Abstract
This compilation of summaries of Working Papers released during January-June 1993 is being issued as a part of the Working Paper series. It is designed to provide the reader with an overview of the research work performed by the staff during the period. Authors of Working Papers are normally staff members of the Fund or consultants, although on occasion outside authors may collaborate with a staff member in writing a paper. The views expressed in the Working Papers or their summaries are, however, those of the authors and should not necessarily be interpreted as representing the views of the Fund. Copies of individual Working Papers and information on subscriptions to the annual series of Working Papers may be obtained from IMF Publication Services, International Monetary Fund, 700 19th Street, Washington, D.C. 20431. Telephone: (202) 623-7430 Telefax: (202) 623-7201
In Belgium, underutilization of labor imposes a heavy burden on government expenditure. The labor market displays a lack of flexibility, suggesting not only policy-induced distortions but also structural problems. The number of persons receiving some form of unemployment benefit has been rising steadily since 1980; the nonemployment rate is very high; there are large regional disparities in unemployment; female and youth unemployment are prevalent; and long-term unemployment is significantly higher than in other industrial economies. This paper assesses the effectiveness of recent labor-market initiatives in Belgium in the light of these characteristics.
Cross-country evidence suggests that the generosity of long-term unemployment benefits helps to explain the prevalence of long-term unemployment. High, long-term unemployment in turn helps to explain low participation rates. Many more people receive unemployment insurance than are unemployed and actively seeking work, yet unemployment benefits are not means-tested, whereas the income support system is. Employee and employer tax wedges in Belgium are also higher than in other industrial countries. In addition, there is some evidence of a mismatch in the labor market. Relative to other industrial countries, Belgium spends a higher proportion of its labor market expenditure on passive measures, such as unemployment compensation, and less on active measures, such as training.
Recent government measures to limit the duration of unemployment benefits and tighten eligibility have helped to alleviate the labor market problems. The initiative that could have the most significant impact on the labor market is the plan d’ accompagnement. By providing and monitoring an action program for those who are on the verge of becoming long-term unemployed, the plan could help to prevent long-term unemployment and reduce the nonemployment rate. Furthermore, by providing targeted training, this initiative could help to reduce mismatches in the labor market.
However, these initiatives are unlikely to rectify the underlying problems. Further measures are needed to ensure that Belgium will not face a supply constraint when the economy recovers. Such measures could include separating the unemployment compensation system from income support; reducing the generosity of long-term benefits; tightening the provisions for claiming part-time unemployment compensation; extending the plan d’accompagnement to more of the unemployed and making its provisions more specific, particularly with regard to training; and reducing employee and employer tax wedges.