With an unemployment rate of 4.1%, Norway must be getting a few things right. In 2007 they did what few countries do: seriously invest in an employment program to reduce entrenched, long term unemployment. The two-year ‘Qualification Program’ aims to overcome social barriers to work as well as low skills. Participants must undertake full time activities and caseloads are 1:18. In a new twist on work incentives, they receive higher income support than similar unemployed people. It’s not cheap, but 4 years after starting the program, long term unemployed people are 18% more likely to be employed.
Seven years after the global recession, long-term unemployment is worrying experts and policy makers across the world, even in the US where time-limited benefits and a ready supply of low skilled low paid jobs previously seemed to hold it at bay. Yet few countries are getting to grips with the core of the problem: by investing in programs that bring the most disadvantaged long term unemployed people into jobs. One exception is Norway, which with an unemployment rate of 4.1% can boast success in labour market policy.
In 2007, Norway introduced its ‘Qualification Program’ (or ‘QP’) for people at risk of prolonged unemployment, including those who lack unemployment insurance entitlements and rely on municipal social assistance payments: a group often neglected European labour market programs. The name is a bit misleading: its aim is to ‘qualify’ people for jobs by overcoming social barriers to work as much as weak vocational skills.The program combines secure and generous income support (higher than most social assistance payments) intensive employment and social support over a two year period, and a requirement to engage full time in those activities.
It is being evaluated with an emphasis on its long term impacts. One evaluation found that it boosted the probability of employment for a group of unemployed people whose prospects were otherwise weak by an average of 10% after 2 years and 18% after 4 years. This comes at a price: the average annual cost of additional employment assistance through the program is EUR$6,000 spread over 2-3 years. The higher unemployment benefits cost a similar amount. Much or this is eventually retrieved as more program participants move off benefits: a key evaluation question is how much.
Norway has two systems of unemployment payment: unemployment insurance paid by industry based social insurance funds which requires a contribution history, and social assistance which is run by municipalities. Unemployment insurance is relatively generous but social assistance payments are generally lower and are not legislated. Municipalities have discretion in setting rates of payments and other conditions of payment.
In 2007 when the QP was introduced the Norwegians faced a common problem in European unemployment benefit systems: employment assistance was fragmented and there was poor cooperation between the public employment services and municipalities to assist people on social assistance payments to secure work. A common assumption was that social assistance clients were not ’employable’.
One part of the solution was a merger of the benefits agency and public employment service, and formal collaboration arrangements between this new agency and municipal welfare offices to meet the employment needs of both insured and uninsured unemployed people. Offices of the new ‘NAV ‘agency continue to serve insured unemployed people but are co-located with municipal social services to make labour market assistance more accessible to people on social assistance payments.
The other part was the QP which has been rolled out region-by-region in conjunction with the establishment of NAV offices. This facilitates evaluation since similar people are assisted through the ‘old’ and ‘new’ systems in different localities.
The Programme is targeted at people:
- with ‘significantly reduced earning ability’ and no or limited national insurance rights;
- who are ‘trapped’, or in danger of getting trapped, in a passive situation characterised by income poverty; and
- who are considered to have a chance of getting a job through individual follow-up, even if this implies a lengthy process.
This assessment is conducted by the NAV, which administers the program. As the above criteria suggest, there is much room for discretion when making referrals. Assessors do not use a statistical assessment tool such as the Australian Job Seeker Classification Instrument. Most participants previously received municipal social assistance but unemployment insurance recipients may also meet the criteria.
Participation is voluntary but once enrolled, participation in employment related activities is a condition of receipt of the ‘Qualification Benefit’ (discussed below).
The table below compares unemployed people referred to the QP and those not referred. QP participants are much more likely to be women, migrants, and to lack complete high school qualifications. They are much less likely to have labour earnings over the previous year. This all suggests that QP participants are significantly more disadvantaged than the average unemployed person.
One innovative feature of the QP is that participants receive higher income support payments (in most cases) than they would if on social assistance. This is based on the view that people who are severely disadvantaged in the labour market need stability in their incomes and lives in order to fully benefit from employment assistance. This is a departure from the conventional view (informed by neo-classical economics and research on transitions to employment among less disadvantaged unemployed people) that lower benefits and time limits spur people to search for jobs more intensively.
