European Employment Policy Observatory. EEPO Review. Stimulating Job Demand: The Design of Effective Hiring Subsidies in Europe NORWAY

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1 European Employment Policy Observatory EEPO Review Stimulating Job Demand: The Design of Effective Hiring Subsidies in Europe NORWAY Sissel C. Trygstad Fafo March 2014 National articles are the sole responsibility of the author(s). The contents of this publication do not necessarily reflect the position or opinion of the European Commission or ICF GHK. Neither the European Commission nor any person/organisation acting on behalf of the Commission is responsible for the use which might be made of any information contained in this publication.

2 1. Introduction: hiring subsidies as an active policy to stimulating job demand There is no employment crisis in Norway. The Norwegian economy was affected by the international financial and economic crisis, however, the downturn was not as severe in Norway as in other European countries. Norway was hit by the crisis after a period of strong economic expansion, high rates of growth, decreasing unemployment and increasing employment. During the years prior to the crisis, the economic expansion was so strong that there was a shortage of labour supply and immigration of workers from other European countries, especially from Poland and Sweden was needed to meet the demand for labour supply from Norwegian companies. In 2012, a high percentage of the adult population in Norway (68.6 % of the labour force), was employed. This is mainly caused by the majority of Norwegian women (66.2 %) being employed. Another striking feature is the low unemployment rate. During the fourth quarter of 2013, the unemployment rate was 3.2 %. Nevertheless, over the last decade there has been a growing concern for those outside the labor market. The present as well as the previous government have promoted an active labour market policy. Norway has measures to promote opportunities for improving employability through work experience by using hiring subsidies. During the period from 2000 to 2013 different forms of hiring subsidies have been in use. The different measures can be categorized in four different groups: 1) standardized efforts directed towards unemployed people who are expected to get work on their own, 2) situational efforts targeted to unemployed people who have difficulty obtaining or retaining employment, 3) specially adjusted efforts offered to people with a reduced capacity to work, when it is assumed that the person will be able to obtain or retain employment through his or her own efforts, and efforts from the Norwegian Labour and Welfare Administration (NAV) office or other cooperative actors, and 4) offers directed towards those with a permanently reduced working capacity. Hiring subsidies are primarily targeted towards groups 3 and 4, and include compensation for reduced employability and productivity. During the first decade of 2000 several pilot projects were launched. We provide a brief overview of the main ones below. Flexible job was introduced in 2000 as a five-year project. 1 The purpose was to stimulate enterprises to hire job seekers with reduced work capacity. The measure provided subsidies for up to five years, with the main purpose to get the job seeker permanently employed by the enterprise. The project was evaluated and the participants who were interviewed were very satisfied with the measure. Their experience was that the long-term had made it easier for them to become integrated into the labour market. The provided increased flexibility by allowing the employee and employer a test period in which both parties assessed whether the employment went well. However, the conclusion was that subsidies do not automatically give people with reduced work capacity a permanent job. Reactivating disabled pensioners: This was introduced in 2002, and was a result of collaboration between Aetat and the National Insurance Services. 2 The main purpose was to communicate with pensioners who have a disability to map out opportunities, motivation and information needed. An evaluation of the intervention concluded that only a moderate number of the target group were reactivated and integrated in ordinary work. 3 Disability pension as subsidies: To strengthen the efforts to re-employ pensioners with a disability, a disability pension scheme of subsidies was implemented in five Norwegian counties from The target group was pensioners with a disability who had been granted disability pension before 1 January Employers received participants' disability grant, for up to a maximum of 90 % 1 e2a120 2 Aetat and The National Insurance Service were from 2006 integrated in The Norwegian Labour and Welfare Service (NAV). 3 Kvåle, G., T.S. Olsen og N. Jentoft (2005), Styring og organisering av «Tilbake til arbeid». Rapport nr. 2005: 3. Agderforskning. 2

