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Comparing activation policies in Denmark and the United Kingdom: testing the convergence thesis

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This paper reports on in-depth interviews with policy makers and administrators and independent experts to compare activation policies for long term unemployed people in the United Kingdom and Denmark from 1990 to the mid 2000s – countries with different welfare regimes that were regarded as policy ‘leaders’ in this field. It tests the ‘convergence thesis’ which holds that previous national policy differences in this area – including the design of unemployment payments and investment in different active labour market programs, diminish as activation policies mature and are widely adopted2. Activation policies are compared according to their relative emphasis on three goals: income protection, improving employment capacity, and improving employment incentives. Simple statistical comparisons indicate that substantial differences persisted between the two countries in both the generosity of unemployment insurance payments and the overall level of investment in labour market programs. In support of the convergence thesis, evidence from the interviews indicates that from the late 1980s a new ‘activation paradigm’ supplanted the previous emphasis on income protection (improvement and then retrenchment) in both countries, as activity requirements were formalised and intensified for unemployed people and extended to benefit recipients previously outside the paid workforce. However, the form of activation differed in significant ways, consistent with pre-reform institutional arrangements. In the UK, activation policies originated with ‘Restart’ interviews and programs of work experience and training were subsidiary to job search requirements and assistance. For example, in the ‘New Deals’, access to work experience and training programs was limited to those long term unemployed people who passed a ‘Gateway’ of intensive job search assistance. In Denmark, activation was, at least at first, synonymous with participation in work experience and training programs that were originally designed as income protection measures but later adapted as employability programs. There was also consistent variation in the form and purpose of employment assistance offered to insured and uninsured income support recipients in Denmark, while in the UK distinctions 1PhD student, Social Policy Research Centre, UNSW, Australia [p.davidson@student.unsw.edu.au]. I have also analysed, and hopefully influenced, activation policies in Australia over the past 20 years in my role as Senior Adviser at the Australian Council of Social Service, the peak body of not-for-profit community services, though of course this paper is not written in that capacity. I would like to thank Professors Dan Finn, Thomas Bredgaard and Flemming Larsen for their insights into activation policies in the UK and Denmark, and help in connecting me with potential interviewees for my research, and my supervisors, Professors Peter Saunders and Peter Whiteford for their insights into welfare states and conducting a PhD thesis. 2Eichhorst&KonleSeidl 2008, ‘Contingent convergence, a comparative analysis of activation policies’, IZA Discussion Paper 3905, Institute for the Study of Labor, Bonn. 2 between these two categories were virtually eliminated. Evidence from the interviews suggests that enduring differences in activation arrangements between the two countries may have a basis in the institutional arrangements for the payment of unemployment benefits, including the persistence of corporatist arrangements in Denmark and their disappearance in the UK. Further, higher benefit levels rendered an incentives-based approach (‘making work pay’ policies) less feasible in Denmark.
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1
Paper for FISS Conference, Sigtuna, Sweden 2-4 June 2014
Stream: Social protection and labour market change (including active labour market
policies)
Contact: Peter Davidson
1
Title: Comparing activation policies in Denmark and the United Kingdom:
testing the convergence thesis
Abstract
This paper reports on in-depth interviews with policy makers and administrators and
independent experts to compare activation policies for long term unemployed people in the
United Kingdom and Denmark from 1990 to the mid 2000s countries with different welfare
regimes that were regarded as policy leaders in this field.
It tests the ‘convergence thesis’ which holds that previous national policy differences in this area
including the design of unemployment payments and investment in different active labour
market programs, diminish as activation policies mature and are widely adopted
2
.
Activation policies are compared according to their relative emphasis on three goals: income
protection, improving employment capacity, and improving employment incentives. Simple
statistical comparisons indicate that substantial differences persisted between the two countries
in both the generosity of unemployment insurance payments and the overall level of investment
in labour market programs.
In support of the convergence thesis, evidence from the interviews indicates that from the late
1980s a new activation paradigm’ supplanted the previous emphasis on income protection
(improvement and then retrenchment) in both countries, as activity requirements were
formalised and intensified for unemployed people and extended to benefit recipients previously
outside the paid workforce.
However, the form of activation differed in significant ways, consistent with pre-reform
institutional arrangements. In the UK, activation policies originated with Restart interviews and
programs of work experience and training were subsidiary to job search requirements and
assistance. For example, in the New Deals, access to work experience and training programs
was limited to those long term unemployed people who passed a ‘Gateway’ of intensive job
search assistance. In Denmark, activation was, at least at first, synonymous with participation in
work experience and training programs that were originally designed as income protection
measures but later adapted as employability programs.
There was also consistent variation in the form and purpose of employment assistance offered
to insured and uninsured income support recipients in Denmark, while in the UK distinctions
1
PhD student, Social Policy Research Centre, UNSW, Australia [p.davidson@student.unsw.edu.au]. I have also analysed, and
hopefully influenced, activation policies in Australia over the past 20 years in my role as Senior Adviser at the Australian Council
of Social Service, the peak body of not-for-profit community services, though of course this paper is not written in that capacity.
I would like to thank Professors Dan Finn, Thomas Bredgaard and Flemming Larsen for their insights into activation policies in
the UK and Denmark, and help in connecting me with potential interviewees for my research, and my supervisors, Professors
Peter Saunders and Peter Whiteford for their insights into welfare states and conducting a PhD thesis.
2
Eichhorst&KonleSeidl 2008, ‘Contingent convergence, a comparative analysis of activation policies’, IZA Discussion Paper 3905,
Institute for the Study of Labor, Bonn.
2
between these two categories were virtually eliminated. Evidence from the interviews suggests
that enduring differences in activation arrangements between the two countries may have a
basis in the institutional arrangements for the payment of unemployment benefits, including the
persistence of corporatist arrangements in Denmark and their disappearance in the UK. Further,
higher benefit levels rendered an incentives-based approach (‘making work pay’ policies) less
feasible in Denmark.
Introduction
This paper compares activation policies for long term unemployed people in two countries, the
United Kingdom and Denmark, which are regarded as archetyal ‘liberal’ and ;social democratic’
welfare regimes. It is derived from research for a PhD thesis comparing these policies in four
countries (the others being Australia and the Netherlands) from the late 1980s to mid 2000s.
The research focusses on employment assistance programs for long term unemployed people
receiving social insurance or social assistance payments. It identifies the extent of convergence
or divergence in the character of, and level of investment in, these programs in the four
countries as activation policies developed.
Following a period of retrenchment of social security payments for unemployed people in the
1980s, the United Kingdom and Denmark were among the pioneers of a new set of ‘activation’
policies to resolve the tension between poverty prevention and fiscal austerity
3
.
After the recession of the early 1990s, unemployment was still above 10% in most OECD
countries and long term unemployment was a growing problem. The concern among policy
makers was that if long term unemployment became entrenched, the level of structural
unemployment would remain high, imposing fiscal and social costs similar to those experienced
after the recession of the early 1980s.
The central idea of the new ‘activation’ strategies was that welfare costs could be curbed, not by
reducing payments, but by keeping people consistently active in the labour market, improving
work incentives and replenishing their skills. ‘Work tests’ were not new, but they were now
applied more intensively to recipients of unemployment payments, and extended to groups
whose labour market participation was previously neglected at first long term unemployed
people and later to income support recipients with disabilities and caring responsibilities.
Activation policies typically require employment services to closely monitor job search and work
preparation and develop individual employment plans supported by investment in work
experience and training for those disadvantaged in the labour market. Reform of employment
services was often complemented by a suite of policies to ‘make work payby reducing effective
tax rates for those entering employment.
4
.
The spread of activation policies challenged prevailing comparative theories of the welfare state.
The dominant theory of this period, Esping Andersen’s ‘three worlds’ of welfare capitalism,
posited enduring differences between three regimes of welfare provision: social democratic
(characterised as offering generous and universal income support, coupled with greater
3
Barbier J & Ludwig Mayerhofer W 2004, the many worlds of activation, European Societies 6:4, pp 423-436; Castles F &
Obinger H 2008, Worlds, families regimes - clusters in European and OECD area public policy , West European politics 31:1,
pp321-344.
4
Finn & Schulte 2008,Employment first, activating the British welfare state, in Eichhorst W, Kaufmann O, Kohnle Seidl
R, Bringing the jobless into work? Berlin. Springer.
CarcilloS & Grubb D 2006, From Inactivity to work: the Role of Active labour market policies.OECD Social
employment and Migration Working Paper No 36.
3
regulation of the labour market and high labour market participation including among women),
liberal (with more parsimonious payments targeted towards poverty alleviation, less regulated
labour markets, and high labour market participation though less supportive of female workforce
participation), and conservative (with payments segmented by occupational status, a high
degree of labour market regulation, low workforce participation, and a pronounced male
breadwinner family model)
5
. These regimes were associated with the Nordic countries, the
Anglophile countries, and central and southern Europe respectively. Esping Andersen argued
that welfare regimes could be distinguished by comparing the extent of ‘de-commodification’
(reduced reliance on market income), univeralism (scope and consistency of coverage and
payment rates across the population) and defamilisation (reduced reliance on income and
services exchanged within the family).
The ‘three worlds’ thesis was complemented by a strand of political theory, historical
institutionalism. This emphasised the ‘path dependency’ of institutions such as welfare states.
That is, once the basic institutional form of welfare systems was set in place, including the level
and structure of payments and the stakeholder interests that surrounded them, it was difficult for
policy makers to fundamentally alter it. The path dependency thesis was used to explain the
resistance of welfare states to retrenchment in the 1980s
6
. Instead of abolishing or drastically
reducing payments, policy makers made a series of incremental adjustments within the system,
though over time those adjustments could destabilise the old regime and open the path to
structural change. Five mechanisms by which this might occur were identified by Streek and
Thelen: displacement (where a new program progressively takes over the space occupied by
an existing one), layering (where a new program at first supplements an existing one, but
gradually becomes dominant), drift (where a program becomes redundant through policy
inaction), conversion (where an existing program is adjusted to meet a qualitatively different
objective), and exhaustion (where an institution collapses under the weight of its own internal
tensions)
7
.
Cox and Weishaupt point to the role of ‘paradigm change’ in the dominant set of ideas
according to which public policy problems are defined and solutions are framed, in bringing
about structural rather than merely incremental change. Activation itself is represented in the
literature as a new and increasingly dominant paradigm in labour market policy, replacing
previous ones such as poverty alleviation through social security and ‘manpower policy’
8
.
Both the ‘three worlds’ thesis and much of the research informed by historical institutionalism
emphasise structural differences among ideal-typical national welfare systems. Yet with the
spread of activation policies, the liberal and social democratic welfare regimes appeared to be
converging towards a new system with ‘re-commodification at its core. While activation was at
one level perfectly consistent with the Nordic pre-occupation with active labour market
participation, at a deeper level it potentially undermined the foundations of the Nordic
unemployment payment structure. This was traditionally dominated by generous, prolonged,
and widely available social insurance payments supplemented by a residual and less generous
social assistance or ‘safety net’ payments administered by a lower level of Government. Yet
5
Esping Andersen G 1998, Social Foundations of post industrial economies, Oxford, Oxford University Press.
