The Changing Governance of Activation

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THE CHANGING GOVERNANCE OF ACTIVATION

Amílcar Moreira, Institute of Social Sciences – University of Lisbon

Ivar Lødemel, Oslo and Akerhus University College

WORK IN PROGRESS

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WITHOUT THE AUTHORS CONSENT

1. Introduction 2

2. The second wave of activation reforms 2

2.1. A narrowing of aims: strengthening the importance of work 2

2.2. Changing the tool-case: greater focus on financial incentives 3

2.3. NPM-inspired efforts to improve the delivery of activation services 5

2.3.1. Outsourcing the delivery of employment services 5

2.3.2. Strengthening of customer-focus 6

2.3.3. Using financial mechanisms to improving central governments capacity to steer developments on the ground 6

2.3.4. Improving the coordination in the delivery benefit administration and employment services 7

3. The changing landscape of activation. 8

3.1. The landscape of activation at the end of the 1st wave of reforms 11

3.1. The landscape of activation after 2nd Generation reforms. Convergence, Divergence or Institutional Re-Lanscaping? 15

4. Conclusion 20

Annex I – Measuring convergence. 21

References (to be reviewed) 27

1. Introduction

Looking at the developments in activation in advanced economies, one can identify two (more or less clear) waver of reform. The first wave of reform, which can be traced to the last decade of the 20th century was very much about the introduction of activation requirements as an eligibility condition to minimum income benefits, and the introduction of activation programmes. This paper report on the findings of a large comparative study, covering eight European nations (Norway, Denmark, UK, France, Germany, the Netherlands, the Czech Republic and Portugal) plus the US, which tried to map changes in the activation of minimum income recipients introduced after this first wave of reforms. Thus, in Section 2 we show what are the main trends that underpin this second waver of activation reforms. Having done that, Section 3 will assess whether, and how, these reforms have changed the landscape of activation in the countries under analysis.

2. The second wave of activation reforms

As we show bellow, the reforms introduced during this period impacted on all the dimensions of the governance of activation, i.e how the aim of activation is defined, the set of tools that are used to move recipients back to the labour market, and how the delivery of services is structured.

2.1. A narrowing of aims: strengthening the importance of work

Reflecting on the set of reforms introduced during the period under analysis, we can identify a clear move towards the strengthening the importance of work as an obligation for MI recipients. This is visible, for instance, in reforms aimed at re-defining the terms of the activation requirement that delimits the eligibility to minimum income protection. A good example here is the introduction of the Rendimento Social de Inserção (RSI) in Portugal. in 2003. Under its predecessor - the Rendimento Minimo Guarantido (RMG), introduced in 1996, the objective was to provide recipients (and their families) with the resources to support their “…social and professional insertion”. In a move to strengthen the focus on work for MI recipients, the new scheme is instead aimed at supporting recipients’ “... labour market, social and community insertion”. This was accompanied by a strengthening of work obligations for recipients between 18 and 30, and a further specification of work-related activities that recipients are expected to perform in exchange for minimum income protection (see Chapter 9).[1]

In some countries, this focus on work went beyond (more or less) incremental changes in eligibility and entitlement rules, and actually involved a reshaping of the system of income protection by reference to the individual’s ability to work. A good example here, is the reform introduced in Germany (in 2005), where social assistance recipients deemed able to work at the least 3 hours per day are moved to the new unemployment assistance scheme – ALG II (Eichhorst et al 2008b: 30-4; Mosley 2007: 1-3). Another example here is the reform introduced in the UK (in 2008) by which lone parents with children over 12 were moved from Income Support to Jobseekers Allowance (JSA) - thus subjected to a harsher activation regime. In 2009, lone parents with children over 10 were also moved to JSA (see Chapter 4).

This increased focus on work as the main obligation for MI recipients is also visible in reforms aimed at broadening the definition of what constitutes a suitable job. For instance, in Denmark, the 2003 ‘More In Work’ Act eliminates the distinction between fair and appropriate work offers (see Chapter 3). In the Czech Republic, the 2004 Employment Act adds temporary work (i.e., jobs that last longer than 3 months and amount to 80 % of full time or, in case of long-term unemployment, jobs equivalent to at the least 50 % of full time) to the definition of what social workers should consider suitable work. In the Netherlands, whereas until 2004 social assistance recipients could (in the first two years of receipt ) refuse a job that did not match their qualifications (Spies and Van Berkel 2001: 109), with the introduction of WWB, they are required to accept any ‘generally acceptable work’ – which, by law, only excludes work that pays bellow the statutory minimum age (Sol et al 2008: 184).[2]

Curiously, the RSA (introduced in France, in 2009) combines the three elements mentioned above. First, the introduction of the RSA extends the principle of activation to the group of lone parents previously covered by API (the social assistance benefit for lone parent families with children under three) (Barbier and Kaufmann 2008: 80). Second, in contrast with the low priority given to the obligation to work under the RMI, the RSA introduces a clear hierarchy between professional and social forms of insertion, where the latter form is reserved for a minority of beneficiaries that are considered as not job-ready and must be seen as a first step towards professional insertion (see Chapter 8). Finally, the RSA (2009) introduces rules as to the jobs recipients can refuse. Thus, within the first 3 months on RSA, a recipient can refuse a job that pays less than his/her previous job. In the following 3 months, he/she can only refuse an offer that pays less than 95% of his/her previous one. After 6 months, he/she can refuse an offer that pays less than 85% of his/her previous job. After 12 months, a recipient cannot refuse a job that pays more than the benefit he/she receives.[3]

2.2. Changing the tool-case: greater focus on financial incentives

Looking through the reforms introduced in the countries under analysis we can also identify a significant change in the understanding of what should be the tools for moving MI recipients back to the labour market. Whereas, previously the focus was on the role of sanctions and activation programmes, the focus is now on the use of financial incentives. In most cases the option is to increase the financial gain of making the transition to work - which we could label as a positive incentive approach. This is done through in-work benefits, (see Immervoll and Pearson 2009: 15-23).

