Daniele Pacifico - OECD.org

Daniele Pacifico

TABLE OF CONTENTS

ACKNOWLEDGEMENTS

7

1.

INTRODUCTION AND MOTIVATION

9

2.

FACES OF JOBLESSNESS IN LITHUANIA

11

3. ACTIVATION AND EMPLOYMENT-SUPPORT POLICIES IN LITHUANIA: OVERALL POLICY STANCE 20 4. OVERCOMING EMPLOYMENT BARRIERS: POLICY CHALLENGES AND PRIORITIES FOR SELECTED GROUPS 38 CONCLUSIONS

56

ANNEX 1: LATENT CLASS RESULTS FOR LITHUANIA

59

ANNEX 2: DESCRIPTION OF EMPLOYMENT BARRIERS

63

REFERENCES

65

Tables Table 1. Table 2. Table 3. Table 4. Table 5. Table 6. Table 7. Table 8. Table 9. Table 10. Table 11. Table 12. Table 13.

Risk of poverty or social exclusion 12 Employment barrier indicators 16 Potential targets of Activation and Employment-support policies 17 Main out-of-work benefits in Lithuania: entitlement rules, amounts and duration 22 Care allowances for individuals with disabilities 41 Care allowances for individuals with disabilities 42 Employment subsidies in Lithuania: inputs and outcomes 43 Vocational rehabilitation programme: inputs and outcomes 44 Cash social assistance benefits: recipients and spending over time 50 Labour market services in Lithuania: inputs and outcomes 52 The ‘Employment support for the long-term unemployed’ programme: inputs and outcomes 53 The ‘Work skill acquisition support’ programme: inputs and outcomes 54 Vocational training in Lithuania: inputs and outcomes 54

Figures Figure 1. Figure 2. Figure 3. Figure 4. Figure 5. Figure 6.

Employment rates: sustained recovery after the crisis Trends of population groups with potential labour market difficulties Size and composition of the population with potential labour market difficulties Employment barriers in Lithuania Number of simultaneous barriers Shares of individuals facing multiple simultaneous employment barriers

FACES OF JOBLESSNESS IN LITHUANIA: MAIN RESULTS AND POLICY INVENTORY© OECD 2017

11 13 14 16 17 19

5

Figure 7. Out-of-work benefits for working-age adults in Lithuania Figure 8. Unemployment benefits: coverage, duration and strictness of eligibility criteria Figure 9. Income levels provided by cash minimum-income benefits Figure 10. Work disincentives for out-of-work working-age adults Figure 11. Spending on Active Labour Market Policies by policy area Figure 12. How important is the public employment service (PES) as a Figure 13. Participation in active labour market programmes Figure 14. The holistic model for job placements Figure 15. Balance between different activation policy measures Figure 16. Unemployment rates of different groups Figure 17. Unemployment rates in % by county and urban density, 2014 Figure 18. Skills mismatch Figure 19. The economic crises has deteriorated the job-matching process Figure 20. Participation in lifelong learning by education level Figure 21. Average tax wedge on labour Figure 22. Individuals reporting long-standing health limitations, by income quintile Figure 23. Expenditures on health by type of financing Figure 24. Poor working conditions can reduce employment incentives of older workers Figure 25. Discrimination in the workplace against older workers is high Figure 26. Group A appears to underinvest in upskilling Figure 27. Social Enterprises Figure 28. Employer taxes and social security contributions Figure 29. Strictness of employment protection legislation Figure 30. Work disincentives for long-term unemployed individuals

21 24 25 25 26 28 29 31 31 32 33 33 34 34 35 36 36 39 40 43 45 48 48 50

Boxes Box 1. Individuals with potential labour market difficulties (“target” population) 13 Box 4.1. Group A: “Older labour-market inactive individuals with limited work experience and health limitations” 38 Box 4.2. Overview of “social enterprises” in Lithuania 46 Box 4.3. Group B: “Prime age long term unemployed with limited work experience and scarce job opportunities” 47

6


ACKNOWLEDGEMENTS

This document was produced with the financial assistance of the European Union Programme for Employment and Social Innovation “EaSI” (2014-2020, EC-OECD grant agreement VS/2016/0005, DI150038). It is part of a joint project between EC and OECD (VS/2016/0005, DI150038), Cooperation with the OECD on Assessing Activating and Enabling Benefits and Services in the EU) covering six countries: Estonia, Ireland, Italy, Lithuania, Portugal and Spain. In preparation of this report, authors met with experts in a number of institutions in Lithuania on a country dialogue mission in January 2017. The authors extend their thanks to officials in these institutions, especially the Ministry of Social Security and Labour who organised the meetings, the Municipalities of Alytus and Kaunas, and to numerous experts and researchers who provided valuable information during and after this mission. The lead author gratefully acknowledges contributions from the Ministry of Social Security and Labour (Laura Žebrauskaitė and colleagues), colleagues at the OECD (James Browne, Rodrigo Fernandez, Herwig Immervoll, Sebastian Königs, Dirk Neumann, Ann Vourc’h) and comments received from country experts and the European Commission. Herwig Immervoll coordinated the project and the preparation of this report. All views and any errors in this document are the responsibility of the authors. In particular, it should not be reported as representing the official views of the OECD, of the European Union, or of their member countries.

This project is co-funded by the European Union


7

1.

INTRODUCTION AND MOTIVATION

1. Across EU and OECD countries, between 16 and 50% of working-age individuals are without employment, and a significant share of workers are in unstable jobs, or work intermittently or fewer hours than they would like. The factors contributing to joblessness or underemployment are varied and can relate to individual circumstances and characteristics, to specific policy choices, or to the broader economic context, such as a cyclical labour-market weakness. Good-quality information on the employment barriers that people are facing is crucial for formulating strategies to overcome them, and for assessing the effectiveness of existing policy measures aiming to strengthen labour-market outcomes. 2. The “Faces of Joblessness” project (www.oecd.org/social/faces-of-joblessness.htm), undertaken jointly by the OECD, the European Commission and the World Bank, develops and applies a novel methods for identifying groups of people with no or weak labour-market attachment, as well as their employment barriers. It covers selected EU and OECD countries and is organised broadly in three parts. A first part presents typologies of underutilised employment potential. To do this, the analysis employs survey data that allow considering individual work patterns over an entire year. Going beyond snapshots of people’s labour-market status facilitates a discussion of underemployment, e.g., in the form of intermittent or occasional work, which is attracting growing policy attention. 3. A second part assesses the incidence and severity of key barriers that may hinder stable or higherintensity employment for those on the margins of the labour market. The examination of barriers relies on a series of quantitative indicators of concrete labour-market obstacles accounting for individual (e.g. skills, work experience, health), household (care responsibilities) and labour market / institutional (labour demand, work incentives) contexts, and providing a rich account of employment barriers and characteristics (“faces”) of different groups. In particular, the quantitative information on employment barriers is used to reveal groups who share similar combinations of barriers and who are therefore likely to provide a good basis for tailoring and targeting policy interventions. 4. A third part employs this empirical information to support a policy inventory for selected groups. Essentially, the results on employment barriers are used to examine whether existing activation and employment-support policies are well-adapted to the barriers and characteristics that are prevalent in the selected population groups. By discussing existing policy configurations from the perspective of the employment barriers that people are facing, this bottom-up approach is intended to provide concrete input into policy discussions on how to adapt employment-support measures to different groups and evolving labour-market realities. For instance, the results can inform assessments of whether specific groups are “on the radar” of existing activation and employment-support policies, whether existing policy configurations are suitably customised to the needs of specific labour-market groups, and whether employment support is accessible to those who are likely to benefit from it. 5. The Country Policy Paper for Lithuania presents results and selected policy implications, drawing on the latest wave of the EU-SILC data (2014) that was available for this project. 21% of working-age individuals in Lithuania were persistently out of work for at least 12 months, and a further 11% had low work intensity working less than half of the year, or reporting limited working hours or very low earnings. The potential employment barriers that were most common among these 32% of the working-age population were health limitations, limited work experience, and scarce job opportunities. Although financial disincentives and care responsibilities were less widespread overall, they represented


9

important barriers for some groups. A striking finding is that large shares of those with no or weak labour-market attachment face multiple simultaneous employment barriers: 34% faced three or more significant barriers, highlighting the limits of narrow policy approaches that focus on subsets of these barriers in isolation. 6. Section 2 discusses the labour-market and social context in Lithuania in which the Faces of Joblessness analysis is undertaken, summarises empirical results on the incidence of employment barriers among working-age individuals with no or weak labour-market attachment, and presents a typology of distinct labour-market groups of shared sets of employment barriers and characteristics derived from a comprehensive statistical segmentation analysis. Section 3 provides an overview of Lithuania’s policy stance on activation and employment-support policies drawing on a range of available data and policy indicators. Section 4 seeks to illustrate how bottom-up information on patterns of individual employment barriers can inform a discussion of policy priorities, effectiveness and gaps. This is done by undertaking a selective policy inventory for two of the groups identified in the empirical part: a) older economically inactive individuals with limited work experience and health limitations and b) prime-age long-term unemployed with limited work experience and scarce job opportunities A concluding section summarises key policy implications.

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FACES OF JOBLESSNESS IN LITHUANIA: MAIN RESULTS AND POLICY INVENTORY©

2.

FACES OF JOBLESSNESS IN LITHUANIA

7. As background for the policy inventory in Sections 3 and 4, this first part of the country policy paper summarises evidence on the employment barriers faced by those with no or weak labour-market attachment in Lithuania. It also synthesises findings from a profiling analysis that identified groups with similar types of barriers. Full details on the employment barriers and groupings are available in the Profile Analysis Note (PAN) through the project website (http://www.oecd.org/social/faces-of-joblessness.htm). 2.1.

Labour-market and social context

8. The impact of the crisis on the labour market in Lithuania was especially severe during the first years following the onset of the crisis but was followed by a strong recovery: by 2015, the employment rate in Lithuania exceeded both its 2007 level and the EU average (Figure 1). Accordingly, both overall and long-term unemployment rates were declining from 2010, but remained above their pre-crisis levels in 2015. A similar downward trend is shown in youth unemployment and the number of young people aged 15-24 not in employment, education or training (NEET) has fallen below the EU average since 2010. Figure 1. Employment rates: sustained recovery after the crisis in % of the working-age population

Source: Eurostat Labour Force Statistics.

9. Despite the sustained recovery after the crisis, the Lithuanian labour market still faces a number of challenges, mainly due to several socio-demographic developments. The size of the Lithuanian working age population is falling sharply as a result of persistently low fertility rates and massive net emigration; poor health outcomes resulting in low life expectancy have also played a role (European Commission, 2016). A lack of skills and qualifications keeps a significant number of (older) working-age people in very long-term unemployment, and creates relatively high unemployment risks also for low-skilled youth. Finally, spending on active labour market programmes (ALMPs) is low in compared to the rest of the EU (European Commission, 2016), and could be better targeted towards training programmes that do more to increase long-term employability (OECD, 2016a). 10. Unemployment insurance benefit levels and coverage are comparatively low in Lithuania. The same is true for other income support for the unemployed, resulting in significant risk of poverty in the case of job loss. Although the EUROSTAT poverty rate in 2014 was only slightly above the EU average


11

of 17.2% (Table 1), the rate of severe poverty (below 40% of median income) is among the highest in the EU and is keep increasing (European Commission, 2016). Lithuania is also one of the most unequal countries in the EU with the fourth highest Gini coefficient for disposable income. Table 1.

Risk of poverty or social exclusion 2014, in % of people aged 16-64

People at risk of poverty or social exclusion People at risk of poverty All Not working Working full-time part-time Households without children Households with children

(1)

People living in households with severe material deprivation All Households without children Households with children People living in households with very low work intensity (3)

Lithuania

Estonia

Ireland

Italy

Portugal

Spain

EU28

26

24

30

30

29

32

26

18 35 8 7 24 18 20

20 36 12 11 20 25 18

17 31 6 3 11 15 16

20 31 11 10 17 16 24

19 32 11 9 31 16 23

23 36 13 10 23 16 28

17 31 10 8 16 15 19

12 16 12

6 7 5

9 6 10

12 10 13

10 10 11

8 6 9

9 8 10

12

10

24

12

11

15

11

(2)

Note: 1) The risk of poverty or social exclusion is computed using the Eurostat methodology. 2) Individuals aged 18-64. 3) The household work intensity is the ratio of the total number of months that all working-age household members (18-59) have worked during the income reference year and the total number of months the same household members theoretically could have worked in the same period. “Low” work intensity is defined as the number of persons living in a household having work intensity between 0.20 and 0.45. Source: Eurostat (EU-SILC 2014).

2.2.

Target groups for activation and employment-support policies

11. Individuals with labour market difficulties frequently move between non-employment and different states of “precarious” employment. As a result, limiting attention to “snapshots” of non-employed (or underemployed) individuals, such as those based on labour force surveys, may not capture the true extent of labour-market difficulties or the need for policy intervention. To cover the potential scope of activation and employment-support policies (AESPs), the Lithuania PAN focuses on a target population including working-age individuals (18-64) who are “persistently” out of work as well as individuals whose labour-market attachment is “weak”, e.g. because they move in and out of employment. Box 2.1 defines each sub-group of the target population more precisely and explains how these are identified in the EU-SILC data.1 12. Figure 2 shows the size and evolution of the target population in Lithuania between SILC survey years 2008 and 2014.2 Both long-term unemployment and underemployment (i.e. individuals with weak labour market attachment, as defined in Box 2.1 above) rose between 2007 and 2009 (SILC survey years 2008 and 2010) and subsequently fell until 2013 (SILC year 2014). Overall levels of labour-market

1.

See Fernandez et al. (2016) for a discussion of the reference data and the sub-groups included in the target population.

2.

SILC survey respondents report activity status and income for the previous calendar year, so these data refer to 2007-2013.

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13. Inactivity remained relatively constant throughout the period in question. Underemployment had not yet returned to its pre-crisis levels by 2013 (SILC year 2014). Box 1.

Individuals with potential labour market difficulties (“target” population)

The “target” population in this report includes individuals who are persistently out-of-work, as well as those with weak labour-market attachment. The persistently out-of-work population (long-term unemployed or inactive) includes individuals reporting no employment activity throughout the reference period. The reference period corresponds to 12 consecutive monthly observations in the income reference year (January-December of year T-1) plus one additional observation at the moment of the interview (in year T). The group with weak labour market attachment refers to individuals reporting employment activity during the reference period matching any of the following three situations: 1.

Unstable jobs: individuals working only a limited number of months throughout the reference period. The threshold is equivalent to Eurostat’s low-work-intensity measure: Above zero but no more than 45% of potential working time in the income reference year. To reconcile information reported for the income reference period and at the moment of the interview the following individuals are also considered in this group: 1) Workers who report no work activity during the income reference period but who are working at the moment of the interview and, 2) workers with between 45% and 50% of work activity during the income reference period who do not report any work activity in either the last month of the income reference period or at the moment of the interview.

2.

Restricted hours: workers who spent most or all of the reference period working 20 hours or less a week. However, individuals working 20 hours or less who are not likely to have additional work capacity, e.g. due to ongoing education or training, are excluded.

3.

Near-zero earnings: individuals reporting some work activity during the income reference period but 2 negative, zero or near-zero monthly earnings. In addition to possible classification error, situations included in this group could signal potential labour market difficulties, such as underpayment and/or informal activities.

1

Note: 1) The 20-hours threshold is approximately in-line with the 45% “part-year” threshold that identifies the group with unstable jobs. For a 40-hours working week in a full-time job, 45% of full-time would correspond to 18 hours a week. However, in SILC, the distribution of working hours in the main job shows a high degree of bunching at 10, 15, 20 and 25 hours a week. As the closest multiple of 5, a value of 20 hours was therefore chosen. 2) The near-zero earnings corresponds to the first percentile of the SILC earnings distribution.

Figure 2. Trends of population groups with potential labour market difficulties (1)

% of working age population , for different EU-SILC survey years


13

Note: 1) The working age population refers to adults (18 to 64) excluding full-time students and those in compulsory military service. See Box 2.1 for the definitions of “weak labour market attachment” and individuals who are “persistently out of work”. Source: Calculations based on EU-SILC 2008-2014.

14. Following the concepts in Box 2.1, individuals with no or weak labour market attachment represented 32% of the working-age population in Lithuania in the 2014 data (Figure 3). Of those, the biggest group (67%) are individuals who are persistently out of work as unemployed or inactive, whereas the rest (33%) show weak labour market attachment. Of those who are persistently out of work, most are “unemployed”, followed by “unfit to work” due to illness or disability and retired. Among those with weak labour market attachment, most have unstable employment patterns, while only 7% worked part-time throughout the year. The “near-zero earnings” category is especially sizeable, accounting for 7% of the target population. Figure 3. Size and composition of the population with potential labour market difficulties 2014 Persistently out of work (67% of the target population) Average of six countries

27%

Other inactive (6%) Domestic tasks (8%) Unemployed (22%) Unfit to work (18%)

LTU "Target" population (32%)

21% 11%

12%

Retired (16%)

Working age population (100%) 61%

68%

Weak labour market attachment (33% of target population)

Persistently out of work Weak labour market attachment

Restricted hours (7%)

Unstable jobs (19%)

Near-zero earnings

No major difficulties

(7%)

Note: The six-country average is unweighted. See Box 2.1 for definitions of the different groups. The working age population refers to adults (18 to 64) excluding full-time students and those in compulsory military service. Source: Calculations based on EU-SILC 2014.

