Effectiveness of Active Labour Market Policies in the EU Countries for the Young Unemployed People and Implications for the Post-pandemic Period

Abstract

The Covid-19 pandemic has exposed vulnerability of young people in the labour market. Young people are faced with risks and an uncertain future, as well as changing the nature of labour markets. Active labour market policies are addressed as the main instrument to improve employment possibilities of young people in the light of the Covid-19 pandemic situation and its aftermath. This paper analyses the effectiveness of active labour market policies in reducing youth unemployment for the EU-26 Member States using aggregate data. Based on dynamic generalised methods of moments-GMM panel data approach, we find that active labour market policies do not support reduction of youth unemployment. Moreover, unfavourable prospects in the formal sector push young people into the informal sector. Considering the multiple shocks with which young people are being faced with, and the long-term pandemic impact, it suggests the scarring effect for young people. The analysis of the effectiveness of active labour market policy in reducing youth unemployment is of particular policy relevance, as the negative effects of the pandemic COVID-19 crisis are imminent, and the labour market situation is expected to worsen due to the fall in economic activity. Different measures of success would bring societal benefits not only from the public health perspective, but also from the perspective of well-being of young people. Moreover, OECD & European Commission (2022), in their joint policy brief, argue that investing in the growth sectors such as the circular economy, digital economy and the green economy would have the potential to employ young job seekers.