Balancing Activation and Protection Experience from Active Social Policies in the European Union and the United States

1. Enhancing Job Opportunities in ECA Balancing Activation and Protection � Experience from Active Social Policies in the European Union and the United States and Implications for Roma Employment Policy Christian Bodewig The World Bank Sofia, Bulgaria May 10, 2007

2. Overview Why activation policies? History and rationale The building blocks of activation programs Results, caveats and implications for Roma employment policy

3. Enhancing Job Opportunities in ECA Why Activation? History and Rationale

4. Origins in the United States U.S. welfare policy always focused on sorting the �deserving� poor (eligible for public aid) from the �undeserving� poor (expected to work). The first federal program was the Aid to Dependent Children program (ADC), created in 1911 ADC was primarily for �worthy� white widows. All others, including African Americans, immigrants, Catholics, divorced, deserted, and unmarried were mostly considered "unfit" and dependent on the paid labor market Changed only in the 1950s and 1960s, with migration of African Americans to northern cities, the civil rights movement, and the �welfare rights� movement. In 1980s, President Reagan and US conservatives popularized concept of �welfare queens� as symbol for the need to reform welfare state � and introduce responsibilities as well as rights President Clinton supported this, and introduced act to reform welfare in 1996

5. Origins in the United States, cont. �Ending welfare as we know it� consisted of: stating that welfare is no longer an entitlement to poor women and children women were now expected to fulfill work and other requirements to get aid Imposing time limits on aid � two consecutive years, with five year lifetime limit States usually enacted harsher punishments than under federal law: In 37 states, the entire family loses aid if the adult violates work sanctions In 10 states, lifetime maximum is two years Most states adopted a strong �work first strategy,� which discourages education and training in favor of encouraging recipients to take any available job, even a low-wage job, in order to receive benefits.

6. Recent origins of activation in Europe Western European welfare states were created or consolidated during the post World War II full employment period. Social rights, including protection from effects of unemployment, sickness, and old age, were granted the status of property rights, and were not based on previous earnings or work performance. But from 1970s, economic situation worsened: Aging populations and generous benefits made social insurance systems increasingly unaffordable There was increased concern about long-term unemployment among vulnerable groups This led to a hybrid model, where employment is encouraged as a way to protection � with disincentives to work attempted to be changed to incentives.

7. Recent origins of activation in Europe This means: Discouraging early retirement Reducing unemployment benefits Imposing work requirements on the long-term unemployed But (unlike in the United States): State has an obligation to try and help disadvantaged to find jobs Social benefits in Europe have changed from being a right, to where obligations have to be fulfilled to receive these rights

8. Activation Policies in Europe � General Features The �European� model of activation policies generally place employment integration as the very heart of social policy. This implies: Greater emphasis on work as a way to ensure that individuals in their prime age are not excluded from mainstream society Greater effort on behalf of the social and employment services in helping benefit recipients overcome the obstacles to entering into paid work Greater effort on behalf of the benefit recipients to enter or re-enter the job market

9. Activation is not just workfare Workfare is working in return for benefit aims at reducing dependency and cost of benefit provision by tightening the access to benefits Activation (as conceived in Europe) involves a wider range of options - training, education, subsidized employment, work placement, group activities, language-learning skills, literacy, etc. aims at labor market and social integration through empowerment to increase competencies and skills

10. �Good� activation involves Improving personal, social and vocational skills and competencies and enabling to social integration Individual and flexible offer acknowledging diversity (age, experience) and relevant to the individual person�s needs, wishes and priorities Involving the resources and strengths of the beneficiary Networking � labor market services, social services, health services, housing sector, communities, etc. Cooperation and interaction between the beneficiary and the agency in activation�s planning, design and implementation

11. Enhancing Job Opportunities in ECA Key Building Blocks

12. Key building blocks of activation programs The �mutual obligations� principle Frequent and personalized/tailored interventions of agencies during individual�s unemployment spell Financial incentives to labor market re-integration Stricter benefit eligibility criteria and benefit sanctions Strong obligations to participate in labor market programs, community work or to try self-employment Changes in institutional arrangements and greater coordination across institutions and partnerships with civil society organizations and private sector

13. 1. The �mutual obligations� principle Society invests more in helping beneficiaries in more effective ways. Beneficiaries are expected to respond accordingly Applied with varying degrees of effectiveness in assisting beneficiaries to find work Applied with varying degrees of compulsion on those out of work. The �right degree of pressure� is a sensitive and controversial concept The mutual obligations principle applies also to employers � e.g., commitments (quotas) to employ disabled people (Belgium, Netherlands, Norway, Spain, Sweden); anti-discrimination commitments

14. 2. Tailored interventions during the unemployment spell Much more frequent contacts with the responsible labor or social office (most OECD countries); contract- based obligations (UK �New Deal�) Profiling of job searchers/�individual action plans� � different categories of beneficiaries based on the amount of help needed to find a job /�distance from the labor market� (UK, Denmark); different programs available to different categories (the Netherlands) Intensive interviews to adjust/redesign the individual action plan - at certain stage of unemployment Case management before and after starting the job (US) Combination of job search with education and training (most OECD countries)

15. 3. Financial incentives for labor market re-integration �Back to work� bonus for long-term welfare beneficiaries who go back to work Examples: Ireland: Back-to-work allowance � limited to 3 years and decreasing over time UK: Long-term unemployed receive a one-time bonus of �167 when accepting a new job Australia: Employment entry payment � lump sum every 12 months