2.3.

Employment barriers: Summary of empirical results

A typology of employment barriers 15. Individuals with no or weak labour-market attachment often face a number of employment barriers that prevent them from fully engaging in the labour market. Although these barriers cannot be

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measured directly, proxy indicators can be developed using the information provided in survey data like the EU-SILC. Following Immervoll and Scarpetta (2012), the Profile Analysis Note for Lithuania used a series of empirical indicators for the three main categories of employment barriers below. The label of each barrier, e.g. “lack of skills” or “high non-labour income”, refers to a specific indicator and thresholds as described in the Profile Analysis Note and summarised in Annex 2 below. 1.

Insufficient work-related capabilities, evaluated along six dimensions: Item 1: low education or skills, whether an individual has a lower-secondary degree or less (ISCED-11 standards) or low skills (the lowest macro-category of the ISCO-08 classification).  Item 2: health limitations, i.e. whether an individual reports long-standing physical or mental limitations in daily activities.  Item 3: care responsibilities, i.e. whether an individual has a family member who requires care and they are the only person in the household who can provide it.  Item 4: no past work experience at all.  Item 5: low overall work experience relative to potential experience.  Item 6: no recent work experience. 

2.

Lack of financial work incentives, evaluated along two dimensions:  

3.

Item 1: high earnings-replacement benefits, i.e. out-of-work benefits are high relative to the individual’s potential earnings. Item 2: high non-labour income, i.e. living in a household with high levels of income that are unrelated to own work effort. Scarce job opportunities. One item only:



The estimated risk of not finding a job 12 months or longer despite active job search and willingness to take up employment immediately.

16. Employment barriers are significantly more common in the target population than among those with stronger labour market attachment, indicating that they are indeed reasonably well associated with employment outcomes. They also tend to be more common among those who have been persistently out of work than among individuals with weak labour-market attachment. This is shown in Table 2, which shows shares of individuals in the target and the working-age populations facing each of the employment barriers. The ‘high levels of nonlabour income’ barrier is the only one that is less prevalent in the target population than in the reference population: those with strong labour-market attachment may, for example, be more likely to have a high-earning spouse, perhaps because of selection effects in the family formation process (assortative mating). 17. Frequent employment barriers in Lithuania are “No recent work experience” and “Health limitations” (67% and 34% of the target population, respectively – see Figure 4) whereas “No past work experience at all” and “High earnings-replacement benefits” are much less common (10%). The share of individuals facing different employment barriers is lower than or broadly in line with the six country average for most of the indicators.3 In particular, the recent strengthening of labour market in Lithuania means that relatively few individuals in the target population appear affected by “Scarce job opportunities” or “No past work experience”. An exception is the share of individuals facing health limitations, which is significantly higher in Lithuania than in other countries (the six country average

3.

The Profiling Analysis Notes of the six countries tend to use always the same set of indicators. In some cases, closer examination of the data shows that deviations from the baseline specification for some indicators can improve model fit and thus the interpretation of the profiling results. However, in Figure 4 the six-country average is computed using a coherent specification of the indicators corresponding to the indicators used in the Lithuania PAN.


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is 32%), while the share of individuals with “low education or skills” is significantly lower in Lithuania (25%) than in other countries (the six country average is 32%). Table 2.

Employment barrier indicators

% of population facing different types of barrier, 2014 "Target" population Working age population

All

"Low" education or skills

14

25

29

No past work experience

4

10

16

0

"Low" relative work experience

18

32

34

29

No recent work experience

21

67

100

0

Health limitations

16

34

42

18

4

13

13

14

31

22

19

29

6

10

12

8

10

32

35

27

Persistently out Weak labour of work market attachment

Insufficient work-related capabilities

Care responsabilities

18

Lack of financial work incentives "High" non-labour income "High" earnings replacements Scarce job opportunities Scarce job opportunities

Note: See text for definitions and thresholds. Working-age population: all working-age adults (18 to 64) excluding full-time students and those in compulsory military service. Target population includes members of the working-age population who are out of work throughout the income reference period (those who are “persistently out of work”) and those who work for less than 45% of the reference period, or who work for less than 20 hours per week for more of the reference period, as well as those who work full time for most of the reference period but earn less than a third of the statutory minimum wage (these are collectively referred to as individuals with “weak labour market attachment”). For more details see Box 1. Source: Calculations based on EU-SILC 2014.

Figure 4. Employment barriers in Lithuania % of target population

Note: See the Profile Analysis Note for Lithuania for definitions and thresholds. The six-country average is unweighted. Source: Calculations based on EU-SILC 2014.

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18. The majority of persons who are persistently out of work or have weak labour market attachment face multiple employment barriers. About one third face two simultaneous barriers, and another third face three barriers or more, compared to only a quarter of individuals with a single employment barrier (Figure 5). Even though multiple simultaneous barriers are common in Lithuania, they are less so than in other countries covered by this project. Figure 5. Number of simultaneous barriers % of target population

Lithuania 11

Average of six countries 6

10

13

20 24

23

28

32

31

4 or more barriers

3 barriers

2 barriers

single barrier

No major barrier

Note: The six-country average is unweighted. Source: Calculations based on EU-SILC 2014.

Target groups of activation and employment-support policies 19. The statistical profiling analysis reported in the Profile Analysis Note (http://www.oecd.org/social/faces-of-joblessness.htm) suggests that Lithuanians with no or weak labour market attachment can be separated into ten distinct groups, each with similar profiles of employment barriers. Table A1 and A2 in Annex 1 report employment barriers and report a range of demographic and socio-economic characteristics (such as gender, age, poverty risks, etc.) for each group. This information helps to attach the following approximate labels, or “faces”, to the members of the ten groups. The sizes of these groups, along with suggested labels are reported in Table 3. Table 3.

Potential targets of Activation and Employment-support policies

Group labels based on the main employment barriers characterising each group Group number

Group label

% of the target population

1 2 3 4 5 6 7 8 9 10

Experienced early retirees with health limitations Older labour-market inactive individuals with limited work experience and health limitations Prime age long term unemployed with limited work experience and scarce job opportunities Underemployed workers with low earnings Skilled mothers with care responsibilities in higher-income households Unemployed youth with limited work experience Long-term unemployed youth without any past work experience and scarce job opportunities Disabled with low education and without any past work experience Young mothers without any past work experience and care responsibilities Mothers with low skills, care responsibilities and limited work experience

20 20 17 14 8 7 6 5 2 2


17

Note: Group labels are based on the employment barriers with a “high” probability of occurrence within the group. See tables A1 and A2 reports the complete list of individual and household characteristics. Source: Calculations based on EU-SILC 2014.

20. One notable inference from the descriptive statistics in Annex Tables A1 and A2 is that proxy groupings, which are commonly referred to in the policy debate, such as “youth”, “women”, “unemployed”, are far from homogeneous. In some cases, these proxy labels may distract attention from the specific employment obstacles that policies seek to address as they can comprise groups with very different combinations of employment barriers. To successfully address those barriers, suitable policy responses and priorities may be quite different for each of them. For example, the results point to: 

Three groups of individuals with health limitations: Two are relatively older, the “Experienced early retirees with health limitations” (Group 1) have a long employment record and face weak financial work incentives whereas the “Older labour-market inactive individuals with limited work experience and health limitations” (Group 2) have low work experience relative to their age and more severe health problems. The third group, “Disabled with low education and without any past work experience” (Group 8) is much younger than the other two and faces more simultaneous employment obstacles.



Three different subgroups of women with care responsibilities: The “Skilled mothers with care responsibilities in higher-income households” (Group 5) are characterised by high household incomes and no barriers to employment other than care responsibilities. A second group, “Mothers with low skills, care responsibilities and limited work experience” (Group 10) lives in much poorer households and has relatively little work experience, while the third group “Young mothers without any past work experience and care responsibilities” (Group 9) faces more severe barriers to employment, having never been in paid work at all and combining scarce job opportunities with care responsibilities.



Three distinct subgroups among the unemployed: One group, the “Long-term unemployed youth without any past work experience and scarce job opportunities” (Group 7), is young with no employment history and low skills; the other, the “Unemployed youth with limited work experience” (Group 6) is also characterised by young individuals but, differently from Group 7, they have some limited work experience and a higher probability to find employment. The third group, “Prime age long-term unemployed with limited work experience and scarce job opportunities” (Group 3), is older than the other two; they have limited work experience like Group 6 but a much lower probability to find a job.



One group of workers with very low earnings: These “underemployed workers with low earnings” (Group 4) are workers characterized by some weak labour market attachment but with very low earnings. Unlike the other groups, they face only few (and sometimes none) of the barriers to employment discussed here. The low earnings they report are often the result of volatile earnings from self-employment, or it might be the result of not reporting undeclared wages or employment to the survey.

21. A majority of individuals in most of these groups face multiple simultaneous employment barriers (Figure 6). As a result, addressing only one of those obstacles might not be enough to boost employment levels significantly. For instance, about 75% of the “Disabled with low education and without any past work experience” (Group 8) face four or more employment barriers while 22% have three simultaneous barriers (generally low education or skills, no prior work experience and severe health limitations). Similarly, more than 75% of “Young mothers without any past work experience and care responsibilities” (Group 9) have three or more simultaneous barriers. From a policy perspective, these

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findings point to a need to carefully sequence different activation and employment support measures, and to coordinate them across policy domains and institutions. Figure 6. Shares of individuals facing multiple simultaneous employment barriers By group, in descending order of shares facing three or more barriers, in %

Note: Group sizes are reported on the horizontal axis. See also Table 3 and Annex Tables A1, A2. Group 1: “Experienced early retirees with health limitations”; Group 2: “Older labour-market inactive individuals with limited work experience and health limitations”; Group 3: “Prime age long term unemployed with limited work experience and scarce job opportunities”; Group 4: “Underemployed workers with low earnings”; Group 5: “Skilled mothers with care responsibilities in higher-income households”, Group 6: “Unemployed youth with limited work experience”; Group 7: “Long-term unemployed youth without any past work experience and scarce job opportunities”; Group 8: “Disabled with low education and without any past work experience”; Group 9: “Young mothers without any past work experience and care responsibilities”; Group 10: “Mothers with low skills, care responsibilities and limited work experience”. Source: Calculations based on EU-SILC 2014.


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3.

ACTIVATION AND EMPLOYMENT-SUPPORT POLICIES IN LITHUANIA: OVERALL POLICY STANCE

22. As a general background to the policy inventory for selected groups in Section 4, this section provides an overview of the main income-support, activation and employment-support policies. It draws on a range of key indicators describing out-of-work benefits, the Public Employment Services (PESs) and Active Labour Market Programmes (ALMPs), which are relevant across the groups identified above. It also describes key labour-market challenges and summarises government policy priorities and recent or planned reforms. 3.1.

Income support: Out-of-work benefits

23. Lithuania operates a range of different income-support measures for working-age adults who have lost their job or have very low incomes. Some of these measures can be considered as earnings replacements and categorized into one of the following categories: insurance-based unemployment benefits, means-tested social assistance, family support, incapacity and early retirement benefits.4 Additional income top-ups, such as family benefits or housing allowances, may be available irrespective of work status. 24. Disability and social assistance benefits represent the largest categories of out-of-work benefit claimants in Lithuania, with each benefit covering about 7% of the working-age population in 2014 (Figure 7, Panel A). Social assistance recipient numbers and spending levels grew enormously between 2007 and 2011 (by 504% and 841%, respectively), but have been slowly declining since 2012. Maternity-related benefits covered about 2.9% the working-age population in 2014 and spending on these benefits has also grown significantly during the crisis (plus 238% between 2007 and 2010).5 Recipient numbers of unemployment benefits also increased during the economic and financial crises but at a slower pace than other income-replacement benefits, from 0.8% of the working-age population in 2007 to 2.1% in 2014 after a pick of 3.3% in 2009. Overall, spending on income-replacement benefits relative to GDP in Lithuania was below the EU average in 2013, driven by lower spending on “Early-retirement” and “Unemployment” benefits (spending in these branches amounted to 0.2% of GDP in Lithuania versus 1.2% on average for the EU28).

4.

This study focuses on working-age individuals. Therefore, earning-replacement benefits like old-age pensions or survivor pensions, which mostly target those above normal retirement age (and some persons under 18 years in the case of survivor benefits), are not considered. Other earnings-replacement benefits, such as sick leave schemes or work accident insurance payments, are not included for methodological reasons and because they are less linked to the labour market situation.

5.

This is the consequence of the reforms implemented between 2007 and 2010. In January 2007, the amount of the “child-raising” allowance (See Table 4) paid during the post-natal period for 12 months was increased from 70% to 85% of the “compensatory wage” (see note of Table 4), and in July 2007 to 100% of the compensatory wage during the first six months. In January 2008, the duration was extended to two years (100% of the compensatory wage during the first year and 85% during the 2 nd year). The reduction of spending observed in 2011 is because the benefit amount was reduced in July 2010 to 70% (40%) of the compensatory wage during the first (second) year.

20 OECD 2017


25. Comparing expenditures and the number of recipients of different benefits, it is clear that average benefit amounts in Lithuania tend to be highest for claimants of early retirement pensions and parental leave benefits. Indeed, recipients of parental leave benefits receive up to 100% of their previous earnings for the first 12 months after birth, and those who take their retirement pensions early do so with a penalty of 0.4% for each month of retirement taken before normal retirement age. By contrast, net replacement rates of unemployment benefits are low by international standards (Figure 10). They consist of a small fixed component and a variable earnings-related one (Table 4). Figure 7. Out-of-work benefits for working-age adults in Lithuania Panel A: Recipients of earnings replacement benefits, percentage of population aged 18-64

Unemployment benefit recipients Work incapacity pension

Social Assistance (2) Parental leave

Maternity benefit (4)

Early retirement pensions (5)

% of 18-64 population

30

20

10

0

2007

2008

2009

2010

2011

2012

2013

2014

Panel B: Social spending by social policy branch, percentage of GDP

Unemployment (3)

Social Assistance (4)

Family (2)

Early retirement

Incapacity to work (1)

4.5 4.0 3.5 % of GDP

3.0 2.5

2.0 1.5 1.0 0.5

0.0

2007

2008

2009

2010

2011

2012

2013

6-country EU OECD 2013 average

Note: The categorisation of social benefits (branches) mostly follows Eurostat ESSPROS definitions. Information on the programmes in each category is shown in Table 4. Panel A: Notes: 1) Full-year equivalent; 2) To approximate the number working-age recipients, the total number of individuals living in households who receive cash social assistance has been divided by the average size of poor working-age households (estimates from the OECD IDD database); 3) full-length benefit equivalent; and 4) total number recipients over the year; 5) only individuals below the standard retirement age; The number of working-age recipients of disability pensions has been interpolated for the years 2007 and 2008. Panel B: The benefits considered in each branch are: work incapacity pension; maternity and paternity benefits, child-raising allowance, pregnancy and child grants; social assistance; unemployment insurance; early retirement pensions. The programme names in the national language, the entitlement criteria and the duration of these benefits can be found in Table 4. Country averages are unweighted. Source: OECD SOCR and SOCX databases.


21

Table 4.

Main out-of-work benefits in Lithuania: entitlement rules, amounts and duration 2014 (the reference year of results in Section 2)

Social protection branch

Unemployment

Social assistance

Incapacity to work

Programme name (Lithuanian name)

Unemployment benefit (Nedarbo draudimo išmoka)

Social Assistance (Socialinė pašalpa)

Work incapacity pension (Netekto darbingumo pensija)

Special work conditions (Kompensacija už ypatingas darbo sąlygas) Early retirement Early retirement pension (Išankstinė senatvės pensija)

Family

Pregnancy grant (Vienkartinė išmoka nėščiai moteriai) and Child Grant (Vienkartinė išmoka vaikui) Maternity/ paternity Benefit (Motinystės/tėvyst ės pašalpa) and child-raising allowance (Motinystės/tėvyst ės pašalpa)

Entitlement criteria

Amount

Duration

Working age without pension entitlement; registered with the PES, actively seeking a job and ready to participate in ALMP measures. Contribution record: at least 18 months during the last 36 months.

Fixed component corresponding to the State Supported Income (SSI) plus a variable component corresponding to 40% of the Compensatory Wage. From 4th month till termination the variable component is halved. No taxation or SSC. Amount capped at 70% of the Annual Insured Income (75% of the Average Monthly Wage as of July 2017) 100% of the difference between the SSI per person per month and the actual income of the first family member; 80% for the second member and 70% for the third or additional family member. Recipients can be eligible also for the "heating, drinking and hot water compensation" depending on family size and m3 of the house. Six-month transition-into-work benefit equal to 50% of the SA amount.

