Working Schemes?

Active Labour Market Policy in Ireland

Phillip J O'Connell, Frances McGinnity

• Publisher: Routledge
• Year: 2019
• Print ISBN:
  9781138359840
• eBook ISBN:
  9780429779275
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

Published in 1997, this book is an examination of the Irish experience with active labour market policy. This text looks at training in comparison with employment programmes and examines this in the context of strong and weak market orientation. The study is based on a survey which is used to analyze the effect of programme participation on short and long-term employment prospects and on income. The results show that market-orientation is a significant factor in employment scheme success, a factor that has not been taken into account in recent policy changes. The book also points out the applications of this sort of study in other European countries.

1  Introduction

Active labour market policies have moved to centre stage in the European Commission’s strategy to combat unemployment, and such policies now account for very sizeable and growing expenditures in most European countries. Do these programmes work? In fact, there is considerable controversy about the impact of active labour market policies in combating unemployment or even improving the employment prospects of those who participate. It is a controversy which exercises academic researchers and is observed closely by policy makers. The debate has attracted the attention of The Economist, which reviewed the literature in a recent leading article and reached decidedly pessimistic conclusions regarding the potential of such policies.

In a growing body of research, economists have compared groups of unemployed people who enter government training schemes with similar groups who do not. In almost every case, these studies have found that the schemes have failed to improve either the earnings or the employment prospects of their clients.

The Economist, April 6, 1996

Such a pessimistic assessment calls into question the entire strategy embodied in active labour market policies. In terms of social policy, it suggests that active labour market policies are failing to achieve their intended objective of reducing social exclusion. Moreover, given the growth in public expenditure on such policies, it raises serious concerns about the returns to what is now a very substantial investment.

Our objectives in writing this book are two-fold; one practical, one more academic. First, as social scientists working in Ireland, with its history of mass unemployment, we are vitally interested in whether training and employment schemes offer a solution to unemployment, and in identifying what kinds of programmes are most effective in assisting the unemployed to find work. Second, as labour market analysts seeking to understand the workings of the labour market, we are interested in assessing the impact of state intervention. Faced with the stark assessment referred to by The Economist, we ask whether all active labour market policies are doomed to failure, or do some programmes work better than others? In seeking an approach to the problem we differentiate between programmes in terms of basic underlying labour market processes, between supply and demand measures, and in terms of the nature of the linkages between programmes and the market.

The principal concern of this book is with the impact of active labour market policies on the employment prospects of their participants in Ireland. Ireland has suffered from mass unemployment since the early 1980s, with chronic unemployment of young people and one of the highest rates of long-term unemployment in Europe. It is one of the leading countries in the world in the share of its national income devoted to active policies. It operates a wide range of differing programmes catering to a diversity of target groups. In 1994, the numbers participating in active labour market measures represented 6.5% of the entire labour force and 40% of total unemployment. Since the late 1980s Ireland has invested heavily in active labour market policies under the tutelage of the European Commission and supported by very substantial funding from Brussels. Ireland is, therefore, a particularly good test case in which to examine the impact of such policies and to assess the efficacy of the policy prescriptions which dominate the official response of the European Commission to unemployment.

In Chapter 2 we trace the evolution of active labour market programmes from their early origins in Sweden as a solution to the inflationary problems associated with full employment during the post-war boom, to their widespread adoption as a solution to mass unemployment throughout the industrialised countries since the 1970s. This, of course, raises the question of whether policies originally designed to manage full employment and rapid economic growth can be expected to resolve the problems of mass unemployment and sluggish economic growth.

At the micro level, with which we are principally concerned, our survey of the international literature on the effectiveness of active labour market programmes on the employment prospects of their participants shows a great deal of confusion, with empirical results often appearing to contradict each other. While some studies conclude that training and employment schemes have a positive impact on their participants’ subsequent employment prospects, others fail to find any significant impact on employment probabilities.

