Getting onto the Path to Work

What elements the UK could consider in a jobs guarantee

Foreword

In February and March Christopher Schwartz of the Global Labour University worked at the TUC as a work experience research assistant, investigating the international experience of job creation programmes, focusing on job guarantees. This report is the result of his work.

Acknowledgements

This research note was prepared for the TUC. The author acknowledges and thanks, in no particular order, the assistance of the following: Alex Bevan (TUC Wales), Joost Bollens (Katholieke Universiteit Leuven), Tom Vrijens (CSC-ACV), Mads Busck (LO), an anonymous interviewee and last but certainly not least, Richard Exell (TUC) for his helpful commentary and feedback during this report's drafting. Any errors, omissions or misunderstandings are entirely the authors own.

Introduction

The TUC strongly believes in a jobs guarantee for all, beginning with youth - a promise to the young, unemployed people of the UK of an offer of work when the market has failed to deliver. In this paper, we wish to present the cases of other countries that have responded creatively to the unemployment crisis, and analyse the lessons that could be applicable to Britain in drafting future public policy.

Denmark

How they do it

Denmark's 'flexicurity' and accompanying activation systems are often held up as a system for other countries to learn from. Briefly, flexicurity may be characterized as a system allowing for ease of hiring and firing (the 'flexi' part), while also providing easy access to unemployment benefits in case of job loss (the 'security' part). Accompanying the ease of layoffs and social benefits, the State maintains an activation strategy designed to move the unemployed quickly into work after an initial grace period.

Under the Danish unemployment benefits system, recipients are entitled to a high rate of net replenishment of their salary; however, the low-maximum threshold levels in fact mean that many unemployed workers reach their maximum entitlement at a relatively low level of income. In 2009, the maximum amount of weekly unemployment benefits was 487 Euros (OECD 2010, 115) - significantly more generous than the UK but, in a country with some of the highest living costs in the world, still limited.

In complement to the benefits regime outlined in the above, Denmark maintains large-scale activation programmes. In Denmark, all unemployed, after prescribed lengths of unemployment, enjoy the right and then the responsibility to pursue an activation strategy.

Denmark's jobs training programme

Denmark's activation strategy may be whittled down to three major components: short job training courses, subsidised work experience (in both the private and public sectors) or further education. The number of participants varies between programmes, as can be seen in Table 1.

Table 1: Danish activation, for the period Jan-Feb 2013

What elements the UK could consider in a jobs guarantee

Source: Telephone discussion with LO Trade Union, Denmark.

In outcome effectiveness, there is a marked difference displayed between work and classroom training courses. As the OECD notes:

'The Danish Economic Council also shows that some programmes have a negative effect on employment and earnings. On-the-job training in the private and public sectors are the only programmes displaying a positive effect on subsequent employment and earnings. Classroom training - that incidentally is mostly attended by individuals with a relatively high educational attainment - and other programmes have a negative effect of [sic] employment and wages. Cost-benefit evaluation of ALMPs shows a high deficit for classroom training, while on-the-job training in the private and the public sectors present a surplus.' (Ibid. 133)

Public and private sector job experience

In the private sector, the Danish job subsidy regime pays a subsidy to the employer of 50% of the full cost of the employee, with the remaining half of costs footed by the employer. The employee enjoys the full rights of being an employee during this period - such as pay and conditions as outlined in the relevant sectoral agreement governing the workplace. The job lasts for six months, and there is no contingency placed upon the firm for further employment past this date.

In the public sector jobs programme, work experience functions differently. Participants only receive their regular unemployment benefits, and not the pay as outlined in the collective agreement. Although therefore in a different category of workers, there appear to be some controls in place from using this as a form of cheap labour (displacing regular workers), as local union shop stewards must sign off on any hiring in the public sector job experience scheme through work programmes.

Conclusions on Denmark

The above differential between conditions may explain why Munch and Skipper concluded that Danish subsidized employment schemes in the private sector increase post-unemployment job duration (and so increase employment), while the opposite is the case for subsidised employment schemes in the public sector (Blasco and Rosholm 2011, 7).