From 6 to 9 months depending on the contribution record, prolonged by 2 months for the elderly within 5 years till pension age. In case of incapacity for work, the duration is prolonged by up to 1 month.

Working-age persons who are out-of-work because of: fulltime education (until 24 years); disability; care reasons; unemployment (registered with the PES). Means test based on a broad definition of family income and assets.

At least 45% reduction of work capacity. The minimum insurance period and the obligatory insurance period depends on the person's age at time of disability and level of disability.

Granted to those persons who worked for a long time in hazardous sectors and occupations Obligatory insurance period (30 years, increasing of 6 months per year till a maximum of 35 years from 2018); no more than 5 year before the retirement age; no other incomes. Child Grant: Paid to one of the parents for any born child. Pregnancy grant: Paid to pregnant unemployed women who are not eligible for the maternity benefit (see below) 12 months insurance during the last 24 months. No minimum period of contribution for persons who are under 26 years.

2 parts. The “basic” part depends on the Basic Social Benefit (BSB) and incapacity level: 50%, 100% or 150% of the BSB for low (45%-55%), medium (60%-70%) or severe (75%+) incapacity. The "supplementary" part is calculated as old-age pensions. Supplements for long employment records. Possibility to accumulate pension with earnings. Fixed amount benefit (150% of BSP), paid only up to statutory retirement age; can be paid alongside with disability pension, but not compatible with early retirement pension. Calculated using the same formula for the old-age pension and decreased by 0.4% for each month of earlyretirement (up to 24% overall reduction in 5 years). The reduced amount is paid also for the residual retirement period.

3 months renewable. In 2014: 20-to-50% reductions between months 12 to 60; after the 60th month the benefit could be suspended up to 24 months. As of 2016: after the 60th month, the benefit is paid in-kind unless recipients participate in socially useful activity, or the PES has failed to offer a job or participation in ALM measures. In these cases, recipients always receive the full cash benefit amount (even before the 60th month). Recipients are reassessed after the first 6 months and after 12 and 24 months; the benefit is then automatically renewed up to the retirement age.

Duration depends on type of "special work conditions" and gender.

Only up to statutory retirement age.

Child Grant: Lump-sum pay of €414. Pregnancy grant: lump-sum pay of €75

70 days before birth.

Maternity/paternity benefits: 100% of the Compensatory Wage. Child-raising allowance: amount depends on the Compensatory Wage and selected payment duration.

Maternity: for 70 days preceding delivery and 56 days after. Paternity: till the end of the first month after childbirth. Child-raising allowance: till the child is 1 year old (max 2 years). After the expiry of the child-raising allowance, 1 parent can stay at home till the 3rd birthday receiving the SSI.

Note: The State Supported Income (SSI, Valstybės remiamos pajamos) was EUR 102 per month in 2014. The Compensatory Wage (Kompensuojamasis uždarbis) corresponds to the average of the three monthly earnings received one month before of the insured event (e.g. maternity or disability); it is capped at 3.2 times the SSI and cannot be lower than 25% of the SSI. The Basic Social Benefit (BSB, Bazinė socialinė išmoka) was EUR 38 per month in 2014. The Annual Insured Income was EUR 431 in 2014 (EUR 433 in 2015 and EUR 445 in 2016). The Average Monthly Wage (before taxes) was EUR 676 in 2014 (EUR 719 in 2015 and EUR 781 in 2016). Source: MISSOC, MSSL, OECD tax-benefit model.

22 OECD 2017


26. Correspondingly, spending on unemployment benefits is relatively low in Lithuania compared to other OECD countries (Figure 7). This reflects in part a relatively restrictive unemployment benefit system which combines strict (formal) rules for job search requirements and low benefit levels (Figure 8, Panel B, OECD 2015b, OECD, 2016a). The minimum contribution period of 18 months is also well above the OECD average (10 months, OECD 2016a) whereas benefit durations are short compared to other countries (Figure 8 - Panel B). In addition, unemployment benefit recipients are subject to comparatively severe sanctions if they refuse a suitable job offer (though in practice claimants are allowed to refuse job offers in different occupations to their previous job, or which they were not trained for), or do not participate in ALMPs and other PES interventions.6 As a result, only relatively few jobseekers received unemployment benefits in 2014: the “pseudo” coverage rate, calculated as the number of benefit recipients divided by the number of ILO unemployed, was only 26%. Low levels of unemployment benefits mean that jobseekers face strong financial work incentives even at very low levels of earnings (Figure 10). At the same time, the low generosity and short maximum benefit duration of unemployment benefits may do little to raise the attractiveness of better-paid formal employment relative to informal work or earnings under-reporting. 27. Spending on earnings-replacement benefits in the category of family benefits is broadly in line with the average for EU countries (0.5% of GDP, Figure 7). Mothers receive a birth grant for each child and a maternity benefit paid at 100% of the previous wage for 126 days. This duration is roughly in line with the average for the EU countries, but only eight EU countries pay maternity benefits at 100% of the previous wage (OECD, 2016). Lithuania provides also a child-rising allowance for parents who stop paid work or reduce their hours to care for children during the post-natal period. This allowance can be received for 12 months after birth and also amounts to 100% of the previous wage, subject to a minimum and a (comparatively generous) maximum.7 Alternatively, it can be taken for two years at 70% and 40% of the previous wage in the first and second year respectively. After the second year, one of the parents can take one additional year of leave receiving the SSI. Since 2006, fathers receive a paternity benefit paid at 100% of the previous wage for 30 days after childbirth. 28. In 2014, recipients of disability benefits represented 7% of the working-age population. Reduced work capacity is assessed at three main levels: “severe” (75%-100% reduction of work capacity); “medium” (60%-70% reduction) and “low” (45%-55% reduction). Only individuals with a reduction in work capacity above 45% can claim disability benefits (see Table 4). The amount has two main components: the “basic” amount depends on the Basic Social Benefit (BSB) and the incapacity level (50%, 100% or 150% of the BSB in case of "low", "medium" or "severe" incapacity), while the "supplementary" amount is calculated using the formula for the old-age pension. Disability benefits can be further supplemented with disability allowances for individuals facing additional disability-related costs (such as the costs of care or rehabilitation). All recipients can undertake paid work without incurring a reduction of their benefit entitlements. 29. Spending on early retirement pensions is low in comparison with the EU average (0.2% against 0.8% of GDP, Figure 7). Early retirement pensions can be taken up to five years before the normal statutory retirement age (which was 63 years for men and 61 for women in 2014), as long as at least 30 years of contributions have been made and the person does not have other income sources. There is a penalty of 0.4% of the pension amount for each month that retirement is brought forward and the reduced pension amount is paid also for the residual retirement period. 6.

The overall strictness of sanctions in Lithuania seems low in Figure 8 – Panel B because the first sub-score, sanctions for voluntary quits, is low (1, on a scale from 1 to 5) whereas the other two are relatively high (4, on a scale from 1 to 5).

7.

The amount of the child-rising allowance is subject to a minimum and a maximum: 33% and 320% of the average wage respectively in 2014.


23

Figure 8. Unemployment benefits: coverage, duration and strictness of eligibility criteria

Panel A Unemployment benefit recipients

ILO unemployed

Pseudo-coverage rate (right) 40

35

250

30 200

25

150

20 15

100

10 50

% of ILO unemployed

Persons (in thousands)

300

5

0

0

2007

2008

2009

2010

2011

2012

2013

2014

Panel B Strictness of sanctions Strictness of availability requirements and suitable work criteria

Strictness of job-search requirements and monitoring Maximum duration (right)

4.5

40

4.0

35

3.5 3.0

30

25

2.5 2.0 1.5

20

15

1.0

10

0.5

5

0.0

0

Note: The “strictness” sub-categories cover the following items. “Strictness of sanctions”: sanctions for voluntary unemployment, for refusing job offers (first/repeated) and for failure to participate in counselling or ALMPs (first/repeated); “Strictness of job search requirements and monitoring”: frequency of job search monitoring and required documentation of job search; “Strictness of availability requirements and suitable work criteria”: availability during ALMP participation, demands on occupational and geographical mobility, other valid reasons for refusing job offers. Maximum benefit durations for a 40-year-old displaced worker with 22 years of contributions (continuous employment since age 18). Source: Panel A: OECD SOCR database. Panel B: Calculations using Langenbucher (2015) and OECD tax-benefit model.

30. With patchy income protection provided by the unemployment insurance system, social assistance benefits are a key component of the social protection system in Lithuania. Following the 2008/9 global financial crisis, the number of social assistance recipients increased from about 1% to 4% of the working-age population between 2009 and 2014, with a peak at more than 6% in 2012 (see note in Figure 7 on the approximation of data on benefit recipients). Benefit amounts are broadly in line with the EU average at about 24% of median household income for a single person without children (Figure 9). In many EU and OECD countries, however, housing-related benefits significantly increase entitlements for low-income families in rented accommodation. This is not the case in Lithuania, so overall entitlements can be lower than the EU and OECD averages. Social assistance is reduced further for longer-term benefit recipients unless recipients who are capable to work participate in community-work programmes (so-called

24 OECD 2017


“socially useful activities”) and unless the public employment service has failed to offer a reasonable job or participation in an ALM programme. The decentralisation of social assistance, begun in 2014, gave municipal authorities full responsibility for administrating social assistance and allocating funds and evidence suggests that this has been accompanied by a substantial decline in the number of recipients (Lazutka, 2014a). Figure 9. Income levels provided by cash minimum-income benefits Net income value in % of median household incomes, in 2014. Single adult without children

Source: OECD tax-benefit model.

Figure 10.

Work disincentives for out-of-work working-age adults

Net replacement rates for unemployment benefit recipients (average over a 24-month spell) and social assistance recipients, by previous earnings level, in 2014 Single adults without children

Note: Net replacement rates (NRRs) show the proportion of net income in work that is maintained after a job loss. * Social assistance benefits are assumed to be available subject to relevant income conditions. All figures are calculated for a prime-age worker (aged 40) with a “long” and uninterrupted employment record. Results are shown for two levels of previous earnings: the second and the fifth decile of the full-time earnings distribution. The results do not account for housing benefits. Source: OECD tax-benefit model.


25

3.2.

Active labour market policies

31. Effective active labour market policies are instrumental in integrating jobseekers and those with no or weak labour-market attachment into good-quality employment. According to labour force survey (LFS) data for 2015, around 45% of the total (ILO) unemployed had been looking for work for more than a year, suggesting a need for more effective and more targeted support to get jobseekers back into work more quickly. Spending on active labour market policies as a share of GDP is low in Lithuania, at less than one third of the average for the EU (Figure 11). Despite the surge in unemployment between 2007 and 2014 (from 64 to 158 thousand individuals, see Figure 8), resources allocated to active labour market policies fell from 0.3% to 0.23% of GDP, much lower than the EU average. Figure 11. Spending on Active Labour Market Policies by policy area % of GDP, 2007 - 2014 Start-up incentives Sheltered and supported employment and rehabilitation Training Unemployment rate, Aged 15-64 (right axis) % of GDP 0.8

Lithuania

Direct job creation Employment incentives PES

18.0

% of GDP 0.8

0.7

16.0

0.7

16.0

0.6

14.0

0.6

14.0

0.5

12.0

0.5

12.0

0.4

10.0

EU Average

10.0

0.4

8.0

0.3

6.0

0.2

8.0 0.3

4.0

0.2

0.1

2.0

0.1

0

0.0

0

2007 2008 2009 2010 2011 2012 2013 2014

18.0

6.0 4.0 2.0 2007 2008 2009 2010 2011 2012 2013 2014

0.0

Note: Unweighted country averages. PES spending covers the costs for the provisions of services and activities together with any other publicly funded services for jobseekers. Source: Calculations based on the OECD LMP database.

Public employment services 32. Public employment services in Lithuania are administered by the “Lithuanian Labour Exchange” (LLE), an executive agency under the Ministry of Social Security and Labour.8 Ten “Territorial Labour Exchange Offices” (TLEOs) and 94 local LLE branches are responsible for providing labour market information, job placement and active labour market policies. In total, the LLE had 1 441 staff in 2014, 95 in the TLEOs and the rest in local LLE branches. Almost 80% of staff handled front-office tasks, having direct contact with clients. 33. Budget allocations to the ten TLEOs are decided once a year and are inversely proportional to the ratio of vacancies published by each TLEO to the number of jobseekers in the corresponding territorial 8.

26 OECD 2017

In 2014, PES spending amounted to EUR 21 million. Of those, 47% came from the European Social Fund while the remainder was provided by the Lithuanian Employment Fund (LEF) for financing active labour market policy measures.


jurisdiction. Each TLEO then allocates its budget share to the local LLE branches at their discretion. As with total spending on active labour market policies, spending on the Public Employment Service (PES) as a share of GDP is also much lower in Lithuania than in the EU on average. In 2014, PES resources represented around 0.06% of GDP (Figure 11) compared with an EU average of about 0.15%. PES spending has in fact fallen steadily since 2007, while growing unemployment increased work pressures on PES caseworkers: the average caseload for PES officers increased from 161 in 2007 to 324 in 2014, with a peak of 401 in 2010 (MSSL, 2016).9 34. Registered unemployed who are applying for unemployment benefits have to do so through the local LLE office – either online or in person – who then transmits the benefit request to the State Social Insurance Fund Board (SoDra). SoDra is responsible for the assessment, calculation and payment of unemployment benefit. The LLE maintains full access to the dossier of unemployment benefit recipients, including benefit amounts and payment period. 35. Since 2013, registration at the LLE is also required for claimants of social assistance benefits. After registering with the local LLE, claimants of social assistance benefits have to apply at the municipal welfare office where they fill in a form certifying incomes and other characteristics that are relevant for eligibility. The initial assessment is made by a Social Assistance board that can involve also representatives from the TLEO and local NGOs. If the application is successful the municipality adds the dossier of the new recipient into the Social Support Information Systems (SSIS) which can be accessed real-time by the TLEO for monitoring purposes. The municipality is responsible for assessment, calculation and payment of benefits.10 36. Public employment services in Lithuania are available to all jobseekers regardless of whether they are entitled to unemployment benefits, though, by law, only specific target groups have access to active labour market programmes. Upon registration the jobseeker and the LLE caseworker jointly develop a “personalized action plan” within the first three months (one month for young unemployed below age 30). In seeking to identify appropriate types of consultation services to be provided to the jobseeker, the personalized action plan takes into account, among other things, the assessed motivation to work, professional skills, work experience, the demand for similar levels of skills and professional experience in the labour market, as well as personal and family circumstances or needs. The TLEO can offer also social and professional rehabilitation services, and career advice depending on the person’s individual abilities and job market requirements. TLEOs can engage with third parties / providers to assist in providing psychological consultation services. 37. Although about 75% of those registered with the LLE reported using it as a source of information on job vacancies in the previous four weeks (Figure 12, Panel A), only few (some 12%) of those who have recently started a new job say they actually found it through the LLE (Panel B). This discrepancy shows that jobseekers are more likely to find employment through other channels, despite registration and consultation with the PES.11 More common channels of job finding in Lithuania include studying advertisements (74% of all unemployed in 2014), as well as informal contacts such as friends or family (59%).

9.

Average caseloads for 2015 and 2016 are 203 and 260 respectively.

10.

The decentralisation of social assistance, begun in 2012, gave municipalities full responsibility for administrating social assistance and allocating funds. Since 2015, municipalities also have responsibilities of funding this programme with funds from the State budget.

11.

Jobseekers may have strong incentive to register with the PES also because otherwise they would not receive health insurance.


27

Figure 12. How important is the public employment service (PES) as a “job broker”? Panel A: Jobseekers who contacted the PES office to find work during the last four weeks In % of unemployed aged 25-64, 2014

Panel B: Involvement of the PES in finding current job In % of employees aged 25-64 who started a job during the previous 12 months, 2014

Note: Norway and the Netherlands are excluded due to substantial non-response in the data (more than 30%). Source: Calculations based on EU-LFS 2014.

Active labour market programmes 38. Notwithstanding the PES’ key role as a “job broker” (i.e. placement and job search assistance) in EU and OECD countries, a majority of total spending on active labour market policies goes towards active labour market programmes (ALMPs) that seek to address employability issues for specific disadvantaged target groups (Figure 11). This is also the case in Lithuania, where however spending on both the PES and ALMPs remains low compared to other countries (see Figure 11) despite the 45% increase of spending on ALMPs in 2015.12 Participation in ALMPs is also low (Figure 13): at 1.5% of the labour force, it stands at less than a third of the EU average.

12

28 OECD 2017

Resources for ALMPs were EUR 48 million IN 2014, and increased to EUR 71 million in 2015. Of those, 63% were founded by the European Social Fund and 37% from national sources (MSSL, 2016).