We argue that the inconclusiveness and inconsistency of the empirical research on the effectiveness of programmes is, at least partly, a function of conceptual and methodological weaknesses. Much of the literature, including that on which The Economist’s pessimistic conclusions are based, fails to distinguish between programmes that work and those that don’t because little account is taken of important qualitative differences between programmes that influence their effectiveness. We develop a simple typology of active labour market programmes, based both on the manner in which they influence the labour market – supply versus demand measures – and on the strength of their orientation to the labour market. Our central hypothesis is that programmes with a strong orientation to the open labour market are more likely to enhance the employment prospects of participants than programmes with weak market linkages.

Chapter 2 also examines the evolution of active labour market policy in Ireland over the past two decades and provides a detailed description of the current structure of active labour market programmes in Ireland. While Ireland is a comparatively big spender on active labour market programmes, providing a wide range of programmes to a broad diversity of target groups, we argue that policy formation has been characterised by a lack of strategic and coherent planning. We also show that in recent years the expansion in the numbers participating in active labour market programmes has coincided with a shift from market oriented programmes to programmes with weak market linkages.

In Chapter 3, we review the principal developments in the Irish labour market over the past two decades in order to set the context for our analysis of the evolution and impact of active labour market policy. We show that Ireland has suffered from mass unemployment since the early 1980s and, as the unemployment crisis deepened, long-term and youth unemployment grew to particularly serious proportions. Given changes in economic structure and in the demand for labour, which have resulted in a general up-grading of occupations, young people with poor educational qualifications find it extremely difficult to gain a foothold in the labour market, and the older long-term unemployed, displaced by economic restructuring, face similar difficulties in re-entry to work unless they can benefit from well-targeted and effective education, training and employment programmes.

Our empirical analysis is based on the Post-Programme Follow-up Survey of Programme Participants, which was commissioned by the European Commission, and was specifically designed to examine the impact of active labour market polices on their participants. We tracked a sample of 3,200 individuals who exited from active labour market programmes in the spring and summer of 1992 and interviewed them in spring 1994 to collect detailed records of post-programme labour market experiences, participation in further education and training programmes, and a rich array of individual background characteristics – including prior labour market experience, educational qualifications and household characteristics. The survey covered a comprehensive range of programmes, representing virtually all of the main active labour market policies operative in Ireland at the time, and thus accorded us a unique opportunity to compare the effectiveness of differing programme types. The survey of programme participants was matched with a sample of a comparison group of young people who had not participated in active labour market programmes but who had been unemployed at about the same time as the programme participants left their programmes.

Chapters 5 and 6 present the core of our empirical analysis of the impact of programmes on their participants’ job prospects. In Chapter 5 we compare the effects of participation in different programme types, distinguishing between programmes according to the typology developed in Chapter 3. In Chapter 5, therefore, we examine whether some programmes are more effective than others and identify the types of programme which are more likely to enhance their participants job prospects, using multivariate statistical techniques to take account of relevant individual characteristics such as education and previous labour market experience.

Chapter 6 addresses the question of the net effects of training and employment schemes – i.e. how much do programmes increase participants’ probabilities of getting jobs above what they would have been if the participants had not participated? To assess the net effectiveness of programmes, we need more than just the placement rates of participants – we also need to estimate what would have occurred under the counterfactual assumption of non-participation. In this chapter we estimate the net effects of programmes by comparing the outcomes for a subset of our sample of participants with a comparison group of individuals who did not participate in any training or employment schemes and who were unemployed at around the same time as our participants left their programmes.

One of the problems of active labour market policies is that the provision of broadly targeted training and employment programmes can lead to the selection of ‘better equipped’ individuals from within the target groups to the exclusion of other who may be in need of greater assistance. Thus, for example, there is some concern that the long-term unemployed and others disadvantaged in the labour market may face particular difficulty in gaining access to effective active labour market programmes. In Chapter 7 we examine the extent of this phenomenon of ‘creaming off’ and ask whether the long-term unemployed and women returning to work after an interruption in their careers have equal access to effective employment and training programmes.