3 of their salary, for a maximum three years. The pilot project was evaluated by ECON Analyse. 4 The evaluator concluded that the scheme had become far less extensive than anticipated, despite the fact that both Aetat and National Insurance Services devoted considerable resources to engagement. The agencies cooperated well in terms of information, while cooperation in individual cases was hindered by a lack of resources locally. There was major marketing activity in the counties, but responses among the disabled and employers did not materialize. It is worth mentioning that several measures have been directed towards vulnerable groups such as those who have dropped out from upper-secondary education, young unemployed people, immigrants, and disabled job seekers. However, these measures cannot be categorized as hiring subsidies. In this review we define hiring subsidies as measures involving compensation from the Norwegian Labour and Welfare Administration (NAV) to employers who offer vulnerable people a job. 2. Hiring subsidies today: detailed description In 2012, almost one in five people aged between 18 and 67 years received a health-related benefit from NAV, and from 2000 to 2012 there has been an increase. 5 According to Statistics Norway, around 50 % can be regarded as passive recipients of welfare benefits, of whom many are in their final stage of their working life. Some will be unable to join the workforce. Others are excluded due to physical or psychological disabilities or because their age prevents them from getting a new job. The other half is either partly in the labour market, or they participate in public financed programs established to stimulate employment. 2.1 Target groups As mentioned above, hiring subsidies in Norway are directed towards vulnerable groups inside or outside the labour market. During the first decade of the new century there has been a growing concern about the employment rate among i) persons with reduced work capacity, ii) people with reduced functional ability, and iii) immigrants from outside Europe and US. Below, we present numbers illustrating the challenges regarding employment and unemployment for these groups, before we turn to describing the measures in use. Employment rate among those with reduced functional ability: During the second quarter of 2013, numbers from Statistics Norway show that only 43 % of those with reduced functional ability were employed. The employment level has been remarkably stable during the last decade, despite an increased focus towards persons with reduced functional ability (Svalund 2013). Not all in this group want to participate in the labour market, but studies show that 27 % do want a job (Bø & Håland 2013). A higher employment rate among people with reduced work capacity and/or reduced functional ability has been one of three sub-goals in the tripartite agreement Inclusive Working Life (IW), established in 2001 between the government, the Confederation of Norwegian Business and Industry NHO, and the Norwegian Confederation of Trade Unions (LO). Nevertheless; studies show that Norwegian enterprises have only followed up on this goal to a certain degree. (Ose et al. 2009, 2013). Immigrants: Immigrants are a prioritized group for labour market measures. At the end of 2009, approximately 64 % of first-generation immigrants aged years was employed, compared to 77 % for the population as a whole. There are significant differences in the employment rate, depending on sex and origin. The employment rate among immigrants from Scandinavia and the EU is about the same level or higher than the Norwegian born population. Immigrants from Africa have the lowest employment rate. Among young unemployed aged 20 to 24, there are more immigrants in labour market measures compared to people born in Norway (25 % vs. 18 %). 2.2 Measures in use Time-limited subsidies Time-limited subsidies are employment schemes that aim to motivate employers to hire employees under regular terms of employment. 6 Ordinary private companies and the public sector can 4 ECON Analyse (2008), Program for basiskompetanse i arbeidslivet. Evaluering, del 2. Rapport nr: 2008: Meld. St. 46, , p Based on 3

