From Inactivity to Work: the Role of Active From Inactivity to Work: the Role of Active Labour Market PoliciesLabour Market Policies

StStéphane CARCILLO and David éphane CARCILLO and David GRUBBGRUBB

Directorate for Employment, Labour and Social AffairsDirectorate for Employment, Labour and Social Affairs

OECDOECD

June 2006June 2006

Caseload trends for working-age Caseload trends for working-age income-replacement benefits income-replacement benefits

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The 1970s and 1980sThe 1970s and 1980s From the mid-1970s onwards, in many OECD countries,

unemployment was the Number 1 concern. Rising and/or high unemployment was often accompanied by

a sharply rising share of the working-age population dependent on “non-employment” benefits – early retirement, disability, social assistance, and maternity and care benefits.

However, until the 1980s the rising numbers on “non-employment” benefits were often seen as improving the coverage of existing “social risks” – a positive development. Only the increase in unemployment were seen as a serious problem.

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The 1980s: overexpansion of non-The 1980s: overexpansion of non-employment benefitsemployment benefits

In the early1980s unemployment reached new record levels in many European countries.

Some countries such as Austria, Belgium, France and Spain allowed many older unemployed workers to transfer to newly-created early retirement benefits.

Others such as Ireland and the United Kingdom allowed many unemployed workers to transfer to disability benefits.

These transfers were often seen as unavoidable, because in recession older or slightly disabled people had little chance of entering work.

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1990s turnaround1990s turnaround Despite another sharp recession, unemployment in some countries

stayed below the peak levels of the 1980s. By the end of the 1990s – often thanks to “activation” policies – unemployment had fallen sharply in Denmark, Netherlands, Spain and UK. More negative interpretations of non-employment benefits emerged:

Early retirement benefits had reduced older-worker employment rates rather than unemployment.

Disability benefit caseloads seemed to have expanded beyond the social risks originally covered (e.g. spurts in claims for musculo-skeletal problems such as back pains, and later stress and other mental conditions).

Social assistance caseloads had become very high where lone mothers could get benefits without working. Yet female employment generally had risen. And in some other countries, lone mothers were not so dependent on benefits, and had high employment rates.

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OECD data compilation to 2004OECD data compilation to 2004 Estimates recipiency rates for all income replacement benefits

received by the working-age(15-64) population in 16 countries, 1980-1999, appeared in OECD Employment Outlook, 2003.

In 2005-6 we updated estimates for unemployment, incapacity (sickness plus disability) and social assistance or lone-parent benefits (where these exist).

Across 16 countries, unemployment benefit recipiency has on average fallen by 20% or more since the mid-1990s.

Incapacity benefit caseloads remain very high in the Netherlands, and have continued to grow in: most English-speaking countries (Australia, Ireland, New Zealand,

the UK and the US) most Nordic countries (Denmark, Norway and Sweden).

Lone-parent benefit caseloads remained high in the English-speaking group except for Canada and the US, which implemented Welfare Reform.

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Unemployment still the main problem in Unemployment still the main problem in France and GermanyFrance and Germany

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English-English-speaking speaking countries: countries: Incapacity Incapacity

benefit benefit caseloads caseloads

still still growinggrowing

Lone Lone parent parent benefit benefit

caseloads caseloads still highstill high

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Nordic Nordic countries: countries: Incapacity Incapacity caseloads caseloads high and high and growinggrowing

Although Although social social

assistance assistance benefit benefit

caseloads caseloads are low are low

and fallingand falling

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What about What about otherother non-employment non-employment benefits?benefits?

Maternity, paternal, care, survivors’ and early retirement benefits - not shown in these graphs - account for over 40% of the working-age “non-employment” benefit total.

The policy issues raised by early retirement – the largest “other” non-employment benefit – are not so complicated. OECD recommends they should be abolished.

According to this principle, workers up to the age of 64 if not qualified for disability benefits and not employed, should usually be able to qualify only for unemployment benefits.

Work capacity among inactive Work capacity among inactive population groups population groups

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Evidence of work capacity in Evidence of work capacity in “non-employment” benefit caseloads“non-employment” benefit caseloads

Incapacity benefits:

many “disabled” people report that their disability is not severe, or that they are actually working (in surveys).

medical conditions such as injury or heart disease have declined – caseload growth has been in less-easily-verified or more subjective conditions (back pains, stress..).

non-medical (social and benefit entitlement) factors often seem to influence caseload growth, e.g. high disability rates in areas hit by industrial restructuring, high self-reported disability rates in countries with high benefit coverage (OECD, 2003)

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Lone-parent/social assistance benefits:

Single mothers available for work when child is 6 months old in some US states and Canadian provinces; but 16 to 18 years in Ireland, New Zealand and the UK; many other countries have age limits of 3 to 6 years. The less-strict rules are not necessary.

Some countries e.g. Belgium Denmark and Sweden expect all lone parents to work depending on individual circumstances. This requirement seems to be workable and to have an impact.

US Welfare Reform led to a 2/3 drop in caseloads and large rise in employment rates for single mothers.

