4 - LABOURMARKET POLICY

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4.    Labour Market Policy

4.1 Introduction
4.2 The Evolution of Active Labour Market Policy in Ireland
4.3 Current Active Labour Market Programmes in Ireland
4.4 Active Labour Market Policy - International Review
4.5 Concluding Remarks

4.1 Introduction

It is important to provide an overview of labour market policy to put CE in its correct context.

State intervention in the Irish labour market is extensive. Education and training policies, industrial policy, the interaction of the social welfare system and the income tax code, all combine to shape, implicitly or explicitly, the quality of the labour force and the extent of employment.

Within the labour market itself, state intervention revolves around two measures, namely that of passive measures which provide financial protection for the unemployed, and active measures, such as training and temporary employment programmes designed to improve the skills and competitiveness of the unemployed and support the search process. Active labour market policies consist of direct state interventions in the labour market to either prevent or alleviate unemployment and include job placement services to improve the matching process between vacancies and job seekers, labour market training to enhance the skills of job seekers; and employment programmes, which may consist of either direct job creation in the public sector or subsidisation of jobs in the private sector.

4.2 The Evolution of Active Labour Market Policy in Ireland

O’Connell & McGinnity (1997) reviewed the evolution of active labour market policies (ALMPs). During the 1960’s and 1970’s, labour market policy in Ireland was mainly confined to organisation of apprenticeship training and facilitating the efficient matching of supply and demand for labour. These aims were consistent with OECD recommendations of the 1960’s advocating ‘active manpower policy’, aims which evolved in a European climate of full employment and economic growth. By the latter half of the 1970’s however, most OECD economies were facing high unemployment and persistently rapid inflation rates. In response to this, many governments introduced a variety of active labour market measures with the aim of alleviating unemployment. Measures included employment subsidies training schemes and, on a limited scale during the 1970’s, temporary public sector job creation schemes. As Ireland followed this general trend, the role of manpower policy became broader in scope and a range of active labour market measures were implemented. In 1975, AnCO, the state training body, introduced the Community Youth Training Programme, which was designed to provide basic training coupled with work experience for young unskilled job seekers.

In the same year the Premium Employment Programme was introduced by the Department of Labour. This was a wage subsidy scheme to encourage recruitment, and was replaced by the Employment Incentive Scheme in 1977. 1976 saw the introduction of two Improvement Schemes, run by the Department of Environment, and the Temporary Grant Schemes for Youth Employment (later named Teamwork), run by the Department of Education.

In 1977, AnCO introduced Community Training Workshops, a training scheme to provide basic skills, literacy and numeracy for disadvantaged young people. One of the most important temporary employment schemes - the Work Experience Programme - was established in 1978. By the 1980’s, active labour market policies had taken centre stage in the State’s response to mass unemployment. A large and diverse range of programmes was established during this period and the number of organisations with responsibility for implementing active labour market policies increased.

It is important to note that many of these schemes were originally designed as temporary solutions to overcome what was seen then as a cyclical increase in total unemployment. This view is apparent in policy and planning documents of the time, such as the Irish Government’s White Paper Economic and Social Development 1976-1980, where reference is made to ‘short term measures to reduce unemployment’. As unemployment continued to rise though, training and employment schemes for the unemployed became a permanent feature of manpower policy. NESC (1986) argues that this perception that the crisis was temporary had a significant impact on the evolution of active labour market programmes. O’Connell & McGinnity (1997) viewed the development of these measures as ad hoc, responding to specific difficulties at particular times, rather than in the context of an overall manpower policy. In some cases employment or training opportunities were offered to candidates whose qualifications and motivation ensured high placement rates, rather than to those groups most disadvantaged in the labour market. In addition, the wide range of allowances offered meant co-ordinating the schemes to effectively target particular groups was very difficult - candidates tend to chose schemes on the basis of the allowance offered, rather than the scheme’s suitability. Finally, the fragmentation of responsibility, allowed each department or relevant body to pursue their own objectives. In short, although spending and the numbers involved in active labour market measures grew rapidly during this period, active labour market policy was characterised by a distinct lack of co-ordination and strategic planning.

To address this distinct weakness, the Report of the Long-Term Unemployment (1995) provided an overview of the key supports and an overall strategy for dealing with the long term unemployed. The report focused on:

• improving the Local Employment Service
• providing training opportunities, employment schemes (eg CE), and work experience
• encouraging employers.

The Task Force stressed the need to have very specific interventions focusing on the long-term unemployed eg the Jobs Initiative, expansion of the Back to Work Allowance, etc.

Since the publication of the Report there have been significant and unanticipated developments:

• the number at work increased from 1,248,000 in April 1995 to 1,338,000 in April 1997
• overall unemployment levels have fallen from 14.7% in 1994 to 10.3% in 1997 and to 9.2% in June 1998
• a long–term unemployment rate of 5.6% (April 1997), down from 9% in 1994

Clearly, the performance of the economy, its effect on the labour market and consequent effect on unemployment has greatly exceeded the expectations of the Task Force and is a strong argument for tailoring the number of direct employment measures aimed at the long-term unemployed, and ensuring a particular focus on progression into the open labour market.