4 receive subsidies for a limited time while employing a person. The Norwegian Labour and Welfare Administration (NAV) can grant a time-limited to employers who hire those who have difficulty entering the labour market. In order to be considered for a the individual must: Be registered with the Norwegian Labour and Welfare Administration (NAV). Have clarified the need for this measure with NAV Have an employer willing to hire them The employer must submit the application for a. When a person participates in the timelimited measure, he or she is a regular employee subject to the regular terms of employment. This means the participant must carry out regular tasks in the company, part time or full time. A participant in a measure will be paid a regular by the employer. The duration of the is based on an evaluation of the person s need and work capabilities. If the person has a reduced work capability, the can last for a maximum of three years. The is then limited to 60 % of the salary for up to three years. For all others, the can last for a maximum of one year and the must not exceed 50 % of the salary. 7 The purpose of the is to enable a person to gain a permanent position with the same employer. Time-unlimited subsidies Time-unlimited subsidies have a more permanent duration. The shall increase the opportunities for employment for persons with permanently and significantly reduced work capacity. 8 From January 2008 this measure covered the entire country. It was also extended to cover several types of workers. Those who participate in this scheme receive regular s and permanent employment in full-or part-time positions. Employers receive compensation in the form of subsidies from NAV. This measure may be given if: He/she has a permanent and significantly reduced working capacity NAV has evaluated his or her ability to work He/she is a job seeker and can be employed in ordinary work He/she is employed and wants to keep the job Disability pension is relevant He/she has a graduated or full disability pension, but wants to work NAV has considered whether other work-related measures and instruments are appropriate NAV can provide a time-unlimited to employers who employ or retain a person who has permanent and significantly reduced work capacity. The person may be hired temporarily for up to one year if needed, to test the ability to work. Employers receive subsidies from NAV to compensate for lower productivity. NAV shall provide necessary follow-up of employees and employers to support employment. The size of the shall henceforth be evaluated based on an individual's performance. The amounts to a maximum of 75 % of the salary for the first year, with a maximum level of 5 G (where 1 G = NOK kr ( ). The following year the grant will be reduced to 66 % of the total and social costs. NAV can provide this as long as necessary and appropriate

5 Other forms of subsidies (arbeidsavklaringspenger som lønnstilskudd) Oslo is one of five cities participating in a new pilot project with subsidies. The test period runs from 2013 until The purpose is to get persons with reduced work capacity employed: The main target group is young people under 30, but the scheme is open to all ages. Employers are able to provide regular employment for up to three years without committing to permanent employment. NAV will provide close monitoring of both the employee and employer The subsidies to employers constitute 40 % of the employer's expenditure on s and social costs. 2.3 Monitoring and evaluation The public sector makes use of hiring subsidies, to a greater degree than enterprises in private sector (Svalund & Skog Hansen 2013). 9 Several Norwegian studies indicate that subsides have a positive effect on labour market participation. Among those who participated in special schemes including subsidies directed towards persons with reduced work capacity in 2007, 79 % was employed at the end of the year. The long term effects are however poorly documented (Norvoll & Fossestøl 2010: 26) 10. Findings indicate that it is not necessarily subsidies as such that makes a difference, but rather the monitoring and facilitating at the work place that usually follows the subsidies. The chance of success seems to be connected to a combination of subsidies and structured workplace training. Time unlimited subsidies were first organized as a pilot project. The pilot project was evaluated by Norvoll & Fossestøl (2010). A relatively small proportion of the participants had a disability pension when they joined the project. It is therefore reasonable to assume that the scheme only helped to a limited degree to reintegrate disabled pensioners into permanent employment. A significant proportion of the participants in the project had a connection to the labour market before they entered the program. A main conclusion of the evaluation is that for a share of the participants, disability pension would have been a substitute for employment. The various evaluation studies do not provide a clear answer to the question of whether subsidies help reduce the prospects of getting disability pension or not. However, the evaluations indicate that time unlimited subsidies help to delay disability pension, that is, to extend labour force participation of vulnerable workers. 2.4 Interaction with other policy measures Kvinge & Djuve (2006) 11 found that subsidies increase the effect of qualifying training and internships for young immigrants. It is therefore relevant to mention one more measure which does not strictly belong to measures defined as hiring subsidies. The Qualification Programme The Qualification Programme was established in 2007 and is an offer for training and vocational training for long-term recipients of social assistance, or who find themselves at risk of ending up in such a situation. The programme provides the follow-up needed to gain work experience or another meaningful activity. It also provides the opportunity to clarify what other income rights a person may have if he or she cannot participate in regular work. Additional, the following applies: The programme must be full time. Participants receive pay and a right to statutory amount of holidays. 9 Svalund, J. & I.L. Skog Hansen (2014), Inkludering av personer med nedsatt funksjonsevne i arbeidslivet. Faforapport 2013:54 10 Norvoll, R. & Fossestøl (2010), Funskjonshemmede og arbeid. En kunnskapsstatus. AFI-notat 13/ Kvinge, T. & Djuve, A.B, (2006), Bruk av arbeidsmarkedstiltak for ikke-vestlige innvandrere. Hvem deltar, og hvordan er sysselsettingseffektene? Fafo-rapport 517 5

