The lucky country. Australian activation policies in international comparison. Peter Davidson (April 2013)

The lucky country Australian activation policies in international comparison Peter Davidson (April 2013)

THE LUCKY COUNTRY 'Australia is a lucky country, run by second-rate people who share its luck. Donald Horne (Australian historian, 1964)

THE RECESSION THAT DIDN T HAPPEN 10,0 8,0 6,0 Australia and OECD (GDP and unemployment) OECD (unemployment) Australia (unemployment) per cent 4,0 2,0 0,0 Australia (GDP) OECD (GDP) -2,0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-4,0-6,0

DIVERGING FORTUNES 9,0 8,0 7,0 6,0 5,0 4,0 3,0 2,0 1,0 0,0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 per cent Unemployment rates OECD United Kingdom Denmark Netherlands Australia

THE LONGER VIEW (PRE-RECESSION) Reliance on unemployment assistance (all and longterm), Australia 8,0% % of popln of working age 7,0% 6,0% 5,0% 4,0% 3,0% 2,0% 1,0% 0,0% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Unemployment assistance (% popln of w.a.) Unemployment assistance >12mnths (% popln of w.a.)

THE LONGER VIEW (PRE-RECESSION) 6,0% Reliance on unemployment insurance and social assistance (Netherlands) % of popln of working age 5,0% 4,0% 3,0% 2,0% 1,0% Social assistance (% popln of w.a.) Social assistance >12mnths (% popln of w.a.) Unemployment insurance (% popln of w.a.) Unemployment insurance >12mnths (% popln of w.a.) 0,0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

RESEARCH QUESTIONS 1. How did activation policies for long term recipients of unemployment payments (payment generosity, work incentives, activity requirements, employment assistance) vary between AUS, UK, NL & DK in 90s and 00s? 2. To what extent, and why, did they converge or diverge? 3. Specifically, what were the main influences on changes in work experience programs for LTU people, and what does this say about national approaches to activation?

UNEMPLOYMENT PAYMENTS Country Unemployment insurance Unemployment assistance Australia n.a. Newstart Allowance Netherlands WW Werkloosheidswet (unemployment payment) Abw/WWB - Algemene bijstandswet/ Wet Werk en Bijstand (Work and Benefits Act)

WORK EXPERIENCE PROGRAMS (EXAMPLES) Country Paid Unpaid Australia Netherlands Job Compact Private wage subsidies Public wage subsidies Melkert banen WIW Banen Work for the Dole Voluntary work Sociale activering

A FRAMEWORK FOR COMPARING EMPLOYMENT PARTICIPATION POLICES Income protection Work incentives Activation Work capacity Employment

INSTITUTIONAL INHERITANCE (1990S) AUS, UK Low and mostly income tested payments (but widely available to low income households) Low investment in workforce capacity building programs for disadvantaged jobseekers, women Low corporatism, central govt. dominance Large lowskilled workforce, modest femalepartn DK, NL High and more widely available payments High investment in capacity building Key roles for municipal govt. & social partners Small low skilled workforce, high female part n (though less so in NL)

BENEFIT REPLACEMENT RATES Unemployment benefit replacement rates (net of tax) for single long-term unemployed, incl housing benefits (%) 90 80 70 64 78 79 64 75 66 72 60 50 54 44 50 48 49 44 40 36 38 30 20 10 0 1995 2001 2007 Australia United Kingdom OECD Netherlands Denmark

INVESTMENT IN EMPLOYMENT ASSISTANCE 2,00 1,80 1,60 1,40 1,20 1,00 0,80 0,60 0,40 0,20 0,00 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 LMP expenditure - all (% of GDP) 2007 2008 2009 Denmark Netherlands OECD Australia United Kingdom

ACTIVATION IN NL AND AUS : POLICY DIRECTIONS FROM 90S TO MID 00S Convergence 1990s: big investment in paid work experience as a stepping stone to activation Early 00s: tighter focus on employment outcomes at lower cost NPM ideas: contracting out, centralised decentralisation Evaluation findings International policy learning: OECD, EU, US As activation policies matured and unemployment fell, a challenge to assist more disadvantaged jobseekers Difference High Vs low benefits High Vs low investment in LMPs Full Vs incomplete contracting out Central Govt retreat from employment assistance in NL Policies to make work pay Different treatment of Dutch Municipal social assistance clients, elements of an income protection approach remained (e.g. social activation, 40% not activated at all by 2007)