Jobs created through the scheme in the public sector offer markedly different pay and conditions than those in the private sector. While, as described in the above, private sector jobs offer pay and treatment equal to that of 'normal' workers, jobs created in the public sector offer poorer conditions, as participants are essentially working for their unemployment.

Flanders (Belgium)

How they do it

The Flemish-speaking Northern Belgian region of Flanders has an innovative system of jobs experience programmes for the unemployed, and despite the Euro crisis, maintains a relatively low-unemployment rate, in February 2013 reaching 7.29% (Vlaamse Dienst voor Arbeidsbemiddeling en Beroepsopleiding 2013).

Under Belgium's de-centralised federal structure, certain facets of unemployment assistance fall under the responsibilities of the national government, while others are the responsibilities of the regions and linguistic communities. In Flanders, there is one specific programme which is of interest to those interested in jobs guarantees: a paid job experience programme (Dutch: individuele beroepsopleiding - IBO) which matches the unemployed to a private sector, subsidised job.

During this job, which may last between one and six months, the employee receives a hybridised wage structure. This wage comprises two elements:

1. The basic unemployment benefit^[1] which the participant would be receiving in any event.

2. An employer paid productivity bonus.

The productivity bonus requires some clarification: this is the difference between the amount of unemployment benefit and the basic wage for the job the employee is conducting based upon the collective agreement or applicable minimum wage covering the worker. This amount is staggered in monthly increases of 5% in order to reach 100% of the wage by the final month of the job.

To illustrate, assume the following example: a participant has secured a job in a position for six months. In the first month of their job, between the employer's productivity bonus and their unemployment benefits they would earn 75% of the basic mandated wage in the firm where they are working. In the second month, the unemployment benefits would remain constant, but their productivity bonus would rise 5% to 80% of the firm's basic wage. This pattern would continue until the last month of the position, at which time they would receive 100% of the basic wage in the firm.

If the position is judged a success, private sector firms participating in the IBO make a commitment to maintain the subsidised employee as a regular employee for an amount of time equal to the subsidised period following its conclusion. To return to the above example, if the intern was judged a success by their firm, the employer would be legally bound to agree to keep the employee on as a regular worker for at least another six months following the end of their work experience (i.e. the same amount of time as their subsidised position). Often, successful employees are kept on permanently.

There are certain controls in place to prevent a so-called 'revolving door' system emerging, where employers simply take on someone, judge the person a failure at the conclusion of the subsidy (meaning that the employer does not have to offer employment), and then select a new person to fill the opened subsidised position. Besides unions in the local workplace, there is also reliance upon union reps on the local, regional and national employment boards - as these boards serve as a screening for applications for placements through IBO - to detect and neutralise such practices.

Net effectiveness of training (comparing the percentage increase in work between those who participated and those who did not) shows that in 2008, those that participated had a 46.8% higher chance of being in employment one year after programme termination (Bollens and Heylen 2009, 36), though this figure may be inflated due to the control group probably exhibiting lower employability characteristics than those who participated in the IBO.

Although the Flemish government has announced that it wishes to increase the amount of IBO's to 17,000 positions per year, it has encountered some difficulty doing so due to the current economic slowdown affecting Flanders.

Conclusions from Flanders

The Flemish system seems to work well in terms of employability outcomes at introducing participants to private sector work, and it is instructive as a method of attempting to keep the unemployed in the labour market past the end of subsidies. It allows participants to engage with real work in a real firm, and also allows the employer to become progressively more familiar with the participant over time and develop their skill sets in a job which the employee might not be ready for if they were applying without a subsidy.

Wales

How they do it

In the spring of 2012, the Welsh government introduced Jobs Growth Wales (JGW). This 3-year programme aimed to create 4,000 jobs for three years.

The programme was aimed primarily at the private sector, with only 1,000 of the 4,000 jobs reserved for the voluntary sector. Although less than a year old, JGW has produced some initial outcomes.

Participation in JGW is limited to Welsh residents aged 24 and younger. An applicant must be unemployed, or can be in work but for less than sixteen hours per week.

