Activation: Learning from International Experiences

1. Activation: Learning from International Experiences Regina Konle-SeidlInstitute for Employment Research (IAB), Nuremberg RECWOWE Executive Seminar Lausanne, 23 October 2008

2. The volume • Bringing the Jobless into Work? Experiences with Activation Policies in Europe and the US • IAB, IZA and MPI for Foreign and International Social Law) • Country reports from DE, FR, NL, CH, DK, SE, UK and US

3. Activation principles • Activation means reviving or redefining basic principles of the welfare state • Often awakening dormant constitutional elements such as self-sufficiency, responsibility, rights and duties (e.g. Denmark, Switzerland, but also in Germany…) • Activation of persons (demanding and enabling/ Fördern und Fordern) • .. and benefit systems • Activation is about limiting the realm of accepted benefit receipt of working-age people (valid reasons for exemptions are defined more restrictively)

4. Activation objectives • Strategy to combat poverty and social exclusion • Employment as the best way out of poverty • Strategy to overcome unemployment and inactivity traps in full blow welfare states • Focus differs from country to country: Lowering LTU (D), less dependency on welfare (USA), mobilising the non-employed (UK, NL, DK, CH)

5. Net replacement rates in the 60th month of benefit receipt1 2005 1100% of AW level; after tax and including unemployment benefits, social assistance, family and housing benefits Source: OECD Benefits and Wages 2007

6. Net income gains: Transition from unemployment into full-time workin %, 2005

7. From active LM policies to activationstrategies • Activation is about strengthening the link between benefit receipt and job search requirements • Mutual obligations • From passive to active LMP → effective LMP→ activating LMP • Need to take account of the interactions between ALMP and benefit systems (e.g. carousel effect)

8. Client Segmentation Mandatory work activities job search assistance Able 3 1 Willing Unwilling 4 Training through work activities 2 Mandatory work activities training Unable

9. Broadening the focus of activation • differences between sequential and „big bang“ activation: risk of shifting beneficiaries to less activated schemes vs. increase in open unemployment/labour supply • In any case: integration of more vulnerable groups generates need for further adjustment of activation policies taking distance to the labour market into account

10. UK: Sequential Activation

11. inability to work social assistance 2004: UA: unemployment assistance2005: UB II 2004: UB 2005: UB I D: Broadening the target group of activation Transfer recipients in % of working age population

12. Broadening the focus of activation • Often in a stepwise manner – gradual tightening of availability criteria/monitoring/mandatory participation over time and with duration of benefit receipt • Over time: considerable (but not complete) convergence in terms of a broader range of target groups • From registered unemployed to jobless/inactive in a wider sense – the typical sequence (most explicit in the UK, DK, NL): • Young unemployed • Unemployment insurance benefit recipients • Welfare recipients • Older workers • Sickness / disability / incapacity benefit recipients (last remaining escape route, often „sacred cows“) • Sequences vary across countries, but converge

13. Labour market-oriented activation

14. Repertoire of instruments • Mix varies across countries but typically consists of • monitoring individual job search behavior • enforcement of work tests (incl. mandatory participation in ALMP schemes) • referral to vacant jobs • individual action plans and regular follow-up • personalized case-management assistance for LTU

15. Repertoire of instruments • In countries with full-blown systems of unemployment protection and active labour market policies activation means also • making benefit receipt less attractive (cut of UE benefit duration) • less emphasis on training, more on work-first (e.g. DK, NL, DE) • Activation is often combined with increasing labour market flexibility (labour demand) via partial deregulation, heavy subsidization and in-work benefits (e.g. UK, US, Germany, France) to stimulate (low-wage) job creation

16. Repertoire of instruments • In countries with less generous unemployment support and low levels of ALMP (USA, UK) regular interventions in the unemployment spell are • often supplemented by stronger „ make work pay“ policies (in-work benefits, e.g. UK, US) • and intensive employment assistance after a particular duration of unemployment (e.g. New Deal programs for selected targeted groups in UK)

17. Major findings: Contingent convergence • National policy-making is a learning system, hence activation policies are „moving targets“ • General trend towards widening the scope of activation: from unemployment benefits to welfare and disability benefits 2. Modifying the repertoire of instruments: all countries basically rely on the same set of demanding and enabling instruments in a „work-first framework“ now – but with varying importance…

