Education and active labour market policy complementarities in promoting employment: Reinforcement, substitution and compensation

Abstract

This paper theorises and empirically assesses how education and active labour market policy (ALMP) relate to each other in shaping individuals' employment chances in Europe. It provides a theoretical base for assessing policy complementarities building on sociological skill‐formation literature, varieties of capitalism and social investment literature. Two hypotheses of complementarity are advanced: reinforcement whereby higher investment in general skills via education boosts ALMP effectiveness; and substitution‐compensation whereby investments in either policy suffice, rendering individual employment chances less dependent on ALMPs at higher (prior) educational investment levels. The advanced theoretical propositions are empirically tested by looking at how individual employment chances are affected by national ALMP efforts conditional on workforce education, distinguishing between individual‐ and national‐level educational attainment. Analyses draw on micro‐level EU‐SILC longitudinal data 2003–2015 from 29 European countries and 285 country‐years applying mixed‐effects dynamic panel regression models. Results highlight the complementarity of education in the functioning of ALMPs and show that the education‐ALMP interplay follows different dynamics when individual or national education are considered, with substitution‐compensation for the former and reinforcement for the latter. Higher individual educational attainment is associated with lower marginal returns from national ALMP efforts, with higher ALMP effectiveness among the lower‐educated. By contrast, higher national educational attainment is associated with increased ALMP effectiveness, with ALMPs tending to be far less effective at low levels of highly educated workforce. Different interaction patterns are observed for youth, indicating increased difficulty in activating this risk group.

Social Investment Returns over the Life Course

“…From this perspective, an effective education system improves the cognitive abilities of young individuals, which in turn strengthen the capabilities of young adults to transition smoothly from school to the workforce and to access better jobs (OECD, 2023). The macro corollaries would be higher employment rates, lower poverty and less precarious labour market transitions, whilst fostering the growth of economic sectors that capitalise on a large, skilled human capital pool (see Nelsen and Stephens, 2012;Plavgo, 2023).…”

Designing futures through student engagement: A policy futures perspective

“…In recent years, advanced economies are changing to knowledge intensive production which in turn has changed the role of education as a social policy within the welfare state (Carstensen and Emmenegger, 2023). Plavgo asserts“The contemporary welfare state approach to dealing with economic and social challenges is geared towards human capital formation, preservation and activation. This brings education to the core of the welfare state together with Active Labour Market Policies” (2023326).…”

Boosting work through welfare? Individual-level employment outcomes of social investment across European welfare states through the Great Recession

“…In other words, it is policy complementarity (or the lack thereof) that may (or may not) ultimately improve citizens' employment opportunities. While previous research has mostly theorized and tested complementarities between various types of social investmentoriented policies such as ALMP and childcare (Bakker and Van Vliet 2021;Nieuwenhuis, 2022;Plavgo, 2022), this article turn the attention to the fundamental interplay between social protection and social investment.…”

“…Therefore, on top of inspecting the impact of social investment as a whole, the analyses shown below also look at whether ALMP and ECEC actually lead to empirically observable short-term improvements of employment chances among target groups that have been shown relevant in previous empirical research (e.g. Hemerijck et al, 2016;Brilli et al, 2016;Plavgo, 2022)namely, the unemployed, low-educated and young people for ALMP, and respondents with children and women for ECEC.…”

“…The association between governments' policy efforts and citizens' employment opportunities remains largely under-investigated, especially in relation to three aspects. First, with a few exceptions (Hemerijck et al, 2016;Plavgo, 2022), empirical research on social investment outcomes has focused on the aggregate level only, thus neglecting individual-level factors (so-called 'compositional effects'), and the fact that the impact of specific social investment-oriented policies 'may yield substantial effects for specific groups that are not revealed in analyses of aggregate employment rates' (Bakker and Van Vliet, 2021: 20). Second, contributions based on micro-level outcomes have not specifically assessed whether varying individual employment chances are due to general differences across welfare states or (also) to variation in governments' effort put into social investments over time.…”