European Social Fund and Labor Market Policy

When Austria joined the European Union it became a recipient of moneys from the European Social Fund (ESF) dedicated to labor market promotion activities. This means that a proportion of Austrian payments to the EU is returned to Austria earmarked for this particular purpose. The ESF aims to foster structural change actively by promoting human capital. As the European Union handles its financial involvement in the labor market policies of its member states solely through the ESF, it can thus exercise more influence on national strategies through the ESF than within the scope of other Community activities in the field of employment, social and labor market policies. Altogether, about ATS 7 billion from the ESF are available for spending in Austria in 1995 to 1999. By the end of 1997, 55 percent of scheduled ESF aid had already been expended (Federal Ministry of Labor, Health and Social Affairs). Thanks to the ESF, the means available for active labor market policies have been substantially increased. Between 1994 and 1997, Public Employment Service spending on labor market promotion rose by 48 percent to ATS 6.931 billion (including ESF moneys in 1997). Nevertheless, the ESF has also changed requirements to be met by labor market promotion measures. Because of the ESF, employees affected by structural change have become a specific target group of labor market policy. Similarly, assistance for the unemployed is no longer the exclusive responsibility of the Public Employment Service: the Federal Offices for Social Affairs and the Disabled have been given co-responsibility for supporting disabled unemployed who benefit from the Employment of Disabled Persons Act. In spite of the Commission's stipulations and long-term program planning, there is sufficient flexibility to respond quickly to changing conditions. The ESF does not limit the national scope for labor market policies and neither does it counteract the principle of a decentralized Public Employment Service. Set against this background, the contribution to the WIFO Monthly looks at the ESF and its place within the labor market and employment strategy pursued by the European Union. Interventions by the ESF are based on the concept of employability, which is to be boosted by measures to improve qualifications, employment subsidies and the provision of support structures. ESF measures thus are effective when the employed and unemployed have qualifications that do not match the requirements of the jobs on offer. But when demand for labor is inadequate (i.e. a shortage of jobs), other tools are required. The ESF is thus only one of the pillars of a European employment and labor market strategy. In its employment strategy, the European Commission concentrates chiefly on supply-side tools. In its view, a major cause of the high unemployment rate in Europe is the fact that over the past decades labor markets have been subject to a deep-going process of transformation, while co-ordination mechanisms (and thus the institutional framework) still think in 1950's categories. This view also explains the high priority awarded by the Commission to reviewing the effectiveness and efficiency of institutions and regulations.