Explaining the Employability Gap of Short‐Term and Long‐Term Unemployed Persons

Abstract

SUMMARYEuropean countries provide a number of different active labor market policy programs to reduce the risk and the amount of long‐term unemployment. Programs focus on particular sets of barriers to employment, such as lack of motivation (via sanctions), lack of job search skills (via job search assistance), lack of experience (via wage subsidies), or lack of marketable skills (via training programs). Numerous studies have been conducted to analyze the effectiveness of these activities. The results clarify that a number of programs are not very successful in reaching the intended goals. The major reason may be that the available programs do not (or do not fully) meet the needs of the unemployed. In this paper, differences in the employability between short‐term and long‐term unemployed persons are studied in order to reveal the crucial factors of job‐finding chances. Analyzing the factors driving employment chances is a necessary step to shed light on the needs of job seekers and to derive recommendations for a (re‐)arrangement of active labor market policy according to those needs. The empirical analysis is based on unique survey data of short‐term and long‐term unemployed persons merged with administrative data for Germany, including usually unavailable information. The results highlight three significant and important findings. First, differences in formal skills could only explain a small part of the employability gap between short‐term and long‐term unemployed persons. Hence, providing courses that aim at increasing skills of the individuals (at least in Germany) may reduce the employment gap, but the scope is limited. Second, differences in obstacles to employment – in particular care obligations – are relevant. If long‐term unemployed persons were equal in characteristics to the short‐term unemployed, the employability gap between both groups would clearly be narrower. Third, differences in the state of health, and in particular limitations in working ability, largely account for the employment gap. For this reason, policy makers should pay more attention to the last two findings when designing the placement process. The set of active labor market programs should be revised addressing these aspects in order to increase the employability of the participants.