Main findings from the evaluation of the Danish employability enhancement programmes, 1996-98 Discussion Paper Ministry of Labour, Denmark 1. Introduction The working group s report on effect analyses of employability enhancement programmes (activation programmes) contains a series of analyses and conclusions regarding the effects of the active labour market policy. The most important results of the report are presented in this chapter, including the following conclusions: The right and duty to participate in employability enhancement programmes has a motivating effect on an unemployed person s job seeking, and thus contributes to increasing the number of unemployed persons who find employment. This is also true of the period prior to commencement of the employability enhancement programme. Employability enhancement programmes generally upgrade qualifications, thus the completion of an employability enhancement programme improves the possibility of employment. Activation early in the unemployment period entails a risk of retaining the individual in employability enhancement programmes rather than regular employment. This is particularly valid for those groups of unemployed persons who are highly likely to find employment even without participating in an employability enhancement programme. The great financial resources, which are invested in active labour market policy, have improved public finances, both short term and long term, through a reduction of structural unemployment. One result of this employability enhancement strategy has been that the number of persons in the marginal group (of which the majority are unemployed persons who are members of an unemployment insurance fund or participate in an employability enhancement programme), has been halved since 1993. 1
1.2. New methods for measuring the effects of employability enhancement programmes The most common method to measure the effects of employability enhancement programmes is to determine whether a person has gained employment in a given period following participation in an employability enhancement programme. However this socalled placement measurement does not take into consideration that strong unemployed persons have better results with regard to placement than weaker unemployed persons - regardless of whether the employability enhancement programme is good or not so good. The placement measurement can entail inappropriate incentives in favour of employability enhancement programmes which activate the group of strong unemployed persons who stand a good chance of finding regular employment on their own anyway. To avoid favouring such employability enhancement programmes, the methods used in this report to measure the effect are fixed effect and duration models. Both these methods measure the effect of the employability enhancement programme on the individual s probability of gaining regular employment compared to if (s)he had not participated in such a programme. These methods differ from the method used to measure the effect of placement in that the prerequisites of the individual under person activation are taken into consideration when assessing the effect, i.e., these methods do not bias initiatives which benefit the strongest group of unemployed persons. The data, which form the basis of this analysis, is the DREAM-analysis record of the Ministry of Labour, which has been developed over the past few years. This analysis record is the most complete and updated record in its field, thus enabling studies of data, which are very up-to-date. The DREAM-analysis record contains information on both labour-market political and socio- political schemes, and it is thus possible to see when the persons in question find regular employment. This is an improvement compared to prior studies where, for example, the transition to socio-political agreements was interpreted as a positive employment effect. Three types of effects of employability enhancement programmes are elucidated in this report: Motivation effect, which manifests itself by a rise in unemployed persons job seeking when they are faced with the right and duty to employability enhancement programmes. This effect typically manifests itself just prior to when the right and duty to employability enhancement programmes sets in, and is measured in the report by viewing the departure of unemployed persons from the benefit system just prior to the transition to the employability enhancement period. 2
Upgraded-qualifications effect, which manifests itself by greater probability of employment following completion of an employability enhancement programme. Retention effect, which manifests itself by a decline in job-seeking efforts of unemployed persons when participating in an employability enhancement programme. This may be due to a decline in the job-seeking effort of the individual, and that (s)he may not be referred to jobs at the same scale as when unemployed - not participating in EEP's. The three effects are interrelated, but for analytical reasons they have either been assessed individually or two effects have been compared to each other in the report. 