The European Commission’s Directorate General for Employment and Social Affairs has developed an index, the Labour Market Institutions index, to determine how EU countries fare in terms of labour market rules and policies. To determine the quality of a country’s labour market rules, the index assesses the country’s labour market institutional framework on five different areas:
 

• Active labour market policies (ALMP), for example employment subsidies and job-counselling
• Unemployment benefits
• Lifelong learning policies, for example on-the-job training
• Employment protection legislation, such as rules regarding dismissing permanent employees
• Activation conditionalities, for instance when an unemployed person needs to participate in some forms of ALMP in order to continue receiving unemployment benefits

The index then compares these results with those of other EU countries and tries to match them with actual labour market outcomes. Through this method, both EU institutions and member states can determine whether the policies, which have been implemented to address the high unemployment rates that many EU countries still suffer, are working or not.

The combined effect of labour market policies in employment outcomes

The different labour market policies are usually more effective when they are combined with each other. Therefore, the index tries to analyse how each labour market institution relate with each other. For instance, unemployment benefits do not seem to have a strong effect by themselves on labour market outcomes. However, countries with the combined highest expenditure in activation conditionality, lifelong learning policies and unemployment benefits show better results in terms of employment statistics.

Recent development in employment trends

In this context, labour market indicators continue to show signs of improvement, as seen in the September 2015 edition of the Quarterly Employment and Social Situation Review. Employment rates keep increasing in most EU countries and the groups that are benefiting most from these improvements are the two that were hit hardest during the crisis: older and younger workers. Labour market policies have focused on these two groups in recent years and they seem to be having a positive effect, with almost 500,000 more employed young people than in the year 2014. However, further reforms of the labour market institutions need to be implemented since the goal set in the Europe 2020 strategy for reaching an employment rate of 75% for people aged 20-64 is still far away (69.2% at the beginning of the year).