ABSTRACT
TZ-135
«The new role of Public Employment Services as an integrator of state labor market
policies»
The head of the project: Chetvernina Tatiana Yakovlevna
Institute: Institute for Social Development Studies, HSE
The project was implemented within NRU HSE’s Annual Thematic Plan for Basic and
Applied Research
In this paper we study public employment services (PES) both in the developed
countries and in Russia. The subjects of the study are the main social obligations of
PES to unemployed people, as well as passive and active labor market policies.
The main objective of the study is to evaluate the role and mandate of the
Russian PES in relation to global economy and labor market changes taking place in
the developed countries. Also, we aim to evaluate the adaptability of PES to the
ongoing processes.
The study is based on synthesis and analysis of (1) the existing practices of
providing public services to the unemployed in the developed countries, (2) systematic
changes in the labor market regulation at different stages of the economic cycle, (3) the
main trends in the legislation on employment and employment protection both in
Russian and in several European countries. Some results of studies carried out in the
framework of departments’ CBR projects in 2009 and 2013 are used in this report.
These studies are related to the activities of Russian public employment service and as
well as some private employment agencies.
THE MAIN RESULTS
1. Almost century-long history of the PES shows that the development of this
institution has not been smooth. The society faced numerous problems at different
historical stages and the new challenges that were rising before PES at different stages
of the economic cycle.
The first PES was established in Germany, the Netherlands, and the United
States in 1920s and 1930s. Their creation was preceded by a generalization of the long
practice of the employment servicies in different countries, as reflected in the first
international legal instruments adopted by the ILO in 1919 (Convention No. 2 and
Recommendation number No. 1). These international instruments have formed the first
and primary mandate of PES. That is to provide free mediation in employment
services to the unemployed under the control of a central authority, but with
participation of advisory committees consisting of representatives of workers (trade
unions) as well as employers' representatives1.
The relative stability in the role of PES continued until the mid-1940s. This was
ensured by its monopoly position in the field of labor mediation, and in the
management of unemployment insurance system, i.e. its social function. The main
debate in that period revolved not only around the question of the balance between free
and charged employment services, but also around the appropriate participation of
private employment agencies in this field. The international legal acts clearly offered a
compromise from the beginning. They allowed the private agencies to perform
mediation under two conditions, which are (1) presence of a license from the state and
(2) the consistency with other participants of the negotiation process at the national
level. Nevertheless, PES monopoly existed for many decades until the adoption of the
1997 Convention No. 181 on private employment agencies. This international legal act
sets out the general principles for the regulation of their activity and lists the types of
services that private employment agencies may provide to full or limited extent.
Rethinking of the role of PES and its key functions took place in 1950-1970. A
public opinion on employment policy was formed, in which unemployment assistance
1
ILO conventions and recommendations. 1919-1966.- Geneva, ILO, 1983, p9.
was important, but not the only focus. PES in developed countries faced new
challenges.
It took quite a while to rethink the role of PES and its key functions in society,
which was experiencing a period of rapid economic recovery and reduce in
unemployment. Thus, adult training, one of PES competences initially designed for the
people of prime working ages only, was expanded to include workers close to
retirement age, youth, new entrants to the labor market, people with disabilities, even
migrants. PES here has lost its exclusivity, becoming one of the conductors of
employment programs, together with the Ministries of Education and other relevant
government institutions.
PES had to adapt to new conditions, including redistribution of a large part of
the funds in favor of active labor market programs. On the one hand, it has resulted in
the development of new methods and forms of work, which increased the number of
PES services and, finally, consumers. On the other hand, a new factor of instability in
the position of the PES emerged, as it lost its exclusive position. Eventually, PES
monopoly vanished due to the active intervention of other institutions in employment
policies. Then, in a number of countries the main social function of PES (employment
insurance) was separates. In a way it was the desire of PES to take its own "niche"
outside the institution of social care.
The next stage of the PES changes took place in the 1970s, the period of the oil
crisis, economic recession, rising unemployment, comparable to the crisis of the
1930s. During that period, the emphasis in PES was shifted from traditional mediation
in employment to maintain of employment, targeting vulnerable groups with specific
problems in adapting to the labor market. First of all, they were the young and longterm unemployed. In the 1970s, the discussions about the effectiveness of
unemployment benefits (some claimed they were encouraging dependency of their
recipients) arose for the first time. The social function of unemployment benefits
distribution again fell into the competence of PES. The idea was to strengthen control
over spending on unemployment insurance, monitoring compliance with the rules of
registration of the unemployed and the rules of unemployment benefits.