The Task Force Report categorised and quantified those on the Live Register with reference to their labour market prospects and the type of measure most appropriate to help them into the labour market. It considered the appropriate number of places on integration-oriented direct employment measures and positive discrimination measures which the Government should fund to be in the order of 40,000 to 50,000 per annum. These figures excluded sponsored jobs. After the Task Force Report, the number of places on direct employment and positive discrimination measures stood at 45,000 and the number of sponsored jobs at 10,000.

At present these numbers stand at over 80,000. While the rate of unemployment has fallen by 37%, the number of direct employment and positive discrimination places has risen by about 50%.

The Task Force reported at a time when there was slack in the labour market whereas now there is evidence of considerable tightening. There is an apparent paradox of employers’ claims to be unable to recruit staff to fill vacancies both skilled and unskilled, and of organisations dealing with the unemployed saying that there is still considerable reluctance on the part of employers to consider the long-term unemployed for such vacancies. As the labour market tightens further, employers will increasingly be forced to consider the long-term unemployed.

Recent developments in labour market policy are outlined in the White Paper on Human Resources (1997) and the Employment Action Plan (1998).

 

The White Paper on Human Resources (1997) outlines a policy shift from passive to more active supports for the long-term unemployed. The Local Employment Service is to play a central role in this policy. The idea is that the national employment services, ie FÁS and the Local Employment Services work individually with the long term unemployed and actively chart a path back into paid employment. The White Paper also recommends the certification of CE training.

Ireland’s Employment Action Plan, which was agreed by Government following consultation with the Social Partners, was submitted to the European Commission in April of this year. The plan sets out the policy measures and steps being taken at national level to give effect to the prescriptions set out in the 1998 EU Employment Guidelines. The plan sets out a strategy for a twin-track approach to tackling the unemployment problem. On the one hand there is a focus on prevention, aimed at preventing the drift into long-term unemployment. To this end from September 1998, all persons under the age of 25 who cross the six month threshold of unemployment will be systematically engaged by the employment services and offered a placement (eg training/education, employment programme, etc). The programme will subsequently be extended to persons over the age of 25 who have crossed the one year unemployment threshold. It is estimated that within the first twelve months of operation, the programme of systematic engagement with under 25s will require about 7,500 FÁS places. Implementation of the recommended age criteria in this report means that CE will not be available for those under 25 who have been unemployed for at least one year.

4.3 Current Labour Market Programmes In Ireland

The scale of expenditure on both active and passive (ie unemployment compensation payments) labour market interventions in Ireland is high by international standards. This reflects the scale of unemployment in Ireland. At c. 2.5% of GDP, Irish spending on passive labour market interventions is surpassed by Belgium, Denmark, Finland and the Netherlands within the OECD. At c. 1.75% of GDP, Irish spending on active labour market interventions is considered high and is only surpassed by Denmark and Sweden within the OECD.

EC Structural Funds, and the European Social Fund in particular, are a major contributor to human resource development in Ireland. The Operational Programme for Human Resources, under the 1994 - 1999 Community Support Framework, is a £3 billion investment programme, of which some £1.4 billion is being financed by means of EU (mainly European Social Fund) transfers. These funds support a wide range of education and training interventions.

Table 4.1 presents a summary of active labour market programmes in Ireland. Almost, 111,055 individuals participated in such programmes in 1997, equivalent to 7.3% of the labour force or to almost 62 % of the total number of unemployed persons. Programmes are divided into four programme types namely that of General Training, Skills Training, Employment Subsidies and Direct Employment Subsidies. FÁS is the single largest provider of active labour market programmes in Ireland.

Table 4.1: Active Labour market Programmes in Ireland: Provision and Expenditure, 1994-97

		Throughput	Total Cost
		1994 000’s	1997 000’s	1994 000’s	1997 000’s
	General Training (Note 1 & 2)
	Community Training (Community Youth Training & Local Training Initiative)	4,682	4,469	20,960	20,955
	Local Enterprise (Enterprise Training & Community Enterprise Programme)	2,831	1,011	7,899	5,697
	Re-integration (Return to Work, Skills Foundation)	4,264	4,372	19,017	20,184
	Early School Leavers (Youth Reach)	1,248	919	12,886	15,479
	Vocational Training Opportunities	2,194	2,209	23,086	25,498
	Ex-Offenders Training	104	55	301	344
	Training for People with Disability	3,479	1,091	49,264	37,845
	Total	18,802	14,126	133,413	126,002
	Skills Training (Note 1 & 2)
	Industry Training (Specific skills and job training programme)	13,500	13,732	48,500	45,656
	Tourism (Unemployed Measure)	1,380	992	2,946	3,592
	Total	14,880	14,724	51,446	49,248
	Employment/Enterprise Subsidies
	Linked Work Experience	472	472	2,105	1,257
	Enterprise Scheme*	1,653	-	2,123	-
	Employment Incentive Scheme*	3,214	-	3,016	-
	Employment Subsidy Scheme*	6,035	-	7,766	-
	Part-Time Job Incentive***	530	585	1,200	1,470
	Pay-Related Social Insurance Exemption	-	-	-	-
	Area Enterprise Allowance****	700	3,000	3,300	15,400
	Back to Work Allowance***	4,816	21,085	9,200	57,600
	Jobstart	-	973	-	5,500
	Total	17,420	26,115	28,710	81,227
	Direct Employment Schemes (Note 1)
	CE	34,210	56,090	206,904	296,746
	Teamwork**	1,828	-	2,870	-
	Part-Time Job Opportunities Programme (CORI)**	1,000	-	3,842	-
	Jobs Initiative*****	-	-	-	-
	Total	37,038	56,090	213,616	296,746
	Total - All Programmes	88,140	111,055	427,185	553,223

Source: Department of Enterprise, Trade & Employment & Department of Social Community & Family Affairs.

