Economic Survey of Luxembourg 2006: Improving employment prospects of resident workers

 

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The following OECD assessment and recommendations summarise Chapter 3 of the Economic Survey of Luxembourg 2006 published on 5 July 2006.

Contents                                                                                                                           

The fact that young people can receive unemployment benefits directly after their education and without prior professional activity, after a waiting period of 26 to 39 weeks, may contribute to the high level of youth unemployment. To curtail such access to unemployment benefit, the Tripartite Committee (Luxembourg Government, 2006) recently agreed that:

  • ADEM should offer an active labour market measure to every young unemployed person no later than six months after registering as unemployed, and preferably after three months. The modalities of this measure and its implications for the opening of entitlement to receive unemployment benefits, notably concerning the waiting period between the end of the labour-market measure and the beginning of payment of unemployment benefit, will be discussed by the Permanent Committee of Employment.
  • The duration of unemployment benefit is to be made proportional to the duration of past employment. Again, the Permanent Committee of Employment will discuss the modalities for implementing this measure, it being understood that the duration of unemployment benefit will not be reduced for persons having worked more than 12 months.

As discussed in Chapter 4, young unemployed people should instead be eligible for the RMG; few would receive it as it is means tested and most such persons still live with their parents. In addition, the education cheque while helping to bring dropouts back into the school system should not be available until at least 12 months after the last attended school year to reduce incentives for students to drop out of school.

Strict EPL also weakens employment prospects for younger workers. It is relatively more restrictive for employees with low seniority and offers little alternative to employers than to hire on regular contracts. This may be a particular problem for those younger people who have lower skills, as prospective employers are less inclined to hire workers when they are uncertain about the productivity level of the employee. This uncertainty, however, shortens the person’s work history, putting younger people at a disadvantage relative to other job-seekers.

Current policy settings put resident workers at a disadvantage on the labour market. The Grand Duché finds itself in the middle of the Grande Region , which hosts approximately 204 000 unemployed job-seekers (Statec, 2006), a large number in relation to domestic employment in Luxembourg (about 313 000). With the freedom of circulation of labour across borders, the unemployed have to compete with numerous job applicants from other countries. The large gap between the level of unemployment benefits in Luxembourg and those of neighbouring countries results in a large gap in reservation wages, giving the unemployed in Luxembourg weaker incentives to search for a job than workers in neighbouring countries. At the same time, the high (net) minimum wage in Luxembourg (it is 19% higher than in Belgium and 12% higher than in France) gives incentives for job-seekers in neighbouring countries to take a job in Luxembourg while the lower minimum- and low-end wage rates in neighbouring countries are unattractive to Luxembourg job-seekers. Indeed, (net) minimum wage rates in the neighbouring countries are barely higher than RMG. The unemployed in Luxembourg rarely seek a job in neighbouring countries and are unattractive to employers relative to cross-border workers willing to work for lower wage rates.

Net replacement rates for the unemployed in Luxembourg with and without social assistance

1. APW is average production worker wage.
Source: OECD, Benefits and Wages, 2006.

Employment rates(1)

1. Total employment as a percentage of the corresponding population.
Source: OECD, Employment Outlook Database.

How to obtain this publication                                                                                      

The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.

The complete edition of the Economic Survey of the Luxembourg 2006 is available from:

 

Additional information                                                                                                  

For further information please contact the Luxembourg Desk at the OECD Economics Department at webmaster@oecd.org. The OECD Secretariat's report was prepared by David Carey, Ekkehard Ernst and Stefaan Ide under the supervision of Patrick Lenain.

 

 

 

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