Labor Market Issues in Belgium: An International Perspective

Labor Market Issues in Belgium:
An International Perspective by Reza Moghadam

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.