* Scheme/programme no longer in existence

** Currently forms part of CE

*** Based on numbers awarded

**** In January 1998, the Area Based Incentive has been expanded to cover the entire country and is expected to cost £35m in 1998. Unfortunately no throughput figures are available for the Area Enterprise Allowance. The numbers used are the average number of persons in receipt of an Area Enterprise Allowance over the relevant twelve month period.

***** Data not available on scheme as only recently commenced

Note 1: The figures supplied are taken from the final claims for ESF and submitted to the European Commission.

Note 2: Figures show the number of people who completed training in each year: the number of people actually in training, but who may not complete their course until a later year are not accounted for in the table.

Note 3: The total cost figure for CE supplied by the Department of Enterprise, Trade & Employment varies slightly from the figures provided by FÁS. This is due to the fact that the Department’s accounts are prepared on a cash basis while FÁS prepares its accounts on an accruals basis.

Other agencies directly involved in operating or financing active labour market programmes include the Department of Education & Science, the Department of Social, Community & Family Affairs, Area Partnerships under the auspices of the Department of Tourism, Sport & Recreation, the State industrial promotion agencies IDA Ireland, Forbairt, Údarás na Gaeltachta and Shannon Development. CERT, BIM, Teagasc and Coillte are also involved in their own respective sectoral areas, while the National Rehabilitation Board (NRB) is the State agency responsible for the training and rehabilitation of people with disabilities.

Table 4.1 shows the expenditure and participation on the active labour market measures in 1994 and 1997. Indeed the scale of active labour market interventions has increased significantly since 1994. Overall, £553m was devoted to active labour market interventions in 1997. CE accounts for £297m of spending and just over half of the throughput of all programme participants.

Employment/Enterprise Subsidies

Employment/Enterprise support measures provide for three categories of subsidies; subsidies to employers; subsides to employees and subsidies to self-employed. A number of subsidies to employers are currently in operation, for instance the PRSI Exemption Scheme and Jobstart.

The PRSI Exemption Scheme is a subsidy to employers designed to influence recruitment patterns. It offers an exemption on employers’ PRSI contribution for qualifying staff recruited to fill new positions not previously filled within the organisation.

Since the introduction of the Back to Work Allowance in September 1993, the Employment Incentive Scheme (EIS) was phased out. The EIS provided a weekly subsidy to employers for six months for each additional new worker recruited if the worker was recruited from the Live Register. Long-term unemployed recruits carried a higher subsidy than the short-term unemployed. In addition the Employment Subsidy Scheme and the Enterprise Scheme have also been phased out.

In the 1996 Budget, the Minister for Finance announced a significant new initiative (Jobstart). Under the Jobstart programme, a wage subsidy is paid to employers hiring new employees who have been unemployed for at least three years. The new initiative differs from similar schemes introduced in the past, in that it does not require that the jobs provided be additional to the previous employment levels in the enterprise.

The subsidy is solely aimed at improving the chances of the long-term unemployed filling vacancies in firms, however they arise. Initial experience with the programme has been disappointing, with a take-up of just over 973 persons 1997 which in itself is a reflection of the difficulty of placing the unemployed category in question.

Linked Work Experience is a work-based progression option for Youthreach graduates. The placement can be up to six months with an optional extension for another six months. Delivery of Linked Work Experience is through Youthreach Centres and Community Training Workshops as well as a stand-alone option.

Subsidies to employees are administered by the Department of Social, Community & Family Affairs, are targeted at the long-term unemployed, and generally allow unemployed persons commencing work to retain a percentage of unemployment benefit. These subsidies were introduced to remove disincentives to work believed to derive from the unemployment compensation systems. The largest of these is the Back to Work Allowance Scheme which was introduced in September 1993 and allows unemployed people to take up work and retain a percentage of their unemployment payments for up to three years. Persons taking up self-employed can also participate. Persons who qualify to participate receive 75% of their weekly social welfare entitlement (including adult and child dependant allowances) for the first year, 50% for the second year and 25% for the third year. Secondary benefits are also retained.

Part-time Job Incentive Schemes facilitates re-entry to employment of the long-term unemployed. It is open to persons on long-term unemployment assistance (or persons leaving CE) who take up part-time employment which involves less than 24 hours per week but which is expected to last at least two months. Recipients receive a weekly non-taxable supplement.

