1. Activation in Ireland: Are we on the Right Path? Elish Kelly (ESRI) Seamus McGuinness (ESRI) Philip O’Connell (UCD Geary Institute) Conference on Irish Economic Policy Programme 1 st February 2013

2. Outline Background Objectives Data Descriptives Econometrics Active Labour Market Policy: What Works? Impact of Pathways to Work

3. Background Ireland’s unemployment rate has increased from 4.4% in 2006 to 14.8% today. Long-term unemployment is a growing problem, and currently accounts for almost 60% of total unemployment. Many of the long-term unemployed are also structurally unemployed having been previously engaged in industries, such as construction, with limited growth potential. The composition of unemployed has changed since the recession e.g. growth in unemployed males with post-leaving cert qualifications and females with third-level.

4. Objectives We use new data to examine the nature and rates of labour market transitions among the unemployed in 2006 and 2011. We consider the extent to which unemployed persons transition to employment and inactivity, and the degree to which the factors determining the transition to employment have changed. We consider the implications of our evidence for activation policy in Ireland.

5. Data Quarterly National Household Survey (QNHS) Longitudinal Data Pre-Recession: Q2 2006 – Q2 2007 Post-Recession: Q2 2011- Q2 2012 Balanced Panel: Focus on individuals unemployed on entering the panel who are present in the panel for five consecutive quarters (e.g. Q2 2006 through to Q2 2007) Eradicate the impacts of migration from using balanced panel We examine the impacts of age, gender, nationality, education and unemployment duration on escaping to employment

6. Transition Rates Continuously Unemployed Into Employment Into Inactivity Into/Out of Employment/Inactivity 200621.333.929.315.5 201149.019.926.64.6

7. Gender Profile Continuously Unemployed Into Employment Into Inactivity Into/Out of Employment/Inactivity Males 2006 29.2 2011 64.2 2006 40.5 2011 18.9 2006 23.5 2011 14.9 2006 6.8 2011 2.1 Females 2006 10.9 2011 27.6 2006 25.2 2011 21.3 2006 36.9 2011 43.1 2006 27.0 2011 8.1

8. Age Profile

9. Educational Attainment

10. Unemployment Duration

11. Escape to Employment: Personal Characteristics 20062011 Male0.034*0.004 Age (Ref: 55Plus) : 15-190.0200.016 20-240.0120.046** 25-34-0.0290.029 35-440.0000.024 45-54-0.0330.039** Irish0.115***0.021

12. Escape to Employment: Educational Attainment 20062011 Educational Attainment (Ref: Primary or Less) : Junior Certificate0.015-0.006 Leaving Certificate0.0450.005 Post-leaving Certificate0.0330.016 Third-level Non-degree0.086**0.001 Third-level Degree and Higher0.098**0.036

13. Escape to Employment: Unemployment Duration 20062011 Unemployment Duration (Ref: Up to 3 Months) : 3 Up to 6 Months-0.046-0.020 6 up to 12 Months-0.029-0.031* 12 Months Plus-0.045*-0.039***

14. Summary I The proportion of respondents remaining unemployed for at least 12 months has increased from 21% in 2006 to 49% in 2011. Consequently the proportion entering employment has fallen from 34% to 20%. Movements into inactivity appear stable. There has been a substantial fall in marginal attachment over the period.

15. Summary II The econometric analysis reveals that education has become less relevant in determining a successful transition to employment over the period. Location is not an important factor, and gender is not significant in current economic climate either. Unemployment duration emerges as being the main driver in explaining the degree to which people exit unemployment Those with shorter unemployment durations (up to 6 months) are more likely to escape from unemployment, while the longer a person remains unemployed the less likely he/she is to leave unemployment, especially since the most recent recession.

