,3 6,5 4,5 5,6 5,3 7,1 5,8 6,1 6,9 7,2 6,7 7,1 9,2 9,5 12,2 12,4 5,9 7,4 7,2 10,2 13,1 7,8 7,7 11,0 14, ,0 8,5 9,2 24 years of age or less 10,0 13,5 15,0 19,0 19,1 20,3 21,7 0, Source: KPMG in Poland based on Eurostat data It is quite clear that the unemployment rate grew in nearly all age groups and the upward tendency persists. The unemployment levels among the youngest participants of the labour market and among those under 34 are particularly troubling. It is important to bear in mind that the said data present the averaged values for the entire European Union. There are some member states, such as Greece, Spain or Portugal, where youth unemployment is much higher, exceeding even 50% (Spain). In the case of the latter countries we may easily say that the situation on the labour market is disastrous. The European Union is aware of this problem, therefore measures are being taken to help young people in particular. One example is a pilot programme intended to fight unemployment in the EU, called EURES Job. 2 It is intended to help young unemployed people (aged 18 30) in finding employment in one of the EU countries other than their country of origin. Moreover, there are also initiatives of individual countries, with the joint proposal of Germany and France serving as an example. It constitutes part of a joint initiative of the two countries, referred to as the New European Order, similar to the policy intended to reduce unemployment in the USA under the rule of president Franklin Roosevelt in the 1930s. The European Investment Bank (EIB) is also to join that initiative, releasing billions of euro to companies that would create new jobs for the young. EIB might also launch a financial leverage for the European Union of up to 6 billion euro by This would entail a potential result in the form of loans for enterprising, totalling 60 billion euro. 3 Another problem that must be tackled in the context of unemployment is the so-called long-term unemployment. 4 In a situation of employment being increasingly difficult to find, the long-term unemployed figure is growing. On the one hand, it is caused by the decreasing number of jobs and the intensifying competition on the labour market, while, on the other hand, the challenging economic situation stimulates the growth of shadow economy, which absorbs a significant proportion of the long-term unemployed (registered in labour offices while, at the same time, undertaking unofficial work in the shadow economy). 2 Detailed information about the programme can be found at: 3 Source: 4 According to the definition applicable in Poland, a long-term unemployed person is a person who has been registered in the registry of the local labour office (as an unemployed person) for a total period of over 12 months over the period of the past 2 years, excluding the periods of internships and adult vocational education. Legal basis: The Act of 20 April 2004 on promotion of employment and labour market institutions.

11 New approach to activating the unemployed. Polish and international experiences 11 The long-term unemployed undoubtedly experience more obstacles when trying to return to the labour market: they often cannot demonstrate professional experience or education, they sometimes have health problems (e.g. people with disabilities), they have a difficult personal experience behind them (e.g. former prisoners) or they simply lack motivation. Looking at the figure below, we can see that long-term unemployment is an acute problem among the unemployed aged over 40, and particularly among the unemployed aged over 55. In the latter group, long-term unemployment in the years remained at the level of over 50% of the total unemployment. If we consider an additional aspect, i.e. the increase of retirement age in most countries, we might expect this problem to aggravate further in the future. Figure 5. The share of long-term unemployed in total unemployment, by age groups Participation of long-term unemployed (%) 100,0 90,0 80,0 70,0 60,0 50,0 40,0 30,0 20,0 10,0 0, years or less years or more Source: KPMG in Poland based on Eurostat data 1.2 Unemployment in Poland Much like the rest of Europe, Poland also had to face the challenge of the financial crisis and its current stage, i.e. the debt crisis. This affected the labour market and the unemployment in our country. The weakening economy does not create enough new jobs, and this is coupled with limited flexibility of the labour market itself, in particular as regards the possibility to apply various forms of employment or working hours. Another significant problem is that the market continues to be overregulated and access to a number of occupations is limited. This leads to unemployment, which has been growing for the past few years, reaching 14.3% (the unemployment rate) at the end of March During that period, over 2.3 million people were unemployed. 5 5 Data of the Central Statistical Office of Poland (GUS) at the end of March 2013, registered unemployment..