In the final chapter we explore the implications of our study for both the formulation and evaluation of active labour market policies. We discuss recent innovations and developments in Irish labour market policy and ask whether, in the light of our empirical findings, the dramatic expansion in direct employment schemes in recent years is likely to benefit their participants. Finally, with regard to the more general issue of the evaluation of active labour market programmes, we argue that much of the international research on the issue has ignored crucial differences between programmes, resulting in inconclusive and often invalid assessments of the impact of such schemes. We argue that our typology of programmes, based on the strength of their linkages to the open labour market, can be applied to other countries. We believe that our typology of programmes, because it is based on underlying labour market process offers a solution to the question, not of why programmes appear to be ineffective, but of why some programme work better than others and, in so doing, helps to identify what works and who works.

2 Active Labour Market Policy

1 Introduction

In discussing State labour market policies that affect the unemployed it has become conventional to distinguish between passive measures, which provide financial protection for unemployed workers, and active measures, such as training and temporary employment programmes designed to improve the skills and competencies of the unemployed and support the search process in the labour market. Active labour market policies consist of direct State interventions in the labour market to either prevent or alleviate unemployment (Janoski, 1996; Calmfors, 1994), and include job placement services to improve the matching process between vacancies and job seekers; labour market training to enhance the skills of job seekers; and employment programmes, which may consist of either direct job creation in the public sector or subsidisation of jobs in the private sector. This can be regarded as a ‘narrow’ definition of active labour market policy and excludes other State interventions which indirectly affect employment, such as industrial policies or trade restrictions, as well as efforts to reduce the supply of labour, such as early retirement policies or raising the age of compulsory schooling.

Active labour market policies date back to the 1950s, and were initially developed in Sweden, not as a response to widespread unemployment, but as a social democratic tool of macroeconomic management to counter inflationary pressures resulting from full employment (Esping-Anderson, 1985). The Swedish model was designed to resolve the full-employment inflation problem by a combination of wage solidarity bargaining, which sought to equalise wages across industrial sectors and regions, and reward high-productivity competitive firms while driving out weak and inefficient firms, and active manpower policy, which provided a range of education, training, and job creation measures for displaced workers. The strategy thus promoted rationalisation of production as well as encouraging the mobility of labour to more efficient firms while protecting workers’ security. The Swedish model was taken up by the OECD in the 1960s as a general response to the combination of strong economic growth and full employment. At that time, States, confronted with rapidly growing demand for labour, which carried with it the threat of inflationary wage pressure, adopted measures to intervene actively on the supply-side of the labour market to mobilise the supply of labour and reduce labour market bottlenecks. Active labour market policies thus included a range of measures designed to mobilise labour supply, improve the quality of the labour force through vocational training, and enhance the matching of vacancies and jobseekers through improved placement and counselling services.

The rapid increase in unemployment throughout the advanced industrial countries in the aftermath of the first oil price shock in 1973 revealed marked changes in labour market relationships, as mass unemployment and slow growth coincided with rapid inflation. Initial responses to unemployment were based on the assumption that the problems were cyclical, and, therefore, temporary, and there was a shift in labour market policies to demand side measures – including wage subsidies to stimulate the demand for labour as well as promotion of early retirement to reduce labour supply, and, in the 1980s, temporary direct job creation measures to absorb surplus labour. However, the persistence of high unemployment, even during the expansionary periods of the 1980s, led to the realisation that high unemployment and other labour market problems were neither temporary nor simply due to insufficient demand. In the 1990s this has led to a further shift in labour market policies based on the premise that structural difficulties on the labour market are primarily on the supply side of the market, leading to a renewed emphasis on earlier policies to mobilise the supply of labour. This shift in emphasis is reflected in the policy recommendations of the OECD (1990) to shift labour market expenditures from passive measures which provide protection for unemployed workers, to active measures which mobilise labour supply, improve the skills and competencies of the labour force, and strengthen the search process in the labour market.

In Europe, wher...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Acknowledgements
• 1 Introduction
• 2 Active Labour Market Policy
• 3 Labour Market Developments in Ireland
• 4 Analysing Outcomes: The Post-Programme Follow-up Survey
• 5 The Impact of Programmes
• 6 The Net Effects of Programme Participation
• 7 Creaming Off? Social Exclusion and Access to Programmes
• 8 Conclusions
• Appendix
• Bibliography