18. Contingent convergence of strategies • Activation as a „cascade“ of measures – the longer the benefit receipt, the more restrictive the programs • Strict „work-first“ models tend to become more „enabling“, „human capital“ models more „demanding“ • activation supplemented by search for more effective governance (one-stop shops, external providers + objectives, budgetary incentives) • National policies become more similar over time, but not identical, i.e. „contingent convergence“ • There is need to question established typologies

19. Contingent Convergence: Driving forces • Normative reframing: passive benefit less tolerated than in the past • Fiscal pressure: more and more benefit systems to be activated / activation of selected benefit regime increases pressure on other benefit regimes • Some learning from policy failure and evaluation • EU and OECD discourse and exchange

20. Does activation really work? • Effective activation strategies have several effects on participants • “motivation or threat effect”: people exit benefits to participate on ALMPs, work or inactivity • raise effective labour supply, leading to higher employment • Outcomes generally defined in terms of post-programme gains in employment (and earnings) • Descriptive findings • decline of welfare caseloads (USA, NL) • reduction of open unemployment (DK, UK) • larger impact of activation strategies than traditional ALMPs alone

21. NL: Work first and exit- to-work rates 8 18 32

22. Denmark: Timing of activation and exit from unemployment

23. Does activation really work? • Findings from the evaluation literature • Empirical evidence on demanding interventions (benefit cuts, sanctions) seems to be more robust than evaluation findings on enabling policies (e.g. public training programmes) • Recent findings on outcomes of different ALMPs in line with OECD wisdom (Martin & Grubb 2001) • Ex.: job search Assistance and counselling works best when combined with increased monitoring of job seekers (carrot and sticks) • Quite robust evidence that activation policies lower benefit duration and further exit from ‚activated‘ benefits schemes

24. Caveats of activation: non-sustainable labour market integration • but this may not be sustainable in the long run • especially for people with a long distance to the labour market • risk of repeated benefit receipt due to skills and general employability deficits (see e.g. UK and US experience after one decade of welfare-to work) • activated job searchers often enter low-wage jobs, part-time or other types of „atypical“ work • not all do achieve sustainable employment and independence from public (in-work) benefits

25. Knowledge gaps …. • Comparative analysis of actual implementation is largely a black box so far • As well as comparable data on structure and mobility of working-age benefit recipients: between different benefit systems and between benefits and work • Empirical work on policies to improve sustainability of jobs and upward mobility (just training?) • Is work-first activation really a stepping stone towards inclusion?

26. Findings on macro-level outcomes • Outcomes in terms of employment and inactivity levels, impact on the public budgets • net overall effects of activation may be smaller than expected • effects on employment level and composition of employment (low wage sector, non-standard forms of employment etc.) and overall wage structure is mainly a black box • indirect effects (signaling effects) on employed people are difficult to measure • impacts on productivity levels (OECD 2007) • and the budget (cost–benefit): high in some countries (e.g. DK)

27. Denmark: • ß

28. Public expenditures in LMP, 2005 OECD 2007

29. Conclusions - 1- • Inherent trend towards activation of more and more benefit schemes • Activation strategies have larger impacts for beneficiary population than traditional ALMP • Countries are learning from each other • Picture of what works, why and for whom is getting clearer on the individual level • But which strategies work best in terms of employment levels and job quality (stability, earnings) depends a lot on the national framework • Indications that the broader the definition of target groups, the more heterogeneous the labor force, the more integration into instable, low-paid jobs

30. Conclusions - 2- Work first activation 1. shows positive results in the short run, esp. for the job ready 2. does not mean budget savings – at least in the short run • Integration into (full time) employment is not the only but indeed the best way to combat poverty and social exclusion But beyond the perspective of fast LM integration ► retention programs and “job entry assistance” (e.g. certification of on-the job training) are needed ► to overcome “activation and low wage traps” work first strategies has to be complemented by 1. better transition into stable jobs 2. individual chances of upward mobility

31. Conclusions - 3- What policies can help raise employability at the lower end? • Stronger „supply side equality“ in terms of basic qualifications and life-long learning (“prevention first”) • Adult training policies not only as part of LM activation policies (e.g. Knowledge lift program in Sweden) • Rather than heavy long-term subsidization of jobs or direct public job creation for the hard-to-place

32. Back up

33. Germany: Active and passive benefit schemes

34. Germany

35. Recipients of benefits- % of working-age population, 2004

36. United Kingdom

37. Activation strategies: Work first vs human capital development

38. Wages accepted after unemployment spells Germany