12 12 New approach to activating the unemployed. Polish and international experiences Figure 6. The unemployment rate in Poland in , ,3 14,0 12,0 11,2 12,1 12,4 12,5 13, Unemployment rate (%) 10,0 8,0 6,0 9,6 9,5 7,1 8,1 9,7 9,7 10, , ,0 0, Marzec 2013 The number of the unemployed in Poland (thousands) The unemployment rate according to the data of the Central Statistical Office at the end of the year (%) Averaged annual unemployment rate according to EUROSTAT data (%) Source: KPMG in Poland based on Central Statistical Office data and Eurostat data In April 2013, the unemployment rate in Poland dropped to 14% and subsequent months may see a further decline, given the end of seasonal work. Unfortunately, the unemployment rate among young people remains significantly higher: according to Eurostat, the harmonized unemployment rate in this group in December 2012 was 28.4% in Poland, that is almost three times as high as the total harmonized unemployment rate (10.1%). The unemployment rate among young people in Poland was also much higher than the EU average (23.4%), even though it remained lower than in countries such as Spain, Greece, Slovakia, Italy, Portugal or Ireland. Nevertheless, the high level of unemployment among young people constitutes a significant problem not only in Poland, but also in the entire European Union. Hence, both individual countries and the authorities of the European Union seek solutions that could reverse the unfavourable tendency and activate that group of people which is very important for the future economic development of the region. 6 Central Statistical Office data at the end of April 2013, registered unemployment. 7 The harmonized unemployment rate (an indicator published by Eurostat) is a result of the harmonized methodology of determining that indicator for each Member State, as adopted by EUROSTAT. The data are calculated by Eurostat based on the quarterly Labour Force Survey, LFS, and the monthly data on registered unemployment. 8 The harmonized unemployment rate is calculated as a percentage of the unemployed in the number of economically active population (e.g. the total of the employed and the unemployed). The data are indexed seasonally. Source: Zasady metodyczne statystyki rynku pracy i wynagrodzeń [The methodology principles of labour market and pay statistics], GUS [Central Statistical Office], Warsaw 2008, page Eurostat newsrelease euroindicators, December 2012, 19/ February 2013

13 New approach to activating the unemployed. Polish and international experiences 13 Figure 7. The unemployed under 25, as of the end of the reporting period , , ,6 20, , ,5 21,9 21,0 19,9 22,0 20, , The unemployed under 25 years of age The share of the unemployed under 25 years of age in the total number of the unemployed (%) KPMG in Poland based on data from the Ministry of Labour and Social Policy 9 Those aged over 55 constitute a small proportion of the total, yet it is troubling to see a constant upward trend in the share of that group. The figure below presents the data on the structure of unemployment by age of the unemployed. Again, the problem of unemployment among young people (under 25 years of age) becomes visible. It is also important to note those aged 25 34: in theory, they are the most productive age group. However, this group s share in the total unemployment is largest and keeps growing year after year. Notably, the unemployed up to 34 constitute almost 50% of the unemployed in total, which is an alarming value, in particular in the context of building the potential of the Polish economy for the coming years or in the context of the efficiency of the Polish pension system. Another group with the largest share in total unemployment is the that of yearolds. Here, however, we observe a gradual decrease in their share. Those aged over 55 constitute a small proportion of the total, yet it is troubling to see a constant upward trend in the share of that group. The increase of the retirement age in Poland to 67 years might additionally aggravate this trend. 9 Report: Sytuacja na na rynku pracy osób młodych w 2012 roku [Situation of young people on the labour market in 2012 ], Polish Ministry of Labour and Social Policy

