Pilot scheme to aid redundant workers proves effective

Between 2005 and 2007, the Estonian Unemployment Insurance Fund piloted a new labour market service providing help for employees and employers in cases of collective redundancy. A recent evaluation of the service concludes that it improved the job prospects of those made redundant, thereby reducing the cost of unemployment benefits for this group. However, economic growth was strong during the period, which may have influenced the outcome.

In August 2007, the PRAXIS Centre for Policy Studies (Poliitikauuringute Keskus PRAXIS, PRAXIS) published a report on a pilot project carried out by the Estonian Unemployment Insurance Fund (Eesti Töötukassa). The study evaluates the effectiveness of a new service offered to workers who have been made collectively redundant.

Study methodology

The study adopted various methods. Firstly, data on 1,220 redundant persons were analysed based on the Unemployment Insurance Fund’s register of collective redundancies. Some 789 of these workers benefited from at least one individual measure of the new service, while the remaining 431 were offered no such measures. The two groups were then compared according to the probability of working or receiving unemployment benefit after the dismissal. Secondly, a survey was carried out among companies that had dismissed employees, in order to determine whether the enterprises had their own initiatives to help people who had been made redundant to find a job. In addition, the cost-effectiveness of the service was analysed.

Service provisions

The Unemployment Insurance Fund designed the service as a European Social Fund (ESF) project, which was piloted during the two-year period between 2005 and 2007. The purpose of the initiative was to respond rapidly to collective redundancies, before they actually took place, by providing the following range of active labour market measures:

• advising workers on their rights to services and unemployment benefits;

• distributing information on job searching;

• informing potential employers about available workers;

• arranging meetings between potential employers and employees;

• offering individual counselling and job mediation.

The service was provided in cases where at least 15 employees were made redundant and was targeted at those who had received notice of redundancy. The programme started as soon as the Labour Inspectorate (Tööinspektsioon) was informed about the redundancy, one to two months before the dismissals were due to take place. The initiative was organised in cooperation with the Labour Market Board (Tööturuamet), labour inspectorate, local municipalities and representatives of the employers and employees.

Impact of active labour market measures

Of the different measures provided, only information mediation between those made redundant and potential employers proved to be effective. Workers receiving this service had an approximately 10%–20% higher probability of working and lower probability of claiming unemployment insurance benefits directly after the dismissal than those who did not.

The study suggests that, as a result of the service, the average duration of the payment of unemployment insurance benefits for those made collectively redundant was reduced by about five to 10 days compared with the total average of 47 days. The analysis also indicates that participating in the information services increased the chances of being involved in counselling or training with the Labour Market Board.

Low level of employer initiatives

The employer survey was based on 45 companies undergoing collective redundancies, 25 of which were not offered the service. The study found that only about a third of the employers helped their staff who had been made redundant to find another job, and about a quarter of the companies cooperated with the Labour Market Board. Therefore, help from the state authorities in finding a new job is essential; ultimately, helping employees to find a new job is only a voluntary pursuit for the employer, unless it is prescribed in collective agreements.

Benefits outweigh costs

The analysis indicates that the net benefits of the service are positive, although only short-term impacts could be evaluated. To cover the costs, the service must increase the employment probability of those made redundant by one percentage point for one year – an assumption which is highly plausible given the estimation results.

Overall, the new initiative is regarded as having a positive effect on the labour market. However, it should be noted that, during the test phase, demand for labour was unusually high due to strong economic growth: in 2006, gross domestic product (GDP) growth was about 11% and employment growth was about 6%. This could influence the effectiveness of information mediation on available labour. Moreover, during the period in question, no very large collective redundancies took place, with the biggest case amounting to 120 persons. To give a fuller perspective, the effectiveness of the measures should also be monitored during an economic downturn.

Reference

Võrk, A. and Leetmaa, R., Kollektiivsetele koondamistele reageerimise teenuse tulemuslikkus [Evaluation of the effectiveness of the service to those made collectively redundant (in Estonian, 357Kb PDF)], PRAXIS Centre for Policy Studies, Tallinn, 2007.

Andres Võrk and Kirsti Nurmela, PRAXIS Centre for Policy Studies