Unemployment Rates

Reinventing the Public Employment Service:

the changing role of employment assistance in Britain and Germany

Professor Dan Finn, University of Portsmouth

Associate Research Director, Centre for Economic and Social Inclusion

Wissenschaftszentrum Nordrhein-Westfalen Kulturwissenschaftliches

Institut

Wuppertal Institut für Klima, Umwelt, Energie Institut Arbeit und Technik

PD Dr. Matthias Knuth, Research Director, Institut Arbeit und Technik, Gelsenkirchen

Lecturer, University of Duisburg- Essen

Overview

z

Introduction (DF)

z

German unemployment and the ‘Hartz’

reforms (MK)

z

The British ‘employment first’ welfare state (DF)

z

British lessons learned and not learned in German Reforms (MK)

z

Lessons from AGF case studies (DF)

Employment and Unemployment Rates of Selected EU Countries (1995–2002)

2 4 6 8 10 12 14 16

50 55 60 65 70 75 80

Employment Rates

Unemployment Rates

DK NL

IR

UK

DE

SW FR

Source: Employment in Europe 2003

FI

Employment Rates 15-<65, West and East Germany, by Gender

50%

55%

60%

65%

70%

75%

80%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Males West

Males East Females West Females East

Unemployment Rates1991–2004 and 01/04 – 02/05

1/04 2/04 3/04

4/04 5/04

6/04 7/04 8/04

9/04 10/04

11/04

12/0401/05 02/05

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

1991 1992

1993 1994

1995 1996

1997 1998

1999 2000

2001 2002

2003 2004

per cent

0 2 4 6 8 10 12 14

per cent

annual average end of month

Source: Federal Employment Agency Website

Long-Term Flows between Employment and Unemployment (West Germany)

0 500.000 1.000.000 1.500.000 2.000.000 2.500.000 3.000.000 3.500.000

1982 1983

1984 1985

1986 1987

1988 1989

1990 1991

1992 1993

1994 1995

1996 1997

1998 1999

2000 2001

2002 2003

2004 outflows UE > employment

inflows empl. + apprenticeships > UE

Individuals' unemployment spells completed in June 2000 by duration and contribution to macro volume

0 10 20 30 40 50 60 70 80 90 100

0 10 20 30 40 50 60 70 80 90 100

per cent of cases

per cent of volume

> 4 years 2 - 4 years

1 - 2 years 39 - 52 weeks

26 - 39 weeks

13 - 26 weeks

0 - 13 weeks

Source: Karr 2002

Percentages of Working-Age

Population Depending on Benefits

1,21 0

1,84 2,72 2,15 2,09

0,59

1,98

3,2

6,59 4

0,76 1,76

4,63 4,32 7,03

3,29

1,93

2,72

2,39

4,27

3,37

2,11

2,66

1,77

4,61

3,39 2,13

2,51 5,74 1,82

6,9 5,5

5,15

5,04

6,35

7,64

5,58

4,38

4,6

6,7

7,21 6,3

4,08

4,79 5,22

2,92 4,67 1,95 3,13

7,6

5,01

3,96 3,92

4,29

4,35

4,1 2,88

6,64 2,5 4,7

1,16

0,99

0,9 0,19

1,83

1,55

2,88 2,12

1,48

1,62

1,22 2,8

2,24

3,04

0 5 10 15 20 25

DK NL UK DE FR DK NL UK DE FR DK NL UK DE FR

1980 1990 1999

Per cent of working-age population

Assistance Unemployment Leave

Disability Sickness Old Age

Source: OECD Employment Outlook 2003: 224ff.

Problems of the German Labour Market

z low rates of net job creation

z job destruction in East Germany following unification (40%) never compensated

z automatic in-built redistribution within social insurance systems works as primary financial pipeline West ¼ East

1/3 of total East German public and private spending based on transfers from the West

z German unification has driven up social insurance contributions and thus labour costs

z containment of labour costs through wage restraint creates depression on domestic market

Problems of the German Labour Market (cont.)

z

rising levels of UE primarily due to increasing average UE durations

z

decoupling of LTUE from labour market

– UE as a pathway to retirement

– 1/3 of UE persons with impaired health

z

restrictive criteria for incapacity pension keep ‘unemployable’ people in UE

z

national preference for ‘inclusive’ UE

statistics far above ILO definition

The ‘Hartz Commission’

z individual honorary membership

D social partner participation in person, not by delegation

D deviation from established tripartite policy patterns like

“Alliance for Jobs”

• industrial and political leaders

• only two members from Academia: Labour Market Policy and Public Management

• from the sidelines strong influence of

• consultancy firms

• the Bertelsmann Foundation (think-tank and source of funding for applied research)

Key Messages and Concepts

z

„Fördern und Fordern“

“promoting and obliging” / “advancement and challenge”

D pedagogical framing of “activation”

•

reducing UE level by shortening individual UE duration

• earlier intervention

• more effective job placement

• activation to job search, more intensive monitoring

• stricter criteria of ‘acceptable job’

