ACTIVATION POLICIES
IN AUSTRALIA
by D. Grubb, OECD
5 December 2012
Embargo until 11 December, release date for
“Activating Jobseekers: How Australia Does It”
A. The big picture
Success story
• 5% unemployment rate with only a blip through the
Global Financial Crisis - an antipodean Germany
• (Probably) now lowest rate of working-age incomereplacement benefit recipiency (among OECD
countries that provide a comprehensive social safety
net)
• Highest employment rate of the 11 OECD G-20
countries
1. Early History
• Australia and UK first countries to develop
modern activation ideas (late 80s)(Nordic
countries were sometimes quietly applying
such ideas as well)
• Unemployment benefit for the LTU was
replaced by Newstart Allowance, conditional
on an “Activity Agreement” in 1991 (earliest
broad implementation of the “individual
action plan” instrument adopted by most
other OECD countries in the mid-1990s or
later)
2. The 1990s
• Unemployment reached new peaks in 1992 and
1993 then began to fall
• “Working Nation” strategy started to curtail LTU
by referrals to training and wage-subsidy
programmes, and introduced “Contracted Case
Managers”, “Jobseeker Screening Instrument”
• But in 1997-8 (Howard government)
– Cut training and wage-subsidy programmes
+ Work for the Dole
+ Mutual Obligation
+ Job Network
3. 2000-2003
• From 1998, all new benefit claimants assessed by
the Job Seeker Classification Instrument
• This created a national database of jobseeker
characteristics – technical basis for Star Ratings =
regression-adjusted measures of providers’
placement performance (at site level)
• 2nd (2000) and 3rd (2003) JN contracts reallocated
business, at the sites with poor Star Ratings, to a
different provider
• (in 2012) about 2200 sites managed by 100
provider organisations have a Star Rating – it is
business at the site level that is reallocated, so the
complete closure of a provider organisation is
(relatively) rare
4. Active Participation Model/ Employment
Services Contract 3 (2003-2009)
• APM rolled together the former “Job
Matching” and “Intensive Assistance” – so
jobseekers had to immediately register with
their future long-term provider
+ Service Fees conditional on jobseeker attendance
at interviews
+ Job Seeker Account funds for measures that
“address client barriers”
+ Contract management – a shift from “black box” to
“fishbowl” (contract manager can review – on an
audit sample basis - files relating to individual
clients)
5. 2009, Job Services Australia
+ Work for the Dole merged with former Job
Network – now providers have incentive to
manage WfD so as to achieve employment
outcomes
+ Service and Outcome Fees were:
– Less-related to unemployment duration, more to
JSCI indicators of disadvantage
– Reduced for non-disadvantaged clients/increased
for disadvantaged clients
Sources of impact on unemployment
– Mutual Obligation (inc. Work for the Dole)
reduced rates of survival into LTU by 20-25%
– The average placement performance of the
providers retained in 2000 was nearly 25% above
the average for all providers at that time
– In first year of APM, the inflow of jobseekers to
Job Network was far below expected: probably
largely a “compliance effect”
• These three factors together represent an impact
of over 50% on unemployment (plausibly partly
offset by “churning” – when person leaves
unemployment but later re-registers)
The “governance” of reforms
• DEEWR was able to implement a strategic vision
over many years. Background conditions include:
– LMP not split across institutions
– Centrelink (a one-stop shop for benefit delivery,
another innovation of the 1990s) facilitated the
flexible deployment of employment services (i.e. not
tightly tied to a particular benefit)
– Politicians have tended to both lead and listen, at the
right times
– Effective parliamentary processes (debates and
enquiries)
• The employment services industry has become an
effective lobby focusing on adjustments that will
increase employment outcomes (counterparts in
other countries are largely lacking)
B. JSA in detail
Local organisation and client
experience
• At a typical urban provider site, a “reverse
marketer” (one for each 5 or 6 jobseeker
counsellors) finds or creates job vacancies
• Semi-skilled or professional workers are not
much helped with finding “suitable” jobs
(though they may get basic advice and access to
job-search facilities) because the focus is on
outcomes for disadvantaged clients
• JN operations were once described as having
much in common with franchising – if the
frontline resembles McDonalds, is that bad?