Subsidies to self-employment are schemes which provide assistance to unemployed people who wish to become self-employed and set up a business. BTWA (Enterprise) is a means of providing financial support for older long-term unemployed people entering self-employment. The BTWA is complemented by the Area Allowances. The Area Allowance is payable to people who have suitable enterprise/business projects within an Area Partnership area. The project must be approved by the Partnership to qualify for the Allowance and it must not displace existing enterprises/businesses. When the project is approved, participants receive an allowance equivalent to their unemployment payment and secondary benefits are also retained. Area Allowance was extended nation-wide in the 1998 budget.

Total participation in Employment/Enterprise Support measures accounted for over 26,115 individuals in 1997 or 24% of all participants in active labour market programmes.

Direct Employment Schemes

Direct Employment Schemes provide temporary, part-time, employment in community based work, together with personnel and skills development opportunities.

 

• CE provides temporary, part-time, employment for the long-term unemployed and the socially excluded, in addition to training and personal development. CE is the largest single programme operated by FÁS (detailed in Section 5).
• The CORI pilot programme is also a direct employment measure within the voluntary and community sector. participants in this programme work variable hours under a ‘rate for the job’ principle; special arrangements also exist for the provision of supervision and training. It provides 1,000 part-time job opportunities for the long-term unemployed for up to three years. The pilot scheme finished in September 1997 but was extended to September 1998.
• A Job Initiative Programme for 1,000 persons was launched in July 1996. Participants must be unemployed for at least five years to be eligible. The aim of the programme is to provide full-time work for three years with "not for profit" sponsors at the "going rate" for the job. There is now provision for up to 2,000 participants.
• Direct employment schemes are the single largest category of programme participants. Direct Employment Schemes was the largest category of programme expenditure in 1997, accounting for 54% of total expenditure on active measures.

General Training

General Training includes a range of measures to provide basic or foundation level training in general skills. Most of the programmes are designed for those with poor educational qualifications experiencing labour market difficulties. This category includes measures targeted at young school leavers, second chance education programmes, community training, people with disabilities and so forth.

Community Training is primarily a workplace-based training measure with off-the-job training modules. It combines two separate programmes the Community Youth Training Programme and Local Training Initiatives into what the Human Resource Operational Programme calls a "new modular programme" (Human Resources Operational Programme p69) although there is little evidence of integration between the two programmes from the point of view of participants. The combined throughput of this programme was 4,469 in 1997.

The Community Training Programme helps to develop the skills of people, through involvement in non-commercial projects at local level which benefit social and/or economic development. The programme is an important progression opportunity for local unemployed persons, particularly those who have taken part in the early school leavers measure and new entrants to the labour market. The objective is to enable individual participants to progress, for example, to mainstream training, further education or employment.

The programme is composed primarily of on-the-job training modules, but off-the-job training modules are also included. The training content provides foundation skills and, in the case of workers who have become unemployed, provides for the updating of their skills. While individuals learn practical vocational skills on the programme, the learning of skills in personal development is another important aspect to the programme.

In the most recent post-programme evaluation study, carried out by ESRI on persons leaving FÁS and other programmes in 1995, 59% of participants on the Community Training Programme had secured a job subsequently.

The Vocational Training Opportunities Scheme (VTOS) was first introduced in 1985 to enable long-term unemployed persons over the age of 21 to take up courses with a view to improving their employability. It is delivered by the Department of Education & Science through the VEC’s. The programme facilitates and encourages trainees to study Junior and Leaving Certificate subjects, especially the latter in view of the credibility which the Leaving Certificate carried with employers in Ireland. In 1997, the throughput for this programme was 2,209.

The main programme under the Early School Leavers heading is Youthreach, a vocational training education programme run jointly by the Department of Education & Science and FÁS. The programme was introduced in 1989 and its aim is to provide two years of integrated education, training and work experience for young people aged between 15 and 18 years who left school early without qualifications or vocational training. The programme was designed to have two main components:

A Foundation Phase, to help disadvantaged young people overcome learning difficulties, to improve their basic educational competence and to develop self-confidence

A Progression Phase, to provide more focused skills acquisition through a range of education, training and work experience options.

Re-Integration Training is a measure designed to cater for the needs of persons with low levels of education and skill. It comprises a number of separate programmes namely Community Training Workshops, Skills Foundation, Return to Work. The main objective of Re-Integration Training is to provide opportunities for the long-term unemployed and socially excluded to explore their potential, identify new career opportunities and develop the skills required to do so.

The Return to Work Programme is targeted at meeting the particular needs of women who want to rejoin the workforce. Training is provided both in FÁS training centres and by contracted external trainers. The course consists of alternating periods of formal training and work experience. The programme is particularly important for women returning to work having spent many years outside the labour force as defined for statistical purposes, providing them with the skills, and, more importantly, the confidence needed to re-enter the work environment. Return to Work also acts as a bridging programme, providing progression onto other FÁS programmes.

The Skills Foundation Programme represents a second FÁS intervention aimed at supporting early school-leavers. It also focuses on the inculcation of basic skills, rather than on preparation for particular occupations or jobs. Targeted at those who have completed Junior Certificate, it provides more advanced training than the Youthreach/Community Training Workshop Programme. FÁS training centres provide most of the training.