Employers wishing to take on a new hire through JGW must prove that the job created is indeed a new hire, that the employer has not engaged in an economically motivated layoff in the previous six months, and that there is a possibility (but not strict requirement) that the position would be maintained after the end of the six month subsidy period.

Additionally, participants in JGW are real workers: they have a job that gives them full employment rights equal to other workers in the company. The position must be paid at least the national minimum wage, and must be for a minimum of 25 hours per week (though many are for over 35 hours per week). To date, most of the take up in the programme appears to have been by SMEs.

In order to assist micro-businesses to make their first hiring through the programme, JGW has assigned special staff to assist entrepreneurs interested in doing so but requiring additional assistance to overcome this hurdle.

The programme is targeted at young people who are job ready - JGW is not intended to be a programme to help high needs participants gradually transition to work. Rather it is a programme to facilitate employers taking on workers for whom accessing the job market has been difficult, but who are nonetheless capable of immediately beginning work.

At the end of the JGW programme, participant, employer and staff from Careers Wales meet to determine whether the participant will be offered continued employment at the firm. If not, the career centre will offer support in the participant's job search, attempting to match their recent experience to available job openings.

After 3 unsuccessful JGW applications, a job searcher eligible for JGW is offered an appointment through the employment office, in order to determine whether JGW is indeed the ideal conduit for the applicant to pass through, or whether some form of additional training is required.

Preliminary results are promising: at time of writing in mid-March 2013, 6,013 positions have been approved by JGW.^[2] 3,778 job opportunities have been filled - and the programme anticipates that it will reach its one year target of 4,000 jobs by the end of its first year. For the JGW positions advertised, there were 60,788 job applications, from 17,959 individual applicants,^[3] an average of slightly more than three applications per applicant.^[4]

The programme, it should be noted, is not cheap: the average cost per job running at approximately £6,000.^[5]

Conclusions from Wales

Wales' programme is quite specifically targeted at private sector job creation.^[6] Additionally, the programme has a built in method to determine whether the participant should be searching for new employment at the end of the programme or can rely upon their job continuing. While costs are relatively high, initial outcomes look promising.

Other jobs programmes: France and Finland

France

France has a multitude of job programmes, but one broad line of interest are the Contrats Unique d'Insertion (CUI), divided between public and private sector programmes.

For those programmes in the commercial sector, up to 47% of the French minimum wage (the SMIC) can be given as a subsidy to the employer, whereas this figure can reach 95% of basic payroll costs in the non-commercial sector. Employers, in certain circumstances, can also be exempt from certain payroll deductions (Service Public.fr). In 2009, as a part of its crisis response package, the French state allocated 502,000 contracts: 384,682 in the non-commercial sector and 117,698 in the commercial sector (data extracted from Dares 2011, 3)

Participant outcomes also seem to bear some semblance to evidence from other jurisdictions: 6 months after completion of their contract, those who were placed in private sector placements (specifically through the CIE, CI-RMA, CUI-CIE contracts) had in-employment rates of 76.5%, while 67.8% who had completed their placements found themselves in durable employment (Dares 2012, 3). For those whose placements were in the non-commercial sector (programmes: CAE, CAV, CUI-CAE), the respective figures drop to 36.4% and 22.4% (ibid.)^[7] Additionally, amongst those who have benefitted from a public job subsidy and are in employment six months after cessation of their subsidy, 85% are employed in the private sector, which can be linked to the fact that employers often retain those who they had hosted on subsidies: these figures are 75% for CIE's, 81% for CI-RMA, and 43% for CUI-CIE's (ibid.)

Finland

Finland has recently also recently enthusiastically engaged in a youth guarantee programme.

As of January 2013, all young unemployed people under 25 (and graduates under 30) are offered a traineeship, a study place, or a place in a workshop or labour market rehabilitation, within three months of their becoming unemployed (Youth Guarantee 2013, 1). Finland's job component involves subsidised work for a six month period, with an annual programme cost of nine million Euros. Outcome results of the programme should be monitored closely.