The public management framework
• Importance of contract management by DEEWR
• Centrelink implements JSCI (and JCA/ESAt for more indepth assessment of severe barriers) and partly monitors
later revisions of a jobseeker’s points by the provider
• Centrelink only requires clients to actively engage with
an employment service provider when they are
somewhat job-ready; exemptions are based on:
– “Client meets requirements” – c.250 000 people on JSA
caseload could meet requirements by working part-time
– Long-term barriers (often set out in guidelines, e.g. single
parents with 4 children are exempt)
– Short-term barriers e.g. illness, family/personal crisis, on
a discretionary basis
JSA potential improvements
• Increase rewards for employment outcomes by nondisadvantaged clients (use Stream 1 Star Ratings to
avoid paying for “deadweight”)
• In the longer term, track earnings and employment
(tax/social insurance records) and consider adding:
– stability of employment outcomes
– earnings above the cutout point for benefits (but still
promote apprenticeship outcomes)
• Conduct another broad synthesis evaluation JSA (cf.
the JN, APM and WtW evaluations). (This forces
tidying-up and publishable presentation of the
evidence, e.g. administrative data, and focuses minds
on it.)
C. Benefit reforms
Closure of inactive benefits (1) macro
effect on caseload
• (from 2003) inactive benefits – for older partners
of the unemployed, widows, 60-64 year olds, single
and partnered parents with older children, and
people with partial work capacity (able to work 1529 hours) all phased out.
• Combined decline in inactive-benefit caseload
from the peak (2003 or 2005) to 2011 was c.400
000 - 2.7% of WAP, 4% of labour force
• Falling unemployment + growing labour force
participation  high employment
Closure of inactive benefits (2) micro
impact on caseloads
– Each time an inactive benefit was closed its target group
could claim an unemployment benefit instead, but:
• When Partner Allowance was closed less than half the
previous monthly inflow was replaced by inflow to Newstart
• When Parenting Payments (for parents of older children)
were closed, inflows to income support by fell by about half
– When people did make a claim, 1-year exit rates were
higher (than had been the case with the inactive benefit)
– Therefore, inflows to longer-term benefit recipient status
were soon several times lower than before the reforms
– Why the very large “entry effect”? Employable people
expect to be soon placed into a (probably low-level) job if
they claim unemployment benefit - they prefer some other
outcome (drop their claim or find own employment).
Closure of inactive benefits (3) micro
impact on employment rates
• Evidence slightly indirect and not available for all target
groups:
– Closure of Mature Age Allowance was fully met by increases
in 60-64-year-old male employment rates
– The “cross gender effect” from closure of Partner Allowance
(this typically meant that the older female partner would no
longer qualify for an inactive benefit if the older male
partner went onto unemployment benefit) must result from
male 45-59-year-olds keeping/finding jobs
– Restrictions on Parenting Payment (Single) were 2/3 met by
increases in single-parent employment rates
• Micro evidence is suggestive that higher employment was
the most frequent outcome
Macro employment rate trend
D. Disability Employment Services
(DES)
DES (1) Overview
• Apart from “sheltered” employment (outside the
regular labour market), DES were traditionally:
– Vocational rehabilitation for people recovering from
industrial injury (Commonwealth Rehabilitation Service,
CRS)
– Disability “open” employment services (DOES, promoted
from the 1980s) , e.g. workplace modifications and
ongoing support allowing people with incapacities to
take up and continue work in commercial enterprises
• Between 2000 and 2015, Australia will have (cautiously
and progressively, so as to minimise forced closures)
achieved radical institutional change. In 2010, the
successors of CRS and DOES were in principle replaced
by a unified scheme (although still with two strands).