The ESRI evaluation study of the Community Support Framework (CSF), published in October 1995, indicated that placement rates of those who participated in the Skills Foundation Programme were reasonable. Some 38% found jobs within a month, while 45% were in employment eighteen months after completing the programme.

About 4,372 people participated in Re-Integration programmes in 1997.

The Local Enterprise measure which incorporates Enterprise Training and the CE programme aims to train individuals or groups in the skills of setting-up a new business, to assist individuals and groups to develop local enterprises and to train local enterprise groups and individuals to manage and administer local enterprises. In 1996, the throughput for these programmes was 1,011.

The other two programmes in the general training category cater for two groups who are particularly disadvantaged - ex-offenders and the disabled.

Training is provided for ex-offenders who have not previously benefited from formal training or work experience in order to prepare these individuals to enter the labour market. Courses operate for forty hours per week and last, on average, twenty weeks. Training is provided in various skill areas including welding, assembly, electronics, computers and heavy goods vehicle driving. The training of ex-offenders aims to prepare them for work and also for further training.

Training of people with disabilities has the ultimate aim of employment in the labour market. All types of disability are covered. The training includes modules which are specifically designed to overcome the special difficulties facing disabled persons who are seeking integration into the labour market. The training takes place on a nation-wide basis delivered through a combination of both statutory and non-Governmental agencies. It is carried out at three levels, namely Foundation/ Developmental, Specific Skills - Basic and Specific Skills - Intermediate.

In 1997 nearly 1,091 people participated in training for the disabled and a further 55 ex-offenders undertook training.

Skills Training

Skills Training courses provide market oriented training which is usually linked to local labour market needs. Most people in this category were trained by FÁS industry training, either on the Specific Skills Training Programme or the Job Training Scheme.

The Specific Skills Training (SST) programme, administered by FÁS, is the largest training intervention for unemployed people. The array of available courses is wide, numbering about 150, and coverage extends to a range of semi-skilled industrial, service, clerical and business occupations. Training is delivered either in FÁS Training Centres nation-wide or is contracted out to external training specialists. Courses are of relatively short duration, with some 5,000 enrolments at any given time.

The broad objective of the Specific Skills Training programme is to place 75% of trainees in employment within six months of completion of their courses. The most recent post-programme evaluation study, carried out by the ESRI on persons leaving FÁS and other programmes in 1995, indicated, in relation to SST courses, that 70% of "graduates" secured employment within two years after leaving an SST course.

The Job Training Scheme is a work-based training programme, provided by employers in co-operation with FÁS. The Scheme grant-aids firms to recruit unemployed people and to provide them with structured induction training. The Scheme provides full-time training for between 13 and 52 weeks and includes both on- and off-the-job components. The Scheme is open to private companies, commercial State enterprises and voluntary bodies. Participating enterprises recoup 75% of these costs from FÁS.

Included in the skills training category is Training for the Unemployed (Tourism). This training is designed to equip the unemployed and early school leavers with technical, interpersonal and other skills necessary to take up employment opportunities in tourism. CERT is the state agency responsible for managing this training.

In summary, recent years have seen considerable innovation in active labour market policies in Ireland as well as a substantial increase in the number of persons participating in programmes for the unemployed. Most of the expansion in provision is accounted for by the growth of demand side measures such as wage subsidies and direct employment schemes. Over time, the balance between market oriented programmes - skills training and employment subsidies - versus programmes with less obvious market linkages - general training and direct employment schemes - has also shifted in favour of the latter, largely due to the dramatic growth in CE.

The dramatic increase in active labour market programme provision has been particularly marked since 1994. Total participants (based on throughput) in all active labour market programmes increased from about 81,140 in 1994 to almost 111,055 in 1997.

The most dramatic expansion has occurred in direct employment schemes. The numbers participating in such schemes increased from about 35,000 in 1994 to over 56,000 in 1997. This expansion relates to the CE programme.

Analysis

O’Connell & McGinnity (1997) in ‘Working Schemes’ Active Labour Market policies in Ireland undertook a comprehensive analysis of active labour market policies on the employment prospect of their participants in Ireland. Their empirical analysis is based on the Post-Programme Follow-Up Survey of Programme Participants, which was commissioned by the European Commission and was specifically designed to examine the impact of active labour market policies on participants. The survey of programme participants was matched with a sample comparison group of young people who had not participated in active labour market programmes but who had been unemployed at about the same time as the programme participants left their programmes.

Their findings point to the superiority of programmes with strong linkages to the market place - skills training and employment subsidies - in enhancing the job prospects of their participants.

With respect to employment prospects and earnings from employment participants in market oriented programmes were more likely to find work in both the short and long-term, they spent a longer proportion of post-programme time in employment, and their earnings were significantly higher than participants in programmes with weak market linkages. Their analysis demonstrates the importance of other enduring characteristics of individuals, particularly their educational qualifications but also their previous labour market experience in influencing their employment prospects.

