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Activation and the PES in OECD countries Cooperation between Central and Local Governments 25 Novemb


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Title: Activation and the PES in OECD countries Cooperation between Central and Local Governments 25 Novemb

Activation and the PES in OECD countries-
Cooperation between Central and Local Governments
-25 November 2009
  • Hyoung-Woo CHUNG
  • Employment Analysis and Policies Division, OECD

  • The evolution of the PES
  • PES reform in relation to Activation strategies
  • Institutional Reform in the OECD countries
  • Country specific experiences
  • On-going and coming challenges

1. The evolution of the PES
  • Emerged around the end of 19th century as a
    result of concerns about the social and economic
    impact of unemployment
  • The early mission of PES was mainly focused on
  • Soon after that, unemployment(UE) benefits were
    added in its function
  • In 1919, the newly formed ILO commended
    establishment of the PES to member states in C2
    on unemployment
  • C34 (1933) and C96 (1949) secures monopoly
    position for PES
  • In 25 years following the WW2, PES combined
    matchmaking with UE benefits
  • Since the economic downturn of the 1970s, PES has
    been used as an instrument of national employment
    policies or labor market adjustment programs
    designed to tackle unemployment problems

  • In the 1990s, in a climate of economic liberalism
    and globalization, with the ILO recognition, the
    Private Employment Agencies (PREAs) have also
    contributed to the effective functioning of the
    labor market
  • The PES now operates in a rapidly changing labor
    market, which is shifting towards a low-carbon
  • Now Activation, as well as filling skill-gaps and
    transforming the workforce to adapt to a changed
    environment, becomes an important PES mission in
    the OECD countries

  • Three important trends currently,
  • Delegation of authority and responsibility
  • In order both tap the energy of local managers
    and staff and to adapt services more closely to
    local needs
  • Integration of services
  • The delivery of services is being closely
    integrated, through one-stop shops at local
    level, and through tiered service delivery to
    different clients according to their needs
  • Competitive service delivery
  • Recent trend which leads to elements of PES work
    becoming contestable in the market or virtually
    the whole operation (Australia)
  • However, this needs skilful management both to
    ensure cost-effective results and to handle
    morale problems within existing staffs

2. PES reform in relation to Activation strategies
  • Until the 1990s, many OECD countries were
    struggling with high and persistent unemployment
  • New questions arose concerning how OECD labor
    markets can cope with population ageing and
  • Population ageing and a low birth-rate imply
    smaller labor forces, more public spending
  • EU adopted Lisbon Strategy in 2000/ OECD
    reshaped its Jobs Strategy in 2006 (focusing on
  • Now activation becomes a more important labor
    market measure to boost total employment

PES Reform in relation to Activation (Cont.)
  • Activation measures are actions which
  • Are targeted at people of working age not in
    work, who could work, and are receiving an
    income-replacement benefit and
  • Make benefit payments conditional on
    employment-related activity
  • Unemployment may be covered by two or more
    benefits which are managed differently (Canada,
    Germany, Finland, France, the Netherlands)
  • Employable people on inactive benefits are a key
    target group, and a focus only on unemployment
    can lead to policy errors
  • Activation strategies are frameworks or policy
    directions that implement activation measures
  • An institutional reform, new IT and performance
    management arrangements within the PES, or a
    change in benefit financing arrangements, could
    be activation strategies if they result in
    actors implementing effective activation measures

PES Reform in relation to Activation (Cont.)
  • Is decentralization an institutional reform that
    contributes to effective activation ?
  • EU has encouraged member countries to increase
    municipal participation in order to enhance
    efficiency (Commission of the European
    Communities 2001)
  • Local authorities involvement in the development
    and operation of active labor market measures is
    increasingly considered desirable, particularly
    in Scandinavian countries
  • But the PES should only be decentralized if that
    would enhance efficiency and effectiveness of
    service delivery in the national historical and
    cultural context

  • 3. Institutional Reform in the OECD countries

3-1. Institutional arrangement in general
  • In most OECD countries either
  • Placement and benefit administration for the main
    unemployment benefit, are done by the same
    organisation (Germany, Japan, New Zealand,
    Norway, UK) or
  • The placement service is separate, but is
    responsible for evaluation of job search and
    availability for work (Finland, Portugal, Sweden,
    Czech, Denmark, Swiss)
  • Exceptionally in Belgium, Canada and Spain, a
    separate national benefit administration
    generates most of the evidence about clients job
    search and availability for work. These are
    relatively high-unemployment countries (7.0,
    6.1, 11.4 respectively in 2008 OECD 6.0)
  • Over time, a few countries have integrated
    formerly-separate administrations UK in the
    late 1980s, Slovak Republic in 2004 unemployment
    subsequently fell (Slovak by over 40 from 2004
    to 2008).

