Why should we integrate income and employment support? A conceptual and empirical investigation
The integration of active labour market policies within income support schemes – such as unemployment insurance and social assistance – has been a key component of social protection in high-income countries since the 1990s, with a rich literature reviewing its effects and implementation characteristics. More recently, this approach has spread beyond high-income economies, and is prominent today in many middle-income economies. Yet, despite the increasing adoption of integrated approaches, their conceptual and practical applications have not been studied in detail outside of high-income countries. This paper conceptualizes, for the first time, the implementation of integrated approaches, focusing on low- and middle-income countries (LMIC). We first develop a conceptual framework to understand how integrated policies can address labour market challenges, exploring the theoretical effects they exert on selected labour market and social dimensions. We then contrast these theoretical expectations with findings from the empirical literature on the effectiveness of integrated approaches. While many empirical studies find positive effects across different labour market dimensions, this is evidently not always the case. To reconcile this discrepancy, we investigate the design and implementation of integrated approaches across LMIC and identify factors which contribute to their effectiveness.
During the COVID-19 pandemic – as in all previous economic and financial crises – a major challenge for governments has been to counterbalance negative long-term consequences for labour markets. Addressing the immediate needs of people most affected, while laying the foundation for sustainable job creation in the medium term, requires a comprehensive policy response. This paper focuses on the central role that active labour market policies (ALMPs) can play when combined with income support policies, in providing people with protection and opportunities to find sustainable ways of living.
ALMPs are government policies aimed at helping and incentivizing workers to enhance their employability, actively search for employment, and find suitable work relatively quickly. ALMPs include training, public works, employment subsidies, support for self-employment and micro-enterprise creation, and labour market services (see
The integration of ALMPs within unemployment and social assistance schemes has become a key component in fostering decent work opportunities in low and middle-income countries (LMIC).2 Although ALMPs and income support schemes have been used extensively in those countries for several decades, the shift towards integration has only occurred recently. This policy shift is in line with recommendations from international organizations and some streams of the academic literature. Yet, the policy integration has been implemented through multiple approaches with potentially differing effects on poverty and employment. Therefore, the conceptual and practical application of integrated approaches outside of high-income countries merits attention.
This paper conceptualizes, for the first time, the implementation of integrated approaches in LMIC. We develop a conceptual framework to understand how such integrated policies can address labour market challenges and explore the role of implementation factors. To this end we first trace the concept of “activation” to its origins in Europe, discussing the shift in its understanding and the growing support for integrated approaches within the international community (section 1). We then develop a conceptual framework to better understand the potential benefits of approaches that integrate ALMPs with income support policies. We look at the theoretical effects that each component of integrated approaches alone has on selected labour market dimensions and contrast this with the effects of combined policies (section 2). Third, we delve into the empirical evidence. Here, we review the empirical literature on the effectiveness of integrated approaches and discuss the prevalence of such approaches and their characteristics in LMIC (section 3). We find that, while institutional context is key, it is possible to achieve policy integration through a variety of institutional arrangements. Some architectures have the advantage of enabling a greater integration of policies (e.g. one-stop shops), but require a stronger coordination between agents and an enhanced set of policy tools. Other architectures are more flexible in terms of administration (e.g. models that coordinate links between existing policies, which are implemented separately), but their weaker integration makes favourable enabling conditions an even more important element. Finally, given the variation in the implementation of combined approaches, and the fact that the empirical findings are not systematically positive, we explore the features that shape the effectiveness of integrated approaches in LMIC (section 4). We build on the existing (though limited) empirical literature and complement it with quantitative and qualitative information drawn from our own experience in implementing field studies. We put forward three sets of enabling conditions that are needed to harness the full potential of integrating approaches, contrasting them with the barriers that LMIC need to tackle to achieve effective policy integration.
We conclude that integrated approaches – when properly designed and implemented – have the potential to protect people from acute material vulnerabilities, while improving workers’ prospects, including addressing the lack of job quality that disproportionately affects the most vulnerable. Such a combination ultimately enables people to leave behind poverty.
