Did 'work first' work? the role of employment assistance programs in reducing long-term unemployment in Australia (1990-2008).

• Author: Davidson, Peter
• Position: Contributed Article

Abstract

Over the last two decades Australia's progress in reducing its long-term reliance on unemployment payments was disappointing; this was despite an improving labour market, tighter work requirements and reformed employment assistance. After the introduction of the Job Network in 1998, the focus of employment assistance for long-term unemployed people shifted from a human capital approach towards a 'work first' approach. We review evidence from microeconomic evaluations of employment programs. Generally, job search assistance central to work first--is relatively effective. Gaps in the research may be a reason for the apparent discrepancy between these findings and Australia's slow progress overall in reducing long-term reliance on unemployment payments. Short-term average measures mask the distribution of program outcomes and results over the longer term. As unemployment fell, a growing proportion of unemployment payment recipients were disadvantaged in the labour market, and the work first approach may be ineffective for this group. The paper concludes with a brief assessment of the Job Services Australia program.

1. Introduction

   For the past 20 years, Australian governments have pursued activation policies the extension and intensification of activity requirements to reduce reliance on income support (Kinnear, Grant and Oliver 2003; DEEWR 2009a). Linked to these policies was a succession of employment assistance reforms including the introduction of a Job Guarantee in 1994 and its replacement by the Job Network three years later (Freeland 1998). In aggregate, unemployment fell substantially over this period. Even before the Global Financial Crisis, Australia had one of the lowest unemployment rates in the OECD: 4.3 per cent in 2008 compared with an OECD average of 6 per cent (OECD 2009a). High levels of Long-term reliance on unemployment payments persist. In May 2009, 310,000 people--more than half of all recipients of Newstart and Youth Allowances--received those payments for over a year; 220 thousand received them for more than two years; and 110 thousand people relied on them for over five years. The number of long-term recipients remains higher today than it was before the recession of 1991 (DEEWR 2008c; DEEWR 2009b; DEWR 2003a; Warburton, Okopu and Vuong 1999). Long-term unemployment is associated with higher levels of structural unemployment, declining health and social exclusion, and has large fiscal costs (Layard, Nickell and Jackman 1991; Chapman 1994; Dockery and Webster 2002; Social Inclusion Board 2010).

   This paper charts the development of activation policies and employment assistance reforms since the early 1990s and assesses their impact on reliance on income support, especially Long-term unemployment, by reviewing relevant Australian and international evaluation studies. It begins by charting trends in reliance on unemployment payments and the profile of recipients to assess whether they have become more disadvantaged in the labour market.

   The literature indicates that employment assistance programs work in two ways. First, in conjunction with activity requirements, the programs may improve the efficiency of job search and thereby offset the negative effects of social security payments on work incentives. Second, they may improve the work capacity of unemployed people by assisting them to overcome barriers to work such as low skills and lack of recent work experience (Frijters and Gregory 2006; Layard, Nickell and Jackman 1991 ). The introduction of the Job Network in 1998 signalled a shift in policy away from a capacity-building approach towards improving the intensity and efficiency of job search. Job Network providers were to a large extent paid according to the short-term employment outcomes they achieved. These price incentives led them to favour job-search assistance over more costly interventions such as paid work experience and training that may have had a delayed impact on the job prospects of their clients (Dockery and Stromback 2001; DEWRSB 2001a). This focus on job search assistance was consistent with the work first approach pursued in other countries then including the United States and the United Kingdom, which prioritised immediate and intensive engagement with the labour market over efforts to strengthen the human capital of unemployed people (Finn and Schulte 2007; Loedemel and Trickey 2001).