14 14 New approach to activating the unemployed. Polish and international experiences Figure 8. The structure of the unemployed by age 100,0 90,0 80,0 8,4 8,7 9,0 10,2 11,4 12,5 25,4 23,6 21,4 20,3 19,4 18,7 55 years or more Percentage of the unemployed 70,0 60,0 50,0 40,0 30,0 19,3 27,8 18,6 28,4 18,2 18,4 18,8 19,6 28,9 29,2 29,4 29, ,0 24 years of age or less 10,0 0,0 19,0 20,7 22,5 21,9 21,0 19, Source: KPMG in Poland based on Central Statistical Office data It is also important to note the unemployment structure in terms of the duration of unemployment. This approach to the data is shown below. Figure 9. The structure of the unemployed by the duration of unemployment Percentage of the unemployed 100,0 90,0 80,0 70,0 60,0 50,0 40,0 30,0 20,0 10,0 0,0 13,0 12,0 21,8 15,3 17,8 31,2 12,8 17,1 12,2 19,3 17,6 20,1 13,9 18,4 14,2 18,9 18,0 13,8 15,9 19,8 18,3 17,5 17,2 14,0 23,4 17,9 23,9 23,0 19,6 19,7 9,2 12,5 10,4 11,2 9,4 9, Up to 1 month over 24 months Source: KPMG in Poland based on Central Statistical Office data

15 New approach to activating the unemployed. Polish and international experiences 15 The deteriorating economic situation, and, therefore, the limited number of new jobs, results in constant inflow of new unemployed and shifting between the groups. The most numerous group of the unemployed are those unemployed between 1 and 3 months. Nonetheless, the subsequent groups, with longer periods of unemployment, currently have similar shares in the total unemployment. The deteriorating economic situation, and, therefore, the limited number of new jobs, results in constant inflow of new unemployed and shifting between the groups. Particular attention should be drawn to those unemployed for longer than 12 months. As of the end of 2012, such people constituted 35.4% of the unemployed in total, and their share in total unemployment has been systematically growing over the past years. This group is certainly most challenging to activate by the employment services. On the other hand, a significant portion of that group is made up of people who remain in the so-called shadow economy. According to various estimates, the percentage falls between 30 to over 50%, but obviously it is difficult to verify that data in a reliable manner. The potential expansion of the shadow economy, which may be one of the drivers behind the rising level of registered unemployment, is largely a consequence of the difficult economic situation: some companies transfer some or all of their operations into the shadow economy in an attempt to find savings. In Poland, we also measure the levels of the so-called long-term unemployment. According to the official definition, a person is long-term unemployed if he/ she remained out of work for over 12 months during the past 24 months. 10 This group makes up over half of the unemployed in Poland. Over the past few years, its share in the total unemployment varied significantly, reaching a peak in 2007 (62.6 %) and decreasing gradually until 2009 (40.9 %). In subsequent years, it rose to 46.4 % in 2011 and 50.3 % in 2012 respectively. The figure below presents information on long-term unemployment and the age structure in this group. Figure 10. The unemployment structure selected groups of the unemployed 100 The percentage of the unemployed Long-term unemployed (share in total unemployment) Under 25 years of age (share in long-term unemployment) Over 50 years of age (share in long-term unemployment) Source: KPMG in Poland based on Central Statistical Office data 10 See the Act of 20 April 2004 on promotion of employment and labour market institutions