DES (2) Alignment on the JN/JSA
model
• Historically charities provided sheltered employment; then
they became reliant on public funding; and by 2000 there was
also block-grant funding of over 200 “open” providers
• After early experiments, in the mid-2000s “case based”
funding was introduced, based on: (a) assessment of
individual incapacity by public authorities (b) tying funding
for providers to the individuals served
• In the 2010s, DES operate with most of the key feature of JN/JSA:
– Clients required to agree Employment Pathway Plan
– Providers funded through Service Fees and Outcomes Fees
– “Star Rating” of provider performance
– (planned 2015) tender process open to new entrants
DES (3) Continuing differences from the
JN/JSA model
• DES expenditure per client c.3 times the JSA level
• An Ongoing Support Allowance is paid for alreadyemployed clients based on the assessed cost of
keeping them in their job (workplace visits, employer
assistance, transport assistance, etc.)
• A short-term wage (hiring) subsidy is funded directly
by government (additional to any subsidy funded by
the provider)
• There is no separate fund (JSKA/EPF) for services to
address barriers. (DES includes specialist providers
dealing with a particular medical condition - the
consistent use of funds might be harder to define and
monitor as compared to the JSA contract.)
DES likely effectiveness
• DES is probably effective (as compared with
earlier arrangements and many other countries’
arrangements), similar to JSA
• There are some risks associated with the high
fees for short-hours employment outcomes (i.e.
higher incentives for “job splitting” and similar)
and the high direct payments to the provider (c.f.
in JSA, some of the funding is “quarantined”
within the EPF)
E.
One-slide topics
Benefit sanctions
• Around 2008, claims that 8-week sanctions were causing
extreme hardship
• Easing and additional safeguards (“Comprehensive
Compliance Assessment”).. by mid-2010 only 1 benefit
reduction was being applied (after warnings etc.) for every 400
JSA appointments not attended
• Then provider complaints that they were unable to “engage
with” clients and renewed tightening, although sanctions are
not often applied to those with a “Vulnerability Indicator”
(c.20% of caseload)
• Providers typically book appointments fortnightly so as to have
more chance of achieving one attendance per month (the
requirement to qualify for Service Fee payments)
• Most people broadly comply, so the system’s impact depends
largely on the participation regime not the sanction regime
• The sanction regime is not strict by normal/workplace
standards, but for the most-disadvantaged group, an issue is to
maintain interaction not stop benefits permanently when
behaviour is unacceptable by normal standards
Red tape
• The 2000 and 2003 reforms retreated from the initial “black
box” approach, but by 2008 providers were intensely critical of
of reporting requirements and audit controls (“red tape”)
• DEEWR contract management work seeks to ensure that
payments for providers are for services really delivered
according to uniform standards
• Retreat from the “black box” approach maybe was necessary:
– Occasionally “scams” hit the headlines; many specific areas leave
some scope for ongoing “gaming”; consistent treatment of
(inevitable) borderline issues is needed to maintain a “level playing
field” for competition;
– The National Audit Office demands Departmental accountability
for the quality of services delivered by contracted providers
– Monitoring (e.g. the EPF mechanism) limits windfall profits;
– Monitoring helps to ensure accurate reporting of the information
that is needed to pay for impact, rather than “gross” employment
outcomes
Benefit replacement rates
• OECD’s model net replacement rates (in an average across
selected cases) were 59% in 2001 and 52% in 2010. The fall
since the 1993-1997 peak could be 10 percentage points
(~20%).
• Low benefits probably increase work motivation despite claims
to the contrary. Welfare to Work experience provides some
hints, but there are no well-known estimates of a general
unemployment-benefit elasticity using Australian data. Highend (probably more accurate) international estimates suggest
that perhaps 1-1.5 points of the 4-point decline (9% to 5%) in
unemployment rates since the 1990s could reflect lower
benefits.
• Newstart replacement rate has declined because “Allowances”
were indexed to prices (whereas “Pensions” were indexed to
wages). Arguably reform should stop the decline but only
slightly reverse it.
Benefit taper rates
• Australia applies low benefit taper rates to part-time earnings
– 60% for Newstart in most cases, 50% or 40% for single
parents (in other countries rates are often 100% above a “free
area”)
• This fits well with the strategy of promoting part-time
employment for several groups (older workers, parenting
responsibilities, work-capacity limitations)
• The continued payment of some benefit to people working
part-time may be regarded as a type of “in-work” benefit
(paid to only about 2% of employed workers) – but one that
is only exempt from continuing job-search requirements in
relatively tightly-defined and well-monitored circumstances
• Low taper rates are only feasible if the replacement rate for
people not working at all is kept fairly low
ALMPs
• In 1997/8 large-scale training and wage-subsidy programmes
were formally abolished. “Active” expenditure - as reported to
the OECD/Eurostat LMP database - is mainly on the PES.