   The paper outlines and critiques the major evaluations of employment assistance programs in Australia. Such evaluations typically use regression techniques to estimate the net impact of a program on the average short-term employment prospects of participants (DEETYA 1997b; Stromback and Dockery 2000; DEWR 2006a). I compare the average net impacts on employment of three types of program: job search assistance, vocational training and work experience. I compare the results with those of a recent meta-analysis of similar evaluations in Europe and the United States by Kluve (2006). On the face of it, this evidence suggests that the shift towards job search assistance in Australia should have improved the overall efficiency of employment assistance. The paper identifies three key gaps in Australian evaluations of employment assistance programs which may help to explain why Long-term reliance on unemployment payments remains high, despite favourable economic conditions and the switch to seemingly more efficient programs.

   The first gap that this research focuses on is the average employment outcomes of program participants. This tells us little about the effectiveness of the programs in assisting those most likely to remain unemployed for the long term. Second, because the evaluations focused on short-term employment outcomes, they do not inform us of the longer-term effects of the programs. Third, because they focus on the effects of a single program, they tell us little about the impact of the broader institutional environment on program effectiveness--in particular the interaction between activity requirements and employment assistance--and the effects of different combinations and sequences of employment programs. A number of suggestions are made to overcome these research gaps. I suggest that independent researchers have better access to the government's administrative and survey data. The paper concludes with a brief assessment of the Rudd government's reforms to employment assistance, including the Job Services Australia program that replaces the Job Network, and the new Productivity Places program.

2. Trends and Profiles of Long-term Recipients of Unemployment Payments

   I begin by examining trends in recipients of unemployment payments (Newstart Allowance (NSA) and the Youth Allowance, Other (YAO)) since the recession of the early 1990s. (1) Figure 1 shows that both short and long-term reliance on these payments rose sharply for two years after the 1991 recession, but that Long-term reliance fell much more slowly throughout the recovery. After peaking in 1993, the number of Long-term recipients was almost static for five years before it gradually fell. It took another five years to begin to reduce the number of very long-term recipients substantially (those on payments for over two years). As noted, in May 2009 over half the recipients of these payments were long-term recipients and over a third were very long-term recipients.

   [FIGURE 1 OMITTED]

   These data suggest that substantial reductions in Long-term reliance on unemployment payments will only be achieved if policy measures are targeted to this group. Once people become unemployed long term, their probability of obtaining ongoing employment declines substantially due to scarring effects (Layard, Nickell and Jackman 1991 ). Further, as unemployment falls, a greater proportion of unemployed people are likely to come from groups that are more disadvantaged in the labour market (Chapman 1994).This is one possible explanation for our slow progress in reducing Long-term reliance on unemployment payments despite an improving labour market.

   Long-term unemployment payment recipients have a low skill profile and face added barriers to employment than simply the duration of their unemployment. For example, among recipients of Intensive Support Customised Assistance within the Job Network (which was targeted to Long-term unemployment payment recipients) in 2006:

   * 61 per cent lacked Year 12 qualifications or equivalent, compared to 33 per cent of people of working age (DEEWR 2008a; OECD 2007a);

   * 20 per cent reported that their main barrier to work was a disability, and 15 per cent reported that they were 'too old' (DEEWR 2008a).

   Further, 35 per cent of people on Long-term Newstart Allowances, 45 per cent of those on a Parenting Payment and 30 per cent of Disability Support Pensioners are estimated to have mental health disorders, mainly anxiety and depression (Butterworth et al. 2006). There is also evidence to suggest that unemployment payment recipients have become more disadvantaged since the recession of the early 1990s. Figure 2 shows that as the overall level of reliance on unemployment payments fell, the proportion of very Long-term recipients rose. Of particular concern, the proportion of people on unemployment payments for more than five years rose from one in 10 in 1999 to almost one in four in 2008 (O'Connor 2008b).

   [FIGURE 2 OMITTED]

   Unfortunately, there is limited, detailed time series data on the characteristics of recipients of Newstart and Youth Allowances. Given this, and the paper's focus on employment assistance, I examine changes since the early 1990s in the profile of participants in the major employment assistance programs for Long-term unemployed people: the Job Compact within the Working Nation strategy, and Intensive Assistance and Customised Assistance within the Job Network. Each year, over 200 thousand people participated in each of these programs. The targeting of the programs meant that the...