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Older workers:

Older-worker unemployment rates remain low. Statistically, workers who leave the labour force early do so mainly based on income support from a disability or early retirement benefit of some kind.

International comparisons suggest a cross-country correlation between older-worker employment rates and the availability of early-retirement benefits (including favourable conditions for taking regular old age pension before age 65).

Early retirement benefits, e.g. Austria (extension of UI), Australia (abolition of Mature Age Allowance), etc. sometimes have a visible impact on employment rates of the age group concerned.

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Welfare consequences of limiting access Welfare consequences of limiting access to non-employment benefitsto non-employment benefits

Research into back pain suggests that staying off work is often the worst form of treatment. A rapid return to work favours medical recovery.

There is not much evidence that mothers or children suffer when lone mothers work. E.g. US research suggests working mothers may have some more problems with teenage children. But overall, Welfare Reform has reduced poverty rates among lone mothers and their children.

Requirements to work, rather than live on benefits, often improve individual welfare - though some groups with greater difficulty in working clearly do need passive income support.

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Setting stricter availability-for-work Setting stricter availability-for-work requirements requirements

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Abolish the non-employment benefit while providing an unemployment assistance benefit

The “non-employed” groups, if they do not enter work and still need income support, can apply for unemployment assistance benefit (which is subject to the availability-for-work requirement).

Countries with broad (“non-categorical”) social assistance benefits achieve a similar result by changing guidelines about which subcategories must be available for work.

Our paper gives many examples of such policy changes in individual countries (Australia, Belgium, Finland, Netherlands, Poland for older workers; Australia, Canada, Denmark, Netherlands, US for lone parent/social assistance recipients).

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Require partners of assistance beneficiaries to work

Often when social assistance benefits are paid to couples, only one of the partners is required to seek work.

Some countries introduced a requirement for both members of a couple on assistance benefits (social assistance, unemployment assistance) to independently qualify for benefit (examples of Australia 1995, Denmark 1997, UK 2001).

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Incapacity benefits - various measures

Stricter definition of disability

Disability benefit granted temporarily (subject to periodic re-evaluation)

Make firms to bear the cost of short-term sickness among their employees (e.g. pay first 26 weeks of sickness benefit)

Earlier third-party medical checks on sickness claims

“Flex-job” alternatives to partial disability benefits

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Indirect, partial and restricted work-availability requirements - used when full work availability requirements are thought to be inappropriate.

Indirect – e.g. people on a sickness or disability benefit may be required to participate in medical rehabilitation measures, which may restore ability to work in the future.

Partial - payment of something like the regular unemployment assistance benefit, but not expected to accept the full range of jobs - e.g. required to accept only part-time jobs or only jobs with working hours compatible with the availability of child care, etc.

Programme participation only – e.g. in the UK, lone mothers are required to participate in “work-focused interviews” (where job-search assistance is proposed) but are not required to accept any specific job.

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Content of the “active” labour market measures

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Key “active” measures are similar to those for the long-term unemployed: Active measures which work for groups with limited work capacity are e.g intensive personal counselling, job-search monitoring and direct job-placement assistance, sometimes training (cf. research on US Welfare Reform).

Targeted employment assistance measures are also needed: groups with limitations on work capacity need appropriate additional assistance – childcare provision to promote employability of lone mothers, medical counselling (“condition management”) to help people “manage” back pain or another condition in their daily life, etc.

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Targeting and performance of the Targeting and performance of the Public Employment Service (PES)Public Employment Service (PES)

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Accurate targeting and effective public Accurate targeting and effective public employment services essentialemployment services essential

The aim is to maintain benefit coverage for groups with particular barriers to employment, but increase actual rates of exit to employment. So rates of participation in employment services need to be increased.

Target groups are de facto transferred from “non-employment” benefits to “unemployment” benefits – benefits that are conditional on participation in employment services.

The impact of this policy depends on:

employability of the group that is transferred; and

the performance of the PES.

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If the PES is not effective – i.e. if its employment services do not substantially reduce duration of benefit spells - it has little impact on employment outcomes for the transferred group the policy has little impact.

If the transferred group has no employability - the transferred groups remain “unemployed” for long periods absorbing a growing share of PES resources (counselling time, job vacancies) – diverting resources from the original unemployed caseload the policy impact is likely to be perverse.

If the PES is effective AND the group transferred to it has significantly employability - the impact on the transferred group is substantial, caseloads remain small so the diversion of resources from the existing unemployment benefit caseload is limited the policy succeeds in reducing overall benefit dependency.

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ConclusionsConclusions

Key requirements are good PES performance and accurate targeting of the “inactive” groups to be transferred to the PES.

There is scope for special employment services that address the special employability barriers of each type of target group. But intensive personal counselling/job-search assistance is a critical placement technique even for target groups such as partly-disabled people and single mothers.

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Further readingFurther reading

For references and further reading, see the paper which is the basis of this presentation:

Carcillo, S. and D. Grubb (2006), “From Inactivity to Work: the Role of Active Labour Market Policies”, OECD Social, Employment and Migration Working Papers No. 36 (www.oecd.org/els/workingpapers).