16 16 New approach to activating the unemployed. Polish and international experiences The shares of people under 25 and over 50 in the group are similar and have not changed significantly over the past five years, ranging from 15 to 20% of long-term unemployment in each age group. Long-term unemployment among those under 25 is largely a consequence of the faults of Poland s educational system, which puts such people on the labour market without preparing them to seek a good job: they lack experience and specialist knowledge. Poles aged over 50 largely belong to the generation of people who used to work for the same employer all life long. For people who never had to compete on the labour market and who usually have limited competences and qualifications, finding a new job is extremely difficult. In particular, what they find especially difficult is to sell themselves during a job interview with a potential employer. As a result, they remain unemployed for extended periods. The figure below presents the unemployment structure by the education level. The aforementioned conclusion about the Polish education system seems to confirmed that, if we notice that there is a continuous increase in the share of university graduates among the unemployed. Apart from the quality of education itself and its fit with the needs of employers or the labour market in general, it is also important to note that tertiary education in Poland has become easily available, and, consequently, the country has an increasing number of university graduates entering the labour market. Many students also work in the shadow economy. Figure 11. The structure of the unemployed by education level 120,0 The precentage of the unemployed 100,0 80,0 60,0 40,0 20,0 32,3 30,4 28,8 28,2 27,5 27,3 29,6 28,6 28,9 28, ,3 9,1 10,2 10,8 10,9 10,8 10,6 22,1 22,3 22,1 22,0 22,2 22,1 Junior secondary, primary and incomplete primary education Basic vocational education Comprehensive secondary education Vocational secondary education 0,0 6,9 8,5 9,4 10,5 11,5 11, Tertiary education Source: KPMG in Poland based on Central Statistical Office data The highest percentage of the unemployed have completed primary or basic vocational education: these groups together represent over 55% of the unemployed and the situation has remained unchanged for many years. The growing expectations of employers towards employees and the technological progress do not offer good prospects for this group to reduce its share in total unemployment. When analysing the situation on the labour market, it is also interesting to note the number of people in economically active age and past that age.

17 New approach to activating the unemployed. Polish and international experiences 17 Figure 12. The share of the people in productive and post-productive age in the total population along with the percentage of people in the productive age The population in thousands Total population (thousands) Population in the productive age (18 59/64) (thousands) Population in non-productive age (thousands) The percentage of people in productive age - (18 59/64) (%) Source: KPMG in Poland based on Central Statistical Office data In the years , when people born during the last demographic peak were entering the economically productive age (women: 18 59, men: 18 64), significant changes were noted among this age group: both their number and its share in the total population went up. Since 2009 the percentage of this group has been decreasing and reached 63.9% in At the end of 2012, the share of the population in the working age was by 3.1 percentage points lower than in 2000 (60.8%), while since 1990 it grew by almost 6 percentage points. It is estimated that since 2000 the population in the productive age increased by almost 1.4 million. In the course of the next five years we may expect that the number of people in the productive age will be decreasing, even if we consider the statutory increase in the retirement age, starting from At the moment, for each 100 people in the productive age there are 57 Poles in the non-productive age, whereas the proportion in 2000 was 64 (and 72 in 1990). Significant changes might be observed when analysing partial indices, i.e. the ratio of pre-productive age population to productive age population, and, separately, the ratio of the postproductive age population to productive age population. In general, adverse changes concern the pre-productive age group; at the moment, for each 100 people in the productive age group, there are 29 people in the pre-productive age and 28 in the post-productive age group, whereas the respective figures in 2000 were 40 and 24, and the ones for 1990 were 50 and Central Statistical Office, Podstawowe informacje o rozwoju demograficznym Polski do 2012 roku [Basic information on the demographic development of Poland by 2012]

18 18 New approach to activating the unemployed. Polish and international experiences The data presented until this moment undoubtedly indicate that unemployment is a very serious issue in Poland, in particular in the context of the aggravating economic downturn. Additionally, if we consider the tightening of the fiscal policy in many countries, including Poland, it is increasingly difficult to allocate additional funds for combating unemployment. In the case of Poland, there is an additional factor: some funds from the Labour Fund are frozen and, as such, are used to improve debt ratios of the public finance sector. The figure below show the relationship between the unemployment rate and the outlays for combating unemployment (expenditures shown as a % of GDP). Figure 13. Comparison of the unemployment rate in Poland and the funds allocated every year for combating unemployment as % of GDP 12,00 10,00 8,00 6,00 9,60 0,50 0,56 7,10 0,62 8,10 0,69 9,70 0,80 0,70 0,60 0,50 0,40 4,00 0,30 0,20 2,00 0,10 0, ,00 The unemployment rate % of GDP allocated to combating unemployment Source: KPMG in Poland based on Eurostat and OECD data It can be seen that the state budget allocates increasing sums of money to activation of the unemployed year after year. However, the increased pool of funds does not hamper the rising unemployment rates. Therefore, either the measured adopted to date were incommensurate with the problem (unemployment growth or unemployment structure), or the measures not sufficiently effective. The efficiency of labour services is subject to many discussions; this problem is also noticed by the Polish Ministry of Labour and Social Policy, as it is working on amendments to legislation pertaining to the activation of the unemployed. Is there a chance that the situation (the unemployment level) will change? There is no doubt that a lot depends on the economic situation in the world and the condition of the Polish economy. If there are new jobs, coupled with changes to make the labour market more flexible, and if labour services work more efficiently in actively combating unemployment, the unemployment rates should decrease. Below presented are forecasts on how the unemployment rate in Poland is expected to change by 2017.