6
Pierson P 2000, ‘Increasing returns, path dependence and the study of politics’ American Political Science Review 94:2, pp251-
267.
7
Streek W and Thelen K, 2005, Beyond continuity, institutional change in advanced political economies, Oxford. Oxford
University Press.
8
Cox 2001, ‘The social construction of an imperative, why welfare reform happened in Denmark and the Netherlands but not in
Germany’, World Politics, V53:3, pp 463-498; Weishaupt J 2011, ‘From the manpower revolution to the activation paradigm,
Amsterdam. Amsterdam University Press.
4
Clasen and Clegg argue that the systematic extension of activation to new groups of social
security recipients requires a degree of homogenisation of payments and employment services
among different beneficiary populations
9
. As we shall see in the Danish case, activation reforms
are associated with shorter durations of unemployment insurance and a weakening of the
traditional role of ‘social partners’ (employers and unions) in the administration of social security
and employment services, a key feature of social democratic’ welfare regimes. Turning to the
liberal welfare regimes such as the United Kingdom, Weishaupt argues that the progressive
activation of client populations more distant from the labour market requires those countries to
raise their relatively low levels of investment in skills development
10
.
The picture is further clouded by profound changes at the level of welfare administration, where
activation policies were twinned with prevailing ‘New Public Management ideas which called for
the separation of policy and implementation, replacement of direct public control of services with
network or market based systems of governance, and the funding of employment services to
employment outcomes rather than program inputs
11
. Significantly, this trend was also
associated with a reduced role for the social partners in social security and employment
services administration. In some countries such as the Netherlands, structural change in the
administration of benefits and labour market assistance was so rapid and sweeping that the
original institutions were hardly recognisable.
12
Academic debate ensued over whether the new activation policies and institutional changes
associated with New Public Management marked a new convergence, at least between the
social democratic and liberal regimes that were the first to adopt these policies, or whether they
were simply a new set of administrative arrangements ‘layered’ on top of distinct welfare
regimes
13
.
To make sense of these changes, and to understand their implications for comparative welfare
state research, it is necessary to measure and compare the ‘stance’ of activation policies over a
sufficiently long period to separate structural change from the effects of the business and
political cycles. Since the earliest adopters of activation policies were liberal or social
democratic welfare regimes, this paper compares activation policies in one liberal (United
Kingdom) and one social democratic (Denmark) regime.
One strand of quantitative comparative welfare research compares the generosity and scope of
social security payments. Given the close connection between income support and labour
market assistance in activation policies, another common comparative measure is the level of
investment in labour market programs. High payments and investment in labour market
programs are associated in this literature with social democratic regimes, and low payments and
investment with liberal regimes
14
.
9
Clasen J & Clegg D 2006, ‘Beyond activation, reforming European unemployment protection systems in post industriallabour
markets.’ European Societies, 8:4, pp 527-553.
10
Weishaupt 2011, From the Manpower revolution to the activation paradigm, Amsterdam.Amsterdam University Press.
11
Considine M 2001, Enterprising states, Cambridge, Cambridge University Press; Bredgaard T & Larsen F 2001, Redesigning the
governance of employment policies. CARMA 25th anniversary conference, Aalborg, University of Aalborg.
12
Sol E 2008, Activation as a socioeconomic and legal concept, laboritorium the Netherlands, in Eichhorst W, Kaufmann O,
KohnleSeidl R, Bringing the jobless into work? Berlin. Springer; Finn & Schulte, op cit
13
Lodemel I &Trickey H 2001, An offer you can't refuse: workfare in international perspective, London. Policy Press; Serrano
Pascual A 2007, Reshaping welfare states, London, Edward Elgar.
14
Starke P, Obinger H, Castles F, 2009, Convergence towards where? Journal of European Social Policy, 15:7, p975; Rueda D
2006, Social democracy and active labour market policies: insiders, outsiders and the politics of employment promotion, British
Journal of Political Science, 36:3, pp 385-406.
5
However, the overall level of investment in labour market assistance does not tell us much.
Comparative welfare state researchers have developed more sophisticated measures that
distinguish between different types of labour market programs. A common thread running
through these comparative frameworks is a dichotomy between ‘human capital development’
which emphasises skills development, and ‘work first’ approaches which prioritise a rapid
transition to (mainly low skilled) employment
15
. This literature usually associates the former with
social democratic regimes and the latter with liberal regimes,
This dichotomy is consistent with the labour market structures commonly associated with these
two welfare regimes. Social democratic regimes are associated with relatively high minimum
wages which raise the formal qualifications required for workforce entry while liberal regimes are
associated with lower minimum wages and a longer ‘tail’ of low skilled employment to which
income support recipients might be referred without a great deal of preparation
16
. One drawback
of this distinction is that it is easy to confuse activation policies in general with one side of this
dichotomy the work first approach - although it is also possible to ‘activate’ people through
training in vocational and other skills
17
.
In order to clearly separate activation policies generally from a ‘work first’ approach, and to bring
social security payments into the comparative framework alongside employment programs, this
paper distinguishes between activation policies which strengthen work capacity (whether
through preparatory training or participation in work experience programs that directly
strengthen employability skills) and those which strengthen work incentives (whether through
changes to payment rates and income tests, in-work payments, monitoring of job search, or
labour market programs such as those work-for-benefit schemes designed to make reliance on
income support less attractive)
18
.
This dichotomy encompasses both ‘sides’ of activation policies: employment assistance to
improve skills and ‘make work pay’ policies. It facilitates a deeper and more comprehensive
comparisons between activation ‘systems’ in different countries and welfare regimes than
simple comparisons of benefit replacement rates and overall investment in labour market
programs, or the strictness of activity testing. It enables us to test two hypotheses regarding
convergence and path dependency in policies to reduce structural unemployment in different
welfare regimes:
That both liberal and social democratic welfare regimes were predisposed towards the
adoption and progressive extension of activation policies because they already
privileged high levels of labour force participation (so activation was not entirely a ‘new
idea’), and it enabled Governments of both the Left and Right (and the social partners
where they have a role in policy making) to reduce the cost of social security and
poverty at the same time, without retrenching payments. Therefore, policies will
converge towards ‘more activation’.
15
Aurich, P. (2009). Activating labour supply, European strategies from 1990-2005. Conference Paper, Activation and security,
Brno, ASPEN.
16
OECD 2006, Employment Outlook.
17
Lodemel I &Trickey H 2001,op cit.
18
Castonguay J, and Sol E 2007, Is work working? Social security in the labour market. Warsaw, International Social Security
Association; Johansson, H and B. Hvinden B 2007, Reactivating the nordic welfare states. International Journal of Sociology
27:7/8, pp 334-346. Bonoli G 2010, The political economy of active labour market programs, Politics and Society, 38:4, 435-
457.
6
That social democratic welfare regimes such as Denmark, whose unemployment
payments are typically higher relative to minimum wages, are less likely to lean towards
incentive-strengthening approaches to activation since there is less scope for them to do
so without cutting benefits. On the other hand, if qualification barriers to entry level jobs
in these countries are higher (because wages and skills and more equally distributed)
they are likely to rely more on capacity building approaches (since the alternative is to
cut minimum wages which is likely to be politically resisted). In liberal welfare regimes
such as the United Kingdom, the opposite applies: minimum wages and skills barriers to
labour force entry are lower but benefits are much lower, creating more space for work
incentive strengthening policies to succeed without the need for substantial investment
in re-skilling unemployed people
19
. Therefore, activation policies will follow different
tracks in the two welfare regimes (towards the left or right in figure 1 below).
Analytical framework and methodology
For the purposes of this paper, ‘activation policies’ are defined as a set of policies that
systematically privilege employment as an objective for social security systems and a pathway
out of poverty, through activity requirements, financial incentives, and work capacity-building.
The analytical framework used to compare activation policies is illustrated in Figure 1.
Figure 1: The activation diamond
In this figure, activation policies are represented by the area bounded by the ‘activation
diamond. They aim to transition recipients of unemployment payments (work-tested social
insurance and social assistance payments) from ‘income protection’ (or de-commodification) at
the top to ‘employment’ at the bottom of the diamond
20
. Turning to the horizontal axis, this
19
This dichotomy between ‘Anglophile’ and ‘northern European’ (i.e. ‘Nordic’) approaches to labour market policy is also
hypothesized in a comparative analysis of different ideal-typical strategies to reduce structural unemployment undertaken by
the OECD. See OECD 2006, op cit.
20
Employment programs as well as income support can have an ‘income protection’ character. Bonoli 2010, (op
cit) classifies traditional ‘job creation’ programs as ‘occupational’ since they keep people occupied rather than
Income protection
Work capacity Work incentives
Employment
7
process can follow two pathways: towards the left or right, according to the degree of emphasis
on work capacity building and work incentives, respectively.
This research has two inputs. First, a brief statistical analysis of benefits and investment in
labour market assistance was conducted, comparing the generosity of social insurance and
social assistance payments in the two countries, and also the level of investment in labour
market assistance. Data from the OECD are used for these comparisons.
The second input is a series of 12 in-depth interviews (six in each country) with equal numbers
of Government officials, employment service providers (or peak organisations representing
them), and academics with expertise in employment assistance for unemployed people. The
interview schedule divided the study period (late 1980s to mid 2000s) into two periods,
corresponding roughly with change of national Government in each country (1997 in the United
Kingdom, 2001 in Denmark). Interviewees were asked about the main purpose and character of
employment assistance programs for long term unemployed people in each of these periods
(where the programs were located in the activation diamond above), and in the case of
Denmark any significant differences between programs for insured and uninsured unemployed
people. They were asked about the key ideas and political stakeholders influencing major policy
changes, including the impact and use of official program evaluations and the role of two
international institutions: the OECD and European Union.
In coding their responses, and mindful of the theoretical literature discussed above, the
following factors influencing policy development were identified:
Changes in the characteristics of the client group (long term unemployed people);
Benefit levels , duration and structure (social insurance and social assistance)
Labour market structure (including the skills required for entry level jobs, minimum wage
levels)
Governance arrangements for activation policies (centralised, decentralised, corporatist,
or market oriented)
Policy ideas (activation, rights, duties, structural unemployment, New Public
Management, and labour market disadvantage).
Official evaluations of labour market programs and international policy exchange,
including through the OECD and European Union.
Statistical comparison
(1) United Kingdom
The principal unemployment payment in the United Kingdom from 1996 was Job Search
Allowance (JSA). This has a social insurance component available to former employees who
meet the qualifying conditions and have made sufficient contributions, and a social assistance
component for those who do not meet those qualifying conditions. The only substantive
active in the labour market. To the extent that they operate in this way, they are a form of de-commodifying
income protection, an alternative to securing income from open employment.
8
difference between these payments is that the social assistance payment is means test to family
income, while a working hours test applies to continued receipt of the insurance component.
The maximum rate of JSA is not tied to previous wages, and it is generally much lower than its
Danish counterparts. Prior to 1996 there were two payments for unemployed people:
Unemployment Benefit (a flat-rate insurance based payment) and Income Support (a flat-rate,
means tested social assistance payment). Figure 2 shows the incidence of overall and long-
term (defined as 12 continuous months) reliance on JSA and its predecessors, in proportion to
the overall population of working age (not the labour force).