RECENT DEVELOPMENTS IN EMPLOYMENT ASSISTANCE IN AUSTRALIA

A GROWING % OF UNEMPLOYMENT BENEFIT RECIPIENTS IS UNEMPLOYED LONG-TERM 70% 60% 50% 40% 30% > 1 yr 1-2 yrs 3+yrs 20% 10% 0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

DUE TO LOWER UNEMPLOYMENT AND WELFARE TO WORK POLICIES, THE PROFILE OF THE JOBSEEKER POPULATION HAS CHANGED: Two in three Newstart Allowees are long-term recipients One in six has a partial work capacity One in three is 45 years old or over Two out of five have less than Year 12 qualifications One in 10 NSA recipients is of Indigenous background One in fifteen is a sole parent

EMPLOYMENT SERVICES AND UNEMPLOYMENT BENEFITS IN AUSTRALIA All benefits paid by a central Govt. agency (Centrelink) All benefits are social assistance (flat-rate and income tested), First country to contract out the whole of its employment services system (in 1998) Expenditure on LMPs was halved at this time In 2009, Job Network replaced by Job Services Australia A single national 3-yearly tender administered by the Employment Ministry Provider business share allocated according to performance based on star ratings

JOB SERVICES AUSTRALIA CONTRACT STRUCTURE Service payments (40%): Based on regular interviews and supervision of activity requirements Employment Pathway Fund or EPF (30%): Funds quarantined for approved investments in jobseekers, averaged across the caseload Outcome payments (30%): Higher for those leaving benefits for 3-6 months, and for more disadvantaged jobseekers Performance management: Star ratings (a measure of value-added) largely determine business shares

JSA FEE STRUCTURE

ACTIVATION Regular interviews (at least 2 monthly) are used to test availability for employment and compliance with requirements Regular intensive activation periods (generally 6 months per year) are used both to test availability/compliance and to improve skills and work capacity In theory, providers have: (a) requirements to keep jobseekers active (service fees) (b) incentives to invest in the most disadvantaged (outcome payments & star ratings) (c) the resources to do so (EPF)

THREE KEY CHANGES IN 2009 (JSA) 1. Risk-based rather than duration-based targeting of intensive assistance 3. More flexibility for providers in sequencing of intensive activation 5. Changes in the profile of investment in disadvantaged jobseekers: More support for vocational training A new wage subsidy scheme But no increase in overall funding!

(1) TARGETING: LTU HAVE FARED RELATIVELY POORLY

(2) PROVIDER FLEXIBILITY IN JSA Providers have more flexibility re timing and nature of intensive activities (than Job Network) But average employment consultant caseload is approx 114 (9 interviews per day) Low resources for investment: e.g. an average of $Aud500 (E380) in EPF for 2nd year of unemployment Most JSA funding is tied up in fee-for-service (e.g. interviews), with detailed reporting requirements Unemployed people have very limited choice of provider and activities

(3) INVESTMENT IN SKILLS Positive influences: More flexibility for parents to train More vocational training places available New wage subsidy scheme for VLTU people Negative influences: The search for low cost activities Lack of incentives and resources for vocational training providers to assist disadvantaged jobseekers Only 10,000 private wage subsidies available per year

CONCLUSIONS JSA providers have more resources and incentives to assist those at greatest risk of LTU but less for LTU than Job Network. This is reflected in employment outcomes Providers have more freedom to decide the form of intensive activation but limited resources and incentives to take advantage of this (especially if caseloads remain high and EPF remains low) There has been a shift in investment towards training (and to a lesser extent, wage subsidies) Whether this improves outcomes depends largely whether training is tailored to the needs of jobseekers or least cost activation

Extra slides

CONVERGE AND DIVERGENCE IN WELFARE POLICY 1970s and 80s: Welfare retrenchment under pressure of higher unemployment and fiscal costs But international experience varied Explanations - path dependency (Pierson), welfare regimes (Esping Andersen) 90s and 00s: Paradigm shift to activation (Weishaupt) Convergence with different paths and speeds? Problem of how to measure the stance of policy, on what dimensions, with what data? (Clasen)

HYPOTHESES 1. Convergence towards activation policies: - a way to cut costs without cutting payments But by different paths: 2. Enduring differences in income protection (high Vs low payments) 3. Enduring differences in priority given to strengthening work incentives Vs employment capacity building: - one reason: high benefits leave less room to improve incentives and offer bigger fiscal rewards for capacity building 5. As unemployment falls, all face challenge of activating more disadvantaged LTU populations

LOW SKILLED WORKERS (1999-2006) % of working age population with less than Year 12 qualifications 50% 45% 40% 35% 30% 43% 38% 35% 38% 33% 31% 28% 32% 25% 20% 20% 18% 15% 10% 5% 0% 1999 2006 Australia United Kingdom Netherlands Denmark OECD average

