The EU's Long-Term Unemployment Problem
As of May 2023, EU Member States have shown long-term unemployment rates of up to 7.8%. A recent EU response to this was creating the Year of Skills – an initiative that links employers with citizens by providing a channel for directly communicating organisations’ skill needs, particularly in the green and digital transition areas. However, addressing skill gaps, staff shortages, and talent migration issues is solely a symptomatic approach to reintegrating the long-term unemployed into the labour force. Extended absence from the labour market proves to be more than just an effect of the structural changes European economies have faced following increased digitalisation.
Unemployment in Europe is not a new phenomenon: ever since the oil shocks of the 1970s, its rate has been persistently high. Though a rapid succession of economic shocks displaced workers worldwide, Europe has been particularly slow at recovering its active labour force. The EU’s low-occupational-mobility labour markets, compounded with job losses from declining sectors, transform its cyclical unemployment into a structural one. Cyclical unemployment refers to unemployment that results from changes in the economy’s business cycle. During an economic downturn or contraction, demand for goods and services falls. Firms then often respond with restructuring – reorganising, downsizing and closing departments, merging with another company or being acquired by one, outsourcing work that they previously did themselves, relocating – or declaring bankruptcy, resulting in losses. Structural unemployment, on the other hand, is a longer-lasting form of unemployment caused by fundamental shifts in an economy: technological change in machinery used, increased digitalisation of services, increased trade with or the rise of another competitive country. Therefore, jobs are available, but there is a mismatch between what companies need and what workers can offer. As a result, 50% of the region’s unemployed have been jobless for more than a year.
Long-term unemployment rates in the EU. Source: Cedefop
Long-term unemployment is often accompanied by a life accident, that precedes or follows the job loss. It erodes the emotional and psychological resources needed to find a job and reinforces the unemployed status. An extended period with no salary or earnings also forces people into debt and loss of property, causing mental health issues and families in crisis — members who relied on the now unemployed go on suffering on both financial and psychological fronts. This is usually followed by a depreciation of skills: the longer someone is out of work, the harder it is to get back in.
Unemployment also affects national governments, as reduced tax payments decrease their revenue, and higher spending on social support contributes to larger expenses. Member States hence face the challenge of weighing policies that create better conditions for employment or worse ones for being unemployed. Though reluctance to accept lower pay and dependence on government programs can factor into causes for general unemployment, their role is minor in explaining long-term absence from the labour market. The long-term unemployed are the people that recessions, the fall of once relevant industries, and disengaged education systems leave behind.
At the end of 2022, 3% of jobs in the EU were vacant, but the amount of job vacancies is not perfectly aligned with the rate of unemployment, which means that joblessness may be involuntary. Most frequently a nationwide recession, skill mismatches, or companies’ hesitations to hire marginalised workers are at play. Potential workers are often discriminated against on sexual, age, health or racial grounds, creating stigma towards their obtained qualifications. This is how gig economy jobs and part-time work often become a permanent replacement for full-time employment. However, they do not solve the underlying structural issue and are oftentimes accompanied by undeclared work— a last resort endangering welfare and pension benefits.
As the long-term unemployed stray from the labour market, their industry-related and job-hunting skills deteriorate. Navigating job listings, as well as establishing a professional network to access the hidden job market – all the jobs without formal postings, which are either created or discovered through personal connections – is difficult without adequate mentoring and support. The increased digitalisation of business activities and the rapid uptake of AI add another dimension to the challenge of reskilling. Reskilling involves workers learning new skills outside their existing skillset – whether these capacities pertain to another industry or new, adjacent ones to their current occupation. Though digital skills accession is an EU-level goal, countries like Bulgaria and Romania face a critical situation when looking at these levels. Each Member State’s unemployment rate is affected by ICT literacy to a different extent. The large gap between the employment rates of low-skilled and high-skilled workers also shows that gains in employment are unevenly distributed.
Given these critical skill disparities, the Year of Skills programme does little to address the integration of individuals with outdated capacities into the labour market, due to both its structure and content. The main criticisms concern the short-term of its approach, the fact that it is placing skilling responsibility on the long-term unemployed shoulders and that the skills promoted only target specific high-knowledge sectors of the job market. Future measures need to address lifelong education and learning. Educational models that permanently equip individuals with skills are practice-based, participant-engaging, and collaborative: more stakeholders should be involved than solely the employer and the employed.
The expertise many current initiatives promote come from the perspective of immediate job and enterprise productivity alone. Helping people adapt to change on all levels implies developing more transferable skills, beyond what an individual company requires at one point in time. Most importantly, the long-term unemployed should not be the sole actors responsible for finding and learning new skills. They can, at most, achieve micro-credentials and enhance their employability, but this only brings short-term benefits and potentially shapes a discontinuous career. This is one reason why mitigating skill deficiencies should come as a supplement to preventing them from happening in the first place; this is where education comes in.