19 New approach to activating the unemployed. Polish and international experiences 19 Figure 14. The prospects for changes in the unemployment rate by 2017 in Poland 14,0 13,8 13,5 13,5 Unemployment rate (%) 13,0 12,5 12,0 12,9 12,5 11,9 11,5 11,0 10, Source: KPMG in Poland based on The Economist Intelligence Unit data

20 20 New approach to activating the unemployed. Polish and international experiences 1.3 Unemployment in selected CEE countries The following section presents selected summary data on unemployment for three countries of Central and Eastern Europe: the Czech Republic, Slovakia and Hungary. Those countries are similar to Poland with their characteristics but their development is based on different foundations Czech Republic The unemployment level and rates in the Czech Republic are relatively stable: while it is true that the unemployment grew over the past few years, its dynamics was relatively low, and the current unemployment level looks quite good compared with the other countries in the region and with the EU average. In particular, comparison of the data for the Czech Republic with the data for Slovakia shows distinct differences, both in terms of unemployment in general, as well as the unemployment rates in individual age groups. Figure 15. The unemployment rate and the number of the unemployed in the Czech Republic 8,0 7,0 6,7 7,3 6,7 7, ,0 5, , , , , , ,0 50 0, The number of the unemployed (thousands) The unemployment rate (%) Source: KPMG in Poland based on Eurostat data

21 New approach to activating the unemployed. Polish and international experiences 21

22 22 New approach to activating the unemployed. Polish and international experiences Figure 16. The unemployment rate in selected age groups in the Czech Republic 60,0 Unemployment rate (%) 50,0 40,0 30,0 20,0 2,5 2,4 5,0 4,5 4,6 3,5 4,9 4,7 4,4 6,6 6,3 6,9 8,6 3,9 2,7 6,7 6,2 6,9 6,0 5,5 5,7 8,9 8,2 4,8 7,1 6,2 7,1 8, ,0 4,7 4,2 16,9 15,2 15,6 17,1 24 years of age or less 7,8 8,7 0, Source: KPMG in Poland based on Eurostat data The forecasts of the changes in the unemployment rate for the next few years look interesting. The estimates presented below indicate that the growth of the unemployment rate by 2015 is expected, and then it will decrease slowly until A similar distribution (yet at different unemployment rate levels) is observed for Slovakia. However, according to forecasts for that country, the unemployment will start declining in The situation is very different in the case of Poland and Hungary, where the unemployment rate should start to decrease at the end of Figure 17. The prospects for changes in the unemployment rate by 2017 in the Czech Republic 8,0 7,9 7,8 7,6 7,6 Unemployment rate (%) 7,6 7,4 7,2 7,4 7,2 7,0 6, Source: KPMG in Poland based on The Economist Intelligence Unit data