1.3. The motivation effect One of the objectives of the right and duty to employability enhancement programmes is to motivate unemployed persons to seek employment on their own the so-called motivation effect. In connection with the advance of the right and duty to employability enhancement programmes, a certain motivation effect has been expected however reliable documentation of the effect has yet to be established. This report demonstrates the existence of the motivation effect and also of the fact that it has had positive effects as a result of employability enhancement programmes being initiated earlier. It has also had positive effects with regard to the introduction of initiatives for young people. When documenting the motivation effect, this report takes as its point of departure with the transition of unemployed persons from the benefit system to regular employment according to the individual s seniority in the benefit system. The number of persons with a given unemployment benefit seniority who have found regular employment is considered. Thus the relative weekly transition from either unemployment, participation in employability enhancement programmes, or training leave to regular employment is analysed. Compared to previous analyses, this study takes into account that some persons are transferred to the social welfare system, and the effects of this have been corrected for this. The transition from the benefit system to regular employment is influenced by the business cycles. Therefore, all things considered, it must expected that transition from the benefit system to ordinary/unsubsidised employment has risen over the past few years. Figure 1.1. illustrates that transition from the unemployment system to regular employment declines in the first 26 weeks of the unemployment period, however following this it is either stable or rises steadily. 3
Figure 1.1. The probability of transition from the benefit system to regular employment in 1998, in accordance with unemployment benefit seniority.,2,2 Age 25-29 years,15,15 Hazard-rate,1 Age 3-49 years,1 Hazard-rate,5,5 Age 5-59 years -13 13-26 26-39 39-52 52-65 65-78 78-91 91-14 14-117 117-13 13-143 Seniority in the UI-benefit system, weeks 143-156 156-169 169-182 182-195 It should be noted that transition rises for persons with more than two years seniority in the benefit system. It is precisely this group which, in the course of 1998, was included in right and duty employability enhancement programmes. It should also be noted that the transition to employment is much greater for younger-age groups than for older-age groups. This confirms that it is generally more difficult for older people to gain employment. To be able to isolate the motivation effect without considering any other effect- and to simultaneously disregard the effects of business cycles when considering the results - the changes in transition from the benefit system to employment seen for the period 1997 to 1998 can be viewed. Considering that initiating employability enhancement programmes at an earlier stage has significantly influenced the pattern of transition from the benefit system to employment, changes must be expected in this pattern, particularly among the group who were included in the 1998 transition pattern - persons with seniority between 14-156 weeks. Figure 1.2 illustrates that from 1997 to 1998 there has been a rise in the transition from the benefit system to employment for all persons in the age group 3-49. On average the probability of transition has doubled - which is probably partly due to business cycles. 4
Figure 1.2. The motivation effect. The figure illustrates the relative change of the probability of transition from 1997 to 1998. The x-axis is the change seen as seniority in the benefit system measured in weeks. Difference in the hazard-rates, 1998-97, per cent 8 75 7 65 6 55 5 45 4 35 3 25 2 15 1 5-13 13-26 26-39 39-52 52-65 65-78 78-91 91-14 14-117 117-13 Seniority in the UI-benefit system, weeks The figure, however, clearly illustrates that the rise is greatest for persons who have been unemployed for two to three years, which is precisely the same group that, in the course of 1998, was included in the right and duty to employability enhancement programmes being initiated early in the period of unemployment. 13-143 143-156 156-169 169-182 182-195 8 75 7 65 6 55 5 45 4 35 3 25 2 15 1 5 Diffenrence in the hazard-rates, 1998-97, per cent Thus, initiating the schemes early has been a significant contributory factor to the changed patterns of transition. This has thus had an obvious motivating effect on the unemployed person s job seeking, and therefore improved the possibilities for long-term unemployed persons to gain employment on their own. When assessing the effects of employability enhancement programmes, it is therefore important to not only consider the upgraded-qualifications aspect of employability enhancement programmes, but also to include the effects on availability and the promotion of the individual s job seeking of programmes. This report documents that the mere prospect of being subject to continual right and duty to employability enhancement programmes induces many unemployed persons to intensify their job seeking and therefore also gain regular employment. This, it must be noted, is an effect, which is brought into effect prior to commencement of an employability enhancement programme. This report also includes an analysis of the transition pattern for young people. 5
Figure 1.3. illustrates the difference between the transition from the benefit system to regular employment for young unemployed members of the General Workers Union in Denmark and the Women Workers Union in Denmark for 1995 and 1998. It is seen that from 1995 to 1998 the transition from the benefit system to regular employment rose for both groups. It must be noted that the greatest changes in the transition from the benefit system are concentrated around 24-28 week, i.e. at the time when the unemployed person faces being subject to the initiative for young people without qualifying education. Figure 1.3. The initiative for young people. The difference between the probability of transition from the benefit system to employment for young unemployed members of the General Workers Union in Denmark and the Women Workers Union in Denmark for 1995 and 1998. 6 6 Difference in hazard-rates, 1998-95, per cent 5 4 3 2 1 5 4 3 2 1 Diffenrence in hazard-rates, 1998-95, per cent -4 4-8 8-12 12-16 16-2 2-24 24-28 28-32 32-36 36-4 Seniority in the UI-benefit system, weeks The development confirms that the initiative for young people has, to a far greater degree, motivated young unemployed persons to find employment or schooling on their own, as compared to the situation before the introduction of the initiative for young people. 6