16. Long-term Unemployment has risen steadily during crisis. It now stands at 60% of total unemployment Reducing LTU remians be a key objective of labour market policy Source: Constructed from the Quarterly National Household Survey, Central Statistics Office

17. Active Labour Market Programmes Supply side – Job Search Assistance/Encouragement Interviews/counselling, job placement services, etc Increase effectiveness of job search + monitoring & sanctions – Training Enhance skills and employment prospects Demand Side – Public-sector Employment schemes Retain contact with labour market – Incentives to employers or self-employment Encourage employers to create new jobs or retain existing jobs

18. Key Principles for effective labour market activation Labour market activation to assist and encourage the individual to return to work should be initiated as soon as he or she makes a claim Effective job search advice and assistance should be delivered to all non-employed Job search activity should be monitored on a regular and ongoing basis An effective activation strategy needs to be backed up with appropriate sanctions for non-compliance with job search and activation requirements. 18

19. Research Findings: The Impact of Job Search Assistance Job Search Assistance – International evidence – Effective for many groups – Low cost – More effective with regular monitoring and sanctions – Irish research (OECD and ESRI): Ireland has had a poor record in the past Lack of regular monitoring, assistance or sanctions Impact of reforms?

20. Research Findings: Programmes with strong market linkages show strong positive effects on employment (1990s, 2006-8)

23. Rough Estimate of Spend on ALMPs for Unemployed c. 2011-12 2/3 rds on programmes with weak market links 1/3 rd on direct employment schemes Market Orientation Labour Market Leverage Weak Strong Supply – Training General Education and Training c. €430 (33%) Skills Training c. €220 (17%) €650 (50%) Demand – Employment Direct Employment c. €440 (34%) Employment Supports c. €200 (16%) €640 (50%) Total€870 (67%)€420 (33%) €1,290 Sources: Mainly DPER Comprehensive Expenditure Review data

24. Content and quality of education & training is vital Education and training programmes should be demand led – driven by the needs of growth sectors – strongly connected with real jobs Content of training should be driven by needs of enterprises – need to develop up-to-date intelligence of skill needs. Training initiatives should broadly reflect the education profile of the unemployed. – In the current crisis, the educational and skills profile of the unemployed has increased: training programmes should reflect that. Training providers should be chosen on the basis of their ability to deliver high quality effective and relevant training. 24

25. Pathways to Work/Intreo Many positive features: Battle against unemployment as top priority Commitment to reducing Long-term Unemployment – Integration of income support with activation One-stop-shop in Intreo offices – Additional training places – Statistical profiling to target those most at risk – Extension of employer PRSI scheme 25

26. Moving in the right direction, but: Pace of change – the crisis started 5 years ago: – Intreo roll out over 2 years – Client profiling still incomplete Needs to be adapted to new clients and new conditions Immediate activation for all clients? – New unemployed Only in Intreo offices - Non-Intreo, wait 3 months – Current unemployed Too little too late – insufficient activation – Others not economically active Capacity? – OECD: insufficient staff to implement activation system before crisis – Live Register has grown from 290,000 in 2009, to 440,000 in 2012 – Skills? – Outsource activation role? 26

27. The Way Forward: Demand and Supply Demand Pathways recognises the importance of programmes to match labour market needs – Can Expert Group on Future Skill Needs + FAS Skills and Labour Market Research Unit meet that challenge? – Need for ongoing and up-to-date information – Specific sector skills councils – Ensure nature and content of education and skills are market relevant Training programmes should include job placement component Supply Respond to upward shift in educational profile of unemployed Provide intensive retraining to tackle structural unemployment among former construction workers 27

28. The Way Forward: Providers Education and Training is excessively provider driven – Not designed to meet training needs of unemployed or skill needs of employers – Need to evaluate impact of 2 nd chance education Can SOLAS + Local Education and Training Boards meet training needs? – Experience, expertise, priority focus? – DSP as broker/coordinator of training? Providers should be chosen on basis of ability to deliver quality training – Provision could be incentivised according to results (job placements) – Does the academic calender meet the need of the unemployed? Ensure progression from programmes with weak to strong market links All education, training and employment schemes should be subject to rigorous evaluation: – identify effective interventions – timely restructuring/closure of ineffective interventions – 0.04% of the ALMP budget = €500,000 for evaluation…. 28