• However, some people initiate a UB claim, sign up for TAFE (or
other state-funded) training, and apply to Centrelink/DEEWR
for exemption from job-search and related requirements. (In
most countries, a short-term unemployed person who enters
full-time vocational training can no longer claim UB.)
• Up to 1/5 of UB recipients are in training – by international
standards this constitutes a type of “labour market” training
• This early diversion of UB claims towards training achieves
some reduction in “open unemployment”, and helps to increase
population skill levels
• Also, for JSA providers, entry to apprenticeship (common
among adults as well as youths) is a payable outcome
The minimum wage
• Australia’s federal minimum wage (as a ratio to median
earnings) was the highest in the OECD in the 1990s, but it
was not entirely enforced: (a) it did not cover all
employees; (b) the “casual weighting” on a minimum-wage
job could be low (or perhaps not paid)
• The current 0.53 ratio is 5th among 19 OECD countries
with data
• Factors reconciling a high employment rate with relatively
high minimum wage include:
– Lower minima for under-21s and apprentices
– Moderate inequality (universal education, selective
immigration)
– Benefit tapers and employment policies promote acceptance
of part-time job offers
• The high minimum wage may help to promote workers’
interest in vocational training (e.g. training is sometimes
seen as a route to a full-time/permanent job)
Underemployment
• In 2010, 7.2% of the labour force was involuntarily in parttime employment, by some distance the highest rate in the
OECD.
• This could be related to several factors:
– High part-time employment - in some countries the involuntary
share in part-time work is high, but part-time is uncommon
– High minimum wage e.g. employers optimise job offers in terms
of hours per week and time of day or use part-time work as a
screening device (some European countries, but not Australia,
regulate “artificial” recourse to part-time work)
– Benefit tapers promote part-time work even when this does not
fully meet participation requirements (when job-search
obligations continue, the person is officially “underemployed”)
– Employment service providers should not engage in overt “job
splitting”, but the outcome fees from filling two part-time job
vacancies are often higher than for one full-time vacancy
F. Future prospects
Employment outcome rates for people
with incapacities remain low
• For people with partial (15-29 hours/week) work
capacity, off-benefit outcomes rates are about 4 times
lower than for parents with participation requirements
- much higher than before reform, but too low to
prevent long-term benefit dependency outcomes
• In 1973, the DSP caseload was <150 000 and at first
sight the current 800 000 is unnecessarily high: but
in 1973, people unable to work were probably often
supported by their family (the means test for DSP was
not tapered until 1969)
• There is some scope for more progress in terms of
increasing the employment rate, but partlyincompressible DSP recipiency rates do set a limit
Risks and recommendations for
Australia
• Many OECD countries have achieved 5%
unemployment at one point, but only a few have
kept it low for several decades (AT, NO, CH).
Australia should now aim for that:
– Pay some attention to short-term unemployment
and rapidly respond to cyclical downturns (e.g.
additional funding for training and early
placement) as in 2008-09
– Do not copy low-unemployment countries that
(when unemployment was low) thought they could
casually increase benefits (or perhaps the minimum
wage) and ease off on activation arrangements
JSA model transferability to other
countries
• Transfer of the main principles could be relatively easy,
and would be effective, for a few countries that have
centralised assistance-based benefit systems
• Implementation would be complicated where there are:
– Wage-related insurance benefits as well as assistance
– Multiple overlapping means-tested benefits (e.g. Food
Stamps + EITC + Medicaid in the US)
– Two or more levels of government responsible for
employment policies
• If different public employment services or benefit
regimes are shifting costs onto each other today, quasimarket provision might do the same more efficiently.
Institutional reforms and cooperation arrangements, etc.
might able to contain such problems.