The move towards integration: its beginnings and the discussion within the international community3
1.1 Origins of the concept of “activation” in high-income countries
The high unemployment rates experienced by several European countries from the second half of the 1980s onwards led to the development of new forms of policies. These interventions aimed at a lowering unemployment by combining income support with ALMPs. Specifically, great emphasis was placed on “activation strategies”
However, there are important shortcomings in the activation strategies implemented in Europe since the 1990s. This first approach to activation required participants to work in exchange for social benefits; de facto transforming policies into “workfare” programmes. This was criticized for acting contrary the right of social protection, incentivizing low-quality employment and intensifying competition among low-wage workers
Consequently, a new form of activation strategy has been proposed more recently, namely one that leverages the complementary nature of ALMPs and income support schemes
At the beginning of the 2000s, high-income countries were quite slow and inconsistent in their adoption of integrated approaches. Nevertheless, over time, these approaches have become more widespread. Importantly, those OECD countries that adopted some form of activation strategy integrated with income support in the early 2000s had a better overall labour market performance during the Great Recession than those that had not
The OECD countries that integrated approaches successfully had carefully tailored policy mixes. This seems to indicate that, rather than adopting a “one-size-fits-all” strategy, successful policymakers fit integrated approaches to the needs of a specific country. Differences in policy integration across countries relate both to the specific interactions between the various institutions providing the services and to the chosen mix of ALMPs and types of income support.5
By and large, evaluation studies of contemporary integrated approaches in high-income countries demonstrate that such measures can decrease unemployment rates and improve the working conditions of individuals transitioning into new jobs. Research findings indicate that well-designed and comprehensive activation models can not only reduce the number of people claiming unemployment benefits, but also decrease long-term unemployment (
1.2 Movement within the international community
LMIC differ substantially from high-income countries. This pertains to labour market characteristics – since, e.g., informality is widespread outside of high-income countries – and to the design and implementation of policies. Therefore, insights from high-income countries cannot be projected directly on to countries outside this group. This calls for the examination of the various strategies that LMIC have used to integrate labour market policies, and to investigate their theoretical and empirically observed effects.
The adoption of income support and activation measures became increasingly widespread in Latin America, Africa, Asia and Eastern Europe during the early 2000s. However, policies were not always introduced and implemented within a common framework
Over the last two decades, policymakers and intergovernmental organizations have tried to respond to this challenge. International organizations, in particular, have often lent support to the implementation of integrated approaches, or at least to their conceptual development and the creation of a legal basis
The advantages of the integrated approaches were recognized first in international labour standards. This includes several ILO instruments, whose introduction dates back as far as 1988.7 These standards supported the implementation of integrated approaches in countries with a well-established social security system. The Social Protection Floors Recommendation, 2012 (No. 202) extended the concept of social security to include countries with a more diverse and less comprehensive social protection scheme. Access to social security became a recognized human right. Its integrated implementation with ALMPs was duly advanced as an option for the expansion of social protection coverage that allowed for gradually formalizing informal employment and firms
The World Bank’s Social Protection and Labor Strategy 2012–2022 also advocated to include ALMPs in social protection schemes, thereby supporting an integrated approach. Its goal was to improve economic opportunities and stimulate self-sufficiency
Multisectoral strategies feature in the social protection framework of the Food and Agriculture Organization of the United Nations (FAO), to address immediate needs and offer longer-term livelihood support. The framework is focused on the rural economy and is in line with the Graduation Approach, which stands for multifaceted interventions designed to enable extremely poor people to transition into sustainable livelihoods. This approach recommends asset transfers and skills training to boost income-generating activities with higher returns. It has informed social protection throughout many rural regions in Africa and South Asia
Indeed, the deeper integration of policies has a regional relevance. The Organization of American States and the Economic Commission for Latin America and the Caribbean (ECLAC) has encouraged the inclusion of policy measures aimed at fostering employability within conditional cash transfer programmes (CCTs). This is based on the idea that, while CCTs are valid short-term instruments for poverty alleviation, increasing the likelihood that recipients will be able to access the labour market helps create more stable income flows in the longer term
1.3 The academic debate
Overall, international organizations can be seen as pointing towards the use of integrated policies as an effective means of tackling labour market and poverty issues in LMIC. In comparison, the academic literature is more nuanced.