23 New approach to activating the unemployed. Polish and international experiences 23 Just as in the case of Poland, we might analyse the ratio between the unemployment rate in individual years and the expenditure on combating unemployment. As we see, the tendency is consistent, and the expenditure level (given as a percentage of GDP) remains at the level that is similar to that of Slovakia. Figure 18. Comparison of the unemployment rate in the Czech Republic and the funds allocated every year for combating unemployment as % of GDP 8,00 0,33 0,35 7,00 6,00 0,29 0,26 0,29 6,70 7,30 0,30 0,25 5,00 4,00 3,00 5,30 4,40 0,20 0,15 The unemployment rate (%) % of GDP allocated to combating unemployment 2,00 0,10 1,00 0,05 0, ,00 Source: KPMG in Poland based on Eurostat and OECD data

24 24 New approach to activating the unemployed. Polish and international experiences Slovakia Slovakia is a country with a relatively high unemployment rate: it is almost twice as high as in the neighbouring Czech Republic, and significantly exceeds the unemployment levels noted in Poland. Figure 19. The unemployment rate and the number of the unemployed in Slovakia 16,0 14,0 14,5 13,6 14, ,0 11,2 12, ,0 8, , , , ,0 50 0, The number of the unemployed (thousands) The unemployment rate (%) Source: KPMG in Poland based on Eurostat data

25 New approach to activating the unemployed. Polish and international experiences 25 In the case of Slovakia, unemployment among young people is a very significant problem. As we see from the figure below, the unemployment rate in various age groups under 34 grew significantly over the past few years ( ), exceeding 33% for those aged up to 24. This is certainly an alarming value. Figure 20. The unemployment rate in selected age groups in Slovakia 100,0 Unemployment rate (%) 90,0 80,0 70,0 60,0 50,0 40,0 30,0 7,9 9,7 9,3 6,1 7,4 8,2 5,5 10,7 12,3 12,6 15,0 6,6 12,1 11,5 11,2 11,7 12,4 12,8 15,3 17,9 4,6 13,1 10,9 12,5 18,5 20,0 10,0 10,6 10,2 16,9 15,6 28,8 30,9 29,9 33,1 0, years of age or less Source: KPMG in Poland based on Eurostat data

26 26 New approach to activating the unemployed. Polish and international experiences At the moment, the high level of unemployment in Slovakia will most probably remain unchanged over the next 3 4 years. As the forecasts show, the unemployment rate in this period will oscillate at around 14%, but we expect a slow but stable decline starting from Figure 21. The prospects for changes in the unemployment rate by 2017 in Slovakia 14,5 14,3 14,0 13,9 13,6 Unemployment rate (%) 13,5 13,0 12,5 13,1 12,5 12,0 11, Source: KPMG in Poland based on The Economist Intelligence Unit data

27 New approach to activating the unemployed. Polish and international experiences 27 The level of expenditure on combating unemployment in Slovakia shows a varying correlation over the years. However, the increase in the unemployment rate over the recent years also led to a distinctive increase of expenditures on combating unemployment. The expenditures on activating the unemployed in relation to GDP remain at the level similar to that in the Czech Republic. Figure 22. Comparison of the unemployment rate in Slovakia and the funds allocated every year for combating the unemployment as % of GDP 16,00 0,33 0,35 14,00 12,00 11,20 0,26 12,10 14,50 0,30 0,25 10,00 8,00 6,00 0,22 9,60 0,25 0,20 0,15 The unemployment rate % of GDP allocated to combating unemployment 4,00 0,10 2,00 0,05 0, ,00 Source: KPMG in Poland based on Eurostat and OECD data

28 28 New approach to activating the unemployed. Polish and international experiences Hungary The unemployment rate in Hungary is now at the level similar to what we observe in Poland. However, the change trend in that rate is different: it showed stabilisation in the years Figure 23. The unemployment rate and the number of the unemployed in Hungary 12,0 11,2 10,9 10, ,0 10, ,0 7,4 7, , , , , The number of the unemployed (thousands) The unemployment rate (%) 0 Source: KPMG in Poland based on Eurostat data

