Sustainable Employment Commitment

Policy Evaluation from an Intergenerational Perspective

Sustainable Employment Commitment

Author(s)
Francesco Franco
Marli Fernandes
Marlon Francisco
Category:
Intergenerational Policy Evaluation /
Sustainable Employment Commitment

Policy Evaluation from an Intergenerational Perspective

The Sustainable Employment Commitment (CES) is a measure that is included in the Resolution and Resilience Program. It consists of an exceptional and transitional measure in which the government, through the Institute of Employment and Professional Training (IEFP), provides financial support to employers that hire unemployed workers (up to 30,000).

Objectives:

Stimulate the hiring of the unemployed, including young people; support net job creation; promote job quality through open-ended contracts.

Final Assessment:

Probably intergenerationally unfair.

Data Analysis of the Unemployed Registered
with the IEFP

For individuals to be considered eligible, they must be registered with the IEFP and unemployed for at least two months, except if they are aged between 36 and 45. In this case, individuals must be unemployed for at least six months.

In February 2022, there were 428,961 unemployed individuals registered in the unemployment centers.

Only 277,068 (65%) individuals were eligible to be hired under the policy (Figure 1).

Unemployed individuals registered at IEFP, eligible to be hired under the CES (in %)
Figure 1 - Unemployed individuals registered at IEFP, eligible to be hired under the CES (in %). (Sources: IEFP, authors' calculation)
Figure 2 - Average unemployment duration by age cohort (in months)
Figure 2 - Average unemployment duration by age cohort (in months). (Sources: IEFP, authors' calculation)

At the same time, the average unemployment spell was nine months. Individuals aged 55+ were unemployed for longer (14 months) than those under 25 (4 months).

The policy is intended to pull individuals out of medium and long-term unemployment. However, it may be creating an age bias. The average length of unemployment for individuals aged 36 to 45 and eligible to be hired under the CES is higher (16 months) than the average for all eligible job seekers (14 months). It is only exceeded by individuals over 55 (Figure 2).

Analysis Results

  • CES can improve the employment situation of younger people, who are usually in a more precarious condition (lower wages, more likely to be unemployed, or to have a fixed-term contract), thus reducing intergenerational inequality.
  • Workers not hired under the policy cannot be adversely affected for it to be considered fair. This can only happen if there is net job creation. However, the situation may be particularly unfair to those aged 36 to 45. The requirement of needing to be unemployed for at least six months to be eligible for the CES increases the likelihood that some members will be bypassed, giving preference to slightly younger or slightly older individuals (who only need to be unemployed for two months).
  • It may reduce the transmission of inequality: studies show that children of unemployed parents who obtained employment thanks to hiring subsidies are more likely to complete schooling than those whose parents remained unemployed.
  • Research shows that getting an open-ended contract, compared to staying unemployed or having a fixed-term contract, improves an individual’s mental and physical health and increases the likelihood of having a first or second child.

Survey Results from a Sample of 1909 Firms

63% of the business owners we interviewed have never heard of the policy. Of those who had not heard of it, 36% answered that they would have applied if they had heard of it;

63% of the business owners we interviewed have never heard of the policy. Of those who had not heard of it, 36% answered that they would have applied if they had heard of it; 20% would not because the procedures themselves are too bureaucratic; 43% would not want to recruit or would only recruit on a term basis.

If you applied to CES: How likely would you have benn to hire the same person if CES did not exist?
If you applied to CES: Would you have offered the same salary if CES did not exist?

81% of the companies that applied for the subsidy revealed that they (probably) would have hired regardless of the existence of the CES, which may indicate a poor rate of net job creation. 86% of the companies would have offered the same salary.

Recommended Solutions:

  • IEFP needs to reduce its red tape, speed up the application process, publicize the incentives better, and allow firms more time to apply.
  • There is an urgent need to evaluate the effectiveness of active labor market policies, particularly hiring subsidies. To our knowledge, there is still no study of this kind in Portugal, even though these policies have been around for over a decade.

Intergenerational Fairness Evaluation
of the Policy

Final Assessment:

Probably intergenerationally unfair

  • Does it move Portugal away from its vision of the future? No.
  • Does it disadvantage any generation, current or future? Probably yes.
  • Does it disadvantage any specific age cohort in the population? Probably yes, those aged 36-45.
  • Does it reinforce the transmission of inequalities across generations? Probably yes.
  • Does it limit the choices of future generations? No.

About Author(s)

Francesco Franco
Francesco Franco has been teaching at Nova School of Business and Economics since 2004. He earned his PhD in Economics from the Massachussets Institute of Technology. His research interests include fluctuations and applied macroeconomics, topics on which he has published in Portuguese and international journals.
Marli Fernandes
Marli is a Ph.D candidate at Nova School of Business and Economics. She holds a Bachelor and Master in economics from the same institution. Her research interests are focused on Political Economy and Economics of Migration.
Marlon Francisco
Marlon Francisco is a PhD candidate and teaching assistant at Nova SBE, and an economist (consultant) at the World Bank. Previously, he worked as an Economist for Fitch Ratings, the Portuguese Treasury and Debt Management Agency (IGCP), and the International Monetary Fund (African Department).