3-2. Misaligned Institutional Reform
  • In Belgium (since 1980), Canada (progressively
    after 1996) and Spain (over 1998-2002) and
    Switzerland (1996), UI benefits are nationally
    financed, but regional governments manage
    placement services and many of the ALMPs
  • This creates a free-rider problem failure to
    implement activation measures by the regional
    authority increases regional unemployment, but
    its costs (in terms of benefit payments and the
    financing of some ALMPs) are borne by the
    national or federal government
  • In these countries, the national benefit
    administration attempts to monitor clients job
    search behaviour and availability for work
    without help from the employment services, but
    this has not been effective
  • These countries have relatively high unemployment
    except for Switzerland which since 1996 has a
    national framework (federal legislation,
    IT/performance measurement systems, guidance and
    evaluation function, etc.)

Misaligned institutional reform (Cont.)
  • Possible time series link (1) in Spain, rapid
    rise in the UI caseload after 2000 (2) in
    Canada, after the 1996-97 cut in UI entitlements,
    little further cut in UI caseload
  • Spains experience since devolving the management
    of placement services to the regions arguably
    supports the idea that this tends to increase
    benefit caseloads
  • From 2000 to 2008, Spains unemployment according
    to the labor force survey fell by 5, but the
    number of unemployment benefit recipients
    increased 66

3-3. Successful partial decentralization cases
  • Denmark (until 2007), Switzerland are the
    examples of successful partial decentralization
    of the PES
  • Legislation, strategic management, IT systems and
    performance management are national
  • In Switzerland, the financing of ALMPs is to a
    varying degree done by the cantons and the
    federal budget allocation to the regional PE
    offices per unemployed declines as unemployment
    increases, which increases the incentive for the
    cantons to keep unemployment low
  • Regional bodies are largely responsible for the
    implementation of individual labor market
  • The quality of management inputs (including
    engagement of local social partners, local
    governments, etc.) that can be assembled at
    regional level is important for success
  • In these successful decentralization countries,
    municipalities and/or regions finance and manage
    social assistance benefits they do not bear the
    cost of UI benefits, but they do have an
    established interest in tackling unemployment

3-4. Institutions summary
  • High caseloads and unemployment where
  • Placement is managed by regional governments but
    benefits are financed at national level
  • The benefit administration without help from the
    placement service evaluates clients availability
    for work
  • Low caseloads (and unemployment) where
  • SA is financed and managed at local level
  • Institutional incentives affect unemployment and
    benefit caseloads in a cross country comparison.
    Reforms to them often have an impact in less than
    a decade. However, a full-scale reform can
    require a decade or more of debate
  • However, good management and cooperation
    sometimes achieves good outcomes even with
    potentially problematic institutional
    arrangements (Switzerland)

  • 4. Country specific experiences

4-1. Sweden
  • Swedish labor market is characterized by clear
    link between central and local government
  • Main findings (relation between cooperation and
  • A considerable discrepancy between PES offices
    and municipalities priorities exists (table 1).
    The municipalities objectives are more locally
    oriented (financial issues are often important)
  • This implies that increased municipal involvement
    is likely to change the content of labor market
    policy in favor of local interest
  • Despite the dissimilarity in preferences the
    authorities cooperate to a relatively high extent
  • Cooperation is only associated with a better
    implementation performance under certain
    conditions (when both organizations are designed
    to carry out a specific and demanding task)

ltTable 1gt Objectives of PES managers and
managers from municipal administrations with
responsibility for labor market issues (per cent
claiming that a certain objective is given very
high or fairly high priority by their
organization)Notes Data comes
from questionnaires distributed to managers of
PES offices and municipal labor market
administrations. Formulation of question How
are the following objectives prioritized at the
PES / in the municipalitys labor market
activities? A scale of five categories was used
Very high, Fairly high, Neither high nor
low, Fairly low, and Very low or not at all.
The number of respondents for each item was
between 258 and 264 among the PES offices and
between 238 and 242 among municipalities (source
Martin Lundin, Does cooperation improve
implementation?-Central and Local government
relations in active labor market policy in
Sweden, IFAU working paper, 2005)
4-2. Finland
  • To address changes in the dynamics of labor
    markets and unemployment problem, Finland has
    been reforming its labor market policies and PES
    in two stages in the last decades
  • The first wave of PES reform (1996-2000) was
    focused on internal rationalization as well as on
    new initiatives which put third sector
    organizations and municipalities in cooperation
    to deliver services
  • Two main purposes were to promote better
    functioning of the labor market and prevent
    exclusion from the labor market
  • The second wave (since 2000) can be called a
    three-way Network Strategy
  • The first approach is activating those with
    multiple problems by setting up new one-stop
    shop (Labor Force Service Centers LAFOS) as a
    joint effort of state and local government and
    connecting this to intermediate labor market
  • This includes temporary work, work practice, work
    in social enterprises and voluntary organization.
    This is very similar to Korean stepping-stones
    jobs introduced in 2009

Finland (Cont.)
  • The second approach is to promote efficient and
    rapid transitions in the labor market, as well as
    to respond to labor demand more quickly, by
    reforming the local PES to serve as an active
    agent in the regional and local labor market
  • The third approach is to foster the
    organizational development, both in private and
    public sectors, needed to deal with the
    generational change and enhance productivity in a
    sustainable way ? this is strengthened by setting
    up Ministry of Labor and Economy
  • Bring about more focused and qualified services
    tailored to the different challenges facing the
    Finnish labor market and customers needs