D ‘Modern Services on the Labour Market’

labour demand side hardly considered at all

The „Hartz“ Proposals and their Legislative

Implementation

z numerous new instruments of almp (legislation “Hartz I”)

D for an organisation already overburdened with instruments

z more favourable conditions for “small jobs” (on the employees’ side, not the employers’!) (Hartz II)

z renaming from ‘institution’ to ‘agency’, renaming of executive functions, modernisation of the Federal Employment Agency’s governance, HR policies and organisation of services (Hartz II and III)

B earlier intervention, more effective job broking, monitoring of job search, reducing UE by shortening individual UE spells

z merging of services hitherto divided between Employment Agencies and municipalities (‘one-stop Job-Centre’) (Hartz IV)

z merging of the benefits of the two customer groups concerned:

(Hartz IV)

D UE Assistance ∪ Social Assistance for working-age and able-to-work people ⇒ Grundsicherung für Arbeitsuchende (‘basic income for jobseekers’ ≈ jobseekers allowance)

1927–2004: Three Benefits for

Workless People of Working Age

paid in arrears (end of month) wage replacement

paid in advance subsistence

no contributions to other social yes

security branches

means-tested

limited duration

unlimited duration not means-tested

any able-bodied household member of working age (in

theory!) former breadwinner=claimant only

obligation to work

flat-rates for each category of household members

household entitlement

with child supplement individual entitlement

minimum income flat-rate

relative status maintenance earnings related

funded through taxes funded through contributions

social assistance unemployment

assistance unemployment

benefit

The Benefit System from 2005

zhealth and pension contributions introduction of:

no yes

contributions to other social security yes branches?

zstatus maintenance

zbreadwinner model abolition of:

What has changed?

any able-bodied household member of working age (able to work for three hours per

day) means-tested

limited duration

unlimited duration not means-tested

by definition not able to

work former breadwinner only

obligation to work / counted as unemployed jobseeker

household entitlement

with child component individual entitlement

flat-rate

relative status maintenance earnings related

tax based contribution based

social assistance basic income for jobseekers

unemployment benefit

Basic income for jobseekers and their

households (at least 1 member able to work)

80%

additional

household member able to work

children / household members not

able to work

<14: 60%

15+: 80%

two persons in household 18+

single / lone parent able to

work

2 X 90%

full cost of “adequate”

housing and heating working age

345 ¼ (West) 331 ¼ (East)

Changes in Contribution-Based UE Benefit Duration

months of

contribution age

months of entitlement

months of

contribution age

months of entitlement

12 6 12 6

16 8 16 8

20 10 20 10

24 12 24 12

28 45 14 30 55 15

32 45 16

36 45 18 36 55 18

40 47 20

44 47 22

48 52 24

52 52 26

56 57 28

60 57 30

64 57 32

since 1998 from 2006

„Arbeitsgelegenheiten“

‘Opportunities for Work’

z old concept inherent in the Social Assistance tradition

z intentionally inherited by the new ‘basic income for JS’

z now to be universalised: 600,000 work opportunities announced

z working for the benefit + 1-2 ¼ per hour

can be more than equivalent low-wage job

z no labour contract, but health and pension insurance contributions now part of the benefit anyway

z ‘additional’ and ‘in the public interest’

z individual participation for about 6 months at a time

z participants not counted as unemployed

Extension of Obligation to Work Boosts UE Statistics

z Former members of households receiving Social Assistance and able to work:

– in theory no change (were supposed to register)

– in practice, many were not registered

– municipalities interested in defining as ‘able to work’

z Former recipients of UE Assistance:

– only the recipient himself had to be registered

– now, all household members able to work are registered

D group strongly affected: Turkish housewives who don‘t speak German

Increase in UE through

Implementation of Reform

The British Employment Service:

‘Activation’ & lessons from the 1980/90s

z Labour Force Survey, the ‘inactive’ unemployed and remaking the link between benefit administration and employment assistance

z ‘Work First’:

z ‘activation’ (individual job search and the responsibilities of the unemployed – Jobseekers Allowance)

z labour market attachment: ‘signing on’ & Restart

z work incentives (‘carrot and sticks’)

z the role of programmes (duration dependent & job search) z Market Testing and Quasi Markets (performance related

contracts: evidence of instability and ‘creaming’)

z Assessment of impacts (tracking & evaluation)

New Labours Strategy: An

‘Employment First Welfare State’

z Jobcentre Plus and Work Focused Interviews

z Financial Assessors & Personal Advisers

z Focus on unsubsidised jobs

z New Deal Programmes and ‘Pathways’ for the Unemployed and

‘inactive’ (‘Rights and Responsibilities’)

z ‘Hardest to Help’ (Basic Skills; Progress2Work; Ex-offenders)

z Make Work Pay

z Tax Credits, Labour market re-regulation & Childcare

z ‘Risk’ and Making Transitions Pay

z Role of ‘contestability’ (evidence based reform, bench marking, ‘spur’ to modernisation):

z New Deal Private Sector Leads

z Employment Zones and Action Teams

Jobcentre Plus

Policy Design & Implementation

z Integration by 2006, and network of 1000 Jobcentres and 25 ‘contact call centres’ by 2008 (efficiency gains from centralisation)

z Extensive use of new technologies

z Staff numbers predicted to fall to 70,000 by 2006 (re- training and redeployment)

z New management and target systems, organisational change and pressure from the private sector

z New Deal for Skills & ‘Building on New Deal’:

‘localising’ Jobcentre Plus provision from 2005

Set-up of the German State

larger cities independent

of a county

counties

municipalities

Land A Land B Land C

Federation

New Benefit Regime

Administered by Consortia between

Employment Agencies and Municipalities

Local Branch of Federal Employment Agency

Municipality under Land legislation

no straightforward legal solution in terms of

liability, contractual relations with workforce, employee representation…….

