Active Labor Market Programs Evidence from Evaluations*

Transcription

1 Active Labor Market Programs Evidence from Evaluations* As many governments in developing and transition countries grapple with growing unemployment and underemployment, they are increasing turning to active labor market programs (ALMPs) to reduce the risk of unemployment and to increase workers' earnings capacity. Such programs work by enhancing labor supply (through training); increasing labor demand (through public works or subsidies); and improving the functioning of the labor market (through employment services). ALMPs are often targeted to the long-term unemployed, workers in poor families, and particular groups with labor market disadvantages. The programs not only have economic objectives, but important social objectives, as well. OECD countries have a long and extensive experience with ALMPs. However, the programs are becoming more relevant in developing and transition countries, too. How much reliance should countries place on active labor market programs? This is a controversial question. Proponents argue that the programs are the most direct instrument for dealing with unemployment and poverty among workers. Opponents counter that ALMPs are largely a waste of public funds and that any observed benefits for participants are usually at the expense of other workers. Against this backdrop, it is important to rigorously evaluate the impacts of these programs and their cost-effectiveness, Governments should be realistic about what ALMPs can achieve and allocate resources on the basis of cost-effectiveness. As this study shows, the evaluation picture is mixed. Despite this, governments have little choice but to use active programming as one instrument in their response to unemployment and poverty in the labor force. The challenge, then, is to learn from existing experiences, investing in programs that have positive returns and altering or dropping programs that do not. Hf ALMPs are going to be an economically useful policy, it is very important that governments carefully evaluate their own programs and introduce interventions on the basis of what works in their own country. Evaluation Methodology: Issues and Key Concepts There are different types of program evaluations. Process evaluations focus on how well a program is delivered. Performance monitoring is concerned with timely indicators of how well program objectives are being achieved. These are very important tools for improving program effectiveness and can be carried out even in countries with low administrative and analytical capacity. However, the incremental value of a program and its cost-effectiveness can be calculated only through impact evaluations. These impact evaluations, when conducted rigorously, can identify the effects of a given program on participants, and when coupled with cost information, can reveal the net benefits of programs to participants, to government finances, and in some cases to the broader labor market and society. However, reliable impact evaluations require careful methodological "This note was prepared by Nancy Morrison, based on Betcherman, Olivas, and Dar (2004). The World Bank Employment Policy Primer aims to provide a comprehensive, up-to-date resource on labor market policy issues. The series includes two products: short notes, such as this one, with concise summaries of best practice on various topics; and longer papers with new research results or assessments of the literature and recent experience. Primer papers and notes are available on the labor markets Web site at ~ by contacting the Social Protection Advisory Service at (202) , or by at ~socialprotec~onworldbank.org~.

2 design, good data, and, for some methods, sophisticated econometric techniques. Generally, the central questions for ALMP impact evaluations are: What are the impacts of program participation on the future labor market outcomes of participants? 661 What is the cost-effectiveness of programs? Unfortunately, most evaluations focus on the first question only; very few adequately address the cost question. In most ALMP evaluations, the key impact indicators are post-program employment rates and earnings. However, some evaluations do look at other social indicators such as criminal rates, teenage pregnancy, and receipt of government benefits. Earlier reviews of impact evaluations by the World Bank, the OECD, and others have concluded that policymakers must be cautious regarding what ALMPs can realistically achieve. The evidence suggested that these programs were not a panacea for unemployment but that some types of interventions, properly designed, could be effective for some workers. These reviews were based almost exclusively on the experience of industrialized countries because very few evaluations existed anywhere else. A more recent study (Betcherman, Olivas, and Dar 2004) takes a special look at developing and transition countries. It pays particular attention to the quality of available impact evaluations and includes only scientific evaluations (that is, those utilizing a control group). It builds on the 72 scientific evaluations considered in a previous World Bank study (Dar and Tzannatos 1999) by adding 87 new studies (see table 1). The new study pays close attention to transition countries and, to a lesser extent, developing countries, and asks whether the findings of impact evaluations in industrialized countries apply in these contexts as well.