I suspect it’s also an attempt to patch a few holes in the social assistance system, which (unlike most countries) is not based on uniform legislated entitlements. Instead each municipality determines rates of payment and this has led to inequity and inconsistency.
A second innovation is that the payment is not income tested. If an unemployed person secures full time work within the two year period of the program they keep the full benefit as a wage supplement.
The qualification benefit for a single adult is NOK145,762 (approx. EUR17,000) per year for participants 25 years or older, while those below 25 years receive 2/3 of this.
By contrast, unemployment insurance for a single person is 62% of the previous wage and the average wage is around EUR50,000 (so an former average wage-earner might receive EUR30,000) which can be claimed for up to two years. Those ineligible for unemployment insurance may transfer to the much lower social assistance payments.
So the ‘qualification benefit’ is high by OECD standards and higher than what social assistance clients would otherwise receive, but lower than unemployment insurance.
In return for the Qualification Benefit, participants must engage in 37 hours a week of work preparation activity negotiated with the NAV. Examples of these activities are provided below.
As these examples show, a wide variety of activities are included on a spectrum from immediate referral to an employer or work experience placement to therapeutic programs and sheltered employment for those assessed as most disadvantaged.
Participation in the activities is compulsory, and continues until the individual secures paid employment (in which case they continue to receive the benefit) or abandons the benefit.
A key feature of the program is the low caseloads. Each case worker has only 18 clients at a time.
A quantitative evaluation of the impact of the program on employment found that the probability of being employed fell by an average of 9% in the first year (due to the ‘lock in effect’ of program activities), then rose by 10% after 2 years and 18% after 4 years. The graph shows the average proportion of each year spent in employment before and after entry to the program. The decline in employment in the years leading up to program entry was attributed to the labour market disadvantage of participants, and the improvement was attributed to the program.
These are strong results for a program targeting disadvantaged, long term unemployed people. There are a few qualifications: most of the jobs obtained were part time and low paid, and after four years, the average cost of the program was still not recouped through lower benefit payments. The latter result is due in part to the design features of the qualification benefit: for the two years of the program the benefit is paid regardless of labour earnings at a level higher than most social assistance payments.
How well does it work and could it work better?
Few programs are effective in assisting the most disadvantaged long term unemployed people into jobs, on a large scale. Activity requirements and job search assistance alone are not often effective for that client group. They need more intensive (therefore costly) programs to build work capacity, link them with a suitable employer (not just the first job available), and ensure that it lasts.
‘Lock in effects’ from intensive work experience training, or therapeutic programs are common because they delay job search. What matters here is the strength and sustainability of the subsequent ‘treatment effect’. If the QP does boost average employment impacts by 18% after four years, the delayed impact is probably worth it. A 10 percentage point improvement in job prospects after two years is also pretty good, especially if their chances were very low to begin with.
If these employment outcomes were full time, sustained jobs it’s very likely the program would eventually pay for itself, since most participants were otherwise likely to remain on income support (and not pay income tax) for years to come. However, the evaluation finds that the program is not yet ‘cost neutral’ four years after program entry (on average). The extra costs (the higher qualification benefit, more intensive employment assistance, and loss of potential earnings in the first two years) still exceed the gains at that stage though the gap is closing. The evaluation suggests that the employment gains after four years would have to be sustained for longer before the financial benefits of the program to overtake its costs.
The evaluation may have exaggerated the costs to government. To assess this accurately it would have to subtract the unemployment payments clients would have received on average over the four years in the absence of the program. Also, no account is taken of the effects of the program on income tax receipts.
There are three uncertainties about the estimated impacts of the program.
First, did the evaluation effectively control for ‘unobserved characteristics’ and the possibility of selection bias into the program? While it targeted disadvantaged job-seekers, voluntary programs usually involve an element of ‘creaming’ since the more motivated and confident you are, the more likely you are to join. The risk of ‘creaming’ is heightened by the discretionary nature of assessment of eligibility for the program.
Second, to what extent are the strong long-term results due to the the fact that the program is new and run on a (relatively) modest scale? It’s common for a new program assisting a group who previously received little or not help (and were not expected to actively search for jobs) to have good outcomes. Will its effectiveness decline once it’s brought up to scale?
The third question is the most interesting: to what extent can the results be attributed to the qualification benefit or the more intensive employment services? Financial incentives to take up employment (such as the lack of an income test) often don’t work well for disadvantaged job-seekers because their main problem is not a lack of incentive to take up job offers: it’s that they receive too few of them.