39. Employment incentives represented the biggest category of ALMP spending in Lithuania in 2014 (51% of total spending, Figure 11), while spending shares on disabled individuals (mainly sheltered and supported employment and rehabilitation measures) and direct job-creation programmes, but also on training and re-training activities were small, compared to other countries. The maximum durations of employment incentives in Lithuania vary depending on the target groups identified by the Law on Support for Employment (e.g. “long-term unemployed” or “older workers”). Employers who dismiss workers less than six months after the end of a subsidy regain eligibility for a new subsidy only 12 months after the end of the previous one. The ceiling on employment incentives was increased from the monthly minimum wage to twice this level in 2014, covering at most 50-70% of labour costs, depending on the target group. Figure 13. Participation in active labour market programmes Participants in % of the labour force

Note: The breakdown of participants by type of programme is incomplete before 2013. Source: OECD LMP database.

40. Although international experience suggests that employment incentives can be a useful tool for promoting employability of low-skilled workers by bringing their labour cost in line with productivity, these programmes may have only short-term effects, are costly in budgetary terms, and may come with large deadweight losses, i.e. hiring in many cases would have occurred also without the subsidy (Boone and van Ours, 2004, Kluve, 2010). By contrast, training programmes that successfully adapt workers’ skills to the needs of the labour market and to technical change tend to have better medium- to long-term outcomes (Card et al., 2010, 2015).13 41. Public works programmes (PWPs) were the second-biggest spending category in 2014 and spending on these programmes increased during the post-crisis period. Empirical evidence, including from Lithuania, suggests that PWPs have been relatively ineffective at improving employability of participants in the medium term (Crisp and Fletcher 2008; ESTEP 2014). They may however have other useful functions such as preventing informal work, alleviating poverty of individuals with poor employability especially during a deep recession, maintaining social inclusion and providing labour for useful community projects (Lazutka, 2014b). In Lithuania, PWP are organized by the LLE together with municipal authorities. Institutions interested in hiring PWP participants submit their proposals to the municipality. 13.

Training activities may reduce unemployment outflows in the short term as individuals engaged in such programmes may reduce job search activities (“lock-in effects”).


29

Preference is generally given to employers that commit to offer a job of at least six months at the end of the programme, though they do not have to demonstrate that the PWP jobs will not displace jobs in the open market. Differently from other countries, in Lithuania PWP participants usually are not involved in any training activity. 42. Lithuania has recently established community-work programmes (so-called “socially useful activities”) to tackle the possible dependence of social assistance recipients on benefits and reduce the risk of undeclared work. Differently from public-work programmes, community-work programmes are unpaid, consist of no more than 40 hours’ work per month and are mandatory for long-term benefit recipients. Municipalities can apply sanctions to social assistance recipients who refuse to participate in these activities, for example they can terminate or reduce the benefit for adult working-age family members (but not for children living in the same household). Social assistance benefits are not reduced for long-term recipients as long as they engage in socially-useful activities for the required minimum amount of hours (i.e. no more than 40 hours per month). However, considering the limited number of hours per month there is the risk for some recipients (especially those living in large households, see section 4.2) to remain “trapped” in these activities instead of actively looking seeking employment. Also, data from the municipal administrations show that the take-up of this programme is low as only 28.6% of all social benefit recipients participated in community-work programmes in 2015 (26.9 percent in 2014).14 43. In June 2016 the Parliament of Lithuania (Seimas) approved the Law on Employment as part of “New Social Model” reform package. A substantial part of the law aims at fostering overall ALMP efficiency by more actively channelling resources to the most effective measures. Although overall funding for ALMPs will remain the same, funds have been reallocated to selected measures on the basis of international best practices. Training, job placements based on the apprenticeship agreements and internships receive more funding while measures such as work rotation and subsided business licences have been removed. The new law stipulates compensations also for travels to job consultation or seminars organised by the Public Employment Service, and for commuting expenses for participants in subsidised employment measures when the workplace is far from the main residence. 44. The Labour Exchange is undertaking pilot projects in 14 local offices with the aim of making ALMP provisions more effective. The pilot aims to assess a new “holistic model” whose purpose is to align service delivery with the jobseeker’s needs. Jobseekers who apply to a TLEO involved in the pilot project receive not only ordinary labour market services, but also the services of a “social work adviser” who supports the jobseekers during their job-search activities and helps arrange and coordinate support from other institutions or organizations (NGOs, municipality, schools, etc.) as needed. Also, a team of LLE labour market specialists, in coordination with the network of employers, supports PES caseworkers in the preparation of suitable personalized activation measures to be included in the action plan. Internal LLE reports show for pilot TLEOs a reduction in the amount of time needed to fill vacant work positions (seven days in the pilot offices against the national average of eight days) and an increase in the share of registered jobseekers who found employment (62.4% in the pilot offices against the national average of 60% during the second quarter of 2016). 45. Pilot TLEOs operate a novel jobseeker profiling system corresponding to the “holistic” approach (different profiling systems are being tested in each pilot TLEO). The current profiling system is based on the combination of only two indicators: job market readiness (based on previous qualifications and demand for these qualifications) and motivation (based on number of recent job applications and type of job-search 14.

30 OECD 2017

Municipalities with relatively-high take-up rates are Ukmergės (73.3% of benefit recipients in 2015), Utenos (52.4%) and Prienų (51%). The municipalities with the lowest take-up rates are Vilnius (3.8 %), Panevėžio (2.2%) and Palangos (0.1%).


method).The new system is instead based on a complex questionnaire taking into consideration a number of individual and household characteristics. The objective is to identify the main employment barriers with possible similarities to the conceptual framework for employment barriers adopted in the Faces of Joblessness project. The results are converted into an employability score and used to classify the jobseeker into three broad categories of “low”, “medium” and “high” employability (Figure 14). Figure 14.

The holistic model for job placements

Source: OECD policy questionnaires.

46. The services provided by the PES are best seen as a package of policy tools, including financial incentives, obligations of job seekers, and programmes that address specific employment barriers on the supply and demand side. To characterize countries’ overall activation stance, it is useful to examine how they differ in terms of the balance of these different measures. Figure 15 shows two scatter plots of the indicators presented earlier in this section. Panel A shows a positive non-linear relationship between spending per unemployed for active labour market programmes and the generosity of out-of-work support as proxied by the net replacement rates for unemployment benefit recipients. Lithuania spends little on ALMPs, even considering the low generosity of out-of-work benefits for jobseekers, suggesting scope to increase support in favour of ALMPs. Panel B shows a weak positive relationship between strictness of benefit eligibility and generosity of out-of-work support. Lithuania’s strictness of benefit eligibility is comparable to other countries with similar levels of benefit generosity. This suggests scope for reviewing the strictness of eligibility conditions if unemployment benefits were to be made more generous (e.g., if benefit durations were extended). Figure 15.

Balance between different activation policy measures

Panel A

Panel B

Spending on active labour-market policies per unemployed

Strictness of eligibility criteria

0.6

4.5

DNK

MLT

HRV

0.5

EST

PRT

LUX

SVN

NLD CHE DNK

GBR

0.4

3.5

ROU

SVK

SWE

0.3

HUN

0.2 0.1

ITA USA

0.0 R² = 0.3063 5 15

25

AUT DEU NOR FIN FRA BEL NDL CHE LUX CZK POL NZL AUS JPN SLO IRL PRT GBR EST SVK CAN ESP LVA

ITA

KOR

LTU 35

45

55

65

75

Benefit generosity (Net replacement rates)

CHL

2.5

BGR

USA

NZL SWE FRA ISL NOR BEL IRL DEU FIN CZE JPN AUT CAN AUS

POL

LTU KOR

GRC

LVA

ESP ISR

TUR HUN

1.5

R² = 0.1376

5

15

25

35

45

55

65

75

Benefit generosity (Net replacement rates)

Note: For the strictness of eligibility criteria see note of Figure 8. Spending for ALMPs includes: PES, training, employment incentives, disabled, direct job creation, and start-up incentives. Spending is per ILO unemployed and defined in % of GDP per capita. Net replacement rates are for a prime-age worker (aged 40) with a “long” and uninterrupted employment record and are averages over 60 months, four different stylised family types (single and one-earner couples, with and without children) and two earnings levels (67% and 100% of average full-time wage). Households can receive social assistance and housing-related benefits depending on eligibility.


31

Source: OECD tax-benefit models, OECD LMP database and Langenbucher (2015).

3.3.

Policy challenges, priorities and recent or planned reforms

47. This sub-section identifies groups with relatively low employment rates in Lithuania, areas where policies may not be in line with international best practice, and recent policy reforms intended to increase employment among these groups. 48. The overall employment rate is comparatively high in Lithuania, the economy has recovered relatively quickly from the deep effects of the 2008/9 financial and economic crisis, and unemployment fell to 9% in 2015, after having peaked at 18% in 2010. There remain several groups, however, for whom employment rates lag behind comparator countries. Young people are one group facing significant labourmarket difficulties, although several recent measures have been successful in improving their labour market outcomes, including the promotion of training, wage subsidies and the establishment of the “Youth Guarantee” (OECD, 2015b). As a result, youth unemployment fell substantially from a post-crisis peak of 35.7% in 2010 to 19.3% in 2014 (16.3% in 2015, data from Eurostat), though this rate is still well above the 2007 level of 8.4%. Other population groups have not yet recovered from the crisis. The unemployment rates remain particularly high for low-skilled and older individuals (Figure 16). Figure 16.

Unemployment rates of different groups

In % of the total labour force in each group, 2014

Note: Skills based on ISCED 2011: “Low” skills correspond to less than primary, primary and lower secondary education (levels 0-2). Long-term unemployed are individuals who are out of work and have been actively seeking employment for at least 12 months. Source: OECD Labour Market Statistics, adapted from OECD (2016a).

49. Long-term unemployment (12 months or more) stood at 4.8% of the active labour force in 2014, a value broadly in line with the EU average of 5.1 % but much higher than the pre-crisis value of 1.3% (2008, data from Eurostat). In addition, the high share of long-term unemployed in 2013 who remained unemployed also in 2014 (51%, based on longitudinal LFS data) indicates that a large proportion of jobseekers face a number of difficulties in re-integrating into the labour market. Regional disparities add to the challenge: in 2014, the average unemployment rate stood at 15% in rural parts of the country, compared with 7% in urban areas (Figure 17). There is considerable regional variation, with unemployment at 7.7% in Klaipeda County and 18.5% in Alytus County.

32 OECD 2017


Figure 17.

Unemployment rates in % by county and urban density 2014

Note: This map is for illustrative purposes and is without prejudice to the status of or sovereignty over any territory covered by this map. Source: Statistics Lithuania.

50. Skills mismatch is high in comparison with other OECD countries (Figure 18). The proportion of workers who are under-skilled given requirements for their job is above the average for OECD countries, while the incidence of being over-skilled is among the highest. To address skill mismatch, the LLE introduced a new approach for determining skills shortages based on a new forecasting methodology in 2016. Essentially, demand for specific occupations in each region and sector is forecast through the use of employer surveys each year. The forecasts are then used for guiding and organizing the activities of the TLEOs, e.g. by identifying new priority areas for vocational training programmes. Figure 18.

Skills mismatch

In % of the labour force

Note: Employees are considered “over-skilled” if their skill level is above the 95th percentile of those who consider their skills well matched for their job, and “under-skilled” if their skill level is below the 5th percentile of this group. Source: Survey of Adults Skills (PIAAC) 2012 and 2015 (2015 for Lithuania).

51. In combination, the persistence of elevated long-term unemployment rates after the crisis, high regional disparities of the unemployment rates, and the extent of skills mismatch suggest that there is considerable room for improving the job-matching process. Figure 19 show the Beveridge curve for Lithuania before and after the 2010-peak of the economic and financial crisis. During the pre-crisis period (2004-2008), movements along the Beveridge curve towards the upper-left corner reflect a typical business


33

cycle pattern, with unemployment falling as vacancies increased. However, as the recession took hold, a collapse in labour demand resulted in surging unemployment rates and movements along the Beveridge curve towards the bottom-right corner for the years 2008-2010. Since the beginning of the economic recovery in 2010, the Beveridge curve has moved outwards (i.e., a higher unemployment rate for a given vacancy rate), indicating that the crisis has further deteriorated the job-matching process. Figure 19.

The economic crises has deteriorated the job-matching process Beveridge curves before and after the economic crises

Note: Job vacancy rates refer to industry, construction and service sectors. Unemployment rate calculated for the population 15-74. Source: Eurostat.

52. Promoting the participation of workers in lifelong learning activities (LLL) is instrumental in improving productivity and opportunities for career advancement (OECD, 2014a). In Lithuania, however, only 5% of workers were engaged in training activities in 2014, half of the share observed on average in EU countries (Figure 20). In recognition of this gap, the 2014-2016 Action Plan for the “Development of Vocational Training and Promoting Adult Education” envisage an expansion of on-the-job training and a broader range of apprenticeship programmes. Figure 20.

Participation in lifelong learning by education level In % of 25-64-years-olds, 2014

Note: Education level based on ISCED 2011 levels: low corresponds to less than primary, primary and lower secondary education (levels 0-2), medium corresponds to upper secondary and post-secondary non-tertiary education (levels 3 and 4), high corresponds to tertiary education (levels 5-8).

34 OECD 2017


Source: Eurostat.

53. There is room for improving the unemployment insurance benefit system in Lithuania by making it a more accessible and reliable form of income protection for active jobseekers. Low levels of unemployment benefits can increase the incentive to look for and take up work (see Figure 10). They may however also lead to skills mismatch if the unemployed choose to accept job offers too quickly rather than to devote more time to searching for a more suitable one. Short benefit duration and limited coverage also makes it harder to “reach out” to jobseekers with training and other active support measures. The payment of adequate benefits, when combined with active support and effective monitoring of job search, could reduce the risk of poverty and strengthen the incentive to take a job in the formal sector in order to become entitled for income protection (OECD, 2004). This remains an important consideration in a country where the shadow economy is estimated between 18% and 28% of GDP (Schneider, 2015 and OECD, 2016a, see below). 54. Although financial work incentives are relatively strong in Lithuania, this is mostly because of low levels of out-of-work benefits, while the tax wedge on labour income is high at low earnings levels (Figure 21).15 The tax burden has been alleviated, however, by recent changes such as an increase in the personal income tax threshold from EUR 166 to EUR 200 per month (starting from January 2016) and the tax-exempt amounts for dependent children and disabled persons. In-work benefits are available for six months to long-term unemployed social-assistance recipients taking up employment (see Table 4). Figure 21.

Average tax wedge on labour

% of labour cost, 2014, single person without children at 33% and 50% of average earnings.

Source: OECD tax-benefit model.

55. Health-related employment barriers are relatively common in Lithuania. The quality of the health care system appears to be a major source of dissatisfaction for Lithuanians when assessing their well-being (European Quality of Life Survey, 2015). Life expectancy remains low at 74 years compared to 80 on average in OECD countries and the gender gap in life expectancy is the largest in the EU (69 years for men and 78 for women, OECD Health Statistics). Despite a number of steps taken to raise the 15.

Mainly as a result of high employer social security contribution rates: 58% of the tax wedge, compared to 39% on average in OECD countries.


35

efficiency of Lithuania’s health care spending, inequality in access to health care services remains a major challenge (OECD, 2016a). Individuals who are unemployed, leaving in rural areas or have low education face a significantly higher mortality risk in Lithuania compared to other countries (Jasilionis and Stankuniene, 2012 and Murauskiene, 2013), and the divide between bottom and top income quintile in self-assessed health limitations is the highest in Europe (Figure 22). One of the reasons for unequal health outcomes is a high level of out-of-pocket payments for health care, which amount to more than onethird of total health care spending (Figure 23). In response, several initiatives have been adopted since 2009 to make healthcare more accessible and less costly for users. The Lithuania Health Programme 2014-2025 also seeks to develop a system for monitoring health inequalities in order to better target at-risk populations, and to promote integrated health-policy approaches involving health, education and social institutions. Figure 22.

Individuals reporting long-standing health limitations, by income quintile In % of the population aged 16 and over, 2014

Source: EU-SILC 2015.

Figure 23.

Expenditures on health by type of financing

In % of current expenditures, 2013 or last available year

Source: OECD Health Statistics

36 OECD 2017


56. The size of the shadow economy as a percentage of GDP in Lithuania is 9 percent points above the EU average (Schneider, 2015). According to recent anonymous surveys by the Lithuanian tax inspectorate the most important undeclared income sources are “envelope wages” (where part of the remuneration of a declared employee is not declared to the authorities), undocumented working hours and “rearrangement” of a portion of wages as undeclared in-kind benefits (e.g., through the use of property lease arrangements and business trip allowances, see also Krumplytė, 2010). In response to these concerns, Lithuania introduced a consolidated strategy and an action plan for the years 2014-2017 to tackle the shadow economy and to render enforcement of applicable legal rules more effective through inspections and related measures. In May 2015 the government introduced a systematic cross-check of VAT invoices to identify transactions that are at risk of frauds. In addition, an improved fiscal administration information system has been installed during 2016. Indirect tax revenues have increased since May 2015, but it is too early to assess if this has been the result of the new policies.