PAID EMPLOYMENT AMONG MOTHERS 90 % of mothers employed 80 76 77 74 70 60 63 56 68 60 65 50 44 40 30 20 10 0 Australia United Kingdom Netherlands Denmark OECD 1999 2007

LABOUR MARKET POLICIES (CIRCA 2000) Labour market policies Australia United Kingdom Netherlands Denmark Minimum wages High Average Average High Employment protecoon Low Low High Low Coordinated wage bargaining Low Low High Average % of low skilled workers Average Average Low Low Generosity of income support - short term payments (b) Low Low High High - long term payments (c Average to high* Average to high** High High Employment parecipaeon policies IncenOves for fullome work (e) High Average Low Low IncenOves for part Ome work High Average Low Low Investment in labour market assistance (f) Low Low High High Strictness of requirements (g) High Low High High Frequency of reporong (h) High High Low Low

O Connor, 2008, Future of employment services in Australia, pp4-6 WHY WAS JOB SERVICES AUSTRALIA (JSA) INTRODUCED IN 2009? When the Job Network was introduced in 1998, the unemployment rate was 7.7 per cent. The unemployment rate is now 4.2 per cent. Although the country has experienced a significant and welcome fall in unemployment, a higher proportion of job seekers are disadvantaged and have experienced long-term unemployment. The considerable public investment in employment assistance has not been targeted to those most in need...the most disadvantaged job seekers do not receive enough help. Evaluations of Job Network have shown the value of individualised and flexible service delivery. The time-based servicing continuum is inflexible and requires all job seekers to be treated in the same way at the same time. Current contract arrangements and incentives skew employment provider behaviour towards obtaining short-term jobs rather than equipping job seekers with the skills they need.

CONCERNS ABOUT THE JOB NETWORK: Support for the principle of outcomes-based purchasing But assistance was standardised, control by the purchaser was pervasive, and funding was transactional leading to a process line mentality Reliance on jobseeker compliance, not engagement

TARGETING INTENSIVE SERVICES: DEFINING DISADVANTAGE Job Network: Duration-based targeting Highest level of assistance = 6 months of Customised Assistance Targeted towards: Unemployed 12-18 months, Unemployed 24-30 months, High risk of LTU Job Services Australia: Risk based targeting (4 streams ) Highest level of assistance (for 1 year) targeted towards: Those with disability/ social barriers (Stream 4) Others at risk of LTU (Stream 3), In the first year of unemployment

RESOURCES WERE SHIFTED FROM LTU TO THOSE MOST AT RISK OF IT 2500 2000 Typical Job Network and JSA fees by unemployment duration (excluding outcome payments) 2.200 1807 1500 1.200 1099 1.400 1000 853 500 420 400 0 < 1 year 1-2 years 2-3 years 3 years + JN (not highly disadvantaged) JSA (stream 3)

RISK ASSESSMENT IS BROADLY ACCURATE 70 Employment outcomes from JSA, Sept 11 (%) 60 59 54 50 48 40 36 30 20 29 25 10 0 all Stream 1 Stream 2 Stream 3 Stream 4 Work experience activity

FLEXIBILITY: THE JOB NETWORK CONTINUUM AND JSA COMPARED APM continuum (Job Network): A fixed set of activities at fixed times Job Search Training at 3 months, 3 months of (3 days pw) intensive activity at 12 months, then 6 months of mutual obligation every 12 months JSA continuum: No set activities in first year (except Stream 1) 6 months of intensive activation after 12 months, and every year thereafter Providers have more flexibility re timing and nature of activity, but must organise and pay for it (e.g no separate Work for the Dole funding stream)

(3) INVESTMENT IN DISADVANTAGED JOBSEEKERS More encouragement for training: 20% bonus for employment outcomes after training Expansion of VET funding (Productivity Places Program) More flexibility for parents to train, and new requirements for early school leavers to do so Changes to work experience programs: Work for the Dole no longer funded independently New 10,000-place wage subsidy scheme for VLTU

INCIDENCE OF VOCATIONAL TRAINING, WAGE SUBSIDIES, AND WORK FOR THE DOLE Program ParEcipaEon Job Network: Average investment using JSkr Acct/EPF Training 14% of Customised Assistance $350 Wage subsidies 3,000 in Wage Assist $2,590 Work for the Dole 65,000 in 2007-08 JSA: Training 18-21% of Streams 3&4 $300 Wage subsidies 10,000 in BAFW $2,050 Work for the Dole 28,000 in 2010-11