68516 Social Protection & Labor Policy Note April 2012 | Number 4 Background Note for the World Bank 2012–2022 Social Protection and Labor Strategy Improving Access to Jobs and Earnings Opportunities The Role of Activation and Graduation Policies in Developing Countries T he inexorable demographic change identified tive labor market programs; in practice, the social protec- in the new Social Protection and Labor Strat- tion systems in most middle and low income countries egy 2012–2022 estimates that 12 million new are fragmented with little articulation between functions workers will seek jobs in the coming year in Asia and and lack a coherent framework to design and implement Africa alone. Well-conceived social protection and labor active labor market programs. The proposed conceptual systems can effectively contribute to productive and framework aims to guide the assessment and design of inclusive growth, and activation and active labor market interventions improving access to jobs and earnings op- programs play an important role connecting individuals portunities in various contexts, and is accompanied by to jobs and improving earnings opportunities.1 a selective review (focusing predominantly on evidence for developing countries and relying mostly on evidence Across high, middle, and low income countries, the from micro studies and impact evaluations) on the ef- typology of activation and graduation programs and fectiveness of policies, discussing both incentive compat- policies—and the principles that drive their design— ibility and employment support programs. have many similarities and remain relevant for individu- als who are not receiving any type of transfer and yet are No one size fits all approach. An interplay of factors facing difficulties finding a salary job, moving into self- comprise optimal policy design, including the size of the employment, or are involved in low productivity and informal sector, nature of the job loss, size and complex- low earnings activities. Indeed, a majority of the labor ity of the country’s social protection system, design and force in developing countries is engaged in low produc- implementation arrangements of income support pro- tivity activities either as self-employed or in household grams, country’s administrative capacity, profile of the enterprises (often without pay). beneficiaries, and political economy context. Lastly, the impacts of most activation interventions are critically To foster employability of these most vulnerable, coun- dependent on broad labor market conditions, particu- tries generally use a package of policies—blending both larly the dynamism of labor demand. incentives and programs/support services. The former is comprised of features or modifications of benefits This note is based on Almeida, Rita, Juliana Arbelaez, Maddalena Honorati, Arvo Kuddo, Tanja Lohmann, Mirey Ovadiya, Lucian Pop, Maria Laura San- programs to make recipients less prone to work disin- chez Puerta and Michael Weber. 2012. “Improving Access to Jobs and Earnings centives and relate to the level or duration of a benefit, Opportunities: The Role of Activation and Graduation Policies In Developing Countries.� Social Protection & Labor Discussion Paper No. 1204. World Bank. co-responsibilities, or financial incentives.2 Alone, the Washington, D.C. incentive compatibility of income support schemes 1 This note concentrates on the policy agenda to remove the constraints or disincentives that individuals have to access better jobs and/or to improve the may not be sufficient; it also is important to have a wide productivity of their current jobs, or “activation.� The graduation agenda is more ambitious and involves interventions beyond the programs discussed. range of complementary support programs/services 2 Because we narrow the concept of “incentives,� important stand-alone to help target groups overcome an array of—and often instruments like “back-to-work bonuses� are excluded. These can be used as an activation approach and are not necessarily tied to a welfare or unemploy- multiple—barriers to work.3 ment insurance transfer (Vodopivec 2004). 3 Such support services may be very diverse; however, employment-related In theory, the activation and graduation agendas should support services are the focus here. bring together social insurance, social assistance, and ac- SPL Policy Note April 2012 | Number 4 Beneficiary profiling and customization. The target sustainability also implies a movement away from population is an immensely diverse set of individu- government support and subsidies (MICs) and donor als. Their constraints include lack of appropriate skills and non-governmental organization funding (LICs) to a (cognitive, non-cognitive, and technical), incomplete more self-contributory approach, especially for the more or no information (poor signaling and lack of net- skilled who can afford to pay. working), working capital constraints, and mobility re- strictions. Their many needs require a comprehensive Private sector involvement. Demand driven train- service model with a wide set of activation measures ing programs, for example, seem to be more effective, appropriately tailored (by combining training with as the acquired skills have higher chances to match work experience and employment services, cognitive private sector labor demand. In addition, encourag- with non-cognitive training, training with personal- ing a “market� for program provision has been gener- ized counseling, and customized job search assistance). ally associated with lower pressure on public budgets, The development of an “individual action plan� is greater cost effectiveness, and a wider array of services. current practice in many OECD countries; MICs are Unfortunately, evidence is still very thin and challenges increasingly following this trend. are involved, including the design and enforcement of contract execution. Incentive compatibility. A fundamental issue, the most common incentives relate to: (i) program design features Improving monitoring and evaluation systems is critical (duration and level of benefit payments); (ii) co-respon- for better planning and decision-making. A key factor sibilities (job search and other requirements combined behind good performance is having a results-based with monitoring and sanctions); and (iii) financial incen- management system where the local units can be held tives. The impact of these schemes is not yet well assessed, accountable for their performance. Programs need to and evidence is scarce, especially for non-OECD coun- be adjusted and optimized continuously, and this can tries. For social safety nets beneficiaries, the evidence sug- only be done if real-time data are available on opera- gests that limited benefit duration and decreasing levels tions and performance. However, in some LICs and of benefits are not effective policies if not accompanied fragile situations, where survey data are not available by complementary employability/graduation measures. on a regular basis and administrative data are still The use of co-responsibilities is increasingly attractive for reported manually, building a functioning M&E system countries where the administrative capacity and supply of is challenging. job intermediation and training services exist. In coun- tries where public employment services are not available, Throughout the developing world there is a growing their role may be partially substituted with the use of demand for advice on the design of policies to facili- social workers or social promoters. tate access of the most vulnerable individuals to jobs, while reducing dependency from public income sup- Sustainability is deeply dependent on implementation ar- port schemes. Yet, very few programs in middle and low rangements. Even though overall conclusions are hard to income countries have been evaluated. Among those draw, patterns have emerged and many open questions evaluated, it is difficult to assess how different design remain. features explain success or failure as well as determine the role of local conditions. Chile Solidario, for example, Governance requires a balance of roles and responsi- is a frontier system; it has lowered operating costs bilities between the central and local levels in order to (resource sharing and efficient implementation arrange- give local service providers the managerial flexibility to ments due to scale) and enhanced the performance both identify local labor market needs; institutional capacity of its own programs and the overall provision of social is crucial. protection. A proactive safety net agenda—based on in- novative designs and linking beneficiaries with effective Performance-based contracts are a recent shift to funding labor market interventions—may prove to be the only outputs (often measured by the number of beneficia- politically sustainable pathway to expand the coverage ries placed in a job after completion of the program); of social protection in many countries today. The findings, interpretations, and conclusions expressed herein are those of the author(s), and do not necessarily reflect the views of the International Bank for Reconstruction and Development/The World Bank and its affiliated organizations, or those of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. For more information, please visit www.worldbank.org/sp.