6 Participants with children are entitled to a child supplement, and may be entitled to housing benefits ( bostøtte ) if they own a home. The Qualification Programme is a new opportunity for people who: Want a job or to get involved in activities, and who want to use their abilities and resources on something useful and meaningful Have lived on social assistance for a long time or are at risk of ending up in such a situation Have participated in various assistance programmes, which still has not resulted in a job or assessment Know what would improve their lives, but are unsure about how to go about doing this Are interested in a predictable financial situation with a set (qualification benefits) equivalent to twice the basic amount of the National Insurance (2G should this be defined?), plus housing benefits and child supplements. The programme primarily includes work-oriented activities, training activities and intensive individual follow-up and guidance. The participants may also be given medical or other treatment or guidance in areas of life other than work, which can be included in the programme, such as financial advice or advice about living situation, leisure time, sleeping problems, diet and physical exercise. The qualification programme entitles participants to qualify for: Benefits equal to 2G People under 25 years old receive two thirds of the full benefit Entitlement to child supplement for 22 days a month The benefit is taxed The Qualification Programme can be provided for a period of up to one year, but can be extended by another year or longer if necessary, following an assessment. 3. Conclusion The employment crises which characterize several European countries are not noticeable to the same degree in Norway. A high percentage of the adult population in Norway is employed and the unemployment rate is low. Still, there has been a growing political concern for those who are outside the labour market. The concerns are partly connected to labour shortage and partly to high expenditures related to welfare benefits. Before the economic crisis in 2008/2009 Norway had a period of strong economic expansion, high rates of growth, decreasing unemployment and increasing employment. During the years prior to the crisis, there was a lack of labour supply which was partly solved by offering employment to immigrants from European countries, especially from Poland and Sweden. Still, some industries are characterized by labour shortage. But as mentioned above, those outside the labour market do also represent significant expenditure for the welfare state. However, there have not been dramatic changes in numbers during the last decade. The hiring subsidies in use are targeted towards vulnerable groups such as i) persons with reduced work capacity, ii) people with reduced functional abilities, and iii) immigrants from outside Europe and US. There are mainly two different types of intervention in use. Specially adjusted efforts are targeted towards people with reduced work capacity, when it is assumed that the person will be able to obtain or retain employment through their own efforts and efforts from the NAV office or other cooperative actors. More extensive assistance in terms of education, supervision, job or subsidies may be relevant. This group of recipients accounts for the most people. Temporary hiring subsidies such as time-limited subsidies will be a relevant measure. More permanent offers are directed towards people who have a permanently reduced working capacity. The person will be unable to obtain or retain ordinary work through a measure administered 6