29 New approach to activating the unemployed. Polish and international experiences 29 Looking at the unemployment rate across various age groups, we may see a similarity to the situation in Poland. Still just as in all analysed countries the major problem is the unemployment among the young people: its level is relatively high and keeps rising, with Slovakia remaining an unquestionable leader here. Figure 24. The unemployment rate in individual age groups in Hungary 80,0 70,0 4,4 6,2 5,8 60,0 7,0 9,0 9,3 7,3 Unemployment rate (%) 50,0 40,0 30,0 5,6 6,4 7,4 3,6 5,9 6,3 7,1 8,2 9,1 9,1 9,2 10,1 8,4 13,3 13,2 12,8 8,0 10,2 14,4 20,0 8,1 10,1 10,0 17,6 17,7 26,0 23,8 25,0 25,6 0, years of age or less Source: KPMG in Poland based on Eurostat data

30 30 New approach to activating the unemployed. Polish and international experiences The forecasts related to changes in the unemployment rate in Hungary are optimistic: subsequent years should bring a steady yet slow decrease of unemployment. Figure 25. The prospects for changes in the unemployment rate by 2017 in Hungary 11,6 11,5 11,4 11,3 11,2 11,1 Unemployment rate (%) 11,0 10,8 10,6 10,4 10,8 10,3 10,2 10,0 9,8 9, Source: KPMG in Poland based on The Economist Intelligence Unit data

31 New approach to activating the unemployed. Polish and international experiences 31 In the case of Hungary, we can see almost a perfect convergence between the behaviour of the unemployment rate and the allocation of funds to combat unemployment. It is important to note here the relatively high level of funds involved: it is nearly twice as high (in relation to GDP) as in the Czech Republic or Slovakia but close to the values recorded for Poland. Figure 26. Comparison of the unemployment rate in Hungary and the funds allocated every year for combating the unemployment as % of GDP 12,00 11,20 0,70 10,00 10,00 0,62 0,60 8,00 7,40 7,80 0,50 6,00 0,46 0,40 0,30 4,00 0,27 0,28 0,20 2,00 0,10 0, ,00 The unemployment rate % of GDP allocated to combating unemployment Source: KPMG in Poland based on Eurostat and OECD data

32 32 New approach to activating the unemployed. Polish and international experiences 1.4 Major conclusions and observations The data and analyses presented above clearly show that the unemployment problem in the countries of the European Union, including the countries of the Central and Eastern Europe, has been growing. The picture that emerges as a consequence of the crisis includes the declining household revenues, the highest unemployment in 20 years and the growing threat of poverty. This aggravates the risk of social exclusion for large groups of the citizens, in particular citizens of countries that are in a particularly difficult economic situation. Of course, the continuing crisis is only one of the causes of the current status quo, nevertheless the negative consequences for the levels of employment and living standards caused by budgetary cuts and tax rate increases are increasingly felt in Member States. Undoubtedly, we can also see the consequences of the lack or insufficient systemic solutions designed to combat unemployment, limited efficiency of vocational activation methods in use until now, the education system that is not adapted to the needs of the labour market, or lastly, limited freedom to run business in many countries. In the current situation it is necessary for governments to undertake attempts and investments, seeking a way to induce growth that contributes to social inclusion and giving their citizens an opportunity to life a dignified life. On the other hand, attempts should be made to improve the efficiency of vocational activation of the unemployed and to help them return to the labour market. Such assistance should be adapted to individual groups and problems they face in returning to work. This is particularly important for those groups of the unemployed that are furthest from the labour market: the long-term unemployed, very mature or people, the latter often being inexperienced and not fully educated. Undoubtedly, the most acute problem today as regards unemployment in the European Union is the constantly growing unemployment among young people. Its level reached such high values in some Member States that it poses a threat of escalation of social disturbances, and, as a result, destabilisation of entire economies. Looking from the perspective of the entire Union, unemployment among young people reached a new In its efforts to combat unemployment among young Europeans, the European Union intends to introduce employment guarantee systems for the young. record in the EU (in January 2013, 23.6% of economically active young people were out of job). Moreover, the periods of unemployment for young people are becoming ever longer. 7.1% of economically active young people had no job for over a year in the third quarter of 2012, compared with 6.3% in the preceding year. This tendency constitutes a serious threat of excluding young people from the labour market and from the society as a whole. The 8 million young people under 25 who have no job and are not at school or training (NEET), is a serious source of concern, as this number continues to grow. 12 In its efforts to combat unemployment among young Europeans, the European Union intends to introduce employment guarantee systems for the young. The Commissioner for Employment, Social Affairs and Inclusion, Laszlo Andor, estimated that unemployment among young people entails a loss of gain for the economies and benefit payments which cost the Member States approximately 153 billion euro per year. 13 Looking from another perspective, long-term unemployment is becoming a very important problem. This category encompasses a wide range of unemployed groups, including the growing ranks of young people. Paradoxically, diversity is a characteristic feature of that population, which means that barriers preventing their return to the labour market are varied and, as such, it is difficult to select effective forms of vocational activation. In many countries, people from that part of the population are covered by standard forms of support, which are also available for the remaining groups of the unemployed. However, they often turn out to be ineffective, which results in a growing share of longterm unemployed in total unemployment figures. The next section of our report will focus on presenting selected aspects of the new approach to combating unemployment, targeted in particular at those who are in a challenging situation on the labour market. We will discuss the main elements of the new approach to activating the unemployed, we will also present examples of solutions applied or implemented in selected countries. 12 A European Commission press release, 26 March

