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Do waiting periods for income support improve employment outcomes? Lessons from Belgium


Since 2013 the Government has sought to introduce a four-week waiting period for the most work-ready new claimants of Youth Allowance (Other) and Special Benefit who are aged under 25 years. During this waiting period, new claimants would be required to undertake a number of job search activities in order to qualify for income support after their waiting period has been served.

The stated objective of the waiting period measure is to ‘set the clear expectation that young people must make every effort to maximise their chances of successfully obtaining work’.

There are very few international examples of up-front waiting periods for income support. If there could be said to be a ‘usual practice’ where it comes to withholding access to income support, then this is to place time limits on income support benefit receipt. As a result, it is difficult to determine with any degree of certainty what the likely consequences of the proposed policy would be.

One country that has instituted an up-front waiting period for young people, albeit with some differences from the Government’s proposed measure, is Belgium. While it is not possible to draw any substantive conclusions from the Belgian example, both due to differences in the waiting period measures themselves and in Belgium’s and Australia’s income support arrangements more generally, a recent evaluation of Belgium’s arrangements can provide a very general indication of some possible effects.

In 2016 Belgian researchers released a working paper that reported on evidence for the effectiveness of an extension of that country’s income support waiting period from nine to 12 months for school leavers under the age of 26. The waiting period extension was combined with more intensive job search requirements for young job seekers under a Youth Work Plan (YWP).

The researchers considered the combined measures’ effectiveness in terms of their impact on unemployment duration, transitions from unemployment to employment and job quality. In doing so, they drew on the evidence relating to time limited income support.

Expected results

Generally speaking, there is evidence that in response to time limits job seekers gradually increase their job search efforts and become increasingly likely to accept jobs as their benefits are due to run out. Given that Belgium’s up-front waiting period is essentially the mirror image of time limits on income support, the researchers’ expectation was that these predicted behaviours would be reversed.

That is, it was anticipated that young job seekers would search harder for employment at the beginning of the waiting period but gradually decrease their job search efforts as they approached the end of the waiting period. It was expected that young peoples’ job search efforts would then remain constant when they were in receipt of benefits as the income support benefit does not have an expiry date. The researchers also anticipated that an extension of the waiting period from nine to 12 months would result in an increased job finding rate throughout the unemployment spell.

The increased job search requirements were expected to have a limited impact on young peoples’ employment outcomes for two main reasons. Firstly, a number of activation programs (such as training or work experience programs) tend to have lock-in effects, with participants in such programs spending less time and effort on job search activities. And, secondly, activation programs are generally not particularly effective for young people—especially where they are not very intensive, as is the case for Belgium’s YWP measures.

Findings

The researchers’ expectations were met in the sense that the extension of the waiting period was found to have resulted in a slight reduction in job seekers’ unemployment duration. However, this finding was not statistically significant. The YWP measures were also found to have had some positive impact in this respect, but the impact was even less significant than that for the waiting period extension. Once again, this was in line with expectations.

Both the YWP measures and the waiting period extension were found to have had a negative impact on hours worked and earnings, although the effect was not statistically significant. Once again, these findings were in line with standard job search theory. This theory has it that job seekers will lower their job acceptance requirements, accepting jobs with shorter expected duration, and thus receive decreased earnings, in response to an imminent loss of income support. Despite the acceptance of lower quality jobs, as noted above, there was only a very slight increase in the job-finding rate.

The findings in relation to hours worked and earnings were found to differ according to job seekers’ economic circumstances. Young people who lived in households whose income was above the median were less likely to accept short-term job offers, indicating that in poorer households young people’s job acceptance is more guided by financial need.

Conclusions

The study’s findings did not yield much in the way of statistically significant estimates of impacts. Nevertheless, the researchers concluded that ‘an extension of the waiting period did not enhance much the transition rate to employment or, if it did, it did so at the cost of reduced working time and, hence, earnings. This suggests that threatening with a sanction is not the right method to activate youth and that supportive measures might work better’. While the YWP measures were intended to provide just such support, the authors felt that they were ineffective largely because they were insufficiently intensive.

Whether or not Belgium’s waiting period measure could be considered to be successful in the long term would appear to depend on the extent to which short-term and part-time employment provides a stepping stone to full-time employment and the increased self-reliance and reduced reliance on income support that this can bring. Recent Australian evidence on the ‘stepping stone’ effect suggests that part-time employment can help people who are not in the labour force to transition into full-time employment, but not people who are unemployed.