Analysis

In Denmark, the public and private sector schemes have very different employment outcomes. It may well be that the public employment scheme selects participants who face more entrenched obstacles to employment than participants in the private market scheme (this is true in many countries), but this still further reinforces concerns that schemes offering inferior pay are not as valued by employers and will yield discriminatory outcomes on participants. If the aim of a subsidised employment experience programme is to provide participants with experience which employers recognize as real experience (and signal this through real employment offers to participants post-programme), inferior employment outcomes seem to cast a question, at the minimum, as to whether reduced pay experience serves as an adequate signal of skills to future employers. If employment programmes' aims are long-term stable employment, employees participating under such schemes need to be treated like any regular employee performing the task - and therefore paid compensation that approximates the market rate. This would seem to be a key difference between a meaningful employment experience programme (creating market accepted experience) and merely a make-work programme (having people do something of questionable value to their CV). In layman's terms: programmes that are not real jobs with market rates of pay may not be regarded as real experience by potential employers, and outcomes for participants may therefore be worse.

In the case of Flanders, some programme shortcomings are that participants do not enjoy many social benefits that regular employees do - such as health insurance and accrual of vacation time. So while for the duration of the placement wages are below those of regular workers and on an increasing vector, social benefits are not.

Another shortcoming in the programme is that while it was initially planned for participants with low employability characteristics, what has emerged is a system where candidates who might otherwise find (unsubsidised) employment may be enrolled and are given support - an example of the 'deadweight' phenomenon. Measuring deadweight is methodologically difficult, though what appears to be occurring in Flanders is that some employers with an opening will make a posting for a candidate, select this candidate, and then present them to the unemployment office for an IBO.^[8] This illustrates the issue of creaming: people who stand a good chance of landing a position in any event are presented for a subsidy and receive one, irrespective of proximity to the jobs market. Although outcomes for the programme are positive, due to deadweight those most needing support may be deprived of it.

The above does illustrate a critical component of any successful jobs programme: adequate controls to ensure that those intended to be served by a programme are the ones actually benefitting from it, and not simply the most employable amongst the unemployed.

In Flanders, while controls are also in place to prevent a revolving door phenomenon, at least one Belgian union^[9] feels that stronger assessment benchmarks and clearer targets for professional development could be implemented. This would mean employers, those on work experience and unions would be all clear when a participant is succeeding, and when not what steps could be signalled in order to reach a successful conclusion to the internship.

A weakness in the aborted UK Future Jobs Fund, as found in research prepared for the Department for Work and Pensions, was an uneven level of job search support offered by employers to participants during their FJF position for post-FJF non-subsidised employment (Allaker and Cavill 2011, 22). In JGW, Careers Wales acts pre-emptively in order to determine whether the post will be maintained by the employer post-subsidy or not, and if not, is in a position to offer job search assistance to the participant while they are still employed. Any jobs creation programme should integrate an external support mechanism for job search, since employers may possess unequal resources to assist those on paid work experience in their post-programme job search.

Conclusion and recommendations

This briefing document has attempted to provide a brief introduction to, but by no means thorough, examination of some other countries' attempts at employment measures.

Employment policy in Britain for the last three decades has almost exclusively focused upon supply side measures to force the unemployed into an increasingly de-regulated labour market. What is often left out of the debate surrounding activation strategy is that many States and regions touted as success stories in tackling unemployment through activation measures - such as Flanders and Denmark - in point of fact rely on a cocktail approach of measures to facilitate access to employment, and not simply one-size fits all punitive measures.

Some currents do seem to jump out as areas for further consideration by any future demand-side jobs activation strategy. They are:

1. Given the evidence, there should be an emphasis upon private sector jobs, but a mechanism for public or third sector jobs during periods of economic turbulence.

International evidence seems to bear out that employment outcomes are stronger when jobs are in the private sector, and when the working conditions of participants closely approximate those of regular employees in a firm. Employers may consider job experience as valid, even if it was subsidised, when the work was real work, for real compensation. If a job guarantee has as an aim ensuring the development of experience that counts in the labour market, it therefore cannot be done through cheap labour. Although job outcomes are strong in the private sector, a large amount of public or third sector jobs should be considered when economic circumstances are simply too difficult for employers to imagine any, even subsidised, hiring.