33 New approach to activating the unemployed. Polish and international experiences 33

34 34 New Section approach or Brochure to activating name the unemployed. Polish and international experiences

35 New approach to activating the unemployed. Polish and international experiences 35 2 A new approach to activating the unemployed 2.1 Profiling the unemployed Unemployment is not a homogeneous problem. Individual groups of the unemployed, or even individuals, face various barriers preventing them from returning to the labour market, and as such, they need varied approaches, adapted to their needs. In order to undertake effective activities intended to activate the unemployed it is necessary to adapt them to the needs and the situation of the unemployed person, also taking into consideration the particularities of the labour market. The experience of many countries shows that the key to enabling efficient labour services (both public and private) working towards the activation of the unemployed is to ensure proper profiling of such persons. Here, profiling means defining a particular number of groups or collective groups (called profiles ), having distinct features, and then assigning the unemployed to those profiles. In the context of the unemployment, profiling generally focuses on those factors which, once assessed, will allow to verify how far a person is from the labour market. The key here is to ensure a proper diagnosis of the current situation of the unemployed person. Such assessment makes it possible to identify those who are motivated and act reasonably well on the labour market without the need for major support, or people that need minor, but very specific support, as well as the those that require advanced activation methods and tools. Profiling might be carried out in many ways: starting from systemic solutions that provide for standard profiling of all the unemployed and dividing it between a small number of profiles, until actions at the level of selected groups or selected labour market participants. Profiling may also be used to determine the rules of cooperation between the public and private labour services: the unemployed then have the opportunity to receive support from such employment market participant who is able to provide the support adapted to their needs to the highest extent possible. Section 3 of this report describes the experiences from selected countries and also comments on the issue of profiling, discussing the approach to this problem applied in the United Kingdom, Australia, the Netherlands and France. In Poland, profiling has not been used until now as a standard, comprehensive approach. The Act of 20 April 2004 on promotion of employment and labour market institutions (hereinafter referred to as the Act ) defines types of the unemployed but there is no comprehensive approach to assessing how far the unemployed are from the labour market. The unemployed are subdivided according to a variety of parameters, e.g. age, education level, period of unemployment, professional experience and other parameters. More importantly, the fact that a person is classified as belonging to a specific group does not lead to individualised activities adapted to the needs of the group (and this is what profiling should be used for) in order to select appropriate tools and forms of activation driven by the needs of the given group. The definition of a wider group of the unemployed, referred to under the Act as persons in particularly difficult situation on the labour market, might be recognized