1.4. The upgraded-qualification effect Another key objective of employability enhancement programmes is to upgrade the qualifications of unemployed persons, thus enhancing their possibility of employment. This report examines the upgraded-qualification effect by examining whether the employability enhancement programme leads to a reduction in payment of benefits compared to if the individual did not participate in such a programme. As illustrated in figure 1.4. a 15% reduction in payment of benefits is typical upon completion of a employability enhancement programme. Figure 1.4. Subsequent reduction in payment of benefits as a consequence of completion of an employability enhancement programme. 35 35 3 3 Reduction of transfer-degree 25 2 15 1 25 2 15 1 Reduction of transfer-degree 5 5 Education with UI-benefit Educational leave Public jobtraining Education related to an individual action plan Private jobtraining 25-49 years 5-59 years Employability enhancement programmes have the effect of upgrading qualifications, which generally leads to a reduction of the number of persons who are dependent on benefits. It appears that employment training, which is carried out in the private sector, is much more effective than the two other main instruments, i.e. public job training and education. Furthermore, it appears that training leave and training with entitlement to unemployment benefit in accordance with section 62a is less effective than training allowances. The difference between the two instruments is that the Public Employment Service is financially responsible for the payment of training allowances, whilst training leave and unemployment benefits are not financed by the activation framework of the budget. In addition to this, a large part of training whilst on leave, or whilst receiving unemployment benefit, took place without the involvement of the Employment Service. By restructuring the financing of training initiatives in 1999 and 2, it has been ensured that the training of unemployed persons is now financed by the activation framework of the budget, that is it is now an integral step in an action plan. 7
Finally, it appears that effectiveness is considerably poorer for older groups. 1.5. The retention effect This report also documents a retention effect during participation in an employability enhancement programme. The retention effect entails that the activated individual gains employment at a later stage than if s/he had not participated in an employability enhancement programme. The reason for retention can be found in that the individual is less active in his/her job seeking when participating in an employability enhancement programme due to, for example, the programme being an attractive alternative, also when compared with regular employment or because the activated individual gives higher priority to completing a training programme, for example, and is therefore less active in his or her job seeking. In addition to this, it must be noted that the referral to regular employment may decrease during the activation period. The report shows that the retention effect can, in particular, be a problem in the early stages of the initiative, where the transition from unemployment to employment is fairly high, also without participation in an employability enhancement programme. This is particularly true of the first year of unemployment. The risk of retention is also greatest for the strongest groups on the labour market, for whom the probability of transition from unemployment to employment within the first year of unemployment is very high, also without participation in a employability enhancement programme. This could, for example, be the large groups of academics where the majority of the unemployed persons would have found employment on their own within the first year of unemployment. The report shows that employability enhancement programmes can prolong the period in which some, e.g. academics, receive benefit. There is also a tendency for early participation in employability enhancement programmes to reduce the job-seeking activity of not-so-strong groups of unemployed persons and therefore also the transition to employment. However, the analyses indicate that this negative influence is more than counterbalanced by the upgraded-qualifications effect, which leads to greater possibilities for employment following completion of the employability enhancement programme. For the majority of those activated who have been unemployed for less than a year, the risk of retention is considerably smaller. This is due to the considerable reduction of their possibility for gaining employment on their own. 8
