A successful transition followed by rapid catching-up with the EU average has permitted Slovenia to increase employment over the past decade. The overall employment rate is now close to the Lisbon target of 70%. Human resources have been largely reallocated towards more productive activities, not least within a manufacturing sector that is still large by OECD standards, and which has become increasingly export-oriented.

Nevertheless, young people continue to face high barriers to entering the labour market, largely reflecting the difficulty of combining education with work. For older workers, low employment and a high incidence of long-term unemployment remains a structural problem. A better integration of both young and older workers in the labour market will be especially important to help deal with a rapidly ageing population. However, the combination of a well-developed safety net and a moderately progressive tax system results in low overall income inequality, thus attenuating the rather wide wage inequality that is related to differences in human capital.

Slovenia’s labour market institutions and co-ordinated collective bargaining have responded well to changes in the economic environment. However, relatively strict employment protection legislation (EPL) fosters an excessive use of precarious forms of employment to the detriment of young people who would prefer regular jobs. Recent changes in EPL have been too cautious.

One of the main social safety nets in Slovenia, unemployment insurance (UI), has holes that loom large in the current economic downturn. Coverage of the unemployed is low due to very strict qualifying criteria. It is appropriate in the present circumstances to relax these criteria so that a higher proportion of the newly unemployed can receive benefits. A key challenge is to ensure that they do not prematurely lose contact with the job market. This will put more pressure on the Employment Service of Slovenia (ESS) to adapt its activation programmes and to strengthen its co-operation with Centres for Social Work with a view to the unemployed recipients of social assistance. The planning and implementation of active labour market programmes (ALMPs) should be more flexible and there is a need for additional training programmes, notably for job seekers with long work experience.

Slovenia’s social protection system is well developed and social spending has a large impact on redistribution of resources, reducing the risk of poverty by half. Overall spending on social policy amounts to about a quarter of GDP which is around the OECD average. With economic growth and favourable employment trends, the number of social assistance beneficiaries went down. Although recent reforms aimed at activating unemployed people were implemented, they did not fully succeed. The participation of social assistance recipients in active labour market programmes remained low, at least initially. Hence increasing the activation of welfare recipients remains a policy challenge, all the more in time of economic slowdown.

Family policy is well developed, and includes a wide array of child benefits, parental leave and maternity leave allowances, and financial support towards childcare and kindergartens. On the whole childcare provisions are comparable with the OECD average and in terms of work and family outcomes, Slovenia generally scores well in international comparison. However, fertility rates are currently well below the replacement level. The reasons behind this low fertility rate can be found in difficulties young people encounter in getting established in stable employment as well as in difficulties they face in moving out of the parental home because of housing costs.

Social transfers have relatively broad coverage in Slovenia and social spending appears to have a high effectiveness with regard to poverty and inequality reduction. Nevertheless, the tax burden on low-wage work is high in Slovenia compared with other OECD countries with well developed outof- work support systems.