Figure 2:
Sources: United Kingdom: Office for National Statistics NOMIS data base; OECD labour market data base. ‘Unemployment
Assistance’ refers to Unemployment Benefit and Income Support for unemployed people prior to 1996, and to Jobseekers
Allowance (both contributory and income based) subsequently.
Note that these statistics are expressed as a proportion of the population of working age, not the labour force.
The impact of the recession of the early 1990s is clear. Afterwards, there was a sharp decline in
recipients, including those in receipt of JSA long-term. This suggests, on the face of it, that
British policies to reduce reliance on unemployment payments were successful, at least from
the mid 1990s to the early 2000s. After this, the decline in recipients was much slower. Note
that the recession of 2009 is beyond the scope of this study.
(2) Denmark
Income support for unemployed people in Denmark is divided into a social insurance payment
called ‘Dagpenge’ which is administered by various social insurance funds largely run by the
trade unions, and a social assistance payment called ‘Kontanthjaelp’ administered by the
Muncipalities. Dagpenge is paid to qualifying social insurance fund members, generally at 90%
of the previous wage up to a low ceiling (so that it is close to a flat rate payment for fulltime
workers, but at a much higher level than the British JSA). Kontanthjaelp is paid at a lower flat
rate (60% of the maximum rate of Dagpenge for a single adult) and is means tested on family
income.
Figure 3 shows trends in overall and long-term reliance on these payments.
9
Figure 3
Source: Ministry of Employment (2005); Danmarks Statistik, Jobindsats series; OECD labour market database. Note that
separate data were not available for long term unemployment insurance and social assistance clients, respectively, though the
majority of long-term recipients were social assistance clients.
Note that these statistics are expressed as a proportion of the population of working age, not the labour force.
The impact of the early 1990s recession, and a mild downturn in the early 2000s, can also be
seen in this graph. From 1993, reliance on both unemployment insurance and social assistance
payments fell substantially, suggesting that policies to reduce them were effective. However,
reliance on social assistance payments was ‘stickier’ after the early 2000s.
Table 1 compares key features of labour market and social security policies in the two countries,
with the average for the OECD member countries, at the beginning and end of the study period.
Table 1: Comparative labour market data
Denmark
United Kingdom
Proportion of people of working age employed (%) (a)
1999
Male: 80%
Female: 71%
Male: 82%
Female: 63%
2006
Male: 81%
Female: 73%
Male: 78%
Female: 66%
Proportion of people of working age lacking Year 12 or equivalent qualifications (%) (a)
1999
20%
38%
2006
18%
31%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
% of popln of working age
Reliance on unemployment insurance and social
assistance (% of popln. 16-64 yrs) Denmark
Unemployment insurance (UI) unemployment
Social assistance (SA) Long term UA & SA
10
Denmark
United Kingdom
Proportion of fulltime employees receiving less than 67% of median wage (% in 2000) (b)
Women
18%
32%
Men
7%
14%
All
11%
20%
Gross (before-tax) benefit replacement rate (OECD summary measure, after-tax replacement rates in
brackets)(c)
1990
52%
18%
2007
48%
(80%)
12%
(57%)
Expenditure on labour market programs (% of GDP) (d)
(with % of this spent on job search assistance and PES administration in brackets)
1990
1.06%
0.42%
2000
1.89%
0.24%
2005
1.58%
(30%)
0.43%
(80%)
Denmark
United Kingdom
Index of strictness of activity requirements (e)
1995-97
3.0%
2.6%
2004
3.2%
2.4%
(a) OECD 2001 and 2007, Education at a glance, Paris, Organisation for Economic Cooperation and Development.
(b) OECD labour market statistics; OECD average is for the 15 out of 30 OECD nations for which data are available.
(c) The gross replacement rate is the income of unemployed people on maximum rates of social insurance or social
assistance payments (before tax) as a proportion of wages (before tax). For 2007, the net replacement rate (after tax) is also
reported in brackets (not available before 2011). The OECD summary measure is defined as the average of the unemployment
benefit replacement rates for two earnings levels, three family situations and three durations of unemployment. These
estimates exclude housing benefits, which significantly increase replacement rates in the UK. ‘OECD average’ is the average
for the 21 countries for whom relevant trend data are available. OECD tax benefit models data base (for further details of
methodology, see OECD 1994, The OECD Jobs Study. Paris, Organisation for Economic Cooperation and Development.
(d) Includes employment services, training and wage subsidy schemes and disability employment programs. OECD social
expenditure database; OECD 2007, Employment Outlook Paris, Organisation for Economic Cooperation and Development.
(e) Based on job search requirements, requirements to participate in employment programs, and levels of sanctions. The
higher the score from 1 to 5, the stricter the requirements. Danish Ministry of Finance 1999,The Danish economy - medium
term economic strategy; Danish Ministry of Finance 2007, Availability criteria in 25 countries, Working Paper no.: 12/2007.
* average of 16 OECD countries in the mid 1990s and 25 countries in 2005, surveyed by the Danish Finance Ministry.
11
The first two indicators in table 1 suggest that the distribution of skills and wages at the bottom
of the Danish labour market is much flatter (more equal) than in the United Kingdom. Although
Denmark does not have a statutory minimum wage, the workforce is highly unionised and
minimum wages in industrial agreements are well above those in the United Kingdom. Further,
the education level of low skilled workers is relatively high in Denmark, consistent with higher
minimum wages
21
.
Unemployment benefit payment levels are much higher in Denmark than the United Kingdom
and OECD average levels. British unemployment payments, which are only indexed to inflation
declined substantially relative to low and mid-level wages, whereas Danish benefits broadly
retained their relativity to wages. When housing benefits are included, payments to unemployed
people in the United Kingdom are significantly higher than indicated, but still well below Danish
levels. These data suggest that financial incentives for Danes to move from unemployment to a
full-time low paid job are very weak. Conversely, poverty rates among working-age households
have been consistently about half those in the United Kingdom (around 4% in Denmark and 8%
in the United Kingdom)
22
.
From this simple statistical standpoint, there are enduring differences between the two countries
(along with others usually classified as social democratic and liberal regimes
23
). A key area of
convergence is the steady reduction in the maximum duration of the more generous
unemployment insurance payments in Denmark, which was effectively halved from nine to four
years from 1994 to 2000, and now sits at two years. In the United Kingdom the duration of
unemployment insurance was reduced from one year to six months in 1996.
Danish Government expenditure on labour market assistance for unemployed people is among
the highest in the OECD, though their spending levels are inflated in the OECD data by
inclusion of educational allowances paid to participants in training programs. Consistent with its
low benefit levels, the United Kingdom spends relatively little on these programs. On closer
examination, there was a modest convergence in investment in employment assistance from
the early to late 2000s as Denmark reduced its expenditures from a high base (especially on
training and direct job creation programs in the public sector) and the United Kingdom modestly
raised its spending levels from a low base (especially in job search assistance)
24
However, the
structure of spending on these programs was markedly different, with the United Kingdom
devoting around 80% of spending to employment service administration and job search
assistance compared with just 30% in Denmark:
Actually we spend virtually the lowest in the OECD on active labour market policies because essentially our active
labour market policy is to call people in and nag them. Then if we want to spend more we call them in more often.
(Senior official, Employment Ministry, United Kingdom)
Denmark is relatively strict in its activity requirements imposed on unemployed people (for
example, to search for an accept jobs) compared with the United Kingdom, though this
measure, developed by the Danish Finance Ministry, takes relatively little account of the
monitoring of job search efforts and may therefore exaggerate the relative strictness of the
Danish system.
21
Unlike the UK, there is no statutory minimum wage in Denmark. Minimum wages are set in each industrial agreement.
22
The poverty line is 50% of median household income, using modified OECD equivalence scale; Data are for households with a
working age head, rather than individuals. See OECD 2008, Growing unequal, Paris. Organisation for Economic Cooperation and
Development.
23
OECD 2006, Employment Outlook, Paris. Organisation for Economic Cooperation and Development.
24
Weishaupt T (2011), op cit.
12
To summarise, these indicators suggest that the United Kingdom and Denmark continued to
walk separate paths in their labour market and social security and employment assistance
policies, though there is evidence of some convergence in two areas: the maximum duration of
unemployment insurance payments, and overall levels of investment in labour market programs.
A comparison of activation policies and influences
We need to move beyond quantitative measures of the stance of activation policies to uncover
their policy intent and the political forces that shape it
25
. For example, among work experience
programs, there is a world of difference between the use of paid public sector employment to
requalify unemployed people for social insurance (an income protection objective), wage
subsidy schemes whose purpose is to help unemployed people learn skills on the job and prove
their value to the employer (a work capacity objective), and work-for-benefit schemes designed
to discourage reliance on income support (a work incentive objective).
The following comparison of the development of activation policies in the two countries draws
on the in-depth interviews, especially views that were common to interviewees from at least two
of the three target groups (policy makers, employment service providers and academics). It also
draws upon literature outlining the history of labour market policy development during the study
period, including official documents such as Government policy statements and reviews, and
academic analyses.
The study period is divided into two parts: broadly speaking the emergence of activation policies
in the late 1980s and mid 1990s, and their evolution following changes of Government in the
late 1990s to early 2000s.This enables us to test the extent to which the character of activation
policies was a function of the political colour of the Government or the business cycle, and
whether policy development exhibited path dependency regardless of those factors. The focus
here is on the purpose, design and level of public investment in employment programs for long
term unemployed people, especially the balance between income protection, work incentives
and capacity building elements, and the policy influences that led to those outcomes.
Discussion of each of the two periods begins with a description of relevant institutional
arrangements in the labour market and social security systems at the time (the building blocks
of activation systems), and identifies other key influences on the emerging activation policies
including new policy ideas and evaluations(the mortar that held them together). The major shifts
in activation policy, both in their initial development and evolution, are then outlined followed by
discussion of the character of the resulting employment assistance programs, the extent of
convergence and enduring differences between them in the two countries, and the key policy
influences leading to these outcomes.
The construction of activation policy in Denmark and the UK in the 1980s and early 1990s
(1) Denmark
As noted in the statistical comparison, the key institutional building blocks for activation policy in
Denmark in the early 1990s included a labour market with a high level of workforce participation,
especially among women, high wages for low-skilled workers, and a highly-qualified workforce.
In concert with their fellow Nordic countries, the Danes had long favoured high levels of
participation in paid work including among women. Child care was practically free and widely
25
Bonoli G(2013), The origins of active social policy, Oxford. Oxford University Press.
13
available, as was paid parental leave, though older workers had access to generous pre-
retirement benefits which discouraged workforce participation.
‘So you have not had this redundant unskilled population which you had to put to work somewhere in services, on
one hand. And on the other hand, you have had a lot of unskilled or low skilled service work in the public sector at
a proper wage and so on and proper working conditions which means, also, that you have seen an increase in
precarious jobs in nearly all European countries but in Scandinavia, they actually declined.’ (Academic, Denmark)
The governance system for labour market policies was ‘dense’, with multiple ‘veto points’ a
strong corporatist flavour: that is, representation of employer and employee interests was
embedded in the policy making and administrative processes
26
. The unions essentially ran the
social insurance funds and the public employment service had a tripartite governing structure
comprising union, employer and Government representatives. At the broader level, the main
national political parties, the Social Democrats on the Left and Liberals and Conservatives on
the Right, were generally unable to govern in their own right and had to assemble coalitions with
minor parties. Central Government had to deal with another player: the Municipalities, which ran
a parallel social assistance payment system for those who did not qualify for unemployment
insurance. Further, national labour market and social security policies were developed in
consultation with the social partners, with advice from a tripartite National Economic Council.
