The challenge of integrated support to long-term unemployment

Marcel Jansen

Executive summary

Main objectives

The reinsertion of long-term unemployed persons poses enormous challenges. However, the evidence shows that active labour market policies help to improve their labour market position when the interventions are well-designed, and this conclusion holds even when overall unemployment is high. The objective of this report is to identify the weaknesses in the existing support to the long-term unemployed in Spain and to propose measures that would help to overcome these weaknesses and to offer the best possible individualised support to the long-term unemployed. The ultimate goal is to achieve their re-employment in the private sector.

Economic and political context

The Spanish labour market shows strong signs of recovery, but there is widespread concern about the persistently high levels of long-term unemployment. At the end of the second quarter of 2016, the long-term unemployment rate was still close to 12% and two million persons had been out of employment for over two years.

A previous report of New Skills at Work showed that this situation creates a clear risk of social and economic exclusion, especially among the most vulnerable groups. Their job finding rates are very low and Spain lacks well-designed policies and institutions to support them. The Public Employment Services (PES) are understaffed and have a poor track record in the field of active labour market policies (ALMPs). Moreover, the available evidence shows that they play a marginal role as labor market intermediaries. Finally, the existing policies mainly focus on the provision of financial support, while little is done to improve the employability of the long-term unemployed or to avoid their marginalisation.

Fortunately, however, the tide is turning. Following a recommendation of the European Council, the central government and the regions have recently reached agreement on a joint plan – Programa de Acción Conjunta para Desempleados de Larga Duración – with a budget of 515 million euros to provide individualised support to 1 million long-term unemployed persons in the period until 2018.

The reintegration of the long-term unemployed is an arduous task because problems tend to accumulate over time and many of the long-term unemployed find themselves at the margins of the labour market. The European Commission therefore stresses the need for integrated support systems with three pillars: (i) a well-designed system of benefits and social services, (ii) close coordination between all relevant authorities and organizations and (iii) a sufficient capacity to offer individualised support tailored to the individual’s needs. As the report makes clear, the Spanish system of active and passive labour market policies presents considerable weaknesses on all three scores. However, its true Achilles heel is the limited capacity of the Public Employment Services to offer individually tailored solutions. The poor performance of the PES on this score is the combined result of underinvestment in placement services, excessive case workloads for its officers, and structural weaknesses in the design of active labour market policies. Furthermore, the crisis has exacerbated these problems due to the unprecedented rise in the number of long-term unemployed.

Summary of the findings

The report is divided in four parts. The first one provides descriptive evidence on the incidence of long-term unemployment, benefit coverage rates and participation rates in ALMPs. We document a steep drop in benefit coverage rates and a marked deterioration in the access to ALMPs during the crisis. According to data from the Spanish Labour Force Survey (EPA) less than 30% of the LTU received some form of benefit or subsidy in the first quarter of 2016. Moreover, using administrative data compiled by the national PES (SEPE), we find that only one out of six unemployed and one out of eight low-educated unemployed registered in January 2015 received some service from the PES during the next three months. Furthermore, we observe remarkably little variation in participation rates when we disaggregate the clients of the PES by age, level of education or duration of the unemployment spell. The evidence points at an urgent need for targeted interventions that are tailored to the needs of the unemployed.

The second part of the report reviews the institutional aspects that need to be addressed to achieve this goal. In the case of the PES, it highlights the need to adopt modern profiling tools. Such tools can provide useful assistance to caseworkers and allow the PES to differentiate the type, intensity and duration of its services on the basis of objective indicators of a person’s employability. In the future, the adoption of profiling tools will also enable the PES to undertake preventive actions that are essential for reducing the incidence of long-term unemployment.

Spain’s experience with poorly designed ALMPs has generated scepticism about their effectiveness. The third part of the report is therefore devoted to a review of the recent empirical literature that tries to measure the impact of ALMPs on the labour market outcomes of the long-term unemployed. The first part of our review considers the gains from improvements in the institutional design of the support to the long-term unemployed. It highlights quite a few examples of cost-efficient programs for the long-term unemployed that were implemented during the recent crisis. Common elements of these programs are the creation of one-stop shops and the reduction in the workload of caseworkers. More intensive support to the long-term unemployed is found to improve their job finding rates and tends to reduce the use of standard ALMP measures, reflecting the improved ability of caseworkers to design tailored solutions. The available evidence does not support the view that private provision is necessarily more effective than public provision, but the report offers several arguments in favor of a more intensive use of external partners.

Next, the review proceeds with a discussion of the evidence on the impact of specific ALMP measures. Investment in training and targeted hiring incentives are shown to deliver the best long-run results, while public employment generally delivers the worst outcomes. Furthermore, a recent comprehensive analysis of all published impact evaluations indicates that ALMPs tend to have a larger impact in downturns and when they are targeted at long-term unemployed persons. These findings clearly suggest that well-designed ALMPs are an effective tool to combat long-term unemployment.

Main recommendations

The last part of the report contains a number of policy recommendations.

  1. The main priority must be to improve the capacity of the PES and its partners to offer individualised support to the long term unemployed. This requires the adoption of modern profiling tools and the definition of a clear activation strategy that specifies the timing and the type of support to be provided for each relevant group as well as the identification of the providers of each service.

  2. The PES should intensify their collaboration with external partners such as private placement agencies and specialised entities from the third sector. The direct provision of services by the PES at the levels that are currently required would involve a very substantial investment in the recruitment and preparation of caseworkers that may be very difficult to complete within a short time span and hard to reverse in the future once the unemployment rates have returned to normal levels. The regions should therefore also intensify their collaboration with external partners. These partner organisations often have a very good knowledge of the local labour market and many NGOs have considerable experience with the integration of vulnerable groups at risk of social exclusion.

  3. The report identifies considerable scope for improvements in the degree of coordination at the local level. A primary objective in this regard should be to strengthen the coordination between the PES and the local social services. The regions could follow the example of the Basque country and transfer the management of the social assistance subsidies to the regional PES. Another interesting option would be the creation of specialised centers for the reinsertion of the long-term unemployed with representatives from the relevant authorities and their partners. Physical proximity fosters team work and may make it easier to design individual action plans that involve specialists from different fields.

  4. The PES need to reconsider their mix of ALMPs. In particular, the PES should reduce their recourse to public employment programs and intensify the use of hiring subsidies and training programs. The former should be carefully targeted at the long-term unemployed, while training programs should be designed in close cooperation with local employers. An even better option would be an increased use of traineeships for the long-term unemployed.

  5. Rules and administrative procedures should be simplified to allow a more flexible use of the available funds for ALMP measures. The ideal situation would be the creation of a system of personal budgets that are linked to objective indicators of employability, so that the PES can invest more in the persons that need more support, but the design of such a system will take time. A useful first step would be the introduction of training vouchers. In addition, Spain should also consider the introduction of intermediation vouchers that would allow the unemployed to choose among service providers. The introduction of these vouchers would provide incentives for training institutions and placement agencies to improve the quality of their services and may also lead to cost savings through increased competition.

  6. The PES should strengthen their links with local employers. A first objective is to secure job vacancies that could be filled by long-term unemployed persons, but this may not be sufficient. The reintegration of a long-term unemployed person is often a challenge for employers. The PES should therefore also develop services, such as post-placement counselling, that facilitate this task for employers.

  7. Last but not least, despite the evidence that ALMPs can be an efficient tool to combat long-term unemployment if they are tailored to a person’s needs, there are still many open questions about the best design of the interventions and the selection of participants. The regions should therefore experiment with different solutions and carefully evaluate the results in order to indentify the programs that deliver the best outcomes.

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