In the 1990s, PES faced new challenges posed by globalization and rapidly
developing information technologies. These processes have led to unprecedented
changes in national economies. Mastering new knowledge and the ability to use
modern information and communication technologies has become a key indicator of
the competitiveness of not only at national but also at international labor market.
Naturally, the changes have led to a reduction in demand for low-skilled workers and,
as a consequence, to "withering away" of a number of traditional professions. They
were replaced by the new jobs requiring multilateral qualifications. As a result, the gap
in wages of highly skilled and low-skilled workers widened considerably.
New challenges required fundamental changes in traditional functions of PES,
i.e. the development and introduction of new technologies in its daily routine. Thus, a
new type of information service for customers emerged. Internet fundamentally
changed the nature of mediation in employment. The traditional mediation services
went beyond just the personal contacts between PES and the unemployed.
Firstly, the national vacancies’ banks began to form. Gradually, the majority of
PES clients learned the independent search for suitable vacancies via the Internet. On
the other hand, for PES the main task transformed to prompt placement of online
information on available vacancies.
In the developed countries, job seekers and employers are increasingly come
into contact via Internet without the mediation of PES. Employers tend to gain more
control over the process of adding fresh vacancies to job banks and removing them
once the places are filled. Job interviewing and selection more often become an online
process. Under these conditions, the functions of PES are changing fundamentally.
The role of PES becomes as simple as providing the infrastructure for job search and
teaching how to use the latter. Freed from the traditional functions PES staff is now be
able to provide more intensive assistance to those who cannot independently take
advantage of new technologies of job search.
The need for direct contact between PES staff and customers remains mainly in
dealing with vulnerable categories of the population who have limited opportunities in
finding a job, as well as in the administration of unemployment benefits.
In some countries the unemployed are not even required to come in person in
order to receive benefits. The process is controlled by phone instead. Such a reform
made it possible to reallocate part of the released resources of PES staff for more
effective activities, e.g. on the training of its staff, and focus resources on programs for
vulnerable groups.
Second, PES database became a useful source of information not only for those
seeking job, but also for employers, as it contains records on a huge number of
potential employees.
Third, making the data on labor market requirements open and transparent PES
managed to expanded the range of their clients not focusing entirely on the
unemployed now. The volume of services provided by PES to the entire population
increased largely due to the increase in labor market flexibility, the growth of labor
mobility (both in terms of geographical and occupation), and the introduction of new
technologies in PES practices.
A trend for reduction of both public services and government spending became
an important factor influencing the activities of PES in recent decades. However, in
some countries, there is an ongoing debate about the appropriateness of cuts in public
services and privatization of some services that are traditionally provided by the state.
In other countries, the variety of public services is even increasing due to the rising
levels of unemployment.
Such a way of PES development brought a fresh discussion on the optimal
balance between passive and active labor market programs in 1990s. Some argued that
labor market policy should involve more direct and active measures to facilitate labor
reallocation. Quite a controversial thesis arose, saying that the material support to
unemployed should be replaced with solid guarantees of participation in active labor
market programs. For the first time emerges the question of PES efficiency. New
targets are set for PES in order to improve the efficiency of service and to develop new
approaches toward evaluation of the programs implemented by various institutions,
including, PES. Nevertheless, the exceptional rope of PES in conducting active
support for the unemployed is still widely recognized.
Over the past two decades a significant decentralization of employment offices
happened in many OECD countries. Governments focus on common policies,
formulation of the mandate and monitoring results. Regional and municipal authorities
have gained greater autonomy in the exercise of their functions. One of the most
important directions of reform in PES proved to be the increased competition in the
provision of mediation services, primarily through the transfer of some functions to
private organizations. The main idea is to improve the quality of services and to reduce
the costs.
The development of PES as a social institution continues at the present time.
Many developed countries are on the path of modernization of the employment service
aiming to preserve PES as a powerful crucial part of economic policy. The institution
proved to be more than just temporary phenomenon created in emergency. Modern
PES is a permanent institution in a market economy able to respond flexibly to
changing economic conditions and to apply adequate measures.
2. In contrast to the situation in many developed countries, PES in Russia is still
a young social institution which history dates back only for the two and a half decades.
Despite its immaturity, the Russian PES has passed many tests, lots of them
successfully. It managed to adapt quickly to the emergence of unemployment (a
phenomenon unknown in USSR); it introduced new methods of work with the
unemployed, adapting most reliable Western practices to the Russian reality; it proved
its viability under severe financial constraints during the system economic crisis of the
1990s. By the beginning of the new millennium, Russia has developed a strong
national system of employment services with branches all around Russia working
uniformly.