7 by the Labour and Welfare Administration or other cooperative actors. The hiring subsidies in use will be of a more permanent nature such as time-unlimited subsidies. In both cases, employers who hire a qualified person will receive compensation from the Labour and Welfare Administration (NAV). Evaluations show that hiring subsidies do promote employment of people with reduced work capacity. The long term effects are however poorly documented. Studies also indicate that hiring subsidies in combination with other forms of measures seems to promote employment for vulnerable groups. It also appears to have potential for more socially responsible employers in the sense that more Norwegian employers employ people with a reduced work capacity or with disabilities in internships or other forms of measures mediated by NAV. 4. Bibliography ECON Analyse (2008). Program for basic skills in the Labour Market. An evaluation, part 2 (Program for basiskompetanse i arbeidslivet. Evaluering, del 2). Rapport nr: 2008: Aetat (2005),Flexible Jobs. &_ts=10f19e2a120. Kvinge, T. & Djuve, A.B, (2006). The use of Labour Market measures for non-western immigrants. (Bruk av arbeidsmarkedstiltak for ikke-vestlige innvandrere. Hvem deltar, og hvordan er sysselsettingseffektene) Fafo-rapport 517. Kvåle, G., T.S. Olsen og N. Jentoft (2005). The management and organization of «Back to work» (Styring og organisering av «Tilbake til arbeid»). Rapport nr. 2005: 3. Agderforskning. Meld. St. (Report to the Stortinget) 46, , More people at work (Flere I arbeid). Ministry of Labour. Norvoll, R. & Fossestøl (2010). Disabled and Labour. A status of knowledge. (Funksjonshemmede og arbeid. En kunnskapsstatus. AFI-notat 13/2010. Svalund, J. & I.L. Skog Hansen (2014). Inclusion of persons with reduced work capacity in the workplace. (Inkludering av personer med nedsatt funksjonsevne i arbeidslivet.) Fafo-rapport 2013:54 7

8 Annex 2: Measure Description Tables Measure Title Type of measure: hiring, conversion of temporary contracts, voucher scheme, etc. Target Group No. of beneficiar ies Amount of and duration of Permanent or Temporary measure and dates of implementat ion Conditionality imposed on firms Funding source and total budget Describe any measures complementi ng the initiative (e.g. training, job search assistance etc) Please indicate if other stakeholders are involved either at the design stage, in the delivery of the measure or in its monitoring Monitoring arrangements in place Assessment of the measure: Please give as much detail as possible on the assessment of the measure. Please indicate whether the initiative causes either deadweight, replacement and/or substitution effects. Please be sure to indicate the source of information for the assessment (i.e. is it based on an existing evaluation or is it the experts own assessment?). Timelimited subsidies Hiring Persons who have difficult y enterin g the labour market 1 If reduced work capacity: A maximum of three years and 60 % of the salary. For all other, the can last for a maximum of one year and the must not exceed 50 % of the salary. Temporary, Before No NAV/The state budget Not found Job training State financed evaluations Among those who participated in special schemes including subsidies directed towards persons with reduced work capacity in 2007, 79 % was employed at the end of the year. The long term effects are however poorly documented (Norvoll & Fossestøl 2010: 26). Timeunlimited subsidies Hiring Persons with perman ently and signific antly reduced The size of the shall hencefort h be evaluated Permanent, Implemente d for the whole country in January No NAV/The state budget Not found Job training State financed evaluations Time unlimited subsidies were first organized as a pilot project. The pilot project was evaluated by Norvoll & Fossestøl (2010). A relatively small proportion of the participants had a disability pension when they joined the project. It is therefore reasonable to assume that the scheme only helped to a limited degree to reintegrate disabled pensioners into 8

9 work capacit y based on an individual 's performa nce. The amounts to a maximum of 75 % of the salary for the first year, with a maximum level of 5 G (where 1 G = NOK kr ( ). The following year the grant will be reduced to 66 % of the total and social costs. NAV can provide this as long as necessary and appropria te. permanent employment. A significant proportion of the participants in the project had a connection to the labour market before they entered the program. A main conclusion of the evaluation is that for a share of the participants, disability pension would have been a substitute for employment. The various evaluation studies do not provide a clear answer to the question of whether subsidies help reduce the prospects of getting disability pension or not. However, the evaluations indicate that time unlimited subsidies help to delay disability pension, that is, to extend labour force participation of vulnerable workers. Pilot project with Hiring The main target group is The subsidies to employers Temporary No Nav Not found Job training Unclear No evaluation at this time. 9

10 subsidies in five cities. young people under 30. Persons with reduced work capacit y employ edm constitute 40 % of the employer' s expenditu re on s and social costs. 10