The main advantage of the higher and more stable qualification benefit is likely to more subtle: that it supports and rewards people who commit themselves to the program. An interesting feature of the benefit is that it is paid like a wage (by a payroll office) rather than a social assistance benefit.
I suspect it is the more intensive employment services (and the requirement to stick with them to keep the benefit) that make the most difference. A caseload of 18 people is well below the 100 or more in most employment service systems (including Australia’s). If the case workers are well trained and focus on employment outcomes, that alone should make a big difference.
Here there appears to be a weakness in the implementation of the program: most of the caseworkers apparently come from a municipal social service background. Their focus seems to be mainly therapeutic (removing barriers such as homelessness or addictions before turning to employment goals). In other countries where social assistance recipients were first ‘activated’ into the labour market, including Denmark and the Netherlands, considerable effort was devoted to retraining and re-orienting caseworkers from social work to employment assistance.
The nature of the employment assistance received is also critical. In the examples above, the client referred to work experience in a regular workplace was much more likely to succeed than the one referred to ‘social activities’ and sheltered employment. Of course, the latter was likely to face steeper barriers to employment (and that’s why she was referred to those programs). However, the evaluation evidence strongly suggests that even in such cases a program is more likely to succeed if participants are placed as early as possible to a regular work environment where they are treated (as far as possible) as a regular paid employee. This was the experience, for example with Individual Placement and Support (IPS) services for people with severe mental illness in Australia which are also being trialled in Norway.
On the other hand, programs that emphasise social support or work outside mainstream employment, and neglect the employment objective, such as the ‘Special Municipal Projects’ in Denmark and Personal Support Program in Australia are relatively ineffective in improving job prospects due to their ‘lock-in effects’.
Conclusions and suggestions
The QP appears to have achieved what few programs assisting the most disadvantaged unemployed people do: a significant and sustained improvement in their job prospects (of more than 10 percentage points) over the long term. Norway deserves to be congratulated for investing in long term unemployed people when other countries that once were once pacesetters in employment assistance for that group (including Australia, the Netherlands and the United Kingdom) seem to have retreated from earlier commitments in pursuit of short term budget savings (by either failing to subsidise intensive assistance for people unemployed long term or sharply reducing labour market assistance spending across the board).
It remains to be seen whether the positive early results of the QP will hold as the program matures and is brought up to scale.
It’s important to target the program to those most likely to benefit, and understand which elements of the program contribute most to these outcomes, because the program is loosely targeted and relatively costly and it may not need all of its elements to sustain its outcomes as it is scaled up.
Targeting would be improved by using a statistical assessment tool such as Australia’s Job Seeker Classification Instrument, in addition to long term unemployment status. This would also facilitate evaluation.
Previous evaluation evidence suggests that low caseloads and intensive support with a strong and direct employment orientation make the greatest difference for this target group. It’s important that this element is maintained and upgraded.
The benefits of this intensive support would be maximised if the program had a consistently strong emphasis on employment in the regular labour market, rather than sheltered jobs or social support in its own right. Experience with similar programs suggests that this requires considerable investment in recruitment and support for prospective employers. Caseworkers need a combination of labour market knowledge and nous, and the skills and social awareness to deliver the social support component of the program.
On the other hand, employment incentives are probably less important for this target group than for less disadvantaged jobseekers. The program may be equally effective without a non-means tested benefit payment. For example, a 50% reduction in benefits for every Krone earned may still encourage people to take on part time jobs (and this is more liberal than most social assistance income tests).
Adequate and stable income support is nevertheless important – both to prevent poverty and support engagement with the program. If this is lacking in Norway’s social assistance system, maybe it’s time to give it a firm legislative basis as other countries have rather than leave vital matters such as rates of benefit to the discretion of each Municipality. If social assistance clients need financial encouragement and support to participate in programs like QP, consideration could also be given to a modest ‘program participation supplement’.
Finally, robust evaluation is essential: both to establish which elements of the program work best and in what combination; and to win the inevitable arguments over secure and permanent financing. Finance Ministries care about long term fiscal impacts so its worth evaluating them carefully and thoroughly (even though the social impacts are equally important). The road to effective activation of long term unemployed people is littered with too many small scale, temporary, pilot schemes. The QP is a rarity that’s worth preserving and improving.