The main stages of the PES formation have been associated not only with the
economic situation in Russia, but also with the ongoing reforms (including the
administrative one). In 1990s PES existed in the status of the federal employment
service had an independent source of financing, Employment Fund. In the new
millennium, the federal status of PES has changed, as well as the source of funding for
its ongoing programs. Employment Fund was liquidated; the federal budget became
the source of funding for PES. In the last decade, major reforms have been associated
with the decentralization of labor market policy, diversification of sources of funding
for programs to promote employment, the delegation of some responsibilities from the
center to the regional and municipal level.
3. The changes of the new millennium are quite ambiguous. On one hand, the
funding for PES programs became much more stable; the governmental role has also
increased significantly, especially in the recent times of economic shocks of 20082010 crisis. On the other hand, the development of the institute called "Employment
Service" has halted. A set of functionalities has not changed, and in the time of
economic crisis it has even expanded. There is no doubt about the fulfillment of the
mandate prescribed by the State. Yet the creativity of PES has obviously decreased
and lost "drive" for self-development, especially in comparison with the difficult
1990s. The rapid development and accumulation of human capital in PES during the
1990s has reduced to the traditional performance of statutory functions in accordance
with the benchmarks descent "from above". If in the 1990 PES stood out among other
social services of Russia, in the 2000s it became just a an ordinary institution much
less popular than the services of social protection.
4. The experience of Russian PES to counter the negative effects of the
economic crisis is quite limited due to a relative juvenility of the system itself and a
short story of "normal" crises in Russia. The history of crises shows that adaptation to
a drop in aggregate demand preceded mainly through the decline in real wages and
reduction of hours worked. However, in anticipation of rising unemployment, PES
made all efforts to facilitate the social consequences (1990) preventing the growth of
social tension in the regions (2008-2009).
Despite the fact that the means used did not vary formally (i.e. the creation of
temporary jobs through public works program, the output from the unemployed
through vocational training and retraining, the material support for the unemployed),
the differences actually existed.
In the crisis of the 1990s, the government did not allocate special funds to
finance these programs. Thus only one source of funding was used, the Employment
Fund. In the crisis of 2008-2009, the state has allocated special resources from the
federal budget for an additional anti-crisis package. That is why it monitored heavily
the progress of the program and the way budget money was spent.
In the crisis of 2008-2009, the package of anti-crisis measures included
government programs aimed at specific target groups, e.g. young people. In particular,
a diverse program of internships was provided to the recently graduated professionals
(there were no such a program during the crisis of 1990s). Also, the new approach of
"linking" some programs was used. For example, advanced professional training and
program to create temporary jobs and public works were introduced. Also, the
program of labor migration has been linked with the program of material support for
migrant workers.
The program of material support (unemployment benefits) in the 2008-2009
crisis has motivated citizens to seek work more intensive than in the crisis of the
1990s; the generosity of unemployment benefits in the 2000s was limited and varied
between 850 rubles (minimum level) and 4,900 rubles (maximum level). In the 1990s,
the compensation for the lost income formed based on the insurance principles.
All in all, the government has coped successfully with the basic social mission
of preventing the growth of social tension. The tools used were:
• creation of temporary jobs (public works programs create temporary jobs for
target groups - young people, etc.);
• a program of training and retraining (output from the unemployed);
• minimal material support, which mostly motivated citizens to seek
employment.
5. In accordance with the classical theory of search, unemployment is an
important and productive phenomenon. The process of finding the best option of
employment for worker and the most suitable worker for the employer forms the
classical pair of "employee - workplace", which then determines the productivity of
labor in the economy. Underestimation of the importance of unemployment leads to a
distortion of economy adaptation to various shocks, both of structural and cyclical
nature.
Studies
show
that
in
countries
with
economies
in
transition
"underdevelopment" unemployment insurance system served as one of the factors of
relatively slow decrease in the number of "bad" jobs in obsolete sectors and slowed the
pace of economic restructuring. The presence or absence of unemployment insurance
determines the differences in incentives for the creation of high-performance
workplaces. If the unemployment insurance system is not present, the workers agree to
occupy jobs with low wages and/or productivity. In that case, unemployment is low,
but the wages are low. Low unemployment level increases the risk of uncovered
positions for the employers that leads to the conservation of lower quality jobs.