Other key building blocks for activation policy were the social security system and public
employment service. For insured workers, the social security system provided a high and
prolonged level of income protection. As indicated above, unemployment insurance was set at
90% of previous wages up to a ceiling. The system maintained a high level of coverage among
unemployed workers. This was buttressed by regular offers of six months’ work experience
and/or training in the Municipal sector at standard rates of pay, whose main purpose was to
requalify unemployed workers for unemployment benefits. An insured unemployed worker
could, in this way, continue to receive either unemployment insurance or a subsidised wage for
up to nine years after losing their job. Thus, within our ‘activation diamond’, the main labour
market program for unemployed workers at this time had an explicit income protection role. The
public employment service offered job matching and vocational training services, training
programs were voluntary and job search requirements were not strictly enforced.
Unemployed people not eligible for insurance, including new migrants, young school leavers,
and single parents, entered the separate Municipal social assistance system. Although this was
predominantly funded by central Government, and there was a national legislated framework of
payment rates and eligibility rules, Municipalities enjoyed a high degree of organisational
autonomy. Moreover, social security policies were divided into labour policies for insured
workers and social policies for the uninsured, administered by separate Government Ministries.
Although the social security legislation required social assistance recipients to register with the
public employment services and keep themselves available for employment, many were
exempted from these requirements on the grounds of social disadvantages such as health
problems. The main form of (voluntary) employment assistance they received was unpaid work
and informal training in a separate system of Municipal ‘projects’. This form of work experience
also had a strong income protection function, since it operated as an alternative to open
employment rather than a path towards it.
Often it ended up as a project with very, very low expectations and a lot of people not showing up, and it was not
really training to a relevant job, it was more wasting your time in an unpleasant way. Sometimes it wasn’t very
26
Kvist J, Pedersen L, Kohler P, Making all persons work, modern Danish labour market policies. In Eichhorst W, Kaufmann O,
Konle-Seidl H 2008, Bringing the jobless into work. Berlin. Springer; Kaspersen L & Schmidt-Hansen U 2006, Corporatism in
Denmark. International Centre for Business and Politics, Copenhagen Business School, Working Paper 32.
14
pleasant doing nothing, but it didn’t help people to realise how to act on the labour market.’ (Senior employment
policy official, Denmark)
The Conservatives ruled in coalition through most of the 1980s, until 1993. By the late 1980s
there was agreement across the political divide between the Social Democrats, Liberals and
Conservatives, and among the social partners, that existing policies were not effective in
reducing unemployment, which reached double digits in the recession of the early 1990s. This
coalesced in the work of a Government Commission, the Zeuthen Commission whose core
idea was ‘structural unemployment’: that the main cause of high unemployment was not the
business cycle but the structure of labour market institutions wages, benefits and skills. It
followed a Government Employment White Paper a few years before which called for slower
wage growth and lower benefits, both of which were opposed by the unions and Social
Democrats.
The Zeuthen Commission, a tripartite body including the social partners, took a more
consensual approach, recommending a shortening of the nine year maximum duration of
unemployment insurance benefits, tighter activity requirements for unemployed people, and
investment in training for long-term unemployed people to raise their skill levels
27
. Thus, the
ideas and policies underpinning a new activation paradigm were hammered out in a structured
corporatist dialogue, informed by experts. Employers regarded these policies as labour supply-
improving, unions regarded them as a more palatable alternative to cuts in wages and benefits,
and the major political parties hoped that they would reduce the very high public expenditures
on unemployment benefits.
It changed the way we looked at labour market policy, and it was quite dramatic, but a very important change in
mindset from many actors. On this Committee we have both the social partners and different Ministers, and it did
a lot of analysis and it did a lot of politics actually, and they found a solution.’ (Senior Employment Ministry official,
Denmark)
Given the suspicion of the unions and Social Democrats that the Conservative-led Government
was pursuing a policy of welfare and wage retrenchment, it took a change of Government to a
coalition led by the Social Democrats in 1993 for this ideational consensus to bear fruit. The
activation ‘turn’ in Denmark is generally associated with that Government’s reforms of 1994.
This reform converted the previous work experience and training schemes for insured long term
unemployed workers from an income protection device to a capacity building tool, by removing
the ability for workers to use work experience to requalify for benefits and making work
experience and training programs compulsory after four years on unemployment insurance. At
the same time, the maximum duration of unemployment insurance was lengthened from two to
seven years, though given the ‘carousel’ of benefits and work experience this was, in effect, a
reduction from nine years to seven!
These reforms were bolstered by the previous tripartite consensus over structural
unemployment, and a new idea: that the rights of unemployed people to income support and
employment assistance should be balanced by duties to participate in activation programs
28
.
Consistent with prevailing New Public Management ideas, these rights and duties were
embodied in a formal activity agreement between the jobseeker and the public employment
27
Goul Andersen J & Pedersen 2011, Continuity and change in Danish active labour market policy: 1990-2007.CCWS Working
Paper 54, Centre for Comparative Welfare Studies, Department of Economics, Politics and Public Administration, Aalborg
University.
28
The language of rights and duties can be traced to another Government review carried out concurrently with the Zeuthen
Review but with a focus on social assistance, referred to as the ‘Social Commission’.
15
service, which was intended to be tailored to individual circumstances and local labour market
conditions. To facilitate this personalisation of employment services, the employment service
was restructured to devolve decision-making to the regional level, at which the unions and
employer organisations were represented on new management structures:
‘There was nearly a cultural revolution because it was a very standardised system because they had this offer you
had to work for a period and then, after some years again, if you had no educational background, you were going
into some type of education and then you had your second offer for work. …… suddenly they were supposed to sit
in front of these unemployed and have some kind of sense about what is your need. And they even had to make a
contract with the unemployed.’ (Academic, Denmark)
But what was happening at the same time was that the social partner has huge, huge, huge influence when they
made their reform in 1994. They were actually the ones in charge of prioritising what types of instruments to use,
what types of target groups to give services. And they had a huge, huge budget, these regional boards. (Academic,
Denmark)
The activation policies of the mid 1990s were a grand bargain between unions, employers and
Government in which workers relinquished a degree of income protection in return for a
guarantee of public investment in employment capacity-building programs to help reintegrate
them with the labour market. This was the template for reform of activation policies for insured
unemployed workers in Denmark.
Well you could also say that the activation for the insured was part of an agreement between the government and
mostly the trade unions that okay, we’re lowering the time you can get the uninsured benefits but on the other
hand we from the government would do more for these people. We will give them job training, we will give them
education, etcetera, etcetera. (Municipal service provider, Denmark)
The resulting employment programs for insured workers had a strong work capacity-building
character. In 2001, 86% of activated long-term unemployed insured workers received around six
months of vocational training or work experience in the public sector paid at regular wage rates
combined with training. Expenditure on employment assistance for insured workers totalled
DKR 2.4 billion in that year. Given the long duration of unemployment insurance and high levels
of unemployment, there was no rush to move people into open employment. The programs had
a heavy emphasis on work preparation through training and paid work experience:
You had in the beginning much more focus on training, educational training, and you had focus on individual
clients. So you did have this conversation with the unemployed and together you should find out what would be
the possible and the best way back to the labour market.’ (Labour market authority official, Denmark)
Municipal social assistance clients registered with the public employment service also faced
new activity requirements, but these were introduced more slowly, and many were still
exempted at the discretion of Municipal social workers. Of those who were required to
participate in employment programs, only 26% joined paid work experience or training
programs, while 71% participated in ‘Individual Job Training’ (a period of unpaid work
experience and training in a low-skilled job) or Municipal projects (work for benefit schemes
with an emphasis on social support rather than formal vocational training). Although social
assistance clients were widely considered to be more disadvantaged in the labour market, and
the number of these clients ‘activation’ exceeded insured workers by around 50%, investment in
programs for social assistance clients totalled DKR 1.4 billion 2001, around half the amount
spent for insured clients
29
. The reasons for the widespread exemption of social assistance
clients from activation, and the different forms of employment assistance offered to them, were
hotly debated. The Municipalities argued that the main reason was their clients’ greater social
disadvantage, and they pointed to the classification of many social assistance clients as
29
Ministry of Employment, 2002, National Action Plan for Employment, Copenhagen.
16
‘unemployable’ according to the prevailing profiling system for unemployed people. However,
researchers from the Government’s social policy research centre found that there was a high
degree of discretion and inconsistency in the profiling system
30
. Since only half the cost of
activation was met by Central Government, the Municipalities had an incentive to exempt
clients
31
. Meanwhile, the institutional separation of labour and social policy continued, with the
Municipalities failing to gain seats on the local labour market boards.
Employment programs for Municipal social assistance clients retained their essential ‘income
protection character. This view was supported by official program evaluations in the early
2000s, which found that participants in Municipal projects rarely moved into open employment
32
.
The same evaluations found that the most effective programs in assisting long term unemployed
people into open employment were wage subsidies in the private sector, and that training
programs and public wage subsidies (the main programs for insured workers) were relatively
ineffective in increasing transitions to employment in the short term and delayed re-entry to the
labour market (the ‘lock in effect’). They also found that job search assistance combined with
the ‘threat effect’ of compulsory referral to programs had a major impact on exits from benefits
to employment among less disadvantaged clients, but that their impact was weak for more
disadvantaged clients
33
. Significantly, while the Danish Economic Council drew the conclusion
that although most of the longer work experience and training programs were not cost effective,
its solution was to re-focus them on transitions to employment rather than abandon them
34
.
That opened our eyes to the problems with this lock in effect if you looked at [these evaluations] today, you
might say that they were a little too tough on the outcome of education, because the problem with studying is, as
you know, its effects take too long.’ (Senior Employment Ministry official, Denmark)
(2) United Kingdom
British activation policies were made with very different institutional building blocks. As the
statistical comparison indicates, the British labour market was characterised by a long ‘tail’ of
low skilled workers and low minimum wages. Employment participation was lower than in
Denmark, especially among women, and female workforce participation was not well-supported
by child care and parental leave arrangements
35
. The system of Government was also very
different. For the most part, the British ‘Westminster model was a ‘winner takes all’ system in
which either the Labour or Conservative parties ruled with little need to consult with minor
parties the social partners, or Local Government (which by the late 1980s had only a minor role
in the social security system).
The benefit structure was also markedly different. While there was a system of unemployment
insurance, by the late 1980s the maximum payments were set at the same flat rate as social
assistance, and both were in effect run by central Government. During a period of high
unemployment and fiscal austerity during the Conservative Government of the 1980s, the
30
Stigaard M 2006, Municipal activation. Copenhagen, Danish national social research institute (SFI).
31
Beer F et al 2008, State and local employment services: implementation of 'More People in Work' before structural reform.
Copenhagen, Danish Institute for Social Research [SFI].
32
Danish Ministry of Employment 2002, Effects of labour market programs. Copenhagen, Ministry of Employment; Graversen B
and Weise H 2001, Effects of activation measures for social assistance recipients. Copenhagen. Danish national social research
institute (SFI) Working Paper.