The category of active labour market programme which has expanded most rapidly in recent years - direct employment schemes - is the programme type which they found to be least effective in improving the employment prospects of their participants, and they have shown that the poor performance of such schemes persists even when account is taken of the relatively low educational attainment and unfavourable previous labour market experience of participants in direct employment schemes. They state that recent policy choice which favours high volume programmes at the expense of quality and effectiveness, and given their findings, is a step in the wrong direction. While many of those most marginalised in the labour market may need work experience programmes (or, indeed, basic training), their analysis shows that unless participation in such programmes facilitates subsequent progression to programmes with strong market linkages in an individually tailored reintegration path, they are unlikely to confer any durable benefits on participants. This issue has been raised in our own analysis.

4.4 Active Labour Market Policy - International Review

All industrial countries operate a combination of active and passive labour market interventions. Expenditure on passive labour market interventions is determined principally by the scale of unemployment and the size of unemployment benefits. Countries with relatively high levels of unemployment tend to spend a larger proportion of national income on passive labour market measures than countries where unemployment is low.

The extent of expenditure on active labour market interventions is determined in part by structural, demographic and labour market conditions, in part by the commitment of individual societies to addressing the unemployment problem, and in part - and increasingly - on the role envisaged for the State in helping to upgrade the skills base of the economy.

Labour market authorities in many OECD countries are placing increasing emphasis on the role of ALMPs in combating high and persistent unemployment. There are many different types of ALMPs in OECD countries and their objectives vary widely. They include job creation schemes in the public sector, wage subsidies for hiring in the private sector, training programmes and job search assistance. ALMPs may be targeted at specific groups eg youths, long-term unemployed, displaced workers, welfare recipients etc or not. The implementation and funding of ALMPs also vary widely across countries. In some countries, programmes are the responsibility of the Public Employment Service (PES); others receive only referrals from it. Some programmes may be administered at the federal level, others at regional or local levels. Funding may be centrally governed or jointly funded with various regions.

The meeting of the Employment Labour and Social Affairs Committee at ministerial level (1997) noted that in the current situation, it is more vital than ever for governments to have at their disposal a set of effective ALMPs in order to:

1. reduce the social costs of labour displacement caused by structural change, notably globalisation
2. facilitate public acceptance of a broader package of labour and product market reforms, such as that proposed in the OECD Jobs Strategy, that can make substantial inroads into structural unemployment.

Based on a review of expenditure on both active and passive unemployment measures expressed as a percentage of Gross Domestic Product for 24 OECD countries in 1995 or 1996, Sweden and Denmark stand out as the leading countries in terms of GDP allocated to Active Labour Market Policies. In fact Denmark’s expenditure on active and passive labour market measures had increased by 10.5% over the period 1985 to 1995/96.

Evaluating active labour market policies has generated a large, international literature. Fortunately, a number of excellent recent literature surveys are available - including the OECD Employment Outlook (1993), Grubb (1994), US Department of Labor (1995), Fay (1996) and Friedlander et al. (1997) - which greatly helps when summarising this literature. These independent surveys reach very similar conclusions. The survey article by Fay (1996) is particularly useful since it updates the OECD Employment Outlook (1993) survey article and it deals with all OECD countries and not just the US.

There are many different types of active labour market policies in OECD countries and their objectives vary. The main programmes are:

• Subsidies to employment
• Public sector job creation
• Re-employment bonuses
• Counselling and/or job search assistance
• Aid to the unemployed to start an enterprise
• Formal classroom-based training

As Fay (1996) notes, all programmes have both positive and negative effects, at least in principle. As a result, there are always tradeoffs to be considered since economic theory does not provide unambiguous predictions as to the outcomes of many active labour market programmes.

Consider public sector job creation schemes. On the one hand, they may help the long-term unemployed regain contact with the labour market thereby increasing "effective" labour supply and reducing wage pressure. On the other hand, public sector job creation may crowd out private sector jobs, may not reduce the stigma attached to long-term unemployment, may lead to jobs which are of little social benefit and may reduce the cost of unemployment thereby adding to wage pressure as supply of effective labour is reduced (via insider wage mechanisms).

In addition there are many unanswered questions about public sector job creation schemes. For example, how long should the jobs last? What level of compensation should be offered? Where should jobs be located to minimise displacement?

The theoretical impacts, both positive and negative, of the various active labour market programmes are discussed by Fay. He also provides a list of unanswered questions regarding the design of theses programmes. Ideally, an evaluation study should look at the gross and net (after taking account of deadweight losses, substitution and displacement) effects of programmes at the level of the individual, the Government and society at large. In addition, Fay argues that a study should answer the question of whether the programme being evaluated represents the best outcome that could have been achieved for the money spent. Unfortunately, many evaluations only estimate the impact of a programme on the participants’ earnings and/or employment rates, and, on the government finances.

There are a large number of methods of microeconomic evaluation of active labour market programmes including:

-Interviews of participants and employers (to gauge the sizes of the deadweight loss, substitution and displacement effects)

-Use of post programme data to track the labour market status of participants

-Use of random assignment experiments involving a "treatment" group, who participate in the programme, and a "control" group who do not

-Use of quasi-experiments in which programmes are evaluated ex-post using some suitable "comparison" group, since no "control" group is available. Selectivity bias may be an issue with quasi-experiments.

The literature on evaluation methods is becoming quite advanced and econometric in nature. In many cases there is no clear-cut answer as to which evaluation method should be used.