3 Impact EvaLeration Pin&ngs This updated review does not change the overall findings from the 1999 study on the impacts of ALMPs in any fundamental way. A wide range of results can still be found. Some programs demonstrate positive labor market effects for participants. Others show either no impact or even negative effects. Obviously, program design and the context in which the program operates matters a great deal (see table 2). It is increasingly difficult to isolate impacts of particular types of programs because of a trend to provide service in an integrated fashion (that is, as part of a package of programs). Nonetheless, this review leads to the following general conclusions: Employment services. These services include counseling, placement assistance, job matching, labor exchanges, and other related services. They generally have positive impacts on participants' employment and earnings after the program. Costs are relatively low, so the cost-benefit ratio is often favorable. However, employment servicesat least by themselves-are of limited use in situations where structural unemployment is high and there is a lack of demand for labor. Moreover, there are some questions about the coverage and effectiveness of these services in developing countries, where many labor market transactions are informal. Training for the unemployed. Participants often benefit from these programs in terms of higher employment rates, but not in terms of higher earnings. The few evaluations in developing countries paint a less favorable picture. Programs seem to work best with on-the-job training and active employer involvement. Results are more positive for women than men. Retrainingfor workers in mass layoffs. These programs most often have no positive impacts, although there are exceptions. The few successful cases typically include a comprehensive package of employment services to accompany the retraining. However, these are generally expens ive. Training for youth. These programs are almost always unsuccessful in improving labor market outcomes, at least in developed countries. It RI makes much more sense to invest earlier in the education system to reduce drop-outs and other schooling problems. While few studies have been done in developing countries, evaluations in Latin America find positive impacts for programs that integrate training with remedial education, job search assistance, and social services. Wage/employment subsidies. Most often these do not have a positive impact and have substantial deadweight and substitution costs (see glossary). Targeting and monitoring may help, but at the cost of reducing take-up rates. Public works. These can be an effective short-term safety net, but public works do not improve participants' future labor market prospects. Microenterprise development/self-employment assistance. There is some evidence of positive impacts for older and better-educated workers. However, take-up is low. What can be said about the impacts of ALMPs in developing and transition countries in particular? Many findings from industrialized countries seem to apply broadly to transition countries. However, this is not always true in the case of developing countries-on the basis of what is still a small sample of studies. The much larger informal labor markets and weaker capacity to implement programs in developing countries may limit what some programs can achieve in terms of creating formal employment or increasing wages. The few evaluations in developing countries for employment services and training programs for the unemployed are less positive than the (much larger) body of evidence in the OECD and transition countries. On the other hand, some youth training programs in developing countries have much more positive impacts than in industrialized countries. It may be that such programs in these lowincome labor markets have more potential because abundant supplies of skilled workers are not available. The sample of evaluations outside the OECD is still limited, especially in low-income developing countries. Further studies will be needed to confirm these initial observations. The ingredients for successful interventions seem to apply for all countries. Good design features include a comprehensive package of services; programs that are oriented to labor demand and linked to real workplaces;

4 Impact EvaIanation positive impacts on employment and earnings. Developing countries: Very little evidence. Costs relatively Low, so cost-benefit ratio usually positive. economy is good. Impact Limited where there is a Lack of demand for Labor. In developing countries, questions about coverage and effectiveness of these services, given informal labor markets. Retraining for Often no positive impact on employment and Better results may be achieved with workers in mass earnings, but there are exceptions. integrated training and employment services. layoffs Transition and developing countries: Very little evidence. Wage/ employment Developed and transition countries: Overall Recent evaluations in developed countries subsidies negative impacts on employment and more favorable (such as welfare-to-work earnings. programs). Developing countries: Very little evidence. Programs may be more effective when combined with training. Deadweight and substitution effects likely, important but often not fully assessed. Microenterprise/ Not enough labor market-oriented Very Low take-up. self-employment evaluations to determine overall employment some of positive impacts for assistance and earnings impacts. better-educated individuals. Results likely better when technical and advisory services accompany financial aid.

