Reinventing the Public Employment Service: the changing role of employment ass istance

in Britain and Germany

Professor Dan Finn, University of PortsmouthAssociate 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, GelsenkirchenLecturer, 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 Coun tries (1995–2002)

2

4

6

8

10

12

14

16

50 55 60 65 70 75 80

Employment Rates

Un

emp

loym

ent R

ates

DK

NL

IRUK

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 EastFemales West

Females East

Unemployment Rates1991–2004 and 01/04 – 02/05 (National Coun t vs. ILO Definition)

1/04

2/04

3/04

4/04

5/04

6/04 7/0

48/0

49/0

410

/0411/04

12/04

01/0502/05

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

pe

r ce

nt

0

2

4

6

8

10

12

14

pe

r ce

nt

annual average

end o f month

Source: Federal Employment Agency Website

Long -Term Flows between Employmentand 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

ou tflows UE > employment

inflows empl. + apprenticeships > UE

Individuals' unemployment spells completedin 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

pe

r ce

nt

of

volu

me

> 4 years

2 - 4 years

1 - 2 years

39 - 52 weeks

26 - 39 weeks

13 - 26 weeks0 - 13 weeks

Source: Karr 2002

Percentages of Working-Age Popu lation Depending on Benefits

1,210

1,842,72 2,15 2,09

0,591,98

3,2

6,59

4

0,761,76

4,63

7,034,32

3,29

1,93

2,722,39

4,27

3,372,11

2,66

1,77

4,61

3,39 2,13

2,51

1,825,74

6,9 5,5

5,15

5,04

6,35

7,64

5,58

4,38

4,6

6,7

7,216,3

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

4,12,88

6,64

4,72,5

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

cen

t of

wor

king

-age

pop

ula

tion

Assistance

Unemployment

Leave

Disabili ty

Sickness

Old Age

Source: OECD Employment Outlook 2003: 224ff.

Problems of the German Labou r Market

z low rates of net job creationz job destruction in East Germany following

unification (40%) never compensatedz 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 Labou r Market (cont.)z rising levels of UE primarily due to

increasing average UE durationsz 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 Commiss ion ’

z individual honorary membershipD social partner participation in person, not by delegationD 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“ Propo sals 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 Agenciesand 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 advancesubsistence

noyescontributions to o ther social security branches

means-tested

limited duration

unlimited duration

not means-tested

any able-bodied household member of working age (in

theory!)

former breadwinner=claimant onlyob ligation to work

flat-rates for each category of household membershousehold entitlement

with child supplementindividual entitlement

minimum incomeflat-rate

relative status maintenanceearnings related

funded through taxes

funded through contributions

social ass istanceunemployment ass istance

unemployment benefit

The Benefit System from 2005

zhealth and pension contributionsintroduction of:

noyesyescontributions to o ther social security branches?

zstatus maintenancezbreadwinner modelabolition 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

workformer breadwinner only

ob ligation to work / counted as unemployed jobseeker

household entitlement

with child componentindividual entitlement

flat-rate

relative status maintenanceearnings related

tax based

contribution based

social ass istance

basic income for jobseekersunemployment 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 12 616 8 16 820 10 20 1024 12 24 12

28 45 14 30 55 1532 45 1636 45 18 36 55 1840 47 2044 47 2248 52 2452 52 2656 57 2860 57 3064 57 32

since 1998 from 2006

„ Arbeitsgelegenheiten“‘Oppo rtunities for Work’z old concept inherent in the Social Assistance traditionz intentionally inherited by the new ‘basic income for JS’z now to be universalised: 600,000 work opportunities

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

� can be more than equivalent low-wage jobz no labour contract, but health and pension insurance

contributions now part of the benefit anywayz ‘additional’ and ‘ in the public interest’z individual participation for about 6 months at a timez participants not counted as unemployed

Extension o f 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 registeredD 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’ & Restartz 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 Interviewsz Financial Assessors & Personal Advisersz Focus on unsubsidised jobsz 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 Payz Tax Credits, Labour market re-regulation & Childcarez ‘Risk’ and Making Transitions Pay

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

z New Deal Private Sector Leadsz Employment Zones and Action Teams

Jobcentre PlusPolicy 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 sectorz New Deal for Skills & ‘Building on New Deal’ :

‘ localising’ Jobcentre Plus provision from 2005

Set-up o f the German State

larger citiesindependentof a county

counties

municipalities

Land A Land B Land C

Federation

New Benefit Regime Administered by Consortia between Employment Agencies and Municipali ties

Local Branch of FederalEmployment Agency

Municipality underLand legislation

no straightforward legal solution in terms ofliability, contractual relations with workforce, employee

representation…….

Consortium of public or private law

zhousing and heating allowance

zcase managementzconcomitant services

zjob broking, counselling

zbenefit processingzalmp instruments

?

Alternatively, 69 Municipalities Could Opt for Full Respon sibili ty for 6 Years

hou seholds with at least one memberable to work and

withou t UE insurance eligibility

hou seholdswith no member

considered able to work

social ass istance(unlimited duration)

insured labour market participants

Local Branch of FederalEmployment Agency

unemployment benefit(6-18 months)

Municipality underLand legislation

„ able to work“ class ification

basic income forjobseekers

(unlimited duration)

German assets for activation p olicyz 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 crucialz 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 initiativez physical space shapes behaviour:

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

z roll-out strategy transition with defined schedule neededz changing benefit system and organisational set-up simultaneously

tends to crowd out activation of customer and employer contactsz targeting: 3 million jobseekers agreements at once

= nothing for allz ‘making work pay’ strategy suffers from absence of legal minimum

wage

Aspects neglected in implementation of German reformsz 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

Diff icult institutional legacies of Germanyz federalism and local self-government bar join-

up between federal and local servicesz 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 s tudies

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

z Interaction with PAsz ‘Crowding out’ employment assistance: routinised ‘scripts’ – potential for profilingz Better Off in Work Calculationsz 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 s tudies

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’