Giving people better opportunities to participate in the labour market improves well-being and strengthens economic growth. Better activation policies help countries to cope with rapid population ageing by mobilising potential labour resources more fully. Many OECD countries achieved record employment levels prior to the global financial crisis, but in all countries employment rates differ markedly across population groups. High unemployment and the weak labour market attachment of some groups in society reflect a range of barriers to working or moving up the jobs ladder. And in many countries the crisis has accentuated long-standing structural problems that are causing these disadvantages. It is a major challenge for policy makers in the coming years to address these problems and make OECD labour markets and, thus, OECD economies more inclusive.

Labour market and activation policies are well developed in Slovenia and generally quite effective in connecting people with jobs and, thereby, contributing to economic growth and wellbeing. However, the global financial crisis hit Slovenia hard and revealed some structural weaknesses in the system, which have contributed to a high level of long-term unemployment, low rates of employment for some groups such as those who are older or low-skilled and poor reemployment chances for workers who have been made redundant. Recognising these challenges, the Slovenian government has commissioned this review as one strand of its plan to strengthen its activation and labour market policies. By encouraging greater labour market participation of disadvantaged groups stronger activation policies also contribute to Slovenia’s National Development Strategy 2030 which aims at building social cohesion and ensuring that no one in society is left behind. Such stronger policies also contribute to Slovenia’s goal of improving all citizens’ access to education and training in every stage of life.

The global financial crisis revealed important weaknesses and rigidities in Slovenia’s social and labour market policies which hindered rapid adjustment. Among those are: a strong labour market dualism with a high share of temporary employment especially among young people; a high minimum wage relative to the average wage which was further increased in 2010, coupled with high taxes on labour; some tendency for growth in repeat unemployment with short intermittent employment periods; and a high level of long-term dependence on social assistance benefits.

Before the onset of the global financial crisis in 2008/2009, Slovenia experienced a period of considerable and stable economic growth, including a large increase in employment. However, the crisis hit Slovenia hard, resulting in a large drop in employment and record levels of unemployment, often the result of jobs wiped out by firms closing or down-sizing. Only in 2014 did the situation slowly start to improve. Nevertheless, levels of long-term unemployment remain high and there is a considerable risk for some of the cyclical unemployment to translate into a structural one. In the context of its recent but still modest recovery, Slovenia is trying to rectify a number of the structural labour market weaknesses and address the weak employment situation especially of low-skilled and older workers who have very low labour market attachment by international standards.

This chapter discusses some key features of the policy environment in Slovenia, to help understanding of current labour market outcomes and activation policy challenges and of the large impact of the recent recession. These features include among other things the relatively high minimum wage; legally required or tax-exempt allowances paid to employees; and non-standard forms of work and their regulation. The chapter looks at how these issues as well as benefits and benefit conditionality may interact, e.g. the minimum wage may encourage the use of fixed-term contracts, while benefit entitlements from fixed-term contracts encourage repeat unemployment. The chapter also describes the social and labour market reform path Slovenia has followed since its independence and the recent partial breakdown of social dialogue.

A critical component of activation policies concerns the incentives that individuals face to become formally employed or to remain in employment. To what extent does social policy in Slovenia strike the right balance between providing income support for vulnerable individuals while ensuring that such individuals are still motivated to seek employment? Do those receiving unemployment or social assistance benefit have strong financial incentives to engage in job search? What are the financial incentives for delaying retirement until the statutory retirement age – and how can individuals exploit the system of unemployment, disability and social assistance benefits to effectively exit the labour market at an earlier age? Finally, how did the 2009 recession and the subsequent austerity measures affect social policy, and what have been the effects of these changes on government expenditures and the number of benefit recipients? These questions are discussed in this chapter.

The Employment Service of Slovenia (ESS) is a well-functioning and modern public employment service with a strong focus on job placement. It has established a strong role as a job-broker by offering extensive recruitment services to employers. Just like employment services in many other OECD countries, it invested in user-friendly e-services with the aim to increase service availability and accessibility for both jobseekers and employers. The ESS has a large and diverse client base and only around a quarter of the unemployed are not registered with the ESS. Despite all those strengths, a number of challenges prevail, holding back re-employment for more people and at an earlier stage. Also, as the ESS does not administer the income-replacement benefits of all of its clients, the activation of jobseekers appears inconsistent in some circumstances. This chapter identifies a number of areas where consideration should be given to additional measures or adjustments to existing ones and a co-ordinated approach to activation by all actors involved.