Fay (1996) and other reviews of the international literature suggest that, inter alia:

- Job search assistance appears to "work" reasonably well as a first step in helping most groups of the unemployed get back to work

- The estimated effects of formal classroom training are mixed. Careful choice of the type of course followed and appropriate targeting are important in achieving results

- Training can help the long-term unemployed if it is well targeted, both in terms of who receives it and of content. However, the positive results from training may take a long time to appear

- Public sector job creation schemes should only be a last resort. Individuals on such schemes may also benefit from tailored packages that identify their needs. Most public sector job creation schemes appear to have had only small positive effects.

- Youths, especially school drop outs, are the most difficult group to help

- Women are the easiest group to help. Most active labour market programmes appear to "work" for them.

Fay stresses that, in many cases, the gains from active labour market programmes are modest so careful targeting is important. In addition, he points out that programmes tend to work better over time.

A number of caveats should be borne in mind. At the aggregate level, it is difficult to address the problems of a large number of unemployed persons through active labour market policies, because of declining returns to large programmes, labour and product market distortions etc. Therefore, active labour market programmes should not be looked at in isolation. At a more dis-aggregated level, it is important to recognise that programmes which worked for one group of individuals or in one country may not necessarily work for another group or in a different country. Evaluation studies do not show whether results can be generalised to larger groups. For example, labour market behaviour when there is a permanent, compulsory, national programme is likely to be different when there is a temporary, voluntary, small scale programme. Issues of programme design and implementation (so-called black-box issues), which may be very important in practice, are often ignored in evaluation studies. In most cases, evaluations tend to say what worked and what did not, but not why so there is a need to examine so called "black-box" issues. Black-box issues are those which make or do not make schemes effective, but which are not always examined.

A lot of the economic literature on active labour market policies is microeconomic but there is a small literature which is more macroeconomic in orientation. For example, Calmfors (1994) develops a framework for the analysis of active labour market policies and uses that to examine various effects on wage setting, labour demand and labour supply. Several design features are seen as crucial for the success of active labour market policy: compensation below market wages, strong emphasis on counselling and placement activities, targeting and avoiding the use of active programmes as a means of prolonging the duration of unemployment benefits. The conclusion is that most European countries are likely to do better with more active labour market programmes, but not a lot better.

O’Connell & McGinnity (1997) summarise the main implications of Calmfors approach. Active labour market policies are regarded as correcting for malfunctioning of the labour market and can effect employment and unemployment through three principal channels:

1. through improving the matching process between job seekers and vacancies
2. by raising the productivity of the workforce and
3. through maintaining the effective supply of labour by reducing the extent of withdrawal from the labour market.

CE’s focus is on channels 1 and 3. In Section 6, the overall impact of CE is examined.

First, training and employment programmes, as well as public employment services, may increase the efficiency of the matching process to reduce the number of job searchers associated with a given number of vacancies. Training may adjust the skills of job-seekers to the structure of labour market demand. Temporary employment programmes can provide work experience and reduce employers uncertainty about the employability of programme participants. Public employment services may lead to more active and effective job-searching. Improving the matching process may have the effect of reducing the ratio of job-seekers to vacancies, resulting in an increase in the demand for labour but a decrease in wage pressure because improved matching increases the supply of candidates for specific jobs. Both of these effects should increase employment.

Second, training programmes, by enhancing the skills and competencies of the labour force, should give rise to increased productivity and, thus to improved national competitiveness, thereby increasing employment. Temporary employment subsidies or direct job creation measures may have similar effects to the extent that they entail an increase in on-the-job training.

Third, all forms of active labour market intervention should help to maintain labour force participation, and thus, the effective supply of labour, and, by so doing, increase the competition for jobs and reduce wage pressure, thereby increasing employment while reducing unemployment. This wage competition effect is likely to be particularly concentrated among the long-term unemployed and other excluded groups.

Calmfors and Lang (1995) examine the effects of active labour market policies on wage pressure and equilibrium employment in a theoretical model of union wage-setting behaviour. They show that programmes are wage reducing to the extent that they help maintain effective labour force participation and wage increasing to the extent that they weaken insider incentives for wage restraint. They suggest that targeting the long-term unemployed is crucial for the success of active labour market policies, since employment opportunities are then distributed from insiders to outsiders and the welfare effects on the long-term unemployed are more heavily discounted.

Calmfors and Skedinger (1995) note that active labour market policies affect employment through several mechanisms that work in different directions. They develop a theoretical framework for structuring the various effects of different programmes and the effects of targeting specific groups. Using data for Swedish regions they find evidence of substantial crowding out of regular employment from job-creation measures, whereas the results with respect to labour market training and targeting are mixed. They caution against putting too much faith in active labour market programmes as a solution to the European unemployment problem.

Jackman (1994) attempts to assess the role of active labour market policies in addressing the problems of an increased rate of structural change, and the resulting decline in employment opportunities for unskilled manual workers, and the corrosive effects of long spells of unemployment. He makes the case for active labour market policies. Even when such schemes appear not to have much of a return to participants, as suggested by much of the microeconomic evidence, he argues that they may still have a substantial social return in preventing long term unemployment. He also argues that temporary public sector job schemes should only be a last resort.

