Coronavirus (COVID-19): measures to mitigate the labour market impacts - report

Annex C: Overview of the evidence on Active Labour Market Policies

Governments across the world are known for using Active Labour Market Policies (ALMPs) to support the unemployed into work. The effectiveness of these ALMPs is challenging to measure due to their complexity and context specific nature. However, wage subsidies, job search assistance programmes and targeted training programmes show the most consistently positive results.

In countries similar to Scotland, ALMP's can broadly be grouped into four categories:

• job search assistance,
• wage subsidies
• support to micro-entrepreneurs and independent workers
• training

All the above are, to varying degrees, active in Scotland. Overall their impact is hugely dependant on contextual factors and implementation. But several recent studies highlight key commonalities across evidence reviews.

The majority of ALMP's create mainly longer-term benefits. Programs focused on increasing human capital (training and private sector employment subsidies) show benefits approximately 2-3 years after program completion. Policies that emphasis 'work first' - such as job search assistance - show larger short-term impacts.^[32]

A 2019 meta-analysis of multiple studies highlights that the most effective measures - both in terms of earning and employment impact - are wage subsidies.^[33] Vocational training and support to micro-entrepreneurs and self-employed are the next most effective measures. Job search assistance is less effective that other programs. To note, the former three program types also have similar costs per participant.

Wage subsidies and support to self-employed workers both show the greatest impact on earnings relative to the control group, with improvements of 16.7% and 16.5%, respectively. Vocational training has a median impact of 7.7%, higher than the impact of employment services which are almost negligible on earnings.

Wage subsidies also show the highest impact on employment outcomes, following by self-employed support and vocational training, which show a median impact of 11% and 6.7% respectively. The evidence shows the employment services have a median impact of 2.6% to employment outcomes, in improving the propensity to find employment.

In terms of impact across people groups, women and those in long term unemployment see larger effects of ALMP's (youth and older workers see smaller impacts) (Card et al, 2015). The long-term unemployed are also benefited more than other groups by training and private sector unemployment; job search assistance appear more beneficial for disadvantaged participants.

In addition, context is vital when it comes to outcomes - with GDP and unemployment rate playing a role. There is also a slight indication in the evidence that 'non-public' sector funding can result in more effective programs.

In recent weeks, reports have highlighted how best - based on recent evidence - to use labour market policy in response to the current unique economic crisis. A response that must be tailored to the key features of the crisis: sectors affected, sudden nature of shut down in businesses, young people.

Aligning any ALMP with other policy (business support, Fair Work etc) is vital. (Keep, 2020)

In addition, job creation schemes are generating discussion in relation to the current crisis. Evidence is differing, with individual schemes running in the UK having seen some positive impact.^[34] However, evidence from whereas the OECD finds that these generally do not work.^[35] (OECD, 2015).

The timing of policies is also important. Evidence suggests that ALMP's work most efficiently if targeted at appropriate stages of an economic crisis. For example, job search assistance programmes are not effective early in a crisis when demand for labour is suppressed (Brown, A. & Koettl, J., 2015).

Box 3: Lessons from 2008-09 Recession

In relation to policies effective following the 2008-09 financial crisis, evidence points towards job search (in the short run) and job/wage subsidies as the most effective. Overall, ALMPs were found to be potentially highly useful to alleviate unemployment and poverty - but the evidence points to mixed results. The report noted that studies also tend to highlight that a longer-term perspective could make ALMP's, such as training, more effective.

The same report finds that in high income countries training was the most common intervention, both for those potentially losing their job and those already unemployed (this incorporates apprenticeships and work experience); following by work sharing. The next most implemented policy was public employment services (i.e. job search assistance), and then job/wage subsidies. The policy implemented the least was public works programmes; which the paper argues is based on the evidence of poor effectiveness associated with these programmes.