37

4. OVERCOMING EMPLOYMENT BARRIERS: POLICY CHALLENGES AND PRIORITIES FOR SELECTED GROUPS 57. The remainder of this paper focuses on the policy settings relevant for two of the ten groups identified by the statistical clustering analysis and examines whether the policies are well suited to enabling members of the group to overcome the employment barriers they face. The groups selected for the policy inventory are as follows: 

Group A. “Older labour-market inactive individuals with limited work experience and health limitations” (20% of the target population or 6% of the reference working-age population).



Group B. “Prime-age long-term unemployed with limited work experience and scarce job opportunities” (17% of the target population, 5% of the reference working-age population).

58. These groups are among the largest groups identified in the clustering analysis, and likely to benefit from access to labour market services that are offered by the Lithuanian Labour Exchange Offices. Poverty rates among these two groups are high (which is not the case for the largest of the ten groups, “Experienced early retirees with health limitations”), signalling that their re-integration into the labour market is also of significant broader social concern. 59. The next two sub-sections describe the main employment barriers faced by these two groups and provide an inventory of policy measures that are explicitly aimed at them or are likely to be available to group members. Each section begins with a box showing extent and degree of overlap of the main barriers characterising the group, as well as other important characteristics occurring among the group. Table A1.2 in Annex 1 reports a more complete list of individual and household characteristics. 4.1. Group A: “Older labour-market inactive individuals with limited work experience and health limitations” 60. Individuals in this group are relatively old (average age 55 years) and typically labour-market inactive. The majority suffers from long-standing physical and mental health limitations, with about one third reporting a severe condition, and more than half receiving sickness or disability benefits (EUR 2 144 per year on average). Individuals in this group have worked in the past but, for most of them, this work experience (15 years on average) is low compared to their potential. Poor health and limited work experience barriers often overlap in this group. Box 4.1. Group A: “Older labour-market inactive individuals with limited work experience and health limitations”

Main employment barriers

1

Selected characteristics -

38 OECD 2017

2

% of the Target Pop.

55 years old (average) Majority women Labour-market inactive 15 years of paid work (average) 13.4 years of schooling (average) rd Average equivalised disposable income: EUR 4493 (3 quintile) 1.7 simultaneous employment obstacles (average)


Note: 1) Surface areas of shapes in the diagram are proportional to the number of group members facing the related barrier (“Proportional Venn Diagrams”). The outer square represents the group size (100%). The diagram shows the three most prevalent barriers in the group and is based on the indicators discussed in Section 2. An exception is the recent work experience indicator. Although this indicator is included in the numerical results in Annex Table A.1, it is not shown in the diagrams as its high prevalence (due to the strong two way causal links with the other barriers) would dominate all other barriers in the graphical representation in all but three groups. 2) Characteristics that distinguish this group from other groups, i.e., categories that have a high probability of occurring in the group. Table A1.2 reports individual and household characteristics in more detail. Income quintiles are calculated for the entire population. Source: Calculations based on EU-SILC 2014, see Annex Tables A1.1-A1.3 for full results.

61. The most common employment barrier faced by Group A is poor health conditions (67%), though the extent to which health conditions limit peoples’ ability to work depends on the nature of the work itself. Countries with a higher incidence of work involving tiring or painful positions tend to have lower employment rates of older workers (Figure 24). Older workers in Lithuania are only slightly more likely to report such uncomfortable working conditions than the average among EU countries. Lithuania has, in fact, higher employment rate among older workers than other European countries with similar incidence of uncomfortable working conditions (e.g. Bulgaria, Austria and Poland). It is nevertheless likely that measures to help adapt workplaces to accommodate those with health-related disabilities would further strengthen employment rates of older workers in Lithuania. This is supported by data from the Eurofound Working Conditions Survey (2015), which shows that older workers in Lithuania are particularly likely to hold the view that their work “makes their health worse” (45% of workers aged 50 and over reported this in Lithuania, compared to 27% on average across all EU countries). Figure 24.

Poor working conditions can reduce employment incentives of older workers

Source: Eurofound Working Conditions Survey 2015, OECD Labour Market Statistics.

62. One possible additional factor driving low activity rate of individuals in Group A is related to potential discrimination in the workplace. Experience or fear of discrimination may reduce job opportunities or the motivation to actively seek employment for this group. According to Eurobarometer 2011, Lithuania has the highest fraction in the EU of workers who have witnessed (11%) or experienced directly (12%) some form of discrimination against older workers in the workplace (Figure 25). The Office of the Equal Opportunities Ombudsperson (OEOO) is the Lithuanian institution that examines complaints and takes initiatives on different types of discriminations including gender, race, ethnicity, age, sexual orientation, health and religion. Reports from the OEOO show that complaints regarding age and limited work capacity accounted for 43% of total of inquiries in 2015 (23% were on age discrimination and 21% on limited work capacity).


39

Figure 25.

Discrimination in the workplace against older workers is high

Proportion witnessing or experiencing discrimination in the workplace against older workers, 2011

Source: Eurobarometer (2011).

63. In 2015, the Government approved an inter-institutional action plan including a number of anti-discrimination and equal opportunities measures. However, mostly these measures are of a longer-term nature and rather than focusing on promoting tolerance and acceptance of diversity in the workplace, thus potentially benefiting individuals in Group A, they are mostly targeted to students through initiatives in schools. Income support 64. A slight majority of individuals in Group A receive disability benefits (52%). These benefits have two main components: a basic part and a “supplementary” part related to the contribution record. The “basic” part depends on the degree of disability: 50% of the Basic Social Benefit (BSB) for “low” disability (45-55 per cent of incapacity); 100% of BSB for “medium” disability (60-70 per cent of incapacity), and 150% of BSB for “severe” disability (75-100 per cent of incapacity). Only individuals with a certified level of disability of at least 45% are eligible for disability benefits. 65. As of 2018, benefit entitlements for those who have at least 45% of work incapacity will become proportional to the assessed degree of incapacity, with intervals of 5 ppts from 45 to 100 per cent. This new provision may strengthen work incentive for individuals of Group A: eligibility for disability pensions in Lithuania is not work-related, but work incentives for individuals with disabilities who take up employment tend to be weakened as workers perceive a risk of being reassessed with a lower disability level once they take up a job. With the current scheme a reassessment from “medium” to “low” disability implies a reduction of the basic BSB of 50%, whereas with the new scheme the reduction can be more gradual (e.g. from 70% to 60% of incapacity). The quality of the working capacity reassessments plays a key role in these cases. 66. In Lithuania the Disability and Working Capacity Assessment Authority (DWCA) is responsible for certifying both working capacity and disability levels. The latest report of the National Audit Office was released in 2012 and suggested substantial scope for improving the quality of working capacity

40 OECD 2017


assessments.16 In response, several initiatives have been adopted since then, including stricter job requirements for DWCA employees (in terms of education, work experience, training and qualifications), an enhanced quality-control mechanism (about 10% of all decisions are now subject to scheduled and unscheduled controls every year); stricter sanctions for those doctors who provide incorrect medical data; and an improved capacity of data exchange between DWCA, SoDra, Social Support Division, National Health Insurance Found and education institutions.17 In spite of these improvements, the quality of the working capacity assessments is likely to remain a challenge. For instance, evidence collected during the OECD fact-finding mission shows that working capacity assessments rely often on medical certificates (e.g. whether the person has an health issue or not) rather than considering professional and functional capabilities, such as the number of hours a person with a disease can work, or the type of tasks they can perform based on their qualifications and experience. 67. Depending on the degree of disability, individuals in Group A can be entitled to additional noncontributory care allowances (Table 5).18 These allowances are not compatible with work activity and can therefore weaken financial work incentives: 

“Special Compensation for care expenses”: paid to disabled persons with a reduction of work capacity between 75% and 100%. The amount is 250% of the social insurance basic pension (EUR 280 in 2016).



“Special Compensation for attendance expenses”: paid to disabled persons with a reduction of work capacity of at least 60%. The amount is 50% or 100% of the social insurance basic pension depending on the actual level of disability. Table 5.

Care allowances for individuals with disabilities Recipients and spending (2001-2015)

Recipients (persons, thousand) Special Compensation for Attendance Expenses Special Compensation for Care Expenses

2011 68.6 40.1

2012 60.9 39.2

2013 56.6 39.4

2014 56.2 40.7

2015 56.1 41.2

Spending (EUR, million) Special Compensation for Attendance Expenses Special Compensation for Care Expenses

2011 42.7 104.5

2012 38.8 104.0

2013 36.8 104.5

2014 43.2 126.6

2015 44.3 131.5

Source: MSSL (2016).

68. Although many group members receive disability benefits or social assistance benefits, the benefits may not be high enough to protect from poverty and material deprivation (Table A.1.2). About 33% of Group A are at risk of poverty and the majority of those in poverty (78%) face health 16.

According to the 2012 audit, some groups of DWCA employees working in the territorial divisions had limited work-related skills and were not always able to interpret medical certificates (NAO, 2012). Also, there was no systematic monitoring of the decisions taken by the territorial DWCA offices and there were no sanctions for doctors who provided incorrect medical data. The audit noted also that data exchange between DWCA and other institutions (e.g. SoDra and the National Health Insurance Found) was limited and claimants often provided information only orally. As a result, assessments often relied on information that could not be easily verified.

17.

DWCA is now able to verify directly whether the person is working or the duration of unemployment. Also, DWCA has direct access to claimants’ medical records and certificates.

18.

These measures can be claimed also by disabled children and persons who have reached the retirement age.


41

limitations. Since 2014 cash social assistance for poor residents is funded directly from the municipal budgets. Municipalities receive every year a fixed amount of financial resources for social assistance that depends on the average municipal spending on social assistance measures during the financial years 20112013. Municipal councils then decide autonomously how to allocate these funds on different social programmes and activities. According to the national legislation, unused resources from the annual municipal budget for social assistance need to be reinvested in other areas of social-service provision under the authority of municipal councils. Table 6 shows that these unused funds have been growing since the beginning of the reform. This results in part from the improving economic conditions, the financing scheme described above (i.e. national transfers for social assistance are constant and based on the average spending during the pre-reform years), and also on the ability of municipal authorities to improve spending efficiency and targeting (see also section 4.2). Since 2014, a growing part of these unused resources is reinvested in other social-support initiatives and programmes while decreasing amounts are used for other scopes decided by the municipal councils. Table 6.

Unused resources from the annual municipal budget for social assistance Amount and type of use, 2014-2016

Amount, in millions of euros (% of social assistance budget) 2014 2015 2016

82.2 (43.8%) 125.7 (55.0%) 140.0 (62.2%)

Type of use in % of total unused resources Reinvested in other social1 support initiatives 52.0 64.4 77.9

2

Used for other scopes

Saved

43.5 21.7 16.5

4.5 13.9 5.6

Note: 1. “Social-support initiatives” include compensations for public transports (e.g. for the elderly, individuals with disability and school-age children), or payments to maintain orphanages and social-service centres. Social support initiatives include also one-off payments to provide cash social assistance in “exceptional cases”, e.g. to families facing temporary financial hardships due to, e.g., serious illnesses, funerals, fires and natural calamities, or to help ex-prisoners or students with children living in poor families. 2. “Other scopes” include mainly resources for the implementation of educational programmes and activities (e.g., to refurbish educational institutions, or to promote physical activates and sports for school-age children). Source: MSSL (2017).

69. In 2015 part of the unused resources for the provision of social assistance were used to improve the wellbeing of individuals with disabilities, in particular: 

EUR 0.5 million were spent to support employment and mobility of people with disability;



EUR 0.4 million were used for the provision of social rehabilitation services (which adds to EUR 4.5 million from the State budget);



EUR 0.5 million were spent to adapt the living environments of people with disability (which adds to EUR 1.04 million from the State budget).

Active labour market policies 70. Group A individuals appear to underinvest in upgrading their skills levels. LFS data show that only about 2% of individuals with characteristics similar to Group A participated in education and training programmes in 2014, much lower than in other EU countries (Figure 26). 71. Since 2013, registration with the TLEO is one of the prerequisites to be eligible for unemployment and social assistance benefits but not for disability benefits. Although any Lithuanian citizen can in principle register with the TLEO and receive employment services, only selected target

42 OECD 2017


groups, which are identified by the law, can participate in active labour market programmes. In both the Law on Support for Employment and the (amended) Law on Employment, long-term unemployed and older working age individuals (50+) are both included in the target groups for a number of employment projects, many involving subsidised employment measures (Table 7). However, broader measures are likely needed to improve accessibility and take-up of employment-support measures among out-of-work groups not currently registered with the Labour Exchange. Figure 26.

Group A appears to underinvest in upskilling

Age 45-64 and economically inactive for health reasons, 2014, in %

Note: Group members are proxied in LFS data using the main characteristics of the individuals in group A: age (45-64), education (upper secondary), labour market status (inactivity due to health reasons), limited work experience (5+ years of inactivity since the last job). Countries with fewer than 100 observations for this group excluded. Source: Authors' calculations using EU-LFS.

Table 7.

Employment subsidies in Lithuania: inputs and outcomes

Input Organisation responsible for delivery: Lithuanian Labour Exchange (LLE) Target groups: Disabled unemployed; unemployed without work experience; LT unemployed; older unemployed (50+); younger unemployed (-29); unemployed that are starting their activity for the first time according to the acquired qualification or competence. Eligibility conditions: Citizens of Lithuania, the EU and family members that reside in Lithuania. Selection of participants: Priority to jobseekers who: 1) never took part in the programme; 2) have registered with the TLEO for the longest time; 3) meet employer’s qualification requirements. Budgetary cost: EUR 21.67 million in 2015; EUR 19.57 million in 2014; EUR 9.54 million in 2013. Participants: 14,067 in 2015 (30% LT unemployed and 25% over 50); 21,768 in 2014 (33% LT unemployed and 33% over 50). 10,443 in 2013 (25% LT unemployed and 20% over 50). Spending per participant: EUR 1,542 in 2015; EUR 899 in 2014; EUR 914 in 2013.

Outcomes Program content A subsidy for the employers who hire unemployed individuals. Duration: Up to 6 months. How programme is delivered The subsidy is calculated as a % of the employee’s SSCs and it cannot cost more than twice the minimum wage. Funding: In 2015: 80% from the EU Social Fund, and 20% by the Employment Fund. Monitoring process: The LLE provides the Ministry of Social Security indicators for monitoring interventions and assessing effectiveness. Specialists from the LLE periodically arrange questionnaires for employers and the unemployed about the programme. Program success measures: Establishment in the labour market after 28 days, 3 months, and 6 months the end of the programme. Latest performance data: 70% of participants achieved integration into the labour market. About 50% of the old-age participants kept working in the same firm after the funding finished.

Source: Responses by authorities in Lithuania to OECD policy questionnaires.

72. Individuals with limited working capacity, likely including individuals from Group A, can be assigned to vocational-rehabilitation (Table 8) by the Working Capacity Assessment Authority under the input of the Labour Exchange. If DWCA certifies the need for vocational rehabilitation the person selects


43

the provider in accordance with the LLE caseworker, who then arranges the first meeting with the selected provider. Upon completion of the vocation rehabilitation programme, DWCA finalizes the assessment of the working capacity level and communicates the decision to the Labour Exchange. Institutions providing vocational rehabilitation services directly in the workplace for at least six months receive a vocational rehabilitation allowance. Persons participating in the vocational rehabilitation programme during the first 180 days of rehabilitation are also entitled to an allowance corresponding to 85% of the Compensatory wage (see Table 4). Table 8.

Vocational rehabilitation programme: inputs and outcomes

Input Organisation responsible for delivery: Lithuanian Labour Exchange (LLE) Target groups: Unemployed persons with health problems. Eligibility requirements: Citizens of Lithuania, the EU and family members that reside in Lithuania. Selection of participants: persons can apply directly to DWCA, or TLEO can send persons to DWCA for the assessment. The assessment is based on 4 criteria: 1) medical (the laws sets two cases: wok capacity of 0-15% or 20-50%); 2) functional (in this case the law sets how many hours per day a person can work: 6 hours per day or more (or 5 days per week or more), 4-5 hours per day (or 3-4 days per week), 3 or less hours per day (or 2 or less days per week)) 3) professional (which include assessment of education, qualification, work experience and work skills); 4) others (e.g. age, motivation). Budgetary cost For vocational rehabilitation services: EUR 2.9 mm in 2012, EUR 2.4 mm in 2013, EUR 1.4 mm in 2014, EUR 1.6 mm in 2015, EUR 2.4 mm in 2016. For vocational rehabilitation allowance: EUR 0.7 mm in 2012, EUR 0.6 mm in 2013, EUR 0.5 mm in 2014, EUR 0.9 mm in 2015, EUR 0.8 mm in 2016. Participants: 920 in 2012, 898 in 2013, 626 in 2014, 711 in 2015, 778 in 2016. Spending per participant: EUR 4573 in 2016

Outcomes Content of the programme: - Vocational rehabilitation services - An allowance for institutions providing support in the workplace for at least six months. - An allowance for insured persons participating in the programme corresponding to 85% of the Compensatory Wage (or two BSBs if they are not insured, see Table 4). Vocational rehabilitation services can be financed no longer than 12 months. Duration: 6.6 months (average). How programme is delivered: The programme is delivered in the form of: assessment of professional competences, vocational guidance and counselling, restoration of professional competences (or development of new competences), assistance when seeking employment, support in the workplace. Type of disability and functional capacities are part of the assessment when defining programme delivery and content. Funding - For vocational rehabilitation services: state budget and EU Social Fund (In 2012: 100% from EU Social Fund; in 2013: 15% from state budget, 85 % EU Social Fund; in 2014: 100% state budget; in 2015: 55% state budget, 45% EU Social Fund; in 2016: 36% state budget, 64% EU Social Fund. - For the vocational rehabilitation allowance: 100% state budget. Authority responsible for monitoring: LLE. Monitoring and evaluation: The LLE is responsible for monitoring the programme. Main programme-success indicator: establishment in the labour market within 6 months of the end of the programme (67.8% in 2016, 57.1% in 2015, 65,7% in 2014, 61% in 2013, 57.0% in 2012)

Source: Country responses to OECD policy questionnaires.