33
Graversen, B. 2004, Employment effects of active labour market programs: do the programs help welfare benefit recipients
to find jobs? Aarhus, Department of Economics, University of Aarhus.
34
Danish Economic Council 2002, Danish Economy. Copenhagen, Danish Economic Council. Autumn 2002.
35
Crouch C 1999, Employment industrial relations and social policy, new life in an old connection. Social policy and
administration 33:4 pp437-457.
17
insurance based elements (including earnings related supplements and access to non means-
tested payments for up to two years) were progressively stripped out of the system, an instance
of displacement. This process culminated in the homogenization of unemployment insurance
and social assistance payments for unemployed workers into a single flat-rate Job Seekers’
Allowance in 1996. The main remaining difference between the insurance and social assistance
components of this payment was the non-means testing of insured workers, but even this only
continued for the first six months of unemployment.
Moreover, as our statistical comparison suggests, in the early 1990s the maximum rate of
benefits for unemployed people was low by OECD standards. Unemployment payments were
only indexed to inflation, not movements in wages so that they fell behind community living
standards over time, an instance of drift. The Jobseeker’s Allowance was widely available
without time limits to unemployed workers in low income households, but it had the character of
a residual poverty-alleviation program for those who were unable to support themselves in the
private market. Compared with Denmark and most other OECD countries at the time, the British
policy response to unemployment relied heavily on the incentive effects of low benefits and ‘self
help’ rather than investment in training and other capacity building programs. For the first half of
the 1980s, recipients of unemployment benefits were not even required to register with the
public employment service, and the level of investment in labour market programs for
unemployed people was towards the bottom of the OECD league table
36
.
Despite the ‘winner takes all’ character of the political system, in the 1970s and 1980s labour
market policies had important corporatist elements. A tripartite statutory Manpower Services
Commission (MSC) controlled the public employment service and also administered vocational
training programs. In seeming contradiction with the incentives-based approach described
above, the Conservative Government’s response to high levels of long-term unemployment in
the mid 1980s was a large expansion of paid work experience in the public and community
sectors. On average, in each of the five years before it was closed in 1988, this ‘Community
Program’ provided 100,000 to200,000 term unemployed workers participants with six to 12
months of part-time work experience at prevailing wage rates
37
(King, 1993). This program,
along with vocational training provided by the MSC was voluntary. Since the Community
Program was designed more to ‘soak up’ unemployment (at a time when it was very high) rather
than prepare people for open employment, it had an income protection character. Official
evaluations concluded that it was not cost effective in reducing unemployment since few
participants progressed to other jobs
38
.
Unlike the Danish work experience programs, the Community Program was not converted into
the centrepiece of the new activation regime established in the late 1980s. By this stage the
Government was under less political pressure over unemployment, and tensions between the
Conservative Government’s market-oriented labour market policies and the corporatist system
embodied by the MSC came to a head. The Employment Department and the Government
appointed head of the MSC (Lord Young) became concerned that widespread reliance on
unemployment payments and the Community Program promoted ‘welfare dependency’ and the
Government decided to re-orient the system away from income protection:
‘The emphasis has now to be switched from programs which provide temporary work to programs which can
retrain unemployed people to compete successfully for the permanent jobs becoming available. At the same time
we must motivate those who have given up looking for employment or feel that they have no incentive to return
36
Wells J 2001, From Restart to the New Deal in the UK. Labour market policies and the public employment service, Paris.
Organisation for Economic Cooperation and Development.
37
King D 1993, The conservatives and training policy 1979-92. Political Studies 41pp 214-235.
38
Price D 2000, Office of hope: a history of the employment service, London. Policy Studies Institute.
18
to work....In addition we must take further steps to ensure that benefits are paid only to those who are genuinely
unemployed (Ministry for Employment 1988, p5)
One of our two secretaries of state at that point, Lord Young, was a seriously innovative thinker I think. …. One of
the things he said was, "Well, if there are so many people long term unemployed and we're worried about them
being out of touch, why don't we just talk to them? Why don't we call them in?" "Well, they won't come in." He
said, "Well, surely they should lose their benefit, then." (Government service provider, United Kingdom)
The MSC’s control of the employment service was removed and its role was limited into a
tripartite Training and Enterprise Council (TEC) administering vocational training programs for
both employed and unemployed workers. The institutional link between employment services
and the training system was removed, along with union and employer representation on the
governing body for the employment service.
In 1986 the Government conducted an experiment called ‘Restart’, comprising compulsory
interviews for recipients of unemployment payments who were unemployed for six months. This,
and not the large scale work experience and training programs used to activate unemployed
people in Denmark, was the template used for subsequent activation policies in the United
Kingdom, an instance of displacement. At its core, Restart emphasised work incentives rather
than employment capacity building. Long term unemployed people were interviewed a number
of times by the employment service, asked about their efforts to find work, and offered job
search assistance such as coaching and help with resumes. The interviews were compulsory,
the idea being to ‘shake out’ of the system those who were either in undeclared work or not
actively seeking employment. If after a short period of time an individual was unable to find
employment they would be offered job search training or referral to six to 12 months of training
or work experience.
All of that led to the creation of the Restart regime which actually brought everything together for the first time.
Suddenly you had something which is kind of still in place to this day, which is an advisory regime which gives you a
tough advisory gateway at the very start of the process that sort of sets the scene, explains what things are like,
draws up a job seeker's agreement and then puts in place an arrangement to see people roughly six monthly
thereafter. Now, it has been tweaked in many ways since then; managed in many ways, but that's the
fundamental. (Government service provider, United Kingdom)
The main vehicle for work experience and vocational training was a new program called
Employment Training, run by the TEC. Fearing that the Government planned to introduce a
compulsory ‘work for benefits’ scheme as part of its new ‘incentives based approach, the
unions withdrew from the TEC and the British experiment with tripartite management of labour
market assistance came to an end
39
.
An official evaluation of Restart found that the interviews themselves had a major impact on
transitions to employment, not a surprising result given the laxity of the previous activity
requirements
40
. This, together with the fall in unemployment which relieved political pressure on
the Government, convinced it that the monitoring, compliance and job search assistance
elements of the Restart strategy rather than large investments in lengthy work experience and
training programs should form the centrepiece of its activation policies. The Employment
Training program was not introduced on the scale originally planned, and it was replaced in the
39
Price 2000, op cit.
40
Dolton P and O’Neill D 1996, Unemployment duration and the restart effect, Economic Journal No 106.
19
early 2000s by work experience and training schemes of shorter duration such as ‘Training for
Work’.
‘Of all the schemes introduced by the Government, Restart had the most marked effect on the unemployment
figures
41
‘We needed to retain a community work, work experience, social enterprise type of program for the real hard
cases where there isn't much going on. That meant that the Community Action Program was born out of the
ashes. But, actually, what we really needed to do was to prod, provoke, enlist, enrol people back into the labour
force through a combination of sanctions through encouraging self-employment with various smaller scale but
successful enterprise programs, and to actually - once people got into the labour force they would then acquire the
skills that would enable them to progress. It was called a work first strategy.’ (Government service provider,
United Kingdom)
From 1990 to 1993, a period of sharply increasing unemployment, spending on the Employment
Service rose by almost half while spending on training programs for unemployed people fell by a
third
42
. By the time the Conservative Government fell in 1997, unemployed people were
required to participate in Restart interviews as well as employment programs, and the focus of
both was ‘work first’ – to get long term unemployed people quickly into the first available job
rather than to skill them up for the labour market. Unlike in Denmark, the new duties of long
term unemployed people were not balanced by a corresponding right to substantial capacity
building programs. Rather, employment programs were developed as an adjunct to the
administration of unemployment benefit activity requirements, with a clear focus on self help and
work incentives.
As in Denmark, official evaluations found that lengthy periods of training or work experience that
lacked a clear focus on transitions to open employment had ‘lock-in effects’ that often exceeded
their positive impacts on future employment, at least in the short term. This was consistent with
the emerging views of the OECD
43
. However, the lesson drawn by the British Government from
these evaluations was different to that of the Danes. The Conservative Government concluded
that major investment in capacity building was not worth the cost, since the same outcomes
could be achieved much more cheaply through Restart interviews and job search assistance
44
.
The evolution of activation policy in Denmark and the UK in the late 1990s and early
2000s
The Conservatives lost power to the Labour Party in the United Kingdom in 1997, and Danish
politics took a turn in the opposite direction in 2001 when the Social Democrat-led coalition
Government was replaced by one led by the Liberals. This study extends to the mid 2000s, just
before the international recession, which enables us to assess the impact of these changes of
Government in activation policies.
By this stage, unemployment had fallen substantially in both countries (to 4% in Denmark and
6% in the United Kingdom) and this positively reinforced Government commitment to the new
activation strategies. As the political pressure on Governments from high unemployment eased,
they found themselves dealing with labour market shortages at a time when the profile of the
remaining population on unemployment payments became more disadvantaged as their number
41
Chancellor Nigel Lawson, cited in Price 2000, p256.
42
Robinson P 2000, Active labour market policies, a case of evidence based policymaking? Oxford review of Economic Policy.
16(1):13-26, p18.
43
Martin & Grubb, 2000. What works among active labour market policies. OECD Economic Studies No 230, Paris. Organisation
for Economic Cooperation and Development.
44
Price 2000, op cit pp291, 292.
20
diminished
45
. The logic of the activation paradigm was to deal with these problems by
extending activity requirements and labour market supports to groups of income support
recipients previously exempted from activation, especially Municipal clients and older workers
on ‘pre-retirement pensions’ in Denmark, and sole parents and people with disabilities in the
United Kingdom
46
.The challenge here was to provide the support and incentives required by
these groups to (re)enter the labour market, often after a long period out of work. In both
countries, there was evidence to suggest that an incentives based approach on its own was not
effective in assisting long term unemployed people into jobs
47
.
(1) Denmark
The policy response of the new Liberal-led Government in Denmark to these challenges was to
shift the focus of employment programs from meeting participation targets in activation
programs towards transitioning people more quickly into open employment, and also to shift
labour market program investment towards the ‘less activated’ Municipal social assistance
clients:
‘Compared to today, efforts must be made much more flexible and must focus on the direct route to employment.
Most people know the stories of unemployed people who have ended up in mindless activation’
48
.
‘We moved in this period from a heavy weight on education and qualification to more discussion on availability as
we called it a solution that people should seek these jobs.’ (Senior Ministry of Employment official)
In addition to the tightening labour market, an important influence on this policy shift was a
steady reduction in the maximum period of unemployment insurance from seven to four years
introduced by the Social Democrat-led Government, combined with a tightening labour market.
This in itself re-focussed employment assistance towards more rapid transitions to employment:
The more the demand increased the more the policies were drawn in the direction of the, what do you call it,
subsidised jobs and more away from education and qualifications because we had to get people out on the labour
market, and fast. Whereas in the 90s we had seven years to qualify people for the job and of course it was a lot
more long term job plans were made and there was room for it as well.’