Robinson (1995) argues that the Swedish recession of 1990 to 1993 offered a natural experiment to test the efficacy of active labour market policies. He finds modest positive effects on the subsequent employment experience of participants of placement services and assistance with job search programmes. However he finds that the results for other active labour market components, including training, are at best ambiguous. Robinson argues that policy makers should not neglect other policy instruments because of an inflated view of the efficacy of active labour market programmes,

Friedlander et al. (1997) are concerned with evaluating, mainly US based, government training programmes for the economically disadvantaged. They discuss the economic rationale of training programmes, the mix of activities found in training programmes - classroom training (in basic education and occupational skills), on-the-job training, unpaid work experience, paid work experience, public sector employment, job search assistance, personal counselling, work incentives etc, as well as the various training programmes used in the US. The programmes target different groups - disadvantaged adults, disadvantaged youths, high school dropouts, AFDC recipients etc. Some programmes are national whereas others are local or demonstration ones. In addition some programmes are mandatory whilst others are voluntary.

They consider the theory of training programme evaluation and note that nearly all training programmes evaluations are "black box" in nature, and indicates only whether a particular programme "works", on average, for a particular sample under a particular set of circumstances. They argue that such information, although useful, may not be readily generalised to other programmes, circumstances or populations.

Friedlander et al. discuss various ways of evaluating the effects of training programmes. This discussion is largely econometric and microeconomic based. Since low paid unskilled jobs are readily available in the US, the authors use post programme earnings gains, dis-aggregated by demographic group, to measure the effects of programmes. They look at experimental and non-experimental evaluations of voluntary programmes, address the problems of selectivity on observables and unobservables, consider the use of internal and external comparison or control groups and discuss the external validity of estimated programme effects. In the case of mandatory programmes, they consider the effects of programmes on non-participants.

Finally they discuss the estimated effects of government training programmes on society at large using cost-benefit and general equilibrium approaches. In particular, they consider the accounting framework underlying the contemporary cost-benefit approach and critically review the important, generally implicit, assumptions used regarding distributional effects, intangible effects and the extrapolation of current benefits into the future.

The results of a large number of US-based evaluation studies are reviewed. Friedlander et al. conclude that evaluations of government training programmes in the US have yielded important information about the effectiveness of these programmes. Most of what is known about training programmes concerns their costs and short term financial effects on persons enrolled in them. Large open questions persist about strategies for improving the effectiveness of programmes in the future, loosely speaking, by getting inside the "black box" of effective programmes. The most optimistic findings are for women. Nearly every evaluation of training programmes for this group has found positive earnings gains and most of the estimates have been statistically significant. The estimated social rate of return on these programmes is often quite high. The evaluation findings for men leave more uncertainty. Evaluation studies of some current programmes for adult men in the US are encouraging. Evaluation findings for youths are of special interest for two reasons. Disadvantaged youths experience a high degree of labour market difficulty and permanent increases in the earning capacity of youths provide positive returns over their whole working lives. Unfortunately, with the possible exception of the Job Corps programme, no US training programme has been found to be effective for youths. Most training programmes in the US are relatively small scale so their aggregate, economy wide effects are modest. Finally, skill-building activities, in particular classroom and on-the-job training, appear to result in long-term earnings gains.

4.5 Concluding Remarks

This section examines national and international ALMPs, and places CE in this context. Some authors (eg O’Connell & McGinnity, 1997) have questioned the impact of direct employment schemes.

Having reviewed the national and international literature and having regard to the changed and tightening labour market, the improved prospects for the unemployed, the fall in unemployment, particularly in long-term unemployment, and the significant increase in the number of persons benefiting from direct employment and positive discrimination measures since 1995, it is clear that the high level of Government expenditure on ALMPs must be targeted at the most disadvantaged in the new labour market and on programmes with strong progression outcomes. This study examines, in detail, such assertions.

The international review carried out suggests that the approach adopted in this study is a reliable one. In addition, the review of international literature suggests that in terms of achieving the optimum potential from an ALMP, it should be well targeted on the long-term unemployed and should increase the efficiency with which the unemployed gain employment in the open labour market. CE, arising from the restructuring recommended in the Task Force on Long-term Unemployment, is more focused on the long-term unemployed than it was previously, due to its sub-division into two distinct options (the Integration Option for those over 21 and more than one year unemployed and the part-time Job Option for those over 35 and more than three years unemployed). With the development of the Employment Services (arising from the White Paper on Human Resources Development and the National Employment Action Plan) CE should complement a strategy of strong emphasis on counselling and placement activities.

However the international literature also suggests, amongst others, that:

1. the benefit accruing from ALMPs generally are hard to quantify and may only offer marginal benefits
2. there are declining returns to large broadly-based programmes which lack clearly identified objectives
3. there can be crowding out of regular employment from job-creation measures.

Our research has been influenced by this international review. We acknowledge the need to support the long-term unemployed, the need to focus on market requirements and to reduce the programme to a more manageable size thereby increasing the returns to all participants, whether on CE or on any training scheme, as an alternative to CE.

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Review of CE Programme - September 1998 - Final Report