This trend is particularly evident in Germany and France. Thus, in 2002, the German government reformed the system of social insurance contributions reductions for low wage jobs. This reform introduced two (complementary) mechanisms: Mini-Jobs, where jobs with wages up to 400€ per month are exempted from income tax and social security contributions for the employee; and Midi-Jobs, where jobs with wages between €401 and €800 receive a partial reduction of social security contributions for employees, which decreases proportionally until reaching the full rate of contribution (approx. 21%) (Fertig and Kluve 2004: 24). In 2003, the German Government also introduced a wage protection facility for individuals who enter employment/move to a new job that pays a net salary lower than that his/her previous employment. Finally, in 2005, the Act that creates the ALGII introduces a new income disregard facility[4], and a work-entry assistance payment to cover for costs of entering paid work of self-employment (OECD 2008: 15-6).

As for France, the move to strengthen positive financial incentives can be traced back to the 1998 Law Against Social Exclusion, which introduces the possibility for RMI recipients to accumulate their benefit with income from work for a period up to 12 months.[5] This is followed, in 2001, by the introduction of the Prime Pour L’Emploi PPE) - a tax credit for individuals in paid employment receiving less than 1,4 times the national minimum wage (Immervoll and Pearson 2009: 29; OECD 2001: 19).[6] The introduction of the RSA (in 2009), in the sense that institutes a permanent income top-up for people earning up to 1.7-1.8 (for a couple with 1-3 children) times the minimum wage, constitutes a deepening of this strategy (see Chapter 8).

This trend is also visible in other countries. In Norway, unlike those on social assistance, participants in the Qualification Programme (introduced in 2007) are allowed to keep a share income from work (see Chapter 2). In the UK, on the other hand, the option was to introduce (in 2003) the Working Tax Credit, which extends tax-credits to families without children - previously not covered by the Working Families’ Tax Credit (OECD 2008: 19; Brewer 2003: 3).

There are some cases, however, where policy-makers opted for imposing benefit cuts/reductions as a way of reducing the attractiveness of being on benefits – which we could label as a negative incentives approach. A good example here is the 2002 More in Work Act in Denmark, which introduces a ceiling on benefits after 6 months on social assistance. Moreover, in a move to de facto target non-Western ethnic minority families, the Act introduces a series of additional benefit reductions. Thus, married couples receiving social assistance for more than 6 months will have their benefits reduced. Not only that, if one of the spouses (normally the women) is considered not available to work, social assistance is withdrawn and replaced by a homemaker supplement (Goul-Andersen and Pedersen 2007: 16).

The Czech Republic constitutes a very particular case here, in the sense that the 2006 Living and Existence Minimum Act and the Assistance in Material Need Act introduces both positive and negative financial incentives. Thus, on the one hand, the act introduces an earnings disregard facility, by which only 70% of incomes from work ate not taken into account in the means-test.[7] At the same time, the Act it introduces a lower level of MI benefit (the minimum existence) for those who do not comply with the requirement of self-reliance (Sirovatka 2007: 2). More recent developments point to an increasing reliance on negative incentives. Thus, since 2008, after 6 months social assistance benefits recipients are entitled only to existence minimum (see Chapter 10).[8] Moreover, the link between benefits and changes in real prices was loosened, thus opening way for the devaluing of MI benefits[9].

Curiously, the increased focus on work was not accompanied by a wide-ranging harshening of sanctions. Whereas in some cases, there was an effective strengthening of sanctions[10], in others, reforms are and more about making sanctioning regimes more flexible and easier to apply. In France, this was done through the introduction of (temporary) partial suspensions of MI benefits for individuals who refuse to sign, or discharge the responsibilities inscribed in their insertion contract (Dujol and Grass 2009: 306). In the Netherlands, the option – consecrated in the 2004 WWB – was to give local authorities full power of discretion in the application of sanctions to beneficiaries.[11]

2.3. NPM-inspired efforts to improve the delivery of activation services

This period is also market by a number of efforts to improve the delivery of activation services to MI recipients along the lines of NPM thinking, and how this has evolved over time. Thus, we can find developments that fit old-style NPM ideas about the advantage of outsourcing the delivery of services or the need to adjust services to needs of ‘clients’; as well reforms that are concerned with the improvement of vertical and horizontal coordination in service delivery - typical of post-NPM thinking.

2.3.1. Outsourcing the delivery of employment services

One of the most common ways of trying to improve the delivery of employment services to MI recipients was to open this area of service delivery to private providers. Probably the most extreme move in this domain, was the 2002 the Structure Implementation Work and Income Act (SUWI), in the Netherlands. Following on the footsteps of the 1990 Act on Public Employment Services, which ended the monopoly of the PES in the provision of employment services, the SUWI act actually mandated that all employment services be sub-contracted with for and not for profit organisations (Sol et al 2008: 189-90).[12]

In Denmark, the 2002 More People into Work Act opened the provision of employment services to private providers (Andersen and Pedersen 2007: 21). In the same way, the 2004 Act on Social Cohesion – in France - terminated the monopoly of the National Employment Agency (ANPE) in the provision of employment services at the local level.[13] In the UK, we can trace this trend back to the introduction (in 2000) of Employment Zones pilots in zones of high unemployment, where service delivery is secured by a mix of public, private and voluntary sector providers. This trend continued with the introduction of the Pathways to Work scheme, and reached its climax with the introduction of the Flexible New Deal in 2009, where the principle of involving private providers in service delivery is expanded to all JSA recipients (see Chapter 4).