(Municipal service provider, Denmark)
There was a tension between this new emphasis on faster labour market transitions and the
more disadvantaged profile of the remaining unemployed clients. So capacity-building programs
such as wage subsidies and education and training were maintained for long term unemployed
people and others with barriers to employment:
‘The unemployed who can take a job tomorrow just have to be conveyed to a job or helped to look for work. Those
who lack qualifications will be offered training or an internship at a company. Those who lack work experience, an
internship or work experience in a private or public business. Those who have problems in addition to
unemployment will have support that enables them to take a job
49
.
The Liberal-led Government took a number of steps towards work incentives-based strategies
which in some ways brought Danish policies closer to the United Kingdom activation model.
This included six monthly interviews to assist with job search and check compliance with activity
45
Cappelari L & Jenkins S 2008, The dynamics of social assistance receipt. OECD Social, employment and migration working
papers No 67. Paris. OECD; Rosdahl A, and Petersen K 2006. Recipients of cash assistance, a literature review.
Copenhagen, Danish Social Research Institute (SFI).
46
Finn & Schulte 2008; Goul Andersen and Pedersen 2007, op cit
47
Graversen, B. 2004, op cit; Hasluck C, and Green A 2007, What works for whom? A review of evidence and metaanalysis for
the Department for Work and Pensions. Research Report 407. London, Department for Work and Pensions.
48
Ministry of Employment 2002, Action Plan, 'More People at Work.' p8
49
Ministry of Employment 2002, Action Plan, 'More People at Work.' p8
21
requirements (on the surface similar to the Restart approach), and reduced payments for some
groups. However, payment retrenchment was selective. An attempt in 2003 to reduce
unemployment insurance payments for workers who were previously in higher-paid jobs was
repulsed by the Opposition and overall benefit replacement rates for both social insurance and
social assistance payments were hardly altered
50
.
Those whose payments were actually cut were social assistance clients, especially new
migrants from non-western backgrounds who formed around 30% of social assistance clients by
this stage and had become political outsiders
51
. In 2002 a ‘start benefit’ at a 30% to 50% lower
rate was substituted for standard social assistance payments for new migrants, and in 2006
couples were denied the married rate of social assistance after two years on income support
unless the ‘second earner’ had recently participated in paid work. The latter policy targeted
Arabic-speaking migrant communities in which female workforce participation was low. Social
assistance payments and supplements were also capped so they could not exceed the relevant
unemployment insurance payments.
The Government abandoned a previous administrative target that 70% of all long term
unemployed people should be in an activation program (work experience and training) and used
the savings to introduce a modest universal 2.5% tax deduction for employment income
52
. Yet
the limits to policies to improve financial incentives for unemployed Danes were spelt out in an
OECD report published at around this time:
‘Although [earned income tax credits] is suggested as a way of improving incentives for low paid workers, closer
analysis indicates that in the Danish case characterised by a strong compression of wages and generous
unemployment benefits such schemes do not add much to labour market performance
53
.’
The above changes to payments were either evolutionary, or at the margin. Significantly, apart
from the payment cuts they were for the most part supported by the Social Democrats in
Opposition.
The policy changes that had the greatest potential to undermine the foundations of the existing
system of labour market assistance were in the governance of employment assistance
54
. A key
reform, the ‘Municipalisation’ of the governance of employment assistance for both insured and
uninsured workers, was strongly opposed by the Social Democrats. The Government
progressively transferred control of the public employment service (including employment
services for insured workers) to the Municipalities. This move was partly aimed at the Social
Democrats political support base in the unions, whose influence was much reduced in the
process though unions and employers were still represented on the central and regional
oversight boards for the new system.
It was also intended to homogenise employment assistance for insured and uninsured workers
in a way that paid more attention to activation of the latter group. Ironically, the decentralisation
of employment assistance to Municipalities was also intended to tighten central Government
control over employment programs in order to re-orient them towards quicker transitions to
employment - by reducing the influence of the social partners. The Government gradually
tightened central control over employment assistance through its funding arrangements with
Municipalities.
50
Jørgensen H & Madsen P 2007, Flexicurity and Beyond, Copenhagen. DJOF Publishing.
51
Rosdahl A, Petersen K 2006, Recipients of cash assistance, a literature review, Copenhagen.SFI.
52
Goul Andersen J & Pedersen J 2011, op cit.
53
OECD 1999, Economic Report: Denmark, p84. Paris. Organisation for Economic Cooperation and Development, p84.
54
Bredgaard T & Larsen F 2008, op cit.
22
I think that if you look at the period from early 90s to 2007, the political intentions were to sort of make it equal,
the services you could get should not depend on whether you get your income from social security or
unemployment security. If you’re insured or uninsured you would, if you were able to take a job you should have
the same opportunities. (Municipal service provider, Denmark)
Some of these governance changes was quite successful in standardising and controlling the municipalities.
(Academic, Denmark)
These changes to governance of employment assistance had the greatest potential to alter its
character in a more fundamental way towards a work incentives-oriented model in which
substantial paid work experience and training programs played little or no part. This was
underscored by the Government’s decision in 2003 that Municipalities should contract out
employment assistance for at least 10% of their clients to private providers on a ‘payment by
results’ basis, according to short term employment outcomes
55
. When this strategy was pursued
in Australia and the Netherlands, the result was a re-focussing of assistance away from work
preparation and substantial work experience programs towards low cost job search assistance
and compliance-oriented interventions
56
. Also, in the latter half of the 2000s the funding of
Municipal employment assistance was altered to encourage regular and timely activation, and
the use of employment programs with the strongest connections to open employment,
especially wage subsidies and internships in the private sector. Up until 2010, the public
employment service continued to assist social insurance clients and its programs were still
100% funded by central Government. However, controversially, ceilings were placed on its
funding of longer training programs.
57
‘I think was around 2007, 2006, 2007, they said it was important that as many as possible got job training
58
. So
they changed the funding for the municipalities so they got, I don't remember the percentages but if you used
courses as a training program your funding was reduced to 30%, whereas the funding for job training and
especially private job training was perhaps 50%.’ (Labour market authority official, Denmark)
In 2005, the Government policy statement ‘A new chance for all’ announced a concerted push
to remove the remaining inconsistencies in activation for insured and uninsured unemployed
workers. A new profiling system was intended to reduce exemptions from activation to a small
minority of social assistance clients, whether or not they had ‘problems other than
unemployment’ such as a mental illness. Municipalities were financially penalised for delays in
activation, and the use of Municipal projects was discouraged, in favour of subsidised jobs and
internships in the private sector.
As you say the more skilled got jobs, those who did not have any social problems got jobs and what was left,
those with a lot of problems. So the government also launched a special program called ‘A New Chance for All’, for
the uninsured to get jobs. And they had more focus on activation on a job and not these [Municipal projects]. I
think that was the main change.’ (Municipal service provider, Denmark)
By 2006, a higher proportion of unemployed workers were in activation programs, but the profile
of employment assistance for insured and uninsured workers had not changed dramatically.
Among insured unemployed workers who were activated, 78% participated in vocational
55
Bredgaard T,.& Larsen F, et al 2005, Contracting out the public employment service, a quasi market analysis.
Transitions and risk, new directios in social policy. Centre for Public Policy, University of Melbourne.
56
Considine M, Lewis J, Sullivan, S 2009, Activating States: transforming the delivery of welfare to work services in Australia, the
UK and the Netherlands. Australian Report back to Industry Partners, School of Social and Political Sciences, University of
Melbourne; Sol E 2007, The individual jobseeker in the sphere of contractualism, International Journal of Sociology and Social
Policy 27:7-8, pp 301-310.
57
Beer F, et al 2008, State and local employment services: implementation of the 'More People in Work' before structural
reform. Copenhagen. Danish Institute for Social Research (SFI).
58
Job Training comprised paid work experience together with related training, a form of short apprenticeship.
23
training or public work experience programs (previously 86%)
59
. The major change was to the
duration of these programs, which were mostly limited to six months or less, and a modest shift
from public to private wage subsidies. Among social assistance clients; 55% participated in
special activation projects or individual job training (previously 71%). The major change here
was an increase in use of special activation projects and a reduction in individual job training,
though these shifts in the data may be due to reclassifications in employment assistance data.
This suggests a high degree of path dependency in the Danish activation system. Despite a
stronger policy emphasis on ‘work first’ approaches, backed by financial incentives in central
Government funding arrangements, and the findings of evaluations on their cost effectiveness,
most activated social insurance clients continued to participate in training and public wage
subsidy schemes
60
. Despite the negative evaluation findings for ‘special projects’ for Municipal
clients, their use increased. It is possible that the latter trend was due in part to the activation of
group of social assistance clients whom Municipal social workers regarded as highly
disadvantaged. However given previous inconsistencies in assessments of labour market
disadvantage, the role of institutional inertia cannot be discounted.
Interviewee2: So I think okay it’s changed but it’s not changed that much. I think it’s almost the same picture. And
there are some kind of historical traditions.
Interviewee 1: Yes but also because a lot of the persons in the uninsured, they have other problems than
unemployment and you have to work with them, you can’t just send them out into a company. You have to do
something else with them. (Municipal service providers, Denmark)
Reinforcing this picture was the decline in contracting of employment services to private
providers after 2005, when the Government removed the requirement for Municipalities and the
public employment service to refer a minimum proportion of clients to them. The widespread
privatisation of employment assistance, which had a large impact on the character of assistance
offered to long term unemployed people in Australia (and more recently the United Kingdom),
did not take root in Denmark.
The municipalities, they have a low tradition for contracting out the services, they have a tradition of keeping
things inside. And all the contracted market was for the insured unemployed. So the government wanted to
encourage them to still contract out services so they made some kind of additional funding if they would contract
their services out. But [later] it completely disappeared.’ (Academic, Denmark)
On the whole, the Danish activation story following the change of Government in 2001 is one of
path dependency and evolutionary change rather than a rupture with the previous system.
There was a shift in emphasis away from capacity building among insured unemployed workers
(towards shorter paid work experience and training programs) and towards a strengthening of
work incentives (mainly by intensification activation requirements and their enforcement rather
than changes in benefit replacement rates). There was a decline in expenditure on labour
market programs driven largely by reduced spending on training for insured unemployed
workers, and their re-orientation towards faster transitions to employment in a tight labour
market. However, despite the attempt by central Government to homogenise employment
assistance for insured and uninsured workers, most social assistance clients received
assistance that was qualitatively different to that for insured unemployed in effect, alternative
forms of income protection through programs such as the special projects. It is not clear to what
extent this was due to the different profile of these clients or institutional inertia.
59
Ministry of Employment (2004), More People in Work, Analysis Paper No 5; Danish Employment Council 2006, Social policy
report.
60
Note that negative evaluation findings of training programs focussed on short term employment outcomes. Interviewees
emphasised that their longer term impacts on employment were likely to be stronger.
24
Importantly, there was also a degree of political consensus over the broad direction of reform in
the early 2000s. Apart from the lower payments for migrants and the Municipalisation of
employment services, the main policy changes were supported by the Social Democrats
61
.
Further, to a significant degree these changes were set in motion by policies of the previous
Government, especially the reduction in the maximum duration of unemployment insurance
payments.
