Photo Credit: Dana Smillie / World Bank
Author: Federica Saliola
Active labor market programs (ALMPs) have continued to expand during the COVID-19 crisis. As activity in many industries is starting to pick up again, there is a renewed interest in ALMPs, particularly on how they can be better aligned with the changing nature of work and thus, have a bigger impact. Three “actions” cannot be delayed any longer: 1) link ALMPs to the evolving pattern of local and global labor demand; 2) use ALMPs to promote lifelong learning; and 3) make ALMP and social protection policies work in tandem. Even so, ALMPs may struggle to be effective if the main problem isn’t that workers don’t have the right skills, but that there is a lack of enough good jobs.
Having an effective set of active labor market policies was already essential to meet the challenges that automation, globalization, and demographic change were imposing on workers before the pandemic. The COVID-19 crisis has triggered a renewed focus on ALMPs, including training and public employment, on top of appropriate income support measures that may limit the costs of reallocation for workers. The importance of active labor market policies is also underlined in relation to supporting the “just transition” to green growth and green job creation.
In response to COVID-19, over the past year, developing countries have introduced more than 1,300 crisis-related social protection and jobs policies. Over half (55 percent) of these policies are labor market policies, of which 60 percent are new and mostly related to training, placement assistance, and entrepreneurship support (while the remaining 40 percent are adaptations of existing programs).
Unfortunately, ALMPs have shown more promise in theory than in practice, with a marginal impact on either employment or earnings especially in developing countries. Too often bad design — especially when ALMPs in developing countries tend to just copy the design of rich countries — gets in the way. Click To Tweet The lack of a systematic targeting approach also poses a significant limitation of their effectiveness. The quality of their implementation is yet another reason.
That said, there are ways to improve our approach to ALMPs to make these policies better suited for the changing nature of work. Here are three.
1. Involve labor demand: Not just local but global
Which skills should be targeted? Which sectors? Too often ALMPs focus on employability forgetting the “employment” side of the equation. Click To Tweet The demand for skills was changing rapidly even before the COVID-19 crisis hit the world, and job tenures were becoming noticeably shorter. The pandemic is only accelerating these trends.
Unless the demand for jobs is part of the skills development system, there will always be a delay between the point in time firms demand new or modified skills and the time the skill formation process reacts and adapts. The acute shortage of workers equipped with the new skills that employers are increasingly demanding, including the STEM sector, is a “proof of evidence.” The so-called mismatch between demand and supply starts far before people enter the labor market: It starts when skills are developed. ALMPs could help address this challenge.
Skills training should also involve digital platforms that operate globally, as platforms for creative, well-educated online workers are increasingly conquering labor markets. Workers are hired to perform tasks that are complex, demanding, and technical, ranging from marketing, to writing, to engineering. Platform-based business are expected to dominate markets even more in a post COVID-19 scenario.
2. Embed a lifelong learning approach
Evidence across low- to high-income countries suggests that in recent decades jobs are being defined by more cognitive, analytical tasks. The demand for sociobehavioral skills is also increasing globally.
Yet, technological change makes it harder to anticipate which job-specific skills will thrive and which will become obsolete in the near future. Click To Tweet How well countries cope with the demand for changing job skills depends on how quickly the supply of skills shifts. A significant part of the readjustment in the supply of skills is happening outside of compulsory education and formal jobs.
ALMPs can contribute to this goal if redesigned to accompany workers throughout their working life — which means that these programs should not be limited to young people entering the labor market. They should be also targeted to already employed people, to make sure they adapt their skills to the changing demand, and in a systematic way. The ongoing discussion on developing the right skills for green jobs is relevant in this context.
3. Social protection (social assistance and social insurance) and ALMPs work together
Unless transitions between jobs are secured through social assistance and insurance systems, ALMPs have lesser chance of success and so does the creation of more and better jobs. Social security and active labor market programs work together to support the skill formation process. Strengthening these systems, and their ability to work in tandem, is critical Click To Tweet to address labor market risks and the socio-economic disparities and vulnerabilities that are reinforced by COVID-19. Such complementarities extend to the enforcement of conditionalities — the linking of welfare rights to meeting particular obligations (e.g. unemployment benefits conditionality) — which is a significant feature of social security systems across the globe.
Skills mismatch or lack of (good) jobs?
ALMPs may not be so effective if the main problem isn’t that the mass of workers don’t have the right skills, but that there is lack of enough good jobs. In low- and low-middle income countries labor markets are often characterized by a large deficit in modern-sector labor demand, compared with the total labor supply. As a result, many workers are doing low-skill jobs, mostly informal.
In such settings, labor supply side activities, such as ALMPs, are much less likely to be addressing the binding constraint. If jobs are not being created and the demand for workers isn’t rising, no amount of training and relocation programs will be a game changer. They will only reallocate the existing set of outcomes among different individuals.