Consortium of public or private law

zhousing and heating allowance

zcase management

zconcomitant services

zjob broking, counselling

zbenefit processing

zalmp instruments

?

Alternatively, 69 Municipalities Could Opt for Full Responsibility for 6 Years

households with at least one member

able to work and without UE insurance

eligibility

households with no member considered able to work

social assistance

(unlimited duration)

insured labour market participants

Local Branch of Federal Employment Agency

unemployment benefit (6-18 months)

Municipality under Land legislation

„able to work“ classification

basic income for jobseekers (unlimited duration)

German assets for activation policy

z OECD holy trinity of benefit processing, job broking and employment assistance (traditional)

z ‘availability for job offers’ expanded to ‘active job search’ (legally since 1998 but poorly monitored)

z ‘active measures’ subcontracted to third party

providers (traditional; targeting and incentives wanting)

z job placement monopoly lifted (since mid-nineties)

z responsibilities for program mix and third party

procurement devolved to Employment Agency Districts (since 1998)

z strong financial incentive for local authorities to reduce assistance dependency

Lessons Germany has learned

z language important for recalibration of entitlements and obligations:

– ‘Unemployment Assistance’ D ‘Basic Income for Jobseekers’

(Grundsicherung für Arbeitsuchende)

z pre-scheduling of customer contacts, management of customer flows

z frontline case-loads must be kept in reasonable limits

z integration of IT systems crucial

z readily available ‘work test’ (‘Arbeitsgelegenheiten’)

Lessons Germany has not learned

z framing of reform should engage jobseekers

– ‘promoting and obliging‘ engages only the professionals

– too many ‘Hartz gimmicks’ shroud fundamental strategy

z equity problems:

– simultaneous reduction of benefits and demand for more individual initiative

z physical space shapes behaviour:

– centralistic architecture of Federal Employment Agency might prevent decentralisation into wards

z roll-out strategy transition with defined schedule needed

z changing benefit system and organisational set-up simultaneously tends to crowd out activation of customer and employer contacts

z targeting: 3 million jobseekers agreements at once

= nothing for all

z ‘making work pay’ strategy suffers from absence of legal minimum wage

Aspects neglected in

implementation of German reforms

z legacy of social assistance system for unemployment count

z extensive UE definition and jobsearch requirement creates deadweight for activation:

– physically able to work three hours ≠ employability

– housewives without training and language skills become ‘jobseekers’

z changing the mindset and professional profile of staff

– prevailing attitudes: “there is no work, and our customers have no chance”

– ‘administrators’ and ‘social workers’, but no job-search coaches

z comprehensive professional approach of “Assistance to Work”

(case management, pathways) might be buried in the merger

z differences in professional and organisational culture between Federal Employment Agency and municipalities not addressed

Difficult institutional legacies of Germany

z

federalism and local self-government bar join- up between federal and local services

z

federalist policy interlock prevents

straightforward and sustainable approach

– open race between two competing models

z

financing social security primarily through contributions

z

collective bargaining by strong unions used to be functional equivalent of minimum wage

– unions divided over minimum wage

Lessons from AGF case studies

z ‘Learning by doing’ & ‘Hearts and minds’, but conflicting priority between rollout implementation and operational delivery.

z ‘Take over’ of Benefits Agency (investment in the front office)

z IT limitations:

z ‘Paper work’ and ‘work arounds’, e.g., ‘ghost interviews’ with assessors, loss of LMS expertise

z Delays in Customer Management System

z Select Committee: “adverse effect on staff morale and turnover” (p.5).

z Interaction with PAs

z ‘Crowding out’ employment assistance: routinised ‘scripts’ – potential for profiling

z Better Off in Work Calculations

z Skills, capacities and motivation of PAs (training and cultures)

z Employment barriers of the workless (soft skills) – issues around sanctions and passive compliance

Lessons from AGF case studies

z Systemic or problems specific to the transition?

z Policy Dynamism & Pace of Change: capacity of staff

implementing inititiatives – front line training & awareness crucial to deal with rapid changes in programme rules, eligibility and

involvement of other partners.

z Front and back office (the ‘Achille’s Heel’ of the British system? - ) Benefit Administration & simplification, e.g., two benefits to

replace IB)

z Employment Assistance as a new entitlement (legal benefits &

discretionary assistance)

z The limits of ‘Work First’: Unemployment Benefit & the German

‘high skills equilibrium’