16. 3. Financial incentives for labor market re-integration (cont�d) Increased earned income tax credit Examples: Netherlands: Subsidized workers receive �2,269 when moving to un-subsidized work for at least 6 months, financed through tax relief and paid over a period of 3 years (employment-conditional tax credit) France: Special subsidy targeted at low-income workers, state bonus proportional to earned income. Increases net wages, without increasing labor costs for employer US, UK and New Zealand: Family tax credit, administered through salary instead of the benefit system

17. 3. Financial incentives for labor market re-integration (cont�d) Higher earnings disregards Examples: France: Continue to receive minimum income benefits while getting paid up to 750 hours per year (lasting max. 12 months) Netherlands: Internship program for young unemployed, one-time remuneration of 450 euro for 3 months internship, while still receiving unemployment benefit Belgium: For the long-term unemployed and unemployed older than 45 years old, non-market work arranged by Local Work Agency to a maximum of 45 hours a month, net wage is set by municipality

18. 4. Stricter benefit eligibility criteria and benefit sanctions Shortened maximum duration of receiving a benefit (many EU countries move in that direction) Decrease of the benefit with the length of unemployment spell, or even cancellation (Denmark) Immediate job search is required, even before applying for benefit (many US states) Obligation for unemployed persons to increase the range of occupation within which work is sought and increase geographical radius of job search (Germany, Sweden) Obligation to accept �all suitable work� Means testing � in Germany, the benefit that replaced unemployment assistance is means-tested against the income of the recipient, plus partner and/or housemates

19. 5. Participation in labor market programs, community work and self-employment Obligation of welfare recipients to work - paid or unpaid community service jobs (some states in the US), mandatory �volunteer� social work (Denmark). In the US, even homeless assistance and programs for people with serious mental illness are testing work programs, but not as requirement Participation in municipal work or training projects obligatory for the long-term unemployed and those under age of 25 (Sweden)

20. 5. Participation in labor market programs, community work and self-employment (cont�d) Promotion of self-employment Examples: Germany: Those unemployed for at least 4 weeks must set up a business plan to be judged by independent professionals. When the business plan is judged to be sound, they will switch from unemployment allowance to a Starters� Allowance to be paid for 6 months The Netherlands: Unemployment beneficiaries can be exempted for 3 months from searching a job, to set up their own business. If income is generated by the new business, this will be subtracted from unemployment benefit

21. 6. Changes in institutional arrangements and greater coordination across institutions One stop shops � services provided in a location and premises convenient for the client; client-friendly environment / co-location of employment and welfare function - service centers located within 20 minutes of client residence (Belgium) Increased role of the private sector - employers have offices in the Job Center Plus (UK), job interviews carried out in the welfare offices; reintegration activities outsourced to the private sector (the Netherlands) IT systems � integration and coordination of the back-office functions through IT systems with access to different parts of the social protection system (UK, Crossroads Bank in Belgium)

22. Enhancing Job Opportunities in ECA Results, Caveats and Implications for Roma Employment Policy

23. Results Large drop in caseloads - in UK and US caseload number dropped by more than � compared to the peak level in mid-1990s, in Canada and the Netherlands � by 1/3 and more, in Finland � by � More and better quality jobs - in the US, the majority of welfare program leavers are working, often full-time, and at wage rates that are close to those of similar groups in the labor force; in Europe, workfare programs have had positive effects on earnings Increase in the employment rate � data available for UK reveals that � of the 11% increase of employment of lone parents is due to the �New Deal for Lone Parents� of 1998

24. But � conclusions are not all robust The employment effect is not large (Fafo 2001) In France, only about 25 percent leave the workfare program due to employment. In the Netherlands, the net employment effect of the workfare program is about 18 percent (it is uncertain where the remaining share went). In Norway, neither the employment nor earnings of program participants significantly improved Those who benefit the most from workfare programs areusually those who would have been most likely to find jobs on their own. In France, Denmark, the Netherlands and UK, those who are usually younger, with better education, and fewer social problems. In the USA, whites rather than African Americans or Latinos Total income gains from workfare are positive, but relatively low, leaving many recipients still in poverty In US, this may be because of the added costs of working, such as transportation and child care

25. Not all who exit welfare can move to employment Activation policies can only work when there are jobs that are available � often not true in many Eastern European countries, especially in rural areas Reforms that succeed to move the majority of working-age able-bodied beneficiaries out of welfare, may worsen conditions of people for whom employment integration is more difficult US studies show that recipients who may be least able to succeed in the labor market are the most likely to be sanctioned. They have multiple employment barriers, including cognitive and health-related barriers, and difficult aspects of home life (e.g., lack of transportation, three or more children, child care problems, domestic violence) Former welfare recipients remain vulnerable at the work place �with weaker skills and work experience, they are more likely to lose jobs

26. Conclusions � Where is the balance between activation and protection? Activation policies can be successful: In lowering welfare costs because of people leaving welfare rolls For countries with generous benefits which encourages those with an ability to find jobs not to work In helping those for whom additional training or job search help is the barrier to employment

27. Conclusions � Where is the balance between activation and protection? Contd� But they may lower welfare and increase poverty if: There is a general lack of low-skill formal sector jobs (e.g., in rural areas) Many of those on welfare rolls are socially excluded Institutional capacity to do high quality social and case work is low

28. Conclusions � Implications for Roma employment policy Activation policies without specific sensitivity to the complex nature of Roma exclusion may fail Roma and have opposite effect Obligation of the state: promote access to the labor market through very client-focused and individually tailored approach Outreach: partner with Roma civil society organizations to bring unemployed and employment agency together Is the employment agency equipped to adequately deal with Roma employment promotion? Need for training, incentives, case work capacity Think of Roma employment needs when reforming the employment services