Despite a significant ideological shift under the Liberal-led Government towards the ‘duties’ of
unemployed people, the idea that they had a ‘right’ to employment assistance as well as
benefits remained:
‘There was very much an emphasis on right and less on duty and the beginning…..And then, of course, as
unemployment declined, there was more and more emphasis on duties and less on right but still a fair balance,
you could say, with much emphasis on the right, the so-called right to activation.’ (Academic, Denmark)
The enduring differences between employment assistance programs for insured and uninsured
workers suggests that social insurance systems and their associated corporatist governance
arrangements were significant influences shaping the capacity-building character of
employment assistance for this group in Denmark. For insured unemployed workers, a right to
work experience and training replaced the previous right to extended income protection.
Uninsured unemployed workers, and especially recent migrants, did not have the same claim on
these rights.
(2) United Kingdom
The election of a Labour administration in the United Kingdom was also a test of path
dependency in British activation policy. Key features of the existing system were retained: the
1980s corporatist administrative system was not restored, unemployment benefits were not
increased above inflation, and the recent merger of unemployment insurance and social
assistance embodied in the Job Seeker’s Allowance was retained. Yet from the outset, a new
approach to unemployment was a central feature of the political discourse of the ‘New Labour’
administration. The new Government had promised to move 250,000 unemployed young people
off benefits and into jobs. To achieve this goal, it committed itself to strengthen and renew the
activation paradigm, through a fresh combination of incentives and investment in capacity
building. The Government’s language echoed the ‘rights and duties’ discourse of Danish
activation reforms:
‘Our ambition is nothing less than a change of culture among benefit claimants, employers and public
servants with rights and responsibilities on all sides
62
The core elements of the new strategy were the ‘New Deal’ employment assistance programs
for unemployed people and a set of income support and tax policies designed to ‘make work
pay’
63
.
The centrepiece of the renewal of employment assistance was the ‘New Deal for Young
People’, which was supplemented by a series of ‘New Deals’ for other target groups including
long term unemployed adults. In one sense, this was layered on top of the previous Restart
interviews. After six months’ unemployment, a young person would receive up to three months
61
Goul Andersen and Pedersen 2011, op cit.
62
Secretary of State for Social Security 1998, New ambitions for our country: A new contract for welfare. Department of Social
Security. London. Cm 3805.
63
Finn D, and Schulte B 2008, Employment first, activating the British welfare state. Bringing the jobless into work? in W.
Eichhorst, O. Kaufmann and R. Kohnle Seidl. Berlin, Springer
25
of intensive job search assistance, the equivalent of the Restart interviews and job search
courses in the previous system, but delivered in more intensive and sustained way by a
personal adviser in the employment service. This was called the ‘gateway’.
I think you can regard the gateway almost as being an extended Restart period.’ (Official, Employment Ministry,
United Kingdom)
The New Deal also converted the Restart arrangements and previous work experience and
training programs into a single integrated scheme. If after three months of interviews and job
search assistance a jobseeker had not secured employment they would be given four Options:
work experience or training programs generally lasting up to six months that either had a work
capacity emphasis (vocational training or subsidised employment), or an incentive-
strengthening emphasis (work for benefits on environmental projects), depending on the
adviser’s assessment of individual circumstances and needs. Participation in the New Deal was
compulsory: there was ‘no fifth option’ of inactivity on benefits:
It was almost as though the work experience model was turned off, activation was turned on, that was
progressively expanded and ramped up, and then there was an attempt to try and see whether you could get more
out of combining the two than if you do the two separately. That was certainly my reading of the literature at the
time and it was what I took into government as being the logic of New Deal.’ (Academic, United Kingdom)
The two elements of previous labour market programs: interviews to help with job search and
work experience and training programs, were thus combined into a single New Deal program.
The key innovations were more intensive job search assistance and a new sorting mechanism:
only around one third of young jobseekers with substantial barriers to employment would be
referred to Options, and not all Options had a work-capacity focus. This was considered more
cost effective than referring all long term unemployed people to capacity building programs. This
was a hybrid activation system sitting in between the existing interview-based Restart strategy
and the Danish model of activation of long term unemployment insurance recipients through
work experience and training programs.
In converting the Government’s manifesto commitments into a new program, the Employment
Ministry emphasised its job search assistance and work incentive-strengthening aspects:
If you look at what they specified in the manifesto and what the New Deal looked like you could see similarities
but they are not exactly the same. You say that there was a degree of continuity between what was there before
and the New Deal, I'm quite pleased about that because I designed the New Deal….Actually the purpose of the no
fifth options was very much Employment Department. They were not employability measures. They were a no
fifth option. They were there to say that you've got to do something active and that the focus of that activity
should be that you will always be to have an eye on getting a job in the future basically.’ (Senior official,
Employment Ministry, United Kingdom)
The average unit cost of the New Deal for Young People in 2000 was 1,500 pounds, which sat
about half way between the cheapest elements of the Conservative Government’s activation
programs (such as job search training courses and job clubs, which cost around 100-200
pounds in 2000 values) and the more expensive vocational training and work experience
programs such as Training for Work (whose average unit cost was 3,000 pounds)
64
.
To further strengthen work incentives and keep unemployed people engaged with the labour
market, the public employment service and benefits office were merged into a new Government
agency called Job Centres Plus:
64
Finn D, and Schulte B 2008, op cit.
26
‘The more I've been around the more I think the financial incentives are not the big drivers in all of this. That's why
you need other incentives and disincentives which are the administrative incentives.’ (Senior Official, Employment
Ministry, United Kingdom)
Within three years, with the aid of a tightening labour market, youth unemployment fell
substantially and the political target was met. The Government turned to other groups to draw
them into the new activation regime: long term unemployed adults, sole parents and people with
disability.
Since long term unemployed adults were a much more disadvantaged in the labour market than
young people, this was a test of the Government’s commitment to investment in capacity
building. Here, the Government faltered, at first not including ‘Options’ within the New Deal for
Long Term Unemployed adults and then implementing a ‘cut-down version’ of the New Deal for
Young People in which paid work experience or vocational training were either not offered, or
were of very short duration. The voluntary New Deal for Lone Parents essentially offered career
counselling and job search assistance. Compared to a unit cost of 1,500 pounds for the New
Deal for Young People, the New Deals for long term unemployed adults and lone parents cost
an average of 400-500 pounds per client.
By 2003, one third of New Deal for Young People participants had already been through the
program previously, and this ‘churn’, especially of lower skilled and disadvantaged jobseekers,
was the subject of policy concern and debate
65
. Advocates for greater investment in capacity
building argued that long term unemployed people, especially adults, were not gaining the skills
they needed to move from insecure low skilled jobs into sustained employment. In response to
these concerns, the Government introduced on an experimental basis the StepUp program for
people who had already been through a New Deal program and were still unemployed.
Modelled on transitional labour market programs run on a small scale by local community
organisations, StepUp provided a combination of paid work experience in a regular job, relevant
training and mentoring. Despite the findings of its evaluation that StepUp had a significant
impact on employability among long term unemployed adults, the program was discontinued
after a few years:
Yeah exactly, the group who have proved chronically hard to place. So the options were you repeat the [New
Deal] program ad nauseum, right until such time as they die or something. You put in place some kind of
alternative more intensive program, which is what Step Up was, or you move towards some kind of punishment
model or work for the dole kind of model. So the Labor government tried the ILM model, such as Step Up, and
there were various experiments, small scale things dotted around which looked moderately encouraging given the
severely deprived nature of the group that you’re talking about but it was expensive. It never got past that the
evaluation was not strong enough in my view rather than it was not good... But [the Employment Ministry] felt
that it was too expensive for the kit that it was getting. So they never pursued that extensively.’ (Academic, United
Kingdom)
Instead, The Government shifted the New Deals in a new direction. The ‘Flexible New Deal’
(FND) was introduced in 2007 to streamline all of the population-based New Deals into a single,
more flexible program. The logic of this move, which was supported by evaluation evidence,
was that the New Deals would be more cost effective if assistance was personalised rather than
tied to each benefit or population category
66
. Rather than paying work experience and training
providers to deliver fixed programs, they would be paid according to short-term employment
65
Bivand P 2006, Evaluation of StepUp pilot, final report. London. Department for Work and Pensions.; Finn& Schulte 2008, op
cit.
66
Department for Work and Pensions 2007, Flexible New Deal evidence paper, London. DWP.
27
outcomes. This would give the model the flexibility required to scale it up and extend it on a
compulsory basis to new groups including people with disability and sole parents who up until
then were not required to participate in their respective ‘New Deals’. However, the actual
content of the FND was a lower cost, abbreviated version of the original.
‘Well we’re driven by the sort of per unit costs and you know, there has been a progressive reduction over the
period. New Deals early on, it was probably still paying out at around about 2,000 pounds, maybe two and a half
thousand pounds and FND was considerably less and Work Program was less again. Now, the issue there is that,
you know, that’s feasible within a program design that does have the Gateway upfront and is high volume, low
cost, moves people onto other destinations. (Official, Employment Ministry, United Kingdom)
The design of the FND was influenced by the New Public Management idea of contracting out
employment services and paying providers according to employment outcomes. When the New
Deals were first introduced in the late 1990s, a parallel experiment called ‘Employment Zones’
was undertaken in which long term unemployed people were referred to private providers who
were paid according to their effectiveness in reducing reliance on unemployment benefits. This
funding model sharpened the focus on quick employment outcomes:
‘This particular funding device helps explain why job search, job preparation and short work-focussed training
courses tend to be used in preference to longer and more structured programs of training and assistance....The
work first approach is thus a direct consequence of the way in which Employment Zones are funded and
incentivised
67
.
In the FND, the four New Deal ‘Options (which were only fully in place for young people) were
reduced to a four week period of compulsory work-for-benefits intended to reduce incentives to
remain on payments. The FND looked forwards towards outcomes-based funding of
employment services, but it also looked backwards to the Restart model, with its emphasis on
interviews, job search assistance and incentive effects:
Well, the Flexible New Deal was the first one where they got rid of the personal advisor and they got rid of the
follow through - it became much more harsh. It wasn't about what is the best? It was more conditionality than :
we can help you but you've got to take up the help. (Senior official, Employment Ministry, United Kingdom)
Another elements of the Labour Government’s employment policy at this time carried the
potential of stronger investment in capacity building for long term unemployed people. An official
review of workforce skills policies recognised that the long ‘tail’ of low skilled workers was an
underlying cause of structural unemployment and recommended a guarantee of access to
training for at least semi-skilled qualifications for all school leavers and employees:
‘The short-term focus [on employment outcomes within 13 weeks] moves attention away from pre-work
interventions that might improve the sustainability of employment, as well as creating little incentive to build links
with in-work support that might improve retention. Two-thirds of Jobseekers’ Allowance claims are repeat ones’
68
.
However, in its response to the Leitch review the Government did not change the delivery of
employment and training services for unemployed people much on the ground. Beyond ‘skills
health checks’ and advice from a new Careers Service, activation policies for unemployed
people continued to follow a ‘work first’ approach. Skills training was mostly reserved for those
who had already secured employment.:
‘The idea is how can we join up work-first employment interventions which get people through the door, with then
training programs which will progress them, advance them, help them stay in work?’ (Academic, United Kingdom)
67
Griffiths R, and Durkin S 2007, Synthesising the evidence of Employment Zones. London, p17. Department for Work and
Pensions.