Cash transfer schemes, combined with training and other employment promotion schemes, are likewise in line with a “transformative” approach whereby income support is intended to tackle the factors leading to poverty
Voices critical of the attempt to combine ALMPs and social protections include
Conceptual underpinnings: what effects can be expected from an integrated approach?
In view of an increasing adoption beyond high-income countries, the conceptual basis of integrated approaches merits closer examination. To this end, we put forward five clusters of labour market dimensions and consider the effects each component of an integrated approach can alone exert on the clusters. We then assess the complementary nature of ALMPs and income support schemes and develop a conceptual framework to understand the potential benefits of integrated approaches. We focus – where possible – on LMIC. Table 1 summarizes the theoretical effects by cluster, separately for income support (rows in light blue), ALMPs (rows in mid-blue) and integrated policies (rows in dark blue).
2.1 Labour market dimensions against which policy effectiveness is measured
Labour market policies exert their effects over a plurality of labour market dimensions. Such effects can be direct or indirect, intended or unintended, and may differ across target groups. To systematically capture the key effects, we introduce five clusters: labour demand, labour supply, quality of matching, in-work poverty reduction, and work quality. The first three are standard dimensions traditionally studied by economic literature
Labour demand and labour supply are two clusters on which one must focus when evaluating the impact of labour market policies. The declared central aim of many labour market policies is to stimulate labour force participation and employment. In a neoclassical model, this translates into a movement of either the demand or supply curves, or both. For instance, the introduction of employment subsidies can expand labour demand, due to firms hiring more workers, and wages increase as a consequence
Looking at the third cluster, quality of matching, allows us to capture the effects of policies on those labour market aspects that go beyond employment and wage levels. Quality of matching captures the intrinsic value of a job in which the skills and the career ambitions of an employee (or jobseeker) match those required and expected by an employer (see also
However, the final aim of labour market policies ought not to simply be about workers obtaining “a job”. Rather, labour market policies should be conducive to decent jobs guaranteeing workers appropriate working conditions, besides those determined by mere wage levels. The availability of jobs of an adequate quality is a basic right for workers central to achieving justice within societies. To capture this explicitly, we introduce a second set of clusters that accounts for job characteristics. Among the clusters belonging to this second group, we include in-work poverty reduction. The prevalence of in-work poverty is greater in the labour markets of LMIC, due to a lack of formal protection for workers, but is also present in high-income countries
Our fifth and final cluster is work quality itself. The wage level is certainly one of the most relevant determinants of quality within an employment relation. In this respect, this final cluster overlaps with the fourth already presented. Nevertheless, work quality goes well beyond wages, capturing a wider range of characteristics
Note: *Dark blue cells illustrate the overall gains from an integrated approach, which are often expected to be greater than the effects of individual policies implemented independently, as explained in the text.
2.2 Expected effects of income support policies
Contributory social protection schemes play a major role in supporting the income of workers in high-income countries. They exist in LMIC, too, although less systematically than in their high-income counterparts. They usually consist of unemployment insurance and cover mostly workers in formal employment. As the light blue rows in table 1 indicate, their main function is the immediate reduction of poverty through consumption-smoothing in situations when workers face a negative income shock after losing a job
However, there is a limited availability of contributory schemes in countries where labour market regulations are poorly enforced. A significant share of the population works informally in LMIC, meaning social security contributions tend not to be paid for them. Therefore, non-contributory support is often the only available measure
In terms of their interaction with the five clusters, because income support (contributory and non-contributory) allows workers to search longer for a suitable job, such schemes can positively affect the quality of matching and reduce in-work poverty, but only to the extent that there are decent work opportunities available in any given labour market (see the light blue rows in table 1). Non-contributory schemes go a step further in reducing in-work poverty, in that they are also meant to facilitate the access to basic services.
