Labor market reform through welfare reform: How not to activate the jobless

Prof Ian GreerUniversity of Greenwich (UK),

Cornell University (USA)

Punitive active labor market policies• The principle

– Cut back welfare entitlements. – Increase labor market participation.

• The policy recipe– Demand that jobless people on welfare benefits look for work and accept any

job. – Provide training, advice, and job-placement services to support them.– Demand that they participate in those services. – Take away benefits from non-compliant clients. – Extend this to so-called ‘inactive’ people, e.g. disabled people and lone

parents. – Use performance management and market mechanisms to deal with non-

compliant front-line workers. – And don’t spend too much money.

• In effect: more flexibility, less security.

Do they work?

• Card, Kluwe, and Weber (2010): ‘Few studies include enough information to make even a crude assessment of the benefits of the programme relative to its costs’ (476).

• Schmid (2008): ‘The fact is that many evaluation studies come to dissatisfying results . . . the role of ALMP in containing unemployment is modest’ (248).

Employers and claimants

A recipe for precarity?• Marx: When “adverse circumstances prevent the creation of an industrial

reserve army and, with it, the absolute dependence of the working class upon the capitalist class, capital . . . rebels against the ‘sacred’ law of supply and demand, and tries to check its inconvenient action by forcible means and State interference” (Capital v 1 ch 23).

• OECD 1994: “And higher public spending on active measures may lead to wage moderation by strengthening the ability of ‘outsiders’, particularly the long-term unemployed and first-time job-seekers, to compete more effectively for jobs” (Jobs study).

• OECD 2012: “Eligibility criteria for unemployment benefits, which require recipients to actively look for work, take up suitable job offers or take part in active labour market programmes (ALMPs), or risk benefit sanctions, can play an important role in offsetting the negative impact of generous unemployment benefits on employment incentives” (Venn paper).

Administrative failures

• Bureaucracy: market openness vs low costs• Race to the bottom: cost vs quality• Creaming and parking effects: payment by

results vs equal access to services• Compulsion vs customer choice• Destruction of capacity: threat to nonprofit

and public sectors vs open market

There are no easy solutions to these dilemmas

A worst practice – Britain’s Work Programme

• ‘Black-box’ contracting – weak state control – payment by results.– Create incentives for private firms to invest and innovate

• Inexpensive due to low numbers of job placements• Control and profiteering by large private firms

– A4e, paid its largest shareholder more than 10m euros in the first year of the scheme.

– Ingeus owners received a windfall of 150m pounds when it was purchased by an American competitor.

• Poor performance for clients furthest from the labor market, with strong creaming and parking effects

A less bad practice –French ‘insertion’

• Funding from ESF, but local control– Strong nonprofits– Strong and autonomous professionals– Complex network of public agencies

• Anti-workfarist consensus among the actors – pay for performance does not work, – what does work is detailed intervention, subsidized jobs,

strong investment in skills is seen as necessary, • Highly bureaucratic, but weak performance

management• Low degree of marketization

In conclusion:

Be skeptical of international ‘good practices’.

How do they ‘work’ in their country of origin?

What are the perverse consequences not mentioned in mainstream policy discourse?

Use professional common sense: Any policy that sounds too good to be true probably is…