2. Jobs programmes can work in moving people, particularly vulnerable people, into work, but they are expensive to operate.

Measures to move people into work can be successful. However, programmes that work, especially in poor labour market conditions, are expensive to operate. Even candidates who are truly work-ready will find that to move into subsidised work, apart from salary subsidies, there will be associated coordination costs on the part of the State to incur (i.e. checking that the employer meets eligibility, assisting employers if they are micro businesses, making sure that childcare is available for parents with young children, etc) The longer term savings may however go some way to offset these costs.

3. Clear recognition of who is targeted by the specific measure, and controls in place to ensure that this group is actually served and not displaced by 'creaming'. Systematic follow-up for those who continually fail to find a subsidised job.

Subsidised jobs measures - in contrast to so-called make work programmes - are often accused of creaming and skimming the most employable candidates, leaving aside the very hard to place candidates, who may encounter structural, long-term unemployment.

But this will be the effect of any jobs creation strategy where the employer decides which employee they will hire. If the aim of a jobs creation programme is providing a group of workers with experience that is clear to a would-be employer, then intrinsic to such a programme is that the employer providing a subsidised position gets to select who they hire, and they will naturally hire the most fitting candidate available.

Clearer targeting of jobs measures, and measures to ensure access is reserved only to this group, should therefore be an element of any future jobs creation strategy. For instance, if the target group is inexperienced young workers, then limits could be placed upon levels and depth of previous experience. If the target population were NEETs, then limits on educational achievement or minimum unemployment lengths could be requested of participants.

For participants who meet their programme's criteria but consistently fail to be hired, an element of tracking in each programme should ensure that those who encounter multiple job refusals earn extra support, or can be transitioned into appropriate training that addresses their shortcomings. In job programmes that require participants to be employment-ready, there are likely to be those who enter who may not be entirely job-ready. Any effective programme, as is seen in JGW, should address this phenomenon.

4. Job creation programmes, if falling short of a full guarantee, should be counter cyclical, and be able to draw on extra staffing in periods of high demand.

If a job creation programme is not a full-guarantee to any person after a defined period of unemployment that they will receive a job, a more restrained programme should as a minimum be counter cyclical - i.e. it should add more places during periods of economic stagnation, but then reduce these places during an economic uptick. Additionally, staffing levels should be such that any changes in demand for the programme should be able to be met through additional staffing, in order to ensure a reasonable length of time between employers applying for a subsidised worker and this employee beginning their job, as market conditions can rapidly change.

5. Clearly defined skills development and support mechanisms for employee and employer.

A key element of any jobs guarantee would be monitoring and job centre follow-up, as is the case in Wales, but also more systematically throughout the placement. A programme that seeks to create lasting employment would, at the beginning of the placement, create a clear set of expectations throughout the placement, both on the part of the employer and the employee, with appropriate supports in place for both. A successful jobs placement system would also institute an advocate system, so those on placement would be able to seek external advice (such as from a trade union shop steward) if they felt their learning requirements were not being met or promised support failed to materialise. With regularised supervision throughout the process, this would help to ensure that those completing programmes are able to transition into a situation of regularised employment with the employer.

6. Extended regularised employment.

A jobs guarantee should also go a step further and consider a system of mandating participating employers to guarantee extended employment in cases where the placement is judged as successful. Such a guarantee, similar to the one in place in Flanders, might allow firms experiencing an (anticipated) temporary downturn in production nonetheless to take on a new worker that the firm would not hire otherwise. A temporary slowdown can provide firms with the time to train new staff and the availability of experienced workers to chaperon new hires in their training. New hires can then be successfully integrated into the operation once orders improve. A jobs guarantee requiring some element of longer-term employment (economic conditions permitting) would encourage firms whose longer-term prospects are strong to hire during a downturn. An economic clause could be included in contracts allowing firms facing genuine unanticipated difficulties to make redundancies.

7. Extra assistance to SMEs interested in hiring, but lacking the skills to do so.

Any jobs programme that aims at placing employees in SMEs should also, as is the case in Wales, provide additional resources to assist micro businesses interested in conducting their first hiring. Needs could be assessed on an ad hoc basis by specialised staff.