73. Private companies seeking to support the labour-market integration of individuals with disabilities receive support from the national government. For instance, they receive a lump-sum bonus in case they create a new job opportunity for individuals with reduced working capacity (the bonus varies between 65 to 80% of the statutory minimum wage depending on the level of disability the new job consents);19 Companies can also receive a subsidy for providing training activities to employees with disabilities (up to 40% of the training costs), a subsidy for the adaptation of the work environment (from 70 to 80% of the total expenses, capped to six minimum monthly salaries and available only once every 36 months), a subsidy for the reimbursement of additional administrative and transport expenses (up to 70% 19.

44 OECD 2017

In 2016, 159 individuals received this measure for a total cost of EUR 1.87 million (1.77 million for 148 individuals in 2015, 1.37 million for 142 individuals in 2014, and 1.27 million for 133 individuals in 2013).


of the related expenses) and a subsidy for the reimbursement of specific assistance for the disabled employees (e.g. sign-language interpreters) up to 40% of the minimum hourly remuneration. 74. In Lithuania companies employing a certain proportion of their workforce from “vulnerable groups” can get the certification of social enterprises. The law identifies precisely these vulnerable groups and old-age individuals with disabilities such as those of Group A are among them. Companies with the certification of social enterprises receive different types of State support (see Box 4.2). Since their institution in 2004 the number of social enterprises has grown significantly, from 20 companies in 2004 to more than 130 in 2016 (Figure 27). Spending has increased more than 40-fold since 2004, from EUR 0.57 million in 2004 to EUR 23.1 million in 2016 (17.8 million in 2015). Since 2008, a large part of these subsidies comes from the ESF (51% in 2016 and 69% in 2015). 75. Social enterprises face a number of challenges. The category of disabled workers represents 98% of the “socially vulnerable” employees working in social enterprises, while those from other target groups (e.g. long-term unemployed) are a minority. Also, companies have incentives to hire only those with mild forms of work-related incapacities, whom they may have hired even without a subsidy, while those who are in greater need of support, are less likely to benefit. Another risk is that only a limited number of employees would receive support from their employer, as the social enterprise status is not conditional on training activities or adaptions of the workplace. Overall, the employment and social outcomes of this measure remain uncertain: disabled employees in social enterprises represent only 2-3 per cent of the total number of disability benefit recipients, while employees with reduced work capacity working in other companies receive comparatively less support from the government. 76. The Parliament is currently revising the legal regulations concerning social enterprises. The aim is to slow down the growth in the number of social enterprises, prevent abuses, and diversify the profiles of health problems and incapacities that are represented among workers in social enterprises. Measures under discussion include restricting support to employers of workers with moderate to severe forms of disabilities. Other proposals aim to extend the list of supported activities (Box 4.2), to tighten other requirements for receiving or renewing social enterprise status, and to give more power to the Lithuanian Labour Exchange for monitoring and supervising employer eligibility. Figure 27.

“Social enterprises” in Lithuania

Number and extent of support (2004-2016)

Source: MSSL (2017)


45

Box 4.2.

Overview of “social enterprises” in Lithuania

The Law on Social Enterprises passed in 2004 (and amended in 2011) defines a “social enterprise” as a “legal entity that creates employment possibilities for individuals who have lost their capacity for work, are economically inactive and are unable to compete in the labour market under equal conditions”. The Law distinguishes two types of social enterprises: “generic social enterprises” and “social enterprises for disabled”: Generic social enterprises must have at least 40% of the employees (with a minimum of four) coming from one the following target groups: disabled, long-term unemployed (+24 months), inactive persons who are close to the retirement age (5 years or less); lone parents, ex-prisoners and ex-drug addicts after rehabilitation. Social enterprises for disabled must have at least 50% of the employees (with a minimum of four) coming from the target group of “disabled” (i.e. individual with a work incapacity of at least 45%); in this case, the calculation of the total number of employees includes all employees with disabilities who work at least 80 hours per month. Both types of social enterprises have to meet the following prerequisites in order to qualify for social enterprise status: 1) the company’s mission has to explicitly refer to the employment of vulnerable individuals and the development of their skills; 2) company activities not included in the list of non-supported activities of social enterprises, e.g. mining, alcohol or tobacco production, etc. The law does not provide for additional eligibility criteria, such as regulations to reinvest profits into socially useful activities, remunerate fairly the employees or involve representatives of the main stakeholders or members of the target groups in the company’s governance. Social enterprises receive most of the support in the form wage subsidies and partial reimbursement of social security contributions (SSCs). The reimbursement of SSCs depends on the level of disability and varies from 60% (moderate disability) to 75% (severe disability). Reimbursements for the employment of individuals from other target groups are lower (50%). If the employee has a low working incapacity (45 and 55 per cent) or they have a fixed term contract (or are from other target groups) the subsidy is paid only for a limited period (up to 12 months) whereas in the remaining cases is permanent. The subsidy cannot be higher than two monthly minimum salaries. There are also specific provision concerning labour relations and remuneration of employees of social enterprises. For instance, a fixed-term contract cannot last for less than six months. Employees from the target groups can work on a different daily-work schedule and have the right to receive lower work assignments without wage penalties. Dismissal of disabled workers is subject to strict regulations. Also, these workers are entitled to five weeks of paid annual leave (instead of four) and receive reduction in their income tax payments.

77. The government has identified motivation to actively look for work as one of the barriers holding back employment among older workers, such as those in Group A. In 2015, Lithuania approved a 2016-2020 Action Plan entitled “Motivation of old-age individuals and promotion of Voluntary Activities” aiming to support work-related motivation of individuals aged 55 and above and increase their labour market participation. This measure aims to increase participation in voluntary work initiatives and/or training and educational programmes. Programme participants have access to individual (or group) consultations and meetings with experts (e.g. a psychologist) with the aim to increase motivation and self-esteem and develop generic competences necessary for social integration and employment. The Action Plan is financed from the European Social Fund within the framework of the Operational Programme for European Union Structural Funds Investments 2014–2020. The funds allocated for the implementation of the Action Plan amount to EUR 6 million. Services are planned to target about 8,000 persons in the target group during the implementation period (2016-2020). Municipalities will be managing the programme liaising with a wide network of institutions including the Lithuanian Labour Exchange and local non-governmental organisations. The call for proposals started in May 2016 but was suspended after some months to review the selection criteria.20 The new call is scheduled for publication during the first half of 2017.

20.

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After the first announcement, the Government realized that the call would have created an uneven distribution of participants and funds across regions. More than 60% of applications came indeed from the biggest municipalities (Vilnius and Kaunas) whereas 12 small municipalities did not reach the minimum


4.2. “Prime age long term unemployed with limited work experience and scarce job opportunities” 78. The majority of this group are middle-aged men, with an average age of 50, from rural areas. Almost all have been persistently out of work with a high risk of limited job opportunities. More than one third were previously employed in “elementary occupations” (as defined by the ISCO-08 international standards), indicating a low level of work-related skills which could further reduce their (re-) employability. With about 18 years of paid work on average, many also have low overall work experience for their age. Two thirds are in the bottom income quintile (average disposable income of EUR 2 823 per year) and are at risk of poverty, with more than half in receipt of social-assistance benefits.

Box 4.3. Group B: “Prime age long term unemployed with limited work experience and scarce job opportunities”

Main employment barriers

Selected characteristics -

% of the Target Pop.

50 years old (average) Unemployed. 12+ months of unemployment spell (average) 18 years of paid work (average) 13.2 years of schooling (average) Typically from rural areas and at risk of poverty Average equivalised disposable income: EUR 2823 (bottom quintile) 2.1 simultaneous employment obstacles (average)

Note: See notes to Box 4.1.

Encouraging hiring 79. Individuals in Group B face a set of employment barriers including scarce job opportunities, limited work experience and low work-related skills. Their re-integration in the labour market is challenging and requires a package of targeted measures aiming at supporting employability through workexperience and training programmes, while also broadening employment opportunities by addressing factors holding back labour demand. The high level of employer taxes and contributions on low-skilled labour is one factor that is likely to hinder job creation. At 33%, the level of employer social security contributions in Lithuania is higher than in most other European countries (Figure 28). In 2017, Lithuania will restructure revenues by transferring one percentage point of employer contributions for the Social Insurance Pension to the state budget. This measure will reduce labour costs but this will be partially offset by an increase of 0.5 ppts in employer contributions for unemployment insurance.

number of participants, and in 10 other municipalities the number of applications was so low that the cost per participant would have been too high.


47

Figure 28.

Employer taxes and social security contributions % of earnings, minimum wage worker, 2014

Note: 10th percentile of full-time earnings distribution for countries without a statutory minimum wage. Source: Authors' calculations using OECD tax-benefit models.

80. Strict employment-protection regulations on temporary forms of employment may hamper the willingness or ability of firms to hire quickly as business opportunities arise. In comparative perspective, EPL is currently strict for temporary employment (Figure 29), and this may block off routes into formal employment for certain groups of low-skilled workers in particular. Parliament has debated a reform of the Labour Code which will enter into force in July 2017, and which would modify the rules on individual dismissals with the aim to increase employment flexibility, simplify the use of temporary contracts and facilitate the use of flexible working arrangements. The Government estimates that the reform of the Labour Code will create about 85,000 new jobs.21 Preliminary and unofficial estimates by the OECD secretariat show that the OECD indicator for the regulation on temporary forms of employment will reduce from 3.33 to 1.42, whereas the indicator for the protection of permanent workers against individual dismissals will decrease from 2.24 to 2.11. Figure 29.

Strictness of employment protection legislation

Scale from 0 (least restrictions) to 6 (most restrictions), 2015

21.

48 OECD 2017

Estimates are based on a survey that was circulated among employers.


Source: OECD EP database.

Income support 81. The majority of individuals in Group B have been unemployed for more than 12 months but only a minority (18%) received unemployment insurance during the income reference period. This is the result of a comparatively restrictive unemployment benefit system which combines a long minimum contribution period (18 months during the last 36 months) and short benefit duration (6-to-9 months depending on the contribution record). Under the “New Social Model” reform package, which will enter into force on July 2017, entitlement criteria would become less strict (12 months during the last 30, instead of the current 18 months during the last 36), while benefit duration would be extended to nine months irrespective of contribution record (see also Table 4). Estimates provided by the MSSL show that the coverage rate of unemployment benefit (see also Figure 8) will increase of about 15 ppts, from 28% (in 2016, data from MSSL) to about 43%. Estimates from the State Social Insurance Fund Board show that this reform (i.e. the changes in entitlement criteria, extended duration) would cost EUR 20.5 million in 2017 and EUR 41 million in 2018. These extra costs are financed by rising social security contribution rates. Rates will increase of 0.5 ppts as of July 2017 (they will double for temporary contracts) and then of another 1.6 ppts by the end of 2017. According to the MSSL, this will generate additional revenues for about EUR 53 million in 2017, i.e. an increase of 33.6% with respect to the 2016 revenues from social security contributions. 82. As of July 2017, the variable part of the unemployment insurance benefit will be made more variable during the unemployment spell. According to the current law, the variable component is 40% of the compensatory wage for the first three months and 20% afterwards (see Table 4), whereas after July 2017 it will be 50% of the compensatory wage during the first three months, 40% during the following three months, and 30% for the reaming months. This reform creates an additional step change and will improve benefit adequacy throughout the entire unemployment spell. Estimates from the MSSL show that the reform of the variable part of the unemployment insurance benefit will cost EUR 9.8 million in 2017 and EUR 19.6 million in 2018. 83. Many members of Groups B receive social assistance benefits (55%) while only 18% unemployment benefits (with some potential overlaps). Since 2014, the provision of cash social assistance has been established as an independent municipal function funded from municipal budgets. As municipalities’ social assistance budgets no longer benefit from central-government co-funding, the reform was followed by a significant reduction in spending and recipients (Table 9). Although this is in part due to the improved economic conditions the decentralization process is likely to have played a role. Municipalities now have greater incentives to fight abuses and increase the efficiency of social assistance spending, e.g. by running more inspections, strengthening inter-institutional cooperation (especially with the PES and the tax inspectorate), involving local communities in the process of provision of social assistance, and establishing new procedures for more fluid data exchange with other authorities. The risk of excluding applicants with justified entitlements is reduced through nation-wide standards for governing entitlement conditions and benefit generosity (e.g. income thresholds, types of incomes considered in the means test, benefit amounts, etc.), and also by the requirement to reinvest unused founds into other socialsupport initiatives (see Table 6). However, the decentralization may result in unequal provisions and access across the country, including risks of increasing non-take-up problems in municipalities where application and assessment procedures are seen as overly demanding by potential applicants. There is also a risk that future regional or national downturns would overwhelm the budgets of severely affected municipalities if the need for support surges rapidly.


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Table 9.

Cash social assistance benefits: recipients and spending over time

Recipients (in thousands) Social Assistance Housing allowance (for heating and water)

2011 221.1 220.9

2012 221.9 198.8

2013 190.0 204.9

2014 140.1 188.5

2015 110.7 144.6

2016 88.0 129.8

Spending (in millions of EUR) Social assistance Housing allowance (for heating and water)

2011 177.3 40.2

2012 173.6 49.1

2013 147.2 44.1

2014 103.8 31.3

2015 77.3 20.9

2016 60.8 17.9

Note: Grey cells refer to the post-reform scenario. Source: MSSP (2017).

84. Unemployed individuals from Group B have a comparatively low probability of becoming discouraged or labour-market inactive. LFS data for the years 2013-2014 show that 58% of long-term unemployed in 2013 also remained unemployed in 2014, one of the highest shares in the EU. Only a very small share became labour-market inactive (8%), while the rest reported temporary interruptions in their unemployment spell or having successfully found a job and remained in employment until the next interview. Financial work incentives play a key role in the decision to remain active in the labour market and in Lithuania they differ widely for different family situations (OECD 2016a). Figure 30 shows that single-person households, which represent 33% of Group B, have much stronger participation incentives than families with children (which correspond to about 17% of Group B). Figure 30 confirms however the earlier finding of the limited relevance of disincentive problems for Group B (see Box 4.3) from an international perspective. Figure 30.

Work disincentives for long-term unemployed individuals

Participation tax rates for a long-term unemployed taking up employment at 40% of the average wage, 2014

Note: Participation tax rates calculated for a person who had been unemployed for 24 months before taking up a job. The in-work scenario refers to the 12th month of employment and assumes full-time work at 40% of the average wage, which corresponds broadly to the 2014 statutory minimum wage in Lithuania. Source: OECD tax-benefit model.

85. Incentive problems can nevertheless arise for some families, depending on how benefit provisions are implemented at the municipal level. Although registration with the Labour Exchange is mandatory for social assistance recipients and sanctions for rejecting job offers are quite strict, they may not be as consistently enforced when the jobseeker is involved in social assistance programmes. In

50 OECD 2017


addition, families receiving social support in Lithuania are eligible for a number of additional benefits that are often withdrawn (or partially withdrawn) when taking up employment. This includes a range of measures, such as heating benefits, free public transport, or child-care support, which are not taken into account in Figure 30. Municipalities can also grant discretionary lump-sum benefits in special circumstances, e.g. to repay housing debts, and these may also be withdrawn as individuals take up employment. MSSL data indicate that discretionary forms of support indeed accounted for increasing share of total cash support provided by municipalities after 2014. 86. A number of policy measures are in place to strengthen work incentives for social-assistance recipients. For instance, since 2014, jobseekers who have been registered with the TLEO for at least six months (12 months before September 2016) and take up employment at least the monthly minimum wage (but no more than twice this amount) can keep 50% of their benefit entitlement for up to six months.22 Inwork support measures such as this one are important tools for boosting labour supply without increasing labour costs. Across countries, they have generally been found to have beneficial distributional effects as they are primarily targeted towards individuals with low earnings (Immervoll and Pearson, 2009). Coverage of in-work support is increasing; 11.2 per cent of social benefit recipients registered at the Labour Exchange received in-work benefits in 2015, compared with 5.3 per cent in 2014. There is, however, room for making this measure more broadly accessible also to jobseekers who have been registered in the TLEO for less than six months. At the same time, it is important to monitor whether inwork benefits lead to “revolving door” effects and low-earning traps, with people cycling between social assistance and in-work benefits to maximise total benefit entitlements. 87. Another measure that can further strengthen work incentives for social-assistance benefit recipients is the gradual reduction of the benefit amount for long-term recipients who are able to work. The reduction is 20 per cent after 12 months and increases up to 50 per cent after 60 months. However, as of 30 September 2016, these reductions do not apply if recipients participate in community-work programmes (i.e. “socially-useful activities” organized by the municipalities for no more than 40 hours per month), and unless the PES has failed to offer a reasonable job or participation in an ALMP measure. However, data from the municipal authorities show that participation in community-work programmes of social assistance benefit recipients was just 32.8% in 2016, though this rate has been increasing in the recent years (it was 28.6% in 2015 and 26.9% in 2014). Public employment service and active labour market programmes 88. Since 2013, registration with one of the TLEOs is required both for claimants of unemployment and social assistance benefits. On average, the services for jobseekers in Lithuanian PES such as jobsearch assistance or intermediary services in recruiting are applicable once every two months. The duration of one consultation typically ranges from 15 to 30 minutes depending on the type of client. The TLEO can offer also social and professional rehabilitation measures, advice in choosing a profession or planning a new career depending on the person’s individual abilities and job market requirements. The Labour Exchange can also engage with third parties to assist in providing psychological consultation services. Table 10 summarises key parameters of labour-market service provision in Lithuania.