Youth unemployment is correlated with general unemployment. Source: Eurostat
The high rates of youth unemployment in the southern Member States risk translating into long-term unemployment, as missing out on early training and experience paves the way towards lower wages and joblessness later on. Part of the problem resides in the stigmatised vocational tracks and underdeveloped apprenticeship programmes. As the improvements and updates of national vocational education systems are often slow, they remain disconnected from market demands and expand the educational gap of disadvantaged learners. This leaves a large segment of the youth population unable to validate its expertise acquired outside the formal system. Upper-secondary studies having spotty connections to the job market also play a part. Few Italian and Spanish universities place high and provide limited support for career development that goes beyond coursework.
Germany’s long-term unemployment rate, in contrast, stands out as one of Europe’s lowest – 0,9% in 2023. This is seen as a product of its dual-track education system, its on-the-job training programmes, its flexible labour laws and its subsidies for low-cost employment and regional mobility. The country’s long-term unemployment rate started decreasing more significantly after it implemented the Hartz IV labour reform in 2003-05. It drastically cut benefits for the long-term unemployed and tightened job search and acceptance obligations, but it also merged the federal-level unemployment agency with the local-level welfare administrations, which personalised the getting-back-to-work plans. However, critics highlight how this reduction may be attributed more to cyclical factors, as German employment protection and unemployment benefits are still relatively high on a European scale.
Unequal labour mobility – both geographic and occupational — is another EU-specific issue that hinders long-term employment. From a geographic standpoint, certain industries require their workforce to move to the hubs in which they operate. This causes economic inefficiencies and forces workers to choose between relocation or unemployment. The higher cost of living, the uncertainty of new rent and work contracts, family separation and loss of community are important factors that discourage relocation. Revitalising lower-income cities and developing local demand for labour therefore becomes crucial to address the issue. For example, France is now testing a municipality-level approach to integrate residents who have been out of work for more than 5 years. A special social enterprise run by the long-term unemployed, along with other inhabitants and elected officials, is organised around finding both the town’s needs and the people who have the skills to service them. These activities’ turnover then provides sustainable pay to the previously jobless.
From a firm perspective, extensively regulated permanent employment in Greece, high minimum wages in France and low-productivity firms in Italy contribute to current employees being difficult to dismiss. They thus tend to use more temporary contracts, as they see full-time employment as a larger commitment. Available vacancies are also not only influenced by macroeconomic factors and industry and company-level growth but also by attitudes and assumptions about the applicants. Employers frequently infer skill loss from the large gaps in the long-term unemployed' CVs, and end up hiring workers with a track record of employment. The long-term unemployed then not only lose the welfare benefits of permanent employment but also the possibility of acquiring and developing their work-related knowledge – they only get to perform a limited number of tasks for a limited amount of time.
So, what is the EU doing about it? First, the European Commission’s Directorate General for Employment, Social Affairs and Inclusion (DG EMPL) proposes employment guidelines – common targets and priorities for national employment policies – that frame a direction for Member States to follow. The extent of its competency is divided into providing funding, creating policy tools for Member States, and knowledge building. For example, Member States share best practices through the Mutual Learning Programme and the Public Employment Services Network. The Commission then monitors and assesses the developments of employment policy-making and issues country-specific recommendations. It also creates EU platforms that unite employers with the unemployed (the EURES network), traineeship providers with the trainees, and apprentices with the Commission.
Second, from a funding standpoint, the European Social Fund Plus (ESF+) is the main EU fund that specifically targets citizen support. It focuses on labour market occupation, invests in human capital and education, and improves access to finance for vulnerable people who wish to set up a micro-company. Additionally, when tackling job loss due to globalisation or job outsourcing, Member States apply for funding from the European Globalisation Adjustment Fund (EGF).
When it comes to youth unemployment, the reinforced Youth Guarantee is a commitment to ensure that all young people under 30 receive a good-quality offer of employment or an apprenticeship within four months of becoming unemployed or leaving education. However, the last Youth Guarantee monitoring report was issued in 2019 and the last Long-term unemployed Framework Indicators were issued by the monitoring authority in 2017. This lack of oversight explains why Youth Guarantee plans are no longer maintained in some Member States, such as Romania or Bulgaria, which coincidentally also need the most help.
The long-term unemployed are a diverse group of people: some may have limited work experience, others may lack the skills employers need or have worked in sectors with falling employment opportunities, others may need help with childcare or job search, and others still may live in areas with fewer job opportunities. Recognising the long-term unemployed’ heterogeneity is a first step towards tackling the issue more systemically. It also implies acknowledging that other forms of work might be more suitable for some people. Finding self-employment or owning an enterprise might prove a solution for some, but was the cause of long-term unemployment for others – especially considering that they received limited social protection, or in some countries, none at all.
Sometimes, concrete solutions are needed on the demand side of the problem: though qualified enough, some of the long-term unemployed are simply not welcomed by firms. Other times, the supply side is just unable to perform the required work activities because of poverty, disability, or a dire mental health situation. It is then important to recognise that the long-term unemployed need support beyond online advice and workshops that solely introduce them to what they can learn to do. The outlook on the individual as the central agent of change is outdated and unhelpful. Because the causes behind each person’s unemployment are so different, they need real support: tailor-made plans, dedicated coaches, and a community to help them along the way.
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