1.6. What do employability enhancement programmes cost? Employability enhancement programmes have both short and long term socio-economic effects. Long term effects are that employability enhancement programmes entail structural changes and influence the manner in which the labour market functions. The upgraded-qualifications effect contributes to a better-functioning labour force and counters problems due to the lack of qualified labour. The positive influence of the motivation effect on unemployed persons job-seeking activity entails greater availability and that a position can be filled more quickly. On the other hand, the retention effect contributes to a negative influence on an unemployed person s job-seeking activity. When considered as a whole, the analyses in this report clearly indicate that the development of the active labour market policy has contributed quite considerably to the fall in structural unemployment seen in the past few years. In this connection it may be noted that if a mere fall of 1 to 1½ % unit of the overall fall in the structural employment of 3 to 5 % points since 1993 is due to the active labour market policy, then the overall effect of the expenditure of employability enhancement programmes is neutral. The active labour market policy has played an important part in labour market policy since 1993 and it is therefore reasonable to assume that the overall influence of public spending has been positive since 1993. Short term effects are that employability enhancement programmes influence public spending both directly and indirectly. The direct gross expenditure of employability enhancement programmes has risen significantly over the course of the past few years. However, this is to a great extent due to a restructuring of the financing of training initiatives (both management and compensation), thus leading to the expenditure of employability enhancement programmes being collected under the auspices of the activation framework scheme, and thus making it more visible. Hence on the Finance Act for the year 2, DKK 12 billion has been earmarked for active labour market policy, of this approximately DKK 11 billion for activation of unemployed persons. The majority of the gross expenditure of employability enhancement programmes is benefits such as training allowances and job-training wages. Short term consequences of these costs would in many cases, without employability enhancement programmes, be balanced by corresponding passive expenditure for unemployment benefits. The part of the costs of employability enhancement programmes, which are benefits, is mainly comprised by the Public Employment Service s purchase of training places and is therefore management expenditure for training. 9
In addition to this, public budgets are influenced in a positive manner by employability enhancement programmes leading to unemployed persons, and particularly long-term unemployed persons, gaining employment at an earlier time than if they had not participated in such programmes. This entails less public spending on the support of longterm unemployed persons and persons in the marginal group. Thus this report documents that, on average, fewer public benefits are paid to a person who has completed an employability enhancement programme, in comparison the person not having completed such a programme. In addition to this is the positive effect of the motivation effect which leads to a rise in jobseeking activity, and that the unemployed thus gains employment more quickly than s/he would have otherwise done. However, the retention effect contributes to increasing public spending whilst the scope of displacement, which is not processed in this report, can also contribute to countering part of the savings which are a result of the unemployed person s employment at an earlier time than normally seen. It may be stated that gross public spending on employability enhancement programmes, as seen in the Finance Act, does not constitute a correct reflection of the net influence of employability enhancement programmes on public spending in the short term. In the assessment of direct effects on the budget, it should be included that, in the absence of employability enhancement programmes, public benefits would often be paid out in the form of unemployment benefits, and that employability enhancement programmes have a positive contribution by speeding up the transition from unemployment to employment and are therefore also a positive contribution to public spending. Following this it must be assessed that the large financial resources, which are invested in the active labour market policy, have improved public finances, both short term and long term, through a reduction of structural employment. 1.7. The number of individuals in this group has been halved since 1993 One of the key objectives of employability enhancement programmes is to limit expulsion from the labour market and reduce the number of individuals in marginal groups. Earlier studies of the marginal group have all indicated that marginalisation processes on the Danish labour market are relatively strong, particularly in times of economic stagnation. The development of the number of individuals in the marginal group in the period where labour market reforms have been successful is shown in this report. The marginal group is, in this context, defined as persons who have been unemployed, activated, on training leave or signed up at the Public Employment Service as non-insured unemployed persons for more than 8% of the time within the past three years. Since 1994 the number of individuals who belong to the marginal group has fallen from just over 13, to 65,, which corresponds to a 5% reduction of the number of individuals who have not been attached to the labour market for a longer period of time, cf. Figure 1.5. 1
Figure 1.5. The marginal group 1994 to 1999, distributed according to contributions from labour-market political agreements. 16 16 14 14 12 12 Persons in thousands 1 8 6 Unemployment and activation Unemployment, activation and educational leave 1 8 6 Persons in thousands 4 4 Unemployment 2 2 4k94 1k95 2k95 3k95 4k95 1k96 2k96 3k96 4k96 1k97 2k97 3k97 4k97 1k98 2k98 3k98 4k98 1k99 2k99 3k99 4k99 11