4-3. UK
  • Before Jobcentre Plus
  • PES focused only on jobseekers, while the
    Benefits Agency dealt primarily with passive,
    inactive groups. This separation of tasks did not
    effectively promote ambitious employment goals
  • Jobcentre Plus since 2001 (focused,
    individualized and practical efforts)
  • Work First, a strong customer orientation also
    the emphasis has shifted to more hard-to-place
  • This is labor intensive approach, as it is built
    around frequent contact with clients, but has
    proved to be both affordable and effective
  • 3 Key success factors
  • Jobcentre Plus combining benefits with
    activation measures
  • Jobseekers Allowance formerly UB(until 1996),
    promotes continuous job search with aids from
    specially trained advisors
  • Rights and responsibilities people have a
    responsibility to actively seek work

UK (Cont.)
  • So far, DWP of UK has been promoting some
    decentralization of powers and implementation of
    strategies adapted to local needs
  • In doing this, it would be good to keep in mind
  • Employment services should be kept under national
    management as long as benefits are
    nationally-financed and
  • Local initiatives will not be able to engage with
    many unemployed clients unless Jobcentre Plus
    enforces participation requirements on them.

4-4. the Netherlands
  • The Netherlands has taken a different path by
    emphasizing the role of private providers in
    reintegration services
  • Since 2000 for UI, and since 2002 for social
    assistance, placement and reintegration services
    for clients who are not expected to find work
    within 6 months are in principle contracted out
    to private providers
  • The government expectations here are that, by
    enhancing competition, the effectiveness and
    efficiency of service delivery will improve
  • PES (CWI 131 offices with 4500 full-time
    equivalent staff) takes rather limited
  • CWI handles initial registration provides free
    universal job-matching services, etc
  • However, clients classified in the lowest risk
    segment receive only CWIs basic services

the Netherlands (Cont.)
  • Some of the problem areas noted by critics (OECD
  • The multiplicity of actors implies transaction
    costs and handover problems in client transfers
  • CWI profiling results lack predictive value and
    are not accepted by subsequent service
  • The potential diminution of the role of training
    under outcome-focused market arrangement and
    work-first policies (e.g.. Australia)
  • Monitoring and evaluation of market orientation
    and reintegration services are not considered
    sufficiently developed
  • Recent reform to merge job-brokering and benefits

  • ltTable 2gt PES strategies in 5 European Countries
  • source Robert Arnkil, Public Employment Service
    Reform of Finland in a Nordic Perspective, Work
    Research Center, University of Tampere, 2007

  • 5. On-going and coming challenges

5-1. Labor market outcome in the current crisis
  • US, Spain and Ireland have experienced the
    largest rises in unemployment (recently increased
    benefit levels and/or coverage, with few
    activation measures)
  • In the 1990s, most US states switched to
    telephone claims reporting
  • In person attendance was no longer required
  • Job search reporting requirements were dropped or
    lost effectiveness
  • Since mid-2008, US has increased the maximum UI
    benefit duration from 26 to 79 (26 regular 33
    emergency 20 extended) weeks in most states
    the federal government reimburses 100 of 33
    weeks, removing institutional incentives for
    tight management US benefit coverage rate (B to
    U ratio) is now 61, similar to the UKs (64)
  • In Ireland, activation measures weakened after
    2000, and benefit replacement rates increased
    over 2002 to 2007.
  • In Spain, job placement function was
    decentralized to the regions in 1998-2002, and
    benefit caseload grew rapidly in the years before

Labor market outcome (Cont.)
  • Germany and the Netherlands experienced small
    rises in unemployment
  • In Germany, the Hartz reforms implemented in
    2002-2005, which involved institutional reforms,
    took time to become effective
  • The Netherlands made municipalities responsible
    for financing social assistance benefits in 2004
    and reduced UI entitlements in 2006.
  • Denmark and New Zealand experienced large rises
    in proportional terms, although unemployment
    levels remain quite low
  • - This illustrates the risk of rebound when
    unemployment has been reduced to low levels
    through intensive activation measures
  • In UK, the rise is moderate despite a large fall
    in GDP
  • With additional funding and increased staffs, UK
    Jobcentre Plus reacted rapidly to maintain
    interview schedules as well as to implement new
    activation measures

5-2. PES, on-going and coming challenges
  • Recent efforts to weather the storm
  • Increasing the number of PES staffs (UK, Japan,
    etc) and tightening benefits administration
  • Monitoring the output of PES local offices and
    individual counselors, focusing on indicators
    such as the number of face-to-face interviews
  • Institutional reforms, such as the unification of
    the placement service with benefit administration
  • Another challenge a low-carbon economy
  • Significant shift towards a low-carbon economy
    will be a major driver of structural change in
    labour markets. New skills and competences will
    be required, as well as enhanced labour mobility
    across occupations and sectors, posing new
    demands on education and training institutions,
    and labour market policies
  • Green jobs partnerships (networking central and
    local public and private), focused on SMEs and
    local needs will be also necessary