Evidence on macro-effects

In several countries, such as Denmark, the Netherlands or the UK in the 1990s and - more recently - Germany, unemployment has been reduced dramatically. This reduction has been attributed in part to labour market reforms and especially to the described effects of activation. Although there is growing evidence that the NAIRU - the rate of unemployment consistent with a non-accelerating inflation -has fallen in countries such as Denmark as a result of a combination of different factors - among them are benefit reforms and active labour market policies - there is not yet any robust evidence on the impact of activation policy on the structural unemployment rate. 

However, after more than a decade of experience with work-first and workfare approaches, there is also evidence that a work first policy runs the risk of low job retention. The high share of repeaters in the United Kingdom (see the chapter Employment First Activating the British Welfare State by Daniel Finn and Bemd Schulte) points at a rather low sustainability of workfare strategies. Hence, there may be a low-pay/low-skill trap that cannot be overcome by current work first practices but leads to repeated spells of full or partial benefit dependency. This fact points at potential limits of activation when it comes to the objective of stable employment for highly vulnerable groups. 

Source OECD Social Expenditure (SOCX) database (2005) Database on benefit recipients Carcillo and Grubb (2006) Appendix, Chart 2 

Regarding the cost implications, activation policies are costly both in terms of administration and programme costs. Country evidence does not show major cuts in public expenditure if all benefit schemes, active labour market policies, administration expenses and additional tax measures are taken into account. Comparative data, however, show that resources spent on active and passive labour market policies in OECD countries is especially high in Denmark, the Netherlands and Germany (Fig. 28). 

Germany France Sweden Switzerland United United States 

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