Activation and ALMP in Denmark. From enabling to (more) demanding measures

1. Activation and ALMP in Denmark.From enabling to (more) demanding measures Jørgen Goul Andersen CCWS, Dep. Of Economics, Politics & Public Administration, Aalborg University www.ccws.dk RECWOWE Executive seminar: Active Labour Market Policy. Learning from International Experiences Lausanne 23-24. October, 2008

2. From the good old days… New party programme of the Danish Social Democrats, 1977: ”… Unemployment is an involuntary situation for the unemployed. This means that unemployment benefits should be granted – without any limitation on duration – as long as the person remains unemployed”

3. Context of enduring mass uenmployment

4. Activation originally introduced mainly as a means to prolong duration of unemployment benefits • Duration was 2½ years • Due to mass unemployment, people would run the risk of being pushed out of the UB system • To avoid this, a ”job offer” of 6 months was introduced after 2½ years • People could re-qualify twice through this job offer, bringing duration of benefits up to 8½ years • Basically maintained by the Conservative-Liberal governments 1982-1993. Supplemented by various new instruments which were typically short-lived.

5. Paradigm shift as a silent revolution 1988-1992 • The odd experience of wage explosion in 1987 in spite of high unemployment • Paradigm shift towards regarding unemployment as largely ”structural” • Introduced by the Economic Council in 1988 and by the government in 1989 • Basically accepted also by trade unions and the Social Democrats • Slightly ambiguous conception of structural unemployment  easier to agree • Not agreement on proper measures

6. New Soc.Dem. government 1993 The Conservatives and Liberals refused any Keynesian instruments to alleviate unemployment - demanded neoliberal reforms. No majority in Parliament The Labour movement largely accepted the diagnoses but developed alternative solutions • Keynesian ”kick-start” of the economy • Temporary exit opportunities for unemployed 50 y +, sabbattical leave, parental leave etc. to break the unemployment curve immediately • higher qualifications instead of lower minimum wages; • regional supervision of labour markets and re-qualification to avoid bottlenecks • (somewhat) stronger duties to work rather than stronger incentives by cutbacks in benefits

7. ALMP in the 1990s. From enabling human capital towards more demanding approach • Duration 7 years, later 5, and finally 4 years (from 1999) • Educational leave at maximum unemployment benefits (restricted from 1999, and abolished from 2000) • ”Right and duty” to Activation after 4 years of unemployment, later 1 year (from 1999; grandiouse targets of permanent activation were never met) • Activation according to Individual Plans of Action for long-term unemployed. Agreed upon by the unemployed and the case worker. Empowering/enabling. Quite long time horizon. Gradually not-quite-so-individual. • Gradually stricter conditionality – regarding active job search, longer commuting time, acceptance of ANY job. From one of the most lenient systems in 1993 to one of the most tight systems by 1999 (at least formally)

8. A New Model? • Unemployment was reduced to one-half from 1994-1999 • Apparently a sign that the new ALMP worked • Later conceived as ”flexicurity”: ”Golden triangle”: Liberal Unemployment Protection Legislation + Generous Benefits + ALMP to bring people back to work • But accumulation of ”disturbing” evaluations, e.g. based on fixed effect models: How much improvement as compared to what could be expected anyway?

9. Evaluation results until 2001 • Private job training had significant effects on employment (but not very strong)- However, private job training was infrequent. • Public job training had little effect • Education had little effect or sometimes even negative effects (because job search was reduced during activation). And education was the dominant form of activation in the 1990s. • But activation did seem to work as a sanction / as an incentive to intensify job search. • - Increasing awareness of lock in-effects, - Increasing emphasis on deterrence and sorting effects, - Less emphasis on education, let alone motivation, effects - Some (but not very much) emphasis on contact effects

10. Problems with these findings • When are effects measured? Job training effects are short term, education effects are long term • Threat of activation does increase transition to employment. But apart from higher educated who hate activation, activation has typically been welcomed • Negative effects among those who experience repeatedly that activation does not take them anywhere • Differentiation between groups. Aggregate effects may be misleading. Some groups are definitely in need of education. More recent measurements have often been specified and reveal effects for subgroups