22.

The in-work benefit is equal to the average social-assistance benefit amount received during the last six months before employment (it was 12 months before September 2016). Social benefit recipients participating in community work programmes are considered unemployed and are therefore eligible for this transitional in-work benefit. Simulations with the OECD tax-benefit model confirm that the participation tax rates shown in Figure 30 would be much lower when accounting for this transitional benefit, especially for the one-earner couple with children.


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Table 10. Labour market services in Lithuania: inputs and outcomes Input

Outcomes

Organisation responsible for delivery: Lithuanian Labour Exchange.

Programme content: Registration of vacant jobs and job seekers; information; consulting; assessment of employment opportunities (only after Jan 2017); employment intermediation; planning of individual employment activities.

Target groups: The Law on Support for Employment (until July 2017) identifies specific target groups. LT unemployed and older unemployed (+50) are primary target groups.

Duration: No specific time limit. Registration with the TLEO expires after 3 months of inactivity and can be resumed after 6 months.

Eligibility conditions: Citizens of Lithuania or EU, and their family members residing in Lithuania. Selection of participants: Priority based on motivation to work and job readiness. Budgetary cost: EUR 8.6 million in 2015; EUR 8.5 million in 2014; EUR 7.9 million in 2013. Participants 2015: 266 200; 2014: 284 300; 2013: 299 600. About 30% older unemployed (+50) and 40% LT unemployed.

How programme is delivered: Labour market services are provided individually or in groups. The TLEO officials arrange consultations with an appropriate specialist who defines a “personalized action plan” based on the jobseeker’s motivation, work experience, qualities, capabilities and job market readiness. The jobseeker The TLEOs cooperates with social partners who, free of charge, help assist the jobseekers. TLEO specialists select labour market services for each individual based on their motivation and job readiness (level and type of professional experience, personal qualities, capabilities, etc.). Funding: State budget. Monitoring process: LLE is the principal implementer. It provides information about provisions of labour market services and their effectiveness. Specialists arrange periodically questionnaires for employers, social partners and the unemployed about the delivered services. They also monitor the balance of labour market supply and demand. Programme success measures: LLE prepares reports (monthly, half-yearly, quarterly; publicly available), analysing the results of the effectiveness of labour market services. Effectiveness assessed through surveys of job seekers and employers and using academic research.


89. The following are the main active labour market programmes that are currently available in Lithuania for individuals of Group B: 

“Support for the unemployed of older age”. The LLE started the implementation of an ESFfunded project in 2015. Over a 30-month implementation period, the aim is to support 14,000 older workers (aged 55 or over) into the labour market: 6 200 are expected to participate in vocational training activities and 7 800 receive subsidised employment. According to recent LLE data (30 September 2016), 9 400 individuals have participated in the project so far. Of those, 6 300 received subsidised employment, 3,000 were involved in training activities, and 113 were given help with commuting costs. A main challenge during the implementation of this project was to make training activities attractive in the context of reportedly limited motivation of older individuals to participate in VET activities. More information on the effectiveness of this programme should become available after the planned completion at end-2017.



“Employment Support for the Long-term Unemployed” targets long-term unemployed who have been registered with the Labour Exchange for two years or longer (Table 11). This programme started in 2014 and is also funded with resources from the ESF. The content of this programme depends on the characteristics of the jobseekers and can include a combination of different activation measures, such as professional training, work skill acquisition-support activities, additional cash support to jobseekers who accept to work in places further away from home, and subsidised employment-placement measures. What characterizes this programme is the presence of an appointed mentor that provides support to the jobseeker during the activation process, including also on-the-job support to those programme participants who are back in employment. International evidence suggests that programmes offering longer-term re-integration services to

52 OECD 2017


those who are back in employment may not be effective unless they are combined with continued support after re-employment, e.g., in the form of in-work benefits, as it is otherwise difficult to maintain contact once workers no longer receiving out-of-work benefits (OECD 2015a, Hendra et al., 2010). According to MSSL data, around 5,000 long-term unemployed who are enrolled in this programme have participated in vocational training courses, 1,500 participants took part in work skill acquisition-support activities and 4,000 received subsidised employment measures (see Table 5). The planned completion of this project is December 2017. Table 11. The “Employment support for the long-term unemployed” programme: inputs and outcomes Input

Outcomes

Organisation responsible for delivery: Lithuanian Labour Exchange

Programme content: A subsidy for the employers who hire unemployed individuals, vocational training, support to get work skills and territorial mobility of unemployed.

Target groups: Disabled jobseekers; jobseekers without work experience; long-term jobseekers; older jobseekers (50+); younger jobseekers (-29); jobseekers who are going to use an acquired qualification for the first time in the workplace. Eligibility conditions: Citizens of Lithuania, the EU and family members thereof residing in Lithuania. Selection of participants: Priority to younger unemployed under 29 who have been registered for more than 6 months, and then to older jobseekers who have been registered for more than 12 months. Budgetary cost: €8.962 million in 2016; €7.758 million in 2015; €0.587 million in 2014. Participants: 4,402 in 2016; 5,117 in 2015. 1,669 in 2014 Spending per participant: €2,036 in 2016; €1,516 in 2015; €351 in 2014.

Duration: Up to 6 months. How programme is delivered: The subsidy is calculated as 50% of the employee’s SSCs and it cannot be more than twice the minimum wage. Funding: 100% from the EU Social Fund in 2016. Monitoring process: The LLE provides the MSSL indicators for monitoring interventions and assessing effectiveness. Specialists from the LLE periodically arrange questionnaires for employers and the unemployed about the programme. Program success measures: Establishment in the labour market after 28 days. Latest performance data: 68.4% of participants started to work, including self-employment, 38.4% of participants acquired the qualification (data for 2016).




“Work skill acquisition support”, a measure that provides incentives to employers who arrange on-the-job training activities for jobseekers (Table 12). According to recent LLE data (2015), the participation of graduate young unemployed is high in this programme while older workers are about 4% of total participants. Participation of older individuals in this programme is low as this measure is often combined with vocation training measures, which in Lithuania are not common among individuals who are over 50 years old, probably because older jobseekers, which represent 17% of Group B, are in general unwilling to take part in training activities (Carmichael and Ercolani, 2014), especially when this implies acquiring new skills rather than improving acquired competences (Ebner et al., 2006). Long-term unemployed were about 30% of programme participants in 2015. As of July 2017, only individuals who have completed a vocational training programme (Table 13) during the last 12 months, or those who are going to use a recentlyacquired qualification for the first time in the workplace can take part in the Work Skill Acquisition Support programme. Before July 2016, instead, the law identified a broader category of potential recipients, including experienced long-term unemployed who had been without employment for at least 24 months before registering with the LLE, and employees who have received notice of termination of employment.


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Table 12. The “Work skill acquisition support” programme: inputs and outcomes Input

Outcomes


Programme content Subsidised on-the-job training for the acquisition of new work skills.

Target groups: st

- After July 1 2017: 1) jobseekers who have recently completed VT programme (during the last than 12 months); 2) jobseekers who are going to use a recently-acquired qualification for the first time in the workplace. st

- Until July 1 2017: 1) jobseekers who are going to use an acquired qualification for the first time in the workplace; 2) experienced LT unemployed who had been without employment record for at least 2 years before registering with the LLE; 3) jobseekers who have recently completed VT programme; 4) employees who have received notice of termination of employment. Eligibility conditions: Citizens of Lithuania, the EU and their family members residing in Lithuania; Selection of participants: Priority to those who have been registered with the TLEO for the longest time; who meet the requirements specified by the employer and has acquired a qualification for which there is high demand. Budgetary cost: EUR 4.66 million in 2015; EUR 3.31 in 2014; EUR 4.3 in 2013. Participants: 3,469 in 2015 (LT unemployed: 30% and old-age workers 4%). 2,850 in 2014 (38% LT unemployed and 5% older individuals 50+); 3,510 in 2013 (35% LT unemployed and 3.5% older individuals). Spending per participant: EUR 1,343 in 2015; EUR 1,162 in 2014; EUR 1,226 in 2013.

Duration: Up to 12 months (five months before July 2017). The average duration was 3.5 months in 2015. How programme is delivered: The subsidy is calculated as a % of the employee’s SSCs and it cannot be more than twice the minimum wage. Employers who appoint an employee as a tutor for the jobseeker receive 10% more of the subsidy (20% for old-age employees) if the appointed employee spends more than 20% of their working time in tutoring activities. Funding: Employment Fund (10% in 2015), State budget and EU Social Fund (90% in 2015). Monitoring process: The LLE provides the Ministry of Social Security indicators for monitoring interventions and assessing effectiveness. Specialists from the LLE periodically arrange questionnaires for employers and the unemployed about the programme. Programme success measures: Job placement of participants after 28 days, 3 months, and 6 months. Use of counterfactual assessments. Latest performance data: 2015. Results: 60% managed to integrate in the LM and 75% of them continued working in the firm where they acquired their work skills.


Table 13.

Vocational training in Lithuania: inputs and outcomes

Input

Outcomes


Programme content: The training is provided by a vocational training provider selected by the LLE and the jobseeker (and the employer, if this activation plan includes other ALMPs such as onthe-job training). Only VT providers with a licence issued by the Ministry of Education and Science can provide VT programmes.

Target groups: jobseekers seeking to attain a new work-related skill. Jobseekers that reject a job offer based on the new qualification have to repay the TLEO for the programme expenses. Eligibility conditions: Citizens of Lithuania or EU, and family members residing in Lithuania. Selection of participants: Priority to jobseekers who: 1) never took part in VT; 2) have registered with the TLEO for the longest time; 3) meet employer’s qualification requirements. Additional selection criteria: i) first time the person acquires a work competence; ii) the demand for person’s acquired qualifications is low; the person desires to acquire highly-demanded skills. Budgetary cost: EUR 24.58 million in 2015; EUR 4.26 million in 2014; EUR 14.40 million in 2013. Participants. 2015: 19,133 participants (18% LT

54 OECD 2017

Duration: Depends on the training programme. How programme is delivered: Each month participants who have attended a minimum number of training hours receive a scholarship for repaying the programme expenses. The amount is either 60% of the minimum wage or (if higher) the UI benefit they are entitled to. Participants are also compensated for travel and accommodation expenditures, and also for compulsory medical visits and exams. This scholarship is not part of the reference income used to calculate entitlements to social assistance benefits. Funding: In 2015: 95% from the EU Social Fund, and 5% by the Employment Fund. Monitoring process: The LLE provides the Ministry of Social Security indicators for monitoring interventions and assessing


Input unemployed and 10% over 50); 2014: 3 383 (18% LT unemployed and 6% over 50). 2013: 10 443 (19% LT unemployed and 5% over 50). Spending per participant: EUR 1285 in 2015; EUR 1525 in 2014; EUR 1073 in 2013

Outcomes effectiveness. Each month during the training the TLEO provides information on attendance. Programme success measures: Establishment in the labour market within 14 days, 3 months, and 6 months of completion. Latest performance data: Q4-2016 – Results: 30% of success within 14 days, 78% within 3 months and 91% after 6 months.



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CONCLUSIONS

90. This report has used a novel method for identifying, analysing and visualising the most common employment barrier profiles characterising the Lithuanian population with potential labour market difficulties. The underlying premise is that out-of-work individuals, either unemployed or labour-market inactive, and workers with weak labour market attachment face a number of possible employment obstacles, and each of them may call for different policy responses. The success of activation and employment-support policies, and of social protection measures more generally, is expected to hinge on effective strategies to target and tailor policy interventions to these barriers and to individual circumstances. 91. The segmentation method used in this report has identified ten different combinations (“groups”) of employment barriers that characterize the Lithuanian population of “joblessness”. The analysis has uncovered patterns that can provide concrete guidance for policy design and targeting strategies in Lithuania. Results show that “short-hand” groupings that are often referred to in the policy debate, such as “youth”, “women”, “unemployed”, are far from homogeneous, and may distract attention from the specific employment obstacles that policies seek to address. 92. This report has focused on two selected groups and reviewed the inventory of policies that are in place to overcome the employment obstacles characterizing each of them. As background information, the report provides also a summary of the Profiling Analysis Note (PAN) for Lithuania and describes the main activation and employment support policies for the working age population. The two selected sub-groups were chosen in dialogue with the European Commission and the Lithuanian authorities. One group (Group A) consists of older labour-market inactive individuals (average age 55) with limited work experience suffering from long-standing physical and mental health limitations. In the other group (Group B), there are mostly middle-aged men (average age 50) from rural areas with limited work experience who have been actively seeking employment for more than twelve months. These two groups are among the three largest groups identified in the profiling analysis, and are also groups who might benefit from labour market services that are offered by the Lithuanian PES. Poverty rates among the two groups are also high, signalling that their re-integration into the labour market is also of significant broader social concern. 93. Individuals from Group A face multiple simultaneous barriers that are only partially addressed by the current measures. Employers have little incentives to hire older workers with a disability and, not unlike in other countries, policy dialogue meetings suggested persistent prejudices against them. Lithuania approved in 2004 the law on “social enterprises”, a measure that provides cash support in the form of subsidies and/or reimbursement of social security contributions to companies that employ workers from “vulnerable” groups. Individuals with disabilities are one of these target groups and over the years they have become the biggest group among supported employees of social enterprises. A number of independent audits show, however, that companies have used this measure to reduce costs rather than to increase the employment opportunities of the target groups. While budgetary costs of this measure have increased substantially over recent years, workers in social enterprises who suffer from a disability account for only a minor fraction of total recipients of disability pensions. The majority of employees with disabilities work in companies without the status of social enterprises, though in this case the support for the integration of employees with disabilities is limited. This imbalance is one reason for the legislative amendments that are currently discussed in the Parliament.

56 OECD 2017


94. Motivation for active job-search among Group A may be limited as registration with the PES is not required for recipients of disability benefits. Although these pensions can be cumulated with earnings, many recipients appear to shy away from employment to avoid the risk of being assessed at a lower degree of incapacity. From 2018, a new assessment system will be in place which will tie basic disability pensions more closely to the extent of people’s working capacity. This measure can strengthen work incentives for individuals of Group A, but only if the reform will be combined with improvements in the quality of the working capacity assessments. Eligible individuals of Group A will have the possibility in the second half of 2017 to take part in a four-year project managed by municipal authorities aiming at strengthening motivation, work incentives and social inclusion of older labour-market inactive individuals. The success of this project will depend crucially on the ability of municipalities to “reach out” to potential participants through their wide territorial network (e.g. with the help of local NGOs). 95. Individuals in Group B face a set of employment barriers including scarce job opportunities, limited work experience and low work-related skills. Their re-integration in the labour market is challenging and requires a package of targeted measures aiming at supporting employability through workexperience and training programmes, while also broadening employment opportunities by addressing factors holding back labour demand. The Lithuanian PES is managing a number of ESF-funded projects targeting individuals of Group B. One of these programmes, “Support for the unemployed of older age”, has been only partially effective so far as it has been difficult to motivate this group to participate in training activities. Preliminary data provided by the MSSL show that two other programmes, “Employment Support for the Long-term Unemployed” and “Work skill acquisition support”, are improving the employment possibilities of participants, though more empirical evidence is needed to verify accessibility and especially effectiveness. These programmes consist of a mix of subsidised employment measures and on-the job training activities. The Lithuanian PES is undertaking also a pilot project in 14 local offices to assess a new “holistic model” of providing active labour market polices. The idea is to make service delivery more effective and in-line with the individual needs of the jobseeker. The PES profiling system has been revised according to the challenges of the new “holistic” approach. The new system is based on a complex questionnaire taking into consideration a number of individual and household characteristic with the aim of identifying the key employment barriers characterizing the jobseeker’s profile. 96. There is room for improving the unemployment insurance benefit system in Lithuania by making it a more accessible reliable form of income protection for active jobseekers. Although the majority of Group B are unemployed almost none of them receive unemployment benefits. This is the result of a relatively restrictive unemployment benefit system which combines a long minimum contribution period and low maximum benefit duration. As part of the “New Social Model” reform package, the duration of unemployment insurance will rise and the eligibility criteria will become less strict. However, the social safety net remains comparatively weak in Lithuania. Levels of social assistance and unemployment insurance benefits are among the lowest in the EU. Cash benefits can be reduced further for longer-term benefit recipients, and can be converted into non-monetary benefits after 60 months unless recipients participate in community-work programmes for a minimum number of hours per month, and unless the public employment service fails to offer a job or participation in an active labour market measure. Although occurring only in selected circumstances, the reduction of cash social assistance is unusual as minimum-income benefits are typically designed to meet some subsistence needs that do not depend on the receipt duration.