68
Leitch S 2006, The Leitch Review of Skills: prosperity for all in the global economy - world class skills. Final report. Norwich,
UK Treasury, p13.
28
Despite the prominence of the New Deals in the Government’s employment policy discourse,
and the significant boost to investment in capacity building for long term unemployed young
people through the New Deal for Young People, its fiscal commitment to them was
overshadowed by the other key element of the new activation system: make work pay policies.
In 2000, 910 million pounds was spent on labour market programs for unemployed people (of
which one third was spent on the New Deal for Young People), while the cost of the centrepiece
of the Government’s ‘make work pay’ policies, the Working Families Tax Credit, was 6,000
million pounds
69
.
Together with a new national minimum wage, the Working Families Tax Credit was intended to
improve financial incentives for families to move from benefits to at least 16 hours a week of low
paid employment. Increases in unemployment benefits or investment in capacity building
programs for unemployed people to bring them closer to Danish levels was not part of the
agenda.
‘The better off in work line of thinking strand ran through the Blair Government just as vigorously. The only
difference was that their proposed solution was not lower benefits or a tougher benefit regime, because they
thought all that had been done. The only other thing you could do was affect the other side of the equation; affect
the demand side by saying we'll pay you in-work benefits.’ (Government service provider, United Kingdom)
These policies also had an income protection purpose for low paid workers, a key Labour Party
and trade union constituency. The Government committed itself to halve child poverty in a
decade and set about achieving this through a combination of improvements in family
payments, the new tax credit, and ‘work first’-oriented activation policies:
Then the final bit is the adaptation from the US looking at the experience of work supplements alongside work
requirements, and the decision to first of all introduce working tax credits, or family tax credit it was called, but
then crucially in the dynamics of the New Labour politics and progressive politics, how that agenda then becomes
absorbed into the child poverty agenda, and we see tax credits used as one of the primary tools for reducing child
poverty, a small part of which is about Making Work Pay. Mostly it's about reducing child poverty. (Academic,
United Kingdom)
The main area of convergence with Danish employment policies in the 2000s was the extension
and intensification of personalised activation. The work capacity-building elements of British
activation policies were strengthened through the New Deals, and towards the end of the
Labour Government’s tenure a number of seeds were planted that might have taken capacity
building further through programs such as Step Up and the skills strategy. However, as in
Denmark, there was a strong element of path dependency in British labour market policy. The
‘Restart’ activation ‘template which prioritised regular interviews and intensive job search
assistance was stamped upon the New Deals, especially their final iteration, the ‘Flexible New
Deal’:
The basic institutional underpinnings of the British activation model including tight central
Government control with minimal social partner involvement, low unemployment benefits, a
‘work first’ approach, and a large low-paid workforce, remained in place despite the change of
Government. Capacity building programs were strengthened, but harnessed to an activation
strategy that had job search assistance and work incentives at its core:
In contrast, activation of insured unemployed workers in Denmark essentially meant enrolment
in capacity building programs that were converted from their original income protection purpose,
69
Finn and Schulte 2008, Table 31.
29
albeit with a stronger emphasis on faster transitions to open employment after the Government
changed and the labour market tightened:
The options in the New Deals in the UK were sort of part of an activation system and had a particular purpose as
you explain. My sense is that [what] they were doing - was different in those other countries [Denmark and
Holland]. They were seen to have their own intrinsic purpose which, in addition, was activating.’ (Senior official,
Employment Ministry, United Kingdom)
Conclusions
The evidence from the interviews and official literature on activation policies in Denmark and the
United Kingdom supports our first hypothesis: that both countries introduced and then
progressively extended activation policies because they offered Governments of both Social
Democratic and Liberal or Conservative persuasions an alternative to the more politically
challenging course of payment retrenchment. The activation paradigm was accepted in both
countries because their labour market policies and stakeholders historically favoured high
workforce participation. In that sense, there was policy convergence away from income
protection at the expense of labour market participation towards policies that encouraged,
required and supported transitions to employment. This was supported at the level of ideas by a
combination of elite concern about structural unemployment and the cost of social security and
a ‘rights and duties’ agenda which Governments projected into the public discourse.
The evidence from both the statistical comparison and the interviews supports the second
hypothesis, that Denmark would rely more on work capacity-building activation strategies while
the United Kingdom would rely more on incentive-strengthening approaches. This difference
persisted despite a policy re-alignment in Denmark in the 2000s towards the British emphasis
on quick employment outcomes, and growing concern in the United Kingdom that the low skills
of unemployed people might be responsible for the ‘churn’ of unemployed people between New
Deal programs, employment, and back to benefits.
Employment assistance policies for long term unemployed people exhibited a high degree of
path dependency in both countries, after the initial ‘activation turn’ in the late 1980s and early
1990s. In Denmark the template for activation of insured long term unemployed workers was
participation in intensive work experience and training programs that were adapted from their
original income protection purpose to fulfil work capacity building objectives. Activation of
insured workers was for many years defined as participation in these programs. In contrast, the
benefits and employment assistance arrangements for Municipal social assistance clients
continued to emphasise income protection. Those who were not exempted from activity
requirements on the grounds of social disadvantage were usually placed in ‘make work’
programs with little connection to the labour market. In the United Kingdom, the template for
activation was job search assistance and monitoring of work test compliance through Restart
interviews, which was later intensified through the ‘gateway’ phase of the New Deal. Work
experience and training programs were treated as ‘add-ons’ and targeted towards the most
disadvantaged and the least engaged. More broadly, the United Kingdom invested substantially
more in ‘make work pay’ policies specifically targeted towards unemployed people and
substantially less than capacity building programs for unemployed people than in Denmark.
These differences in the treatment of insured and uninsured workers in Denmark, and between
long term unemployed people in Denmark and the United Kingdom, persisted despite changes
on Government in both countries in the middle of the study period.
30
The interviews clearly point to one source of this path dependency: the institutions delivering
labour market policies the benefit system and employment assistance and the stakeholders
surrounding those systems. In both Denmark and the United Kingdom, unemployment
insurance, especially when embedded in corporatist forms of labour market regulation, was
associated with an emphasis on work capacity building policies
70
. Insured workers had rights to
employment assistance (in addition to benefits), which did not apply in the same way to
recipients of social assistance payments. These rights were embedded in the trade-off between
longer income protection and capacity building for insured unemployed workers in the 1994
activation reform in Denmark, but they were not yet cemented in place in the United Kingdom
before its corporatist phase of labour market policy development, and indeed unemployment
insurance itself, were effectively terminated.
This suggests that, as Clasen and Clegg and Palier argue, the structure of the benefit system
and the interests represented in its administration generates path dependency in labour market
policies affecting unemployed people either facilitating or blocking activation programs and
also shaping the character of those programs
71
. Once a benefit system is set in place it is
politically difficult to fundamentally change it, and labour market assistance for unemployed
people is largely an outgrowth of the benefit system. Over time, in each country, activation
policies have ‘congealed’ around the underlying benefit structure, as senior officials within their
Employment Ministries imply:
In the old days it was totally different systems in social welfare, and it was also part of the period in the new
government from the start of 2001, that this system should be more and more integrated and the same. You
might say from a scientific point of view that it was a bit silly because there’s always a fundamental difference,
and the main difference between these systems, as you know, in the unemployment system there’s no means
testing of the family income. It’s a minor difference you could say, but in practice, it’s a totally different world.
(Senior official, Employment Ministry, Denmark)
‘So I do sort of, I feel that the fact that we don't have a social insurance system anymore, does give the social
insurance makes the benefits feel like rights and entitlements to the recipients, that it’s their money. Which
means that the activational stuff is more naturally applied to social assistance, and that’s kind of why that model
was not that advanced in the UK and it was scrapped a long time ago. What was interesting about Denmark is that
as you say they had a strong social insurance model but felt a need to keep people in the system. So they were
creating the time limit and then they had to requalify people.’ (Academic, United Kingdom)
Further research could usefully explore other explanations for persistent differences in activation
strategies in the two countries. One possibility is that employment programs were developed
and altered pragmatically in response to changes in the labour market (including labour market
tightening in the early 2000s), and the profile of unemployed people. This includes the greater
labour market disadvantage of social assistance clients in Denmark, though it is not
straightforward to identify the equivalent population within the British benefits system. This study
has not examined gender differences in the treatment of benefit recipients or the ways in which
different ‘care regimes’ shape activation strategies, through this could be incorporated into both
sides of the activation model used in this study: work capacity building and incentives
72
.
70
Larsen F 2006, The importance of institutional regimes for active labour market policies, the case of Denmark, Transitional
Labour Markets Workshop, Rotterdam, CARMA, University of Aalborg.
71
Clasen J & Clegg D 2006, Beyond activation, reforming European unemployment protection systems in post-industrial labour
markets, European Societies, 8:4, pp527-553.
Palier B , Beyond retrenchment, Center for European Studies, Working Paper Series 77, June 2001
, in Gilbert, N van Voorhis, R, Activating the unemployed, New Jersey, International Social Security Association.
72
Daly M & Lewis J 2000, The concept of social care and the analysis of contemporary welfare states, British Journal of
Sociology 51:2.
31
With these caveats, this study supports, but does not necessarily confirm, the underlying
premise of the second hypothesis: that there was less scope for incentive-strengthening policies
in Denmark (beyond compulsory activity requirements, which were intensified in both countries)
due to its higher benefits and the need for unemployed workers to improve their skills in order to
compete for entry level jobs while in the United Kingdom, the labour market was structured
differently in ways that made a ‘work first’ approach the path of least resistance. In particular,
benefits and minimum wages were lower and there was easier access to low-skilled jobs:
I haven't really thought about this but I think it may have something to do that the entry points in both - to work,
in both the Netherlands and Demark to some extent are more formal than they are in the UK….There's much more
unionisation. There's much more tripartism. There is a segmented labour market. So if you want to undertake
better jobs and do training for better jobs those better jobs are all in the sort of standard labour market. That
sometimes means that they need to get to a higher level possibly in order to get into this more formal element.
Whereas in the UK there's big advantages of having lots of opportunities but it isn't half wasteful in terms of
information. You just need (a) to know what the opportunities are and (b) you just need someone kicking you to
keep on looking for them.’ (Senior official, Employment Ministry, United Kingdom)
‘And I think it was also a period where it was sort of more a modernisation of the Danish economy from the type of
jobs where you could just accept people from the street making simple work, to a more advanced economy where
you just couldn’t use people without some sort of more engagement. So this old type of public employment
service were gradually brought down’ (Senior Employment Ministry official, Denmark)
This brings us back to welfare regime theory. After comparing investment in human capital
strengthening and incentive-building labour market programs in a number of countries, Bonoli
concluded that the former were favoured by Social Democratic Governments and the latter by
Liberal and Conservative Governments
73
. This study supports that view, but goes further: it
appears that that these differences are embedded in welfare regimes and persist despite
changes of Government.
Activation was pursued in both countries because it met a need for Governments of both Left
and Right to reduce social security expenditures without retrenching benefits. But the same
activation ‘wave’ took on a different shape and course in each country, depending on the
structure of the underlying benefit systems and labour market institutions. To fundamentally
alter the course of its activation policies, a country would have to change its labour market
institutions.
73
Bonoli G 2010, op cit.
32
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