8. Close monitoring of take up by marginalised groups: how do minorities, women and (dis)abled people participate in the programme?

Any jobs guarantee programme should also track participation in jobs created by members of historically marginalised communities - such as visible minorities, (dis)abled people, and women, and set targets for participation of such communities.

References cited:

Allaker, Janet and Sarah Cavill. 2011. Customer Experience of the Future Jobs Fund: Findings from a Qualitative Research Study. London: Department for Work and Pensions.

Jobs for Youth: Denmark 2010. 2010. Paris: Organisation for Economic Co-operation and Development.

Blasco, Sylvie and Rosholm, Michael. The Impact of Active Labour Market Policy on Post-Unemployment Outcomes: Evidence from a Social Experiment in Denmark. IZA Discussion Paper No. 5631. Available at SSRN: http://ssrn.com/abstract=1812476 Accessed: March 11th 2013.

Bollens, Joost and Vicky Heylens. 2009. De Individuele Beroepsopleiding in de Onderneming: Vergelijking van het deelnameprofiel en de effectiviteit over de periode 2000-2008. Leuven: Katholieke Universiteit Leuven. Steunpunt Werk en Sociale Economie.

'Chômage - sans complément d'ancienneté'. Office national de l'Emploi. www.rva.be/frames/Frameset.aspx?Language=FR&Path=D_opdracht_VW/&Items=3 Accessed: March 14th 2013.

'Contrat unique d'insertion (CUI)'. Service Public.fr http://vosdroits.service-public.fr/F21006.xhtml Accessed: March 15th 2013.

Les contrats d'aide à l'emploi en 2009: hausse importante des entrées pour lutter contre la crise. 2011. Direction de l'animation de la recherche, des études et de la statistique (Dares). Paris: Ministère du travail, de l'emploi, de la formation professionnelle et du dialogue social, No. 018.

Le devenir à six mois des personnes sorties de contrat aidé en 2010: un retour à l'emploi plus fréquent pour les personnes formées durant le contrat. 2012. Direction de l'animation de la recherche, des études et de la statistique (Dares). Paris: Ministère du travail, de l'emploi, de la formation professionnelle et du dialogue social, No. 066.

'Werkerloosheidsberight, Februari 2013'. Vlaamse Dienst voor Arbeidsbemiddeling en Beroepsopleiding. www.vdab.be/trends/berichten/Werkloosheidsbericht_februari_2013.pdf Accessed: March 12^th 2013.

Young people within services - best practices for the promotion of the youth guarantee. Youth Guarantee. www.nuorisotakuu.fi/files/34865/tiivistelma_enrev.pdf Accessed: March 12th 2013.

Notes

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In Belgium, unemployment benefit amounts are calculated based upon family composition. For a single person under 50, the first month's amount could vary from a low of 934.44 Euros to 1,571.96 Euros, while for a family head the respective figures are 1,112.54 Euros to 1,571.96 Euros (l'Office National de l'Emploi).

This figure includes positions approved and then subsequently withdrawn due to changing market conditions, as well as some recycled positions.

Source: Personal communication with official from Welsh Department of Education and Skills.

Calculation: other's own.

Personal communication with an official from the Welsh Department of Education and Skills.

This is in contrast to the Future Jobs Fund, though given the economic circumstances when FJF was introduced, the programme was facing a jobs market that was imploding and therefore the private sector was unlikely to be able to provide anything approaching 100,000 new jobs without massive displacement of existing workers. In such a circumstance, it seems fair to place the positions in the public sector as a last resort.

In fairness to the non-commercial sector programmes, the rates of in-employment six months after programme exit are closer in comparison to commercial sector participants amongst the subset of participants in both programmes who left their programmes before programmes were scheduled to end. This is probably explained because those who left their programmes early, whether in the public or private sector, may have left due to better employment prospects than CUI's being found.

In Flanders, there are two routes to create an IBO position: an employer may request to interview a job seeker provided by the unemployment office, or they may present their own pre-selected candidate for an IBO to the employment office.

Personal communication.