57

97. Substantial shares of both Groups A and B are at risk of poverty and receive social assistance benefits. Lithuania decentralized the provision of cash social assistance in 2014, giving municipal authorities full responsibility for administrating the benefit and allocating funds. Since 2015, municipalities also have responsibilities of funding this programme. Evidence suggests that this has been accompanied by a substantial decline in the number of recipients. Although this is in part due to the improved economic conditions the reform played also a rule. Municipalities are running more inspections, have increased the cooperation with the PES and the tax inspectorate, and have established new procedures for data exchange regarding social benefit recipients. The risk of excluding some recipients from the programme even when they still need support seems limited because the law establishes the eligibility conditions at the national level and commits the municipalities to reinvest any savings from unused funds in other social services (e.g. providing transportation for disabled). The decentralization may result however in unequal provisions and access across the country, including risks of increasing non-take-up problems in municipalities where application and assessment procedures are seen as overly demanding by potential applicants. There is also a risk that future regional or national downturns would overwhelm the budgets of severely affected municipalities if the need for support surges rapidly. 98. Work incentives for families under social assistance tend to be weak despite the comparatively-low amount of the standard cash benefit. In general, jobseekers who found a job through the PES are paid the minimum wage but this can be low compared to what recipients of social assistance can receive overall, i.e. the basic benefit amount, heating and hot water allowances, free lunches, free public transport tickets, child allowances, etc. Registration with the Lithuanian Labour Exchange is mandatory for recipients of social assistance, and although sanctions for rejecting job offers are quite strict they are not often enforced. Long-term recipients have to participate in “socially-useful activities” for a certain number of hours per month if they want to keep receiving cash social assistance, and although this programme has useful functions such as preventing informal work and improving social inclusion, it is often not effective in re-integrating recipients back into work, as participants have to engage in these activities for just a few hours per week and lose entitlement to social assistance benefits if they were to take up employment. Also, there is room for making in-work benefits for social benefit recipients more broadly accessible and, at the same time, it is important to monitor whether these in-work benefits lead to “revolving door” effects and low-earning traps, with people cycling between social assistance and in-work benefits to maximise total benefit entitlements.

58 OECD 2017


ANNEX 1: LATENT CLASS RESULTS FOR LITHUANIA 99. Using 2014 SILC data for Lithuania, the segmentation algorithm outlined in Annex 2 leads to a model with 10 groups. Table A1.1 shows the estimated parameters, i.e. the share of individuals facing the employment barriers in each latent group and the related group size in the target population (first row). Groups are ordered by size; colour shadings are used to highlight barriers with higher (dark blue) and lower (light blue) frequencies in each group. The two highlighted groups, groups 2 and group 3 refer to group A and group B respectively in Section 4. Table A1.1.

Latent class estimates

Percentage of individuals with selected characteristics, by group Group 1 Group 2 Group 3 Group 4 Group 5 Group 6 Group 7 Group 8 Group 9 Group 10 Group Size (Target population=100) "Low" education or sk ills No past work experience Positive but "low" relative work experience Core indicators

No recent work activity Health limitations Care responsabilities High non-labour income High earnings replacements Scarce job opportunities

Target Pop

20

20

17

14

8

7

6

5

2

2

100

19 0 0 84 55 8 22 20 0

18 1 56 90 67 2 18 11 0

35 0 56 75 20 2 11 1 91

10 0 14 3 4 2 33 1 0

13 0 31 44 0 65 54 11 0

20 0 54 17 6 29 20 5 91

31 74 26 100 6 1 24 1 92

89 79 20 99 86 0 12 60 53

40 100 0 100 0 99 9 0 80

70 2 68 100 35 99 0 0 37

25 11 32 67 34 13 22 10 32

Note: Group sizes refer to the target population as defined in the text. Colour shadings identify categories with high (dark blue) and lower (light blue) frequencies. Complementary categories (e.g. ‘high’ skills) are omitted. Source: Authors’ calculations based on EU-SILC 2014


59

Table A1.2.

Characterization of the latent groups

Percentage of individuals with selected characteristics and average values, by group Group 1 Group 2 Group 3 Group 4 Group 5 Group 6 Group 7 Group 8 Group 9 Group 10 Number of individuals (%) Number of individuals (frequency) Unstable jobs

Target Pop

20

20

17

14

8

7

6

5

2

2

100

109081

107516

93814

74537

42176

35436

34141

24914

12071

10268

543955 19

7

5

25

35

29

83

2

1

2

0

Restricted work ing hours

9

6

0

32

16

0

0

1

0

0

9

Zero or near-zero earnings

4

3

1

52

16

8

0

0

0

0

10

61

60

39

64

91

60

42

50

97

92

60

0 8 92

0 55 45

1 82 17

36 58 5

41 58 2

57 42 1

72 28 0

43 48 9

89 11 0

0 79 21

21 47 32

62

55

50

37

31

29

25

34

26

37

47

Unemployed

1 8 1 1 0 60 22 5 1 12 1

1 5 1 1 10 21 47 11 2 6 10

0 0 0 0 100 0 0 0 0 5 88

16 26 14 16 0 2 3 4 19 81 10

8 8 3 9 0 2 2 25 43 43 5

0 0 0 0 99 0 0 0 0 32 65

0 0 0 0 76 0 9 8 7 0 74

0 1 0 0 16 2 77 2 2 1 17

0 0 0 0 5 0 0 91 4 0 3

0 0 0 0 30 12 0 50 7 0 31

3 7 3 3 32 17 18 9 7 22 29

Inactive

Women* Youth (18-29) Age groups*

Prime age (30-55) Old-age (55-64)

Average age Employed FT Employed PT Main activity during the reference period

Self-employed FT Self-employed PT Unemployed Retired Unfit to work /disable Housework Other inactive

Main activity at the moment of the interview

Employed

88

84

3

9

52

2

26

82

97

69

48

Actively seek ing employment (% of out of work )

2

9

89

33

20

86

76

12

3

34

35

Average length of unemployment spell † Primary Level of Lower secondary education Upper secondary (ISCED) Tertiary Average years of education

..

12

12

..

..

10

12

..

..

..

12

0 8 75 17

1 6 81 11

1 15 73 12

0 3 63 34

2 6 49 44

8 8 58 26

3 23 57 16

44 43 12 1

4 35 47 14

3 45 45 7

4 12 66 19

13.7

13.4

13.2

14.5

14.7

13.5

12.9

7.9

12.5

11.9

13.3

60 OECD 2017


Table A1.2.

Characterization of the latent groups (cont.)

Percentage of individuals with selected characteristics and average values, by group Group 1 Group 2 Group 3 Group 4 Group 5 Group 6 Group 7 Group 8 Group 9 Group 10

0 0 19 30 25 7 13 6

1 1 18 36 23 8 11 4

0 0 36 36 14 5 6 2

0 0 14 17 44 6 14 5

0 0 12 17 37 5 25 3

0 0 23 19 34 20 2 1

69 69 10 13 7 0 0 0

33

15

18

13

9

7

13 10

28 6

3 8

2 5

0 7

0 3

4931

4443

2823

5175

6089

25 26 24 13 12 24 66 16 19 36

34 24 21 13 8 33 55 22 23 52

67 16 8 6 2 67 37 22 41 10

35 14 20 14 17 34 69 15 16 16

17 26 28 10 19 17 74 17 9 9

they receive, in average † Unemployment benefits recipients (%),

1879

2178

1012

1035

..

8

5

18

15

15

they receive, in average † Social Assistance recipients (%),

1521

..

811

650

..

495

14

23

55

30

38

54

57

35

79

65

36

they receive, in average † Housing Benefits recipients (%),

492

623

1021

545

609

861

792

544

690

1201

769

3

7

9

2

2

7

7

4

9

6

5

..

..

180

..

..

..

..

..

..

..

178

Number of individuals (%) No work -related sk ills Elementar occupations Craft and machine operators Work -related Clerk and sales sk ills (ISCO) Technicians et al. Professionals Managers Average years of paid work experience † Severe health limitations Migrant Equivalent disposable income (€/year - average) Bottom quintile Position in the income distribution

Second quintile

Material deprivation (Eurostat)

No material deptivation Deprived

Third quintile

Fourth quintile Top quintile AROPE (eurostat methodology)

Severe Sick ness and disability recipients (%),

Benefits Recipiens and average amounts (€/year)

they receive, in average † Family-related benefits recipients (%),

79 79 17 2 2 0 0 0

100 100 0 0 0 0 0 0

1 1 55 23 14 3 2 1

10 10 20 26 24 7 10 3

3

..

..

12

19

0 14

57 2

0 0

1 9

11 7

3688

3359

3768

3408

2351

4279

53 24 9 4 10 51 52 18 30 7

47 27 12 10 3 47 47 16 36 20

35 28 24 9 4 35 48 19 34 80

37 26 33 4 0 37 52 19 29 15

75 23 2 0 0 75 40 31 29 10

40 22 19 10 9 39 56 19 25 28

..

..

3331

..

..

1998

39

5

5

12

6

12

..

..

..

..

820

7

7

8

23

72

47

25

22

90

65

22

they receive, in average † Old-age Benefits recipients (%),

1678

..

604

2212

2517

787

887

..

543

803

1523

61

23

1

3

1

0

0

3

0

11

18

they receive, in average †

2650

2285

..

..

..

..

..

..

..

..

2523

25 44 6 15 9 1

21 42 14 17 6 1

33 22 17 18 7 3

8 26 26 19 17 4

0 0 61 0 31 7

2 5 48 15 17 12

8 13 23 34 11 11

10 26 30 20 13 0

0 0 79 0 8 13

0 3 72 1 7 16

17 27 24 16 12 4

6 10 1.3 5

3 6 .. ..

4 11 1.4 7

21 27 1.5 3

78 100 1.6 3

40 72 1.4 6

7 26 1.4 6

16 26 .. ..

72 100 1.7 4

38 91 1.5 6

18 28 1.5 5

53

59

70

48

52

42

78

66

67

75

58

43 1.2

46 1.7

34 2.1

70 0.7

85 1.6

69 2.2

61 2.5

42 3.9

80 3.3

60 3.0

53 1.8

Single Couple without children Household type

Target Pop

Couple with children 2+ adults without children 2+ adults with children

Lone parents Have children (6 years or less) Have children (12 years or less)* Average number of children (12 years or less) † Average age of the youngest child † Live in rural area* Household with other work ing household members Average number of simultaneous barriers

Note: Colour shadings identify categories with high (darker) frequencies. The average number of simultaneous barriers per individual is computed for the core indicators in table A1.1 with the exception of recent work experience. Income quintiles refer to the entire population. Poverty risks and material deprivation are calculated with the Eurostat methodology. * The variable enters as an additional indicator in the latent class model. See Annex 2 for details. † Average across observations with strictly positive values. Averages based on less than 30 observations are omitted. The unemployment spell is calculated for the entire reference period (13 monthly observations) and is top-coded at 12 months for individuals who reported the status of “unemployed” during all the 13 months. Source: Authors’ calculations based on EU-SILC 2014.


61

Table A1.3.

Characterization of the latent groups

Coefficient of variations, by group Group 2

Group 3

Group 4

Group 5

Group 6

Group 7

Group 8

9 ..

16 2

19 15

34 ..

27 ..

26 20

32 18

34 ..

16 ..

25 ..

Years of education

14

14

16

15

19

24

20

51

21

20

Years of paid work experience

20

50

55

85

80

98

115

..

..

79

Equivalent disposable income

70

80

114

85

86

75

69

53

43

42

Sick ness and disability

78

67

106

83

..

..

..

48

..

..

Unemplomynet

51

66

54

..

76

..

..

..

..

Benefits Social Assistance Housing Family-related Old-age Number of children (12 years or less) Age of the youngest child

91

83

61

69

92

87

67

88

69

79

.. 82 34 45 75

.. .. 41

65 142 .. 41 52

.. 90 .. 49 99

.. 85 .. 44 109

.. 185 .. 37 56

.. 171 .. 65 42

.. .. ..

.. 60 .. 44 74

.. 70 .. 60 60

32 18 20 67 86 77 78 80 59 120 37 47 79

Number of simulataneous barriers

77

54

46

107

59

47

28

21

22

30

66

Age Length of unemployment spell

Group 9 Group 10

Target Pop

Group 1

Note: Indices calculated for to the “continuous” variables shown in Table A1.2. See notes of Table A1.2 for more information on the sub-samples these indices refer to. Indices based on less than 30 observations are omitted. Source: Authors’ calculations based on EU-SILC 2014.

62 OECD 2017


ANNEX 2: DESCRIPTION OF EMPLOYMENT BARRIERS

100. The Profile Analysis Note for Lithuania examines a series of employment barriers that may be faced by those with no or weak labour market attachment. Following Immervoll and Scarpetta (2012), these are categorised into three domains, namely: 

Insufficient work-related capabilities, e.g. a lack of skills, work experience, care responsibilities and health-related limitations;



Lack of financial work incentive to look for a ‘good’ job, e.g., because of low potential pay, relatively generous out-of-work benefits, or access to high levels of income independent of their own work effort;



Scarce job opportunities, e.g., a shortage of vacancies in the relevant labour-market segment, frictions in the labour market due to information asymmetries, or discrimination in the workplace.

101. These employment barriers cannot all be measured directly. To operationalise the concepts, the Profile Analysis Note implements a set of workable indicators under each of the three main categories. Fernandez et al. (2016) provides a fuller discussion of the indicators and their rationale, including descriptive statistics for selected countries. The indicators used are as follows: 

Capability, item 1. “Low” skills: if an individual has low professional skills (their most recent job was in the lowest category of the ISCO-08 classification system).23 Those who demonstrate high skills by having a tertiary degree are assumed not to face this employment barrier even if their most recent job was low-skilled. If an individual has no work experience at all, they are also included in the “low skills” group.



Capability, item 2. Health limitations: If an individual reports some or severe long-standing (> 6 months) physical or mental limitations in daily activities.



Capability, item 3. Care responsibilities: if an individual has a family member who requires care,24 and if he or she is either the only potential care giver in the household, or the only person in the household who is labour-market inactive or working part time because of care responsibilities.



Capability, item 4. No past work experience at all. If an individual has never made any paid work.



Capability, item 5. No recent work experience: if an individual did not work at all during the reference period (i.e., without any employment for at least 12 months).

23.

This indicator is different from that in Fernandez et al. (2016), which classifies individuals who have achieved less than upper secondary education as facing an employment barrier. The reason is that many individuals in the Lithuanian labour force have an upper-secondary degree which is often combined with occupations at “low” skills content.

24.

Family members assumed to require care are children under the age of 12 receiving less than 30 hours of non-parental childcare a week and adults reporting severe limitations in daily activities due to their health and being economically inactive throughout the reference period (and in the case of those of working age, that permanent disability is the reason for their inactivity).


63



Capability, item 6. “Low” relative total work experience: the indicator takes one of three values: 1 for those who have no past work experience at all, 2 for those who have some work experience but have worked less than 60% of the time since they left full-time education, and 3 otherwise (i.e., if their total work experience is not “low”).



Incentives, item 1. “High” non-labour income: if the household’s income excluding that relating to the work efforts of the individual in question,25 adjusted for household size, is more than 1.6 times the median value in the reference population.



Incentives, item 2. “High” earnings replacement benefits: if earnings-replacement benefits are more than 60% of an individual’s estimated potential earnings in work.26



Opportunity, one item only: if an individual has a “high” risk of not finding a job despite active job-search and willingness to take up employment during most of the income reference period (at least 7 months) and until the moment of the SILC interview (inclusive). The risk is estimated with a regression model including region, age group, gender and education as independent variables (see Fernandez et al., 2016 for more details). Individuals with an estimated risk of more than 1.6 times the median value in the working-age population are considered to face “scarce” job opportunities. Scarce job opportunities do not only indicate a barrier to employment in the short term, but if jobseekers become discouraged and stop active job search, it could lead to further problems in the longer run.

25.

This includes both earnings, individual-level earnings replacement benefits and the individual’s share of household-level earnings replacement benefits.

26.

Potential earnings are estimated in SILC with a regression model corrected for sample selection. See Fernandez et al. (2016) for details.

64 OECD 2017


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