11. ALMP during prosperityunder Liberal-Conservative government 2001- • Ever more emphasis on employment (acute need or long-term need for labour power) • Individual plans of action changed to Job Plans: Work as fast as possible (2002) • Even further tightening of requirements • A little bit paradoxical as Unemployment Benefits in 2008 is more than 100 per cent financed by voluntary unemployment insurance payments (Previously the state financed 90 per cent – in 2008 it is below zero: The state earns a profit). Power without a purse. • Extension of ALMP to more marginal groups: - older workers (age limits abolished) - disability pension claimants - sickness absence - social assistance recipients - immigrants

12. Disability pensioners • Reform 2000 • More careful consideration of ability to work, including revalidation • New ”Flexjob” scheme: Work at reduced hours, less demanding tasks etc. Appropriate wage through subsidies to employer • The number of disability pensioners has stabilized in spite of demographic change (baby boom generation approaching retirement age)

13. Sickness absence • Keyword: Early intervention • Focus on one goal: Bringing people back to work • Incentives to municipalities • Effects uncertain

14. Social assistance recipients / immigrants • Increasingly large proportion of social assistance recipients are immigrants • This affected the support from the Danish People’s Party (anti-immigration party) • Strong limitations on immigration, in particular family reuinions (2002)

15. Start assistance / Introduction benefits: New reduced social assistance scheme for foreigners for the first 7 years (reduction 15- >50 per cent, depending on family situation) (2002) Significant but marginal effect (from about 10 % to about 15 % employed) • More people to work (2002): Ensure that there would always be an incentive to take a low-wage job. Ceiling to social assistance for families, reduced SA for families after 6 months (No significant impact on employment) • A New Chance for All (2005). Integration package with universal requirements Requirement for young SA claimaints to take an education Repeated activation for people with other problems than unempl. Five matching groups among SA recipients Married people in matching group 1-4 required to work 300 hours within a 2- year period in order to maintain SA. Increased to 450 hours in a new compromise 2008 (fight ”housewife mentality”) (> 80 % SA recipients in matching group 1-4; matching group 5 completely unemployable) (Impact uncertain. But seems to activate the system sometimes).

16. 2006 reform • Interview with job insurance fund after 4 weeks • Systematic controls every 3 months • CV at the internet (Jobnet.dk). • Confirm job search & reply to possible answers every week on Jobnet.dk • Seek jobs permanently (a bit uncertain: Sometimes interpreted as 4 jobs/week) • Seek & take any job. In principle and increasingly in practice • Stronger sanctions • 2007: Formal merging of system for insured unemployed and social assistance in municipalities. Same door – different offices. Often little coordination/cooperation

17. Activation 2008 • After one year at the latest, before 6 months for < 30 or > 60 years olds. • Practice up to 4 weeks for UB, up to 13 weeks for SA. No wage. • Job with wage subsidy in private sector (possibility to have a mentor) or public sector. Private sector: Coll.agreem.wage. Public sector: Max Individual UB/SA • Courses/ suppl. Education Increasing taste of workfare..

18. How bad situation without activation and emphasis on duties and incentives ?A few findings

19. Net compensation (after tax) of Unemployment Benefits for an APW (average prod. Worker) and others

20. Findings • Economic resources / economic hardship main determinant of social and political participation, happiness, psychological distress – much more important than unemployment per se. • Scandinavia efficient – Denmark more than any other country – in avoiding social marginalization among long-term unemployed (poverty, participation, happiness, distress, whatever). • Unemployment in Denmark was high until 1993 • Interpretation as structural unemployment not very plausible • Long term unemployment in Scandinavia including Denmark lower than in other countries except US • Relative unemployment rates among low-educated below other countries – including the US • Employment rates correspondingly higher • Scandinavia and in particular Denmark has world record in Non-Financial Employment Commitment (ISSP 1997, 2005).

21. Impact of incentives to work (short term gain by transition to employment) • Significant but not very strong effect for short-term unemployed. Smith & Pedersen (2002). • No sig. Effect for long-term unemployed (6 months or more) (Bach 1999; Smith & Pedersen 2002; Goul Andersen 2003). • At least if incentives are indicated by carrots: Positive incentives to move from unemployment to employment. Effect of negative and in particular strongly negative incentives (stick) probably stronger. No micro level evidence but aggregates support this interpretation.

23. Economic factors LTU 2007 (age 25-57)subjective measure: Arguably most important.

24. Impact of econ.incentives. LTU 2007 (25-57 y.)

25. LTU 2007

28. LTU 2007 .