Unemployment insurance stimulates to continue the search for highly paid (and hence
more productive) jobs, thus increasing the level of unemployment. The good thing is,
that such a situation also stimulate the employers to create more productive and wellpaid jobs. This leads to an improvement in the structure of employment in terms of
labor productivity.
Job loss is closely associated with the loss of income. This economic motive to
improve social and individual well-being forms the basis of the unemployment
insurance system. In most cases, such systems are governmental with additional
insurance through trade unions.
National insurance systems against job loss exist in most OECD countries.
Terms and conditions of unemployment benefit appointment, ratio of salary benefits
replacement, duration of benefits vary by country and depend on several factors, e.g.
the length of working career, the length of participation in the insurance system, the
salary or the amount of contributions to the insurance system. In addition, in many
countries the benefit is paid for over a year, and then is replaced by social insurance
benefits. The highest replacement rates on average over five years are in Norway
(72%), Belgium (63%), Austria (59%) and Denmark (56%). The median replacement
rate over five years is 28 percent. Slovakia, Greece, Italy, Korea and the United States
have an average replacement rates over five years below 10 percent.
6. Based on the Employment Act, it can be argued that the system of
unemployment benefit payments in Russia has not changed over the past 25 years. The
payment of unemployment benefits is one of the main guarantees of the state, and
every Russian recognized as officially unemployed has the right to receive it (Article
28, Clause 1 of the Employment Code) . The current system in Russia is characterized
by the duality of criteria for unemployment benefits. The first criterion (quite formal,
contained in the Employment Act) is based on the principles of the insurance because:
a) the amount of the allowance is linked to earnings at the last work; b) the duration of
benefit is limited by law; c) not all unemployed have the right to receive insurance
benefits. The second, the actual criterion, on the other hand, has nothing to do with
insurance principles. According to it, compensation for the lost earnings is actually not
associated with the size of the salary in the period prior to unemployment, nor with the
duration of employment. All that matters is established by the Government of the
Russian Federation in 2009 upper limit of unemployment benefits of 4900 rubles (this
benchmark is easily achieved at a salary of just 6,500 rubles) and the bottom bracket
allowance of 850 rubles. In 2013, the maximum amount of benefits has lagged behind
not only the subsistence minimum calculated for the working-age population (12%),
but also on the minimum wage (6% in 2013 and 12% in 2014).
Thus, once the Government of the Russian Federation is authorized to
establishment of the maximum and minimum unemployment benefit, it has lost much
of its significance. This payment is no longer a sufficient partial compensation for the
lost employment income. Especially it became of minor value for those unemployed
who had paid employment prior to unemployment. Also, the benefit has lost and any
connection with seniority. The minimum benefit of just 850 rubles per month is
absolutely inadequate compensation. Even during the crisis of 1990s, the benefit
equaled the minimum benefit is now below the minimum wage up to 6 times smaller.
It is surely below any existing social guarantees established in Russia for vulnerable
population groups. Currently, the concept of "unemployment" is actually a
meaningless reality.
7. Active employment programs (APL) are the most important component of
PES work. APL are designed to complement the passive programs of unemployment
benefits that provide insurance against loss of income during unemployment. APL are
directly aimed at increasing the employability. The techniques used are quite diverse,
e.g. counseling on the labor market, retraining of the unemployed, filling the missing
general skills lost during the long periods of unemployment, special employment
subsidies for deprived social groups (especially new entrants to the market, and the
disabled).
The main objective of the APL is to help the unemployed to find a job, and thus
contribute to reducing both cyclical and structural unemployment. Analysts and
practitioners are mainly interested in figuring out which programs best help to solve
these problems, and what programs are more suitable in some groups of the
unemployed. In other words, what is the effectiveness of different APL.
The main findings are:
• There is no general recipe on the effectiveness of government programs. The
same program can be effective in one country and not be effective in another.
Moreover, there is considerable variation in the impact of government programs on
subgroups of participants. Therefore, it is important to conduct research to assess
consequences of any major government program.
• It is important to assess not only the large-scale government programs that are
being implemented, but also to test the programs planned for implementation in future.
Pilot program testing is important both for the development of the program structure,
and for making decisions about target groups and categories.
• Data collection and evaluation of public administration programs are
expensive. However, as a rule, the benefits of the program assessment exceed the costs
of such an assessment. This is particularly true for large and costly programs.
• It should be borne in mind that the results of the evaluation of program
effectiveness should be seen as opportunities to improve the quality of public services,
and not as a basis for challenging the competence of the civil service (and government
officials) responsible for the program.