July 03, 2013 | Contribution by
DAVID A. ROBALINO By David A. Robalino, Lead Economist — Labor and Youth Team Leader, the World Bank
A view of the Opera House in Sidney. ©David Robalino.
In late June I was in Canberra and Sydney on a trip organized by the Community of Practice on Employment and Social Safety Nets. The sponsors were the World Bank's Human Development Department of the Middle East and North Africa Region — the region with the world's highest youth unemployment rate. I joined delegations from Brazil, Lebanon, Tunisia, and Saudi Arabia for talks with government officials, which highlighted some good active labor market policies.Back in the mid-1990s Australia drastically overhauled its employment services by moving from a public monopoly, the common model in middle- and low-income countries, to a system where all services are delivered by private providers and non-governmental agencies. Today, its main program — Jobs Services Australia (JSA), started in 2009 — is notable for paying providers based on results. Not surprisingly, the new system has outperformed the old one, even during the worst part of the recent global financial crisis. In fact, a recent OECD report says that JSA may have contributed to Australia's strong employment picture.Payment Based on ResultsThe JSA supports job seekers and employers. The process begins with job seekers registering in public employment offices where they fill out a questionnaire about their socio-economic background, reasons for unemployment, and types of jobs they are looking for. Based on their responses, a computer (not a human-being) assigns them to one of four possible streams — Stream 1 is for those deemed "work ready"; the other three are for vulnerable individuals facing more severe constraints. All job seekers are then given a list of service providers in their region where they can go to receive support.
Delegations from Brazil, Lebanon, Tunisia, and
Saudi Arabia meeting with JSA representatives. ©David Robalino.
The core function of the providers is to manage each case by providing counseling, basic job-search assistance, and monitoring progress. The providers also manage a fixed budget, which is allotted to each job seeker depending on the stream (those in Stream 4 receive USD 60, while those in Stream 1 receive over USD 1,000). The budget — called the Employment Pathway Fund (EPF) — can be used to purchase other goods and services (such as technical and life skills training, therapy, clothing), or finance wage subsidies.The fact that the EPF is managed by the provider is, I think, a key characteristic of the JSA, because it gives the flexibility to adapt the interventions to the needs of the beneficiary. Some providers, for instance, might decide that wage subsidies aren't needed and put more money instead on building job-readiness skills. In essence, there is no one program for all job seekers, which is the case with most active labor market programs across countries. What the Australians have is a general blueprint that can then be adapted to different population groups based on the constraints they face and the characteristics of the local economy.The other key feature of the JSA is the system used to contract and pay services providers. First, they receive a fixed budget per job seeker to cover providing basic services. Second, they are paid based on results. For each job seeker that is employed for 13 weeks, they receive a payment, and then another if the job seeker remains employed after 26 weeks. The performance-based payments are quite significant. In Stream 3 average payments can total USD 2,000 per beneficiary, and in Stream 4 around USD 4,000. Plus those providers that also offer training or other services are reimbursed from the EPF.Because the services providers have strong incentives to place workers and have the flexibility to design interventions, they can be quite innovative. One thing they do is to have dedicated "sales" staff. These are basically people who work full time in developing relationships with employers or employers association. They offer them human resource management services and help them recruit workers.Key Features for Employment ServicesThis is a simplified description of the Australian system, which is actually quite complex and requires considerable levels of institutional capacity to get going. And many developing countries might not be able to cope with a similar type of program. Even so, the JSA experience points to a number of features that I think all countries should consider:
It seems simple and obvious. Hopefully we will start to see some of these changes in more and more countries, particularly those who were part of our study tour.
- • Relying on providers (public or private) that are paid based on results.
- • Using objective and simple surveys to assign job seekers to different levels of assistance without the need of a counselor.
- • Targeting resources to the most vulnerable.
- • Establishing a per capita budget to provide a minimum level of basic services (that depends on the degree of vulnerability) — essentially counseling, follow-up, and monitoring activities.
- • Using a budget per capita that can be allocated to finance other activities (such as training and wage subsidies) tailored to the beneficiary.
- • Relying on payments based on placements, which are considerably higher than the per capita budget for basic services.