How to increase labour market participation

Background

A substantial number of people in the Nordic countries face unemployment, long-term unemployment and/or are at risk of poverty and social exclusion. The shares of such people in the Nordic countries are lower than the EU27 average. Still, the scale of these problems implies that it is highly important for the labour market policies, programmes and initiatives in the Nordics to be as effective as possible.

Traditionally, the weaker groups in society – the people who potentially face exclusion from the labour market – are divided into four broad groups: young people, seniors, immigrants and persons with health issues or disabilities. However, this division tends to mask substantial heterogeneity within each of these groups. This is potentially problematic, insofar as labour market and other support policies are directed toward these (internally heterogeneous) groups.

Differences between individuals within each of these groups imply that what is effective and helpful for one subset of individuals in the group may be ineffective and unhelpful for other individuals in the group. Conversely, it may also be the case that individuals in one group could be helped by policies targeting another group. Nonetheless, these individuals are not in the target group for this policy simply because they belong to a different group—even though they might benefit from this policy or a slight adaptation of its design. 

Purpose

The OECD has recently paid increased attention to a more barrier-centric approach to individuals who face labour market exclusion. Inspired by this approach and focussing on the Nordic countries, VIVE and HBS aim to group together individuals who face the same type of barriers rather than relying on the traditional group classifications (young people, seniors etc.).

Based on the identified barriers, we will assess how individuals in the Nordic countries can be clustered according to the barriers they face and assess the size of and specific profiles within each group. These clusters will also shed light on how the “traditional” groups of individuals are divided along the different barriers they face (i.e. it will shed light on the heterogeneity of the traditional groups and identify potential overlapping barriers cutting across these groups).

The aim is to develop a better ability to tailor and target labour market and other support policies more closely to people’s needs and challenges. This is likely to lead to more effective outcomes of those policies, in terms of increased labour market inclusion for those who face risks of exclusion.

Methods

The main challenge with the more barrier-centric approach to grouping individuals who face risks of exclusion is that it is not entirely straightforward to identify which individuals fall within each group, and to ensure appropriate attention to the fact that many individuals face two or more barriers simultaneously. It is not even straightforward to identify which barriers should constitute the defining variables of the different groups, nor what the appropriate different groups are appropriate.

In recent years, the OECD has presented a useful methodological approach for identifying groups, or clusters, of individuals who share the same types of barriers. While not perfect, the approach goes a long way towards identifying the relevant clusters of people at risk of exclusion, according to the barriers they face. VIVE and HBS will draw on this approach that uses algorithmic statistical modelling on data about such individuals, such as Latent Class Analysis (LCA), to identify a useful number of clusters and their defining characteristics.

Moreover, the project encompasses a review on research literature on different types of barriers, a mapping of policy instruments relevant for overcoming relevant barriers, as well as casestudies of interventions in different Nordic countries that entail a learning potential for policy-makers and practitioners in the other Nordic countries (and outside the Nordics).

Organisation

The project is a collaborative project conducted by HBS Economics and VIVE – the Danish Center for Social Research – and affiliated country experts from Stockholm University, University of Bergen, the Finnish Institute for health and welfare (THL), and Reykjavik University.

The consultancy HBS Economics is responsible for project management. A research team composed by consultants from HBS Economics and researchers from VIVE conducts the majority of the analytical work in all phases, including literature reviews, Latent Class Analysis and policy instrument mapping,.

The country experts will ensure that each task under each phase of the project, as well as the outputs, cover relevant aspects of their respective country, and will ensure that policy recommendations take due account of any national specifics, to ensure that the projects’ recommendations are implementable and actionable.