Ideologies of subsidisedpublic works 

Roundtable "Subsidised jobs in Europe - ideology, legislation and practice"

Tallinn City and UBC Commission on Business Cooperation

Mihails Hazans

University of Latvia

and Institute for the Study of Labor (IZA, Bonn)

Why public works in the crisis time? The background

A sharp increase in the number of jobless people, many of whom are in an urgent need for income support or will need such a support in the near term

(the scale of the problem is of course country-specific and depends on both the depth of the crisis and social protection system)

Most of these people in need are ‘new unemployed’ rather than ‘professional welfare recipients’

Most of the unemployed come from manual or low-skilled non-manual jobs

The number of available or expected in the near term job vacancies is very small compared to the number of unemployed

The asymmetric information issue: Who are the most needy?

Shouldn’t simply extending UB be the answer? Legal obstacles/procedures (slow) A long-term solution for a short-term

problem? Could be a part of the answer (depending on

duration and generosity of existing UB) But can’t cover all those in need

Labor market policies in good times and in the crisis period To understand the ideology of subsidised

public works, it is useful to compare it with the policies prevailing before the crisis

The general trend in Europe before the crisis: activation policies. What are the main ideas and which of them are relevant during the crisis, when the job vacancies are scarse?

Activation policies: Are main ideas relevant in the

crisis? For people of working age, doing

something useful – especially working – is much better than sitting on a public benefit

This is desirable: For better social cohesion From the solidarity perspective For sustainability of welfare states and

public budgets From the individual perspective:

Current psychological comfort Future labour market perspectives

Yes

Yes Yes

1/2

Yes Yes

Are objectives of activation policies

of immediate relevance in the crisis?

Higher employment through the mobilisation of latent labour supply

Moving people from benefits to employment Public works =‘quasi-employment’ Public works do not solve the unemployment problem

and the labour market problems ...but may help to prevent

discouragement, exit to inactivity exit to to the shadow sector emigration

By preventing inactivity, might ease the transition to employment when jobs become available

...but only if phased out timely! Improving life satisfaction and well-being of the

unemployed (who are, in general, more unhappy, less healthy and socially more isolated than employed people)

Combating poverty

No

1/2

Yes

Yes

Yes

The two sides of activation

DEMANDING Lowering benefits Reduction of max

duration Stricter eligibility

criteria Sanctions Individual activity

requirements: Integration contracts Monitoring job search

effort Mandatory

participation in ALMP schemes (workfare)

ENABLING Job search assistance Training Start-up grants Subsidised employment (two kinds!) Mobility grants In-work benefits Social services

Public works in the crisis setting (1) One of many labour market policy instruments But the one which is especially relevant in the crisis

time Main objective: to provide immediate support to the

jobless people in acute need Job creation is NOT an objective of this program Creating value added is NOT an objective Why? Because one can only create value added if

there is a demand for extra goods or services. Labour demand is derived demand. It is lack of demand for extra goods or services which caused the raise in unemployment.

Public works in the crisis setting (2) The design should help to deal with the asymmetric

information problem, i.e. to help identifying those in the most serious need of income support

Hence: The work is not supposed to be ‘pleasant’ but rather

demanding; Full-time requirement Effort monitoring (NB: restricts the scope of relevant

jobs) Termination for non-compliance Limited duration (6 months?)Are there some problems with these conditions? Yes – I will come back to it

Public works in the crisis setting (3) The work should be socially useful Those ‘employed’ in public works should not compete with

‘normal’ employees Hence:

the jobs are supposed to be ‘brand new’ (or at least noone has been fired from these jobs during some reasonably long period before public works start)

Public works should not prevent these or other unemployed to be ‘normally’ hired (maybe in future) for the same kind of job.

Public works prevent participants from active job search, hence timely phasing out is VERY important

Public works in the crisis setting (4)

To achieve this crucial condition, as well as to prevent market distortion (possible use of free labour by some market participants) only non-profit organisations, local governments or their agencies are allowed to use ‘public workers’

Pay to public works participants should be substantially higher than alternative social assistance benefit (e.g. GMI), but lower than minimal wage.

Public works: The Challenges (1) Public (and expert!) misperceptions

Why spend money on something not so necessary? Shouldn’t we better create new ‘real’ jobs or subsidise employers to prevent new lay-offs?

<Timing! + Automatic stabilizer> “I have seen these guys on the street (or in the

park)...It is crazy to pay public money for such a work” <Don’t forget, these are unemployed...And many

unemployed receive UB when not working at all...Yes, you just can’t identify them on the street!>

Public works: The Challenges (2)

Cases of crowding out normal employment <Just fight them! Car accidents are not a reason to ban cars>

Discrimination based on age, education, and health status

<be creative in designing public works... <complement them with other measures more

suitable for other categories, e.g. training with scholarships>

Thank you for your attention!