5 Impact Evaluation and careful targeting. Finally, program impacts are usually more positive when the economy is growing. While knowledge on the impacts of ALMPs continues to grow, there is still much more to learn, especially in the context of developing and transition countries. Evaluations rarely track post-program outcomes beyond a couple of years, so little evidence exists on longer-term impacts. Many studies do not estimate the deadweight, substitution, and displacement effects and thus cannot account for the general equilibrium impacts of programs. Many do not fully consider program costs and thus cannot offer insights on the key policy issue of eeciency. Finally, the evaluation literature provides insights into what works, but far less on why. Ultimately, policymakers need to understand what circumstances and design features explain effective outcomes for specific groups (see table 3). Trends in Ac~ve Labor Market Programs in Indust~alized Count~es The strategy, design, and implementation of active labor market policy in industrialized countries have undergone some significant changes over the past decade. Specifics differ by country but in most industrialized countries, many of the following trends are evident: Increased emphasis on job search assistance. This assistance often has been linked with closer monitoring and tighter job search requirements for unemployment benefit recipients. Integrated services (one-stop window/guichet unique) so that clients can receive information, counseling, and access to services from a single source. An increasing reliance on private delivery of services: for example, for training, employment services, and public works. Government's role in these areas has been to establish overall priorities, ensure quality, and provide financing, especially to address equity concerns. Closer partnership with employers and communities to ensure that programs respond to market conditions. "Making work pay" initiatives. These have used employment subsidies and tax benefits primarily to encourage low-skill workers to take low-pay jobs. Training (subsidies or grants to workers * Hard-hit regions and industries or employers) Self-employment support Reduce structural imbalances 0 Employment services (information, Proximate regions, industries, or search assistance, mobility assistance) occupations Training Wage subsidies Enhance skills and productivity Training Employment services Training (apprenticeship, school-towork transition) and retraining (including in- At risk or disadvantaged worker service, apprenticeship) categories (especially for retraining) Training (grants, subsidies) Wage subsidies

6 Impact EvaLuation "Profiling" of unemployed clients to identify those likely to need employment services or retraining. In some countries, program participation (based on profiling) is an obligatory condition to qualify for unemployment benefits. Increased emphasis on program evaluation and allocation of resources on the basis of evaluation results. Developing and transition countries considering these directions should carefully consider how well these approaches could be implemented and would work in their own countries. References Betcherman, Gordon, Karina Olivas, and Amit Dar "Impacts of Active Labor Market Programs: New Evidence from Evaluations with Particular Attention to Developing and Transition Countries." SP discussion paper No January 2004, World Bank, Washington, DC. Betcherman, Gordon, Amit Dar, Amy N. Luinstra, and Makoto Ogawa Xctive Labor Market Programs: Policy Issues for East Asia." Social Protection Discussion Paper No. 0005, World Bank, Washington, DC. Dar, Amit and P. Zafiris Tzannatos 'hctive Labor Market Programs: A Review of the Evidence from Evaluations.'' Social Protection Discussion Paper No. 9901, World Bank, Washington, DC. World Bank "Impact Evaluation: Techniques for Evaluating Active Labor Market Programs." Employment Policy Primer Series, No. 2. Social Protection Unit, World Bank, Washington, DC. Employment Policy Notes are published to communicate the results of The World Bank's work to the development community with the least possible delay. The typescript manuscript of this note therefore has not been prepared in accordance with the procedures appropriate to formally edited texts. The findings, interpretations, and conclusions expressed herein are those of the author(s), and do not necessarily reflect the views of the International Bank for Reconstruction and Development / The World Bank and its affiliated organizations, or those of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. For free copies of this note, please contact the Social Protection Advisory Service, The World Bank, 1818 H Street, N.W., Room G7-703, Washington, D.C Telephone: (202) , Fax: (202) , socialprotectionworldbank.org or visit the Social Protection website at