From a theoretical perspective, income support can also have the effect of reducing labour supply, because it allows workers to remain unemployed for a longer period
However, in LMIC, the negative effects on labour supply can be expected to be smaller, as the level and duration of income support tend to be moderate, and individuals often have no choice other than to work for subsistence. Accordingly, empirical literature has shown that the employment disincentive effects of unemployment benefits are comparatively low in those contexts where informality is widespread
Eligibility for unemployment benefits usually ends when workers re-enter employment. However, informal employment typically remains unobserved by the authorities. From the perspective of neoclassical economic theory, this may generate an incentive for benefit recipients to move into informal employment, as this would allow them to earn a wage while continuing to claim benefits
In contrast, the incentive to move from formal to informal employment may be higher for recipients of non-contributory cash transfers. From a theoretical perspective, this can be expected to be the case for some means-tested programmes, where recipients exit the programme as soon as their income from formal employment (the only income that authorities can credibly monitor) exceeds a certain threshold. In line with this high implicit tax on formal income, some cash transfer recipients appear to move into informal jobs with the intention of remaining eligible for income support
Finally, income support has no clear direct effect on the remaining cluster – labour demand. From a macroeconomic perspective, unemployment insurance is expected to stabilize aggregate demand for goods and services, especially during periods of economic downturns
In sum, income support is needed to allow for individuals’ consumption smoothing and indirectly stimulates the macro-economy. However, income support alone does not sufficiently improve workers’ skills and employment prospects.
2.3 Expected effects of ALMPs
Like income support schemes, ALMPs can exert an effect on the labour market through the five clusters described above (see table 1). ALMPs can be applied in a range of contexts, due to their multidimensional and versatile nature
The mid-blue cells in table 1 illustrate the effects that the different ALMPs have on labour market outcomes by cluster type. Various ALMPs are designed to directly stimulate labour demand: in the case of public works, jobs are created in the short-term only, whereas micro-enterprise creation programmes and employment subsidies aim for a more permanent job creation (the latter can also be used to support existing jobs at during economic crisis). Indirect income effects can further increase the effectiveness of these programmes and have a multiplier effect. For example, hiring subsidies reduce the wage costs for employers, which stimulates labour demand (
In terms of labour supply, some measures targeting the supply side of the labour market (i.e. training and employment subsidies), and even some demand-oriented measures (i.e. public works and micro-enterprise creation) play a major role in keeping people active in the labour market when hiring is low, as well as improving their chances of re-employment. By limiting long-term unemployment and discouragement (something difficult to reverse), these measures prevent workers from permanently leaving the labour market. Meanwhile, employment subsidies directly increase labour supply, by topping up incomes during a downturn for a particular group or groups of workers. Similarly, labour market services – which bridge the gap between labour supply and demand through job placement schemes – can be expected to increase employment by addressing information constraints and improving workers’ employability. Even when labour supply-oriented ALMPs do not immediately reduce unemployment
Several ALMPs can be effective in tackling information constraints and improving the quality of matching. This is the case with labour market services whose main objective is to make job search and hiring more effective through counselling, placement and job-search assistance programmes
In addition to their positive effects, ALMPs can lead to unintended, negative outcomes. To begin with, ALMPs that increase participants’ employment may displace non-participants
Traditional economic literature has focused primarily on the role of ALMPs in shifting labour demand, labour supply and on the matching process between the two
Post participation, the potential effect of ALMPs on these objectives is not homogenous across policy types. In practice, there is consensus on the potential effectiveness of two types of policy on employment probabilities, formalization, and wages. Training policies, for one, are expected to lead to better quality work (including lower in-work poverty), due to workers acquiring improved skills during participation. For the other, employment subsidies can similarly be expected to positively affect work quality, as they allow people to improve their skills on the job and participate in firms in the formal sector.
There is, however, some uncertainty with respect to the delay with which the effects of training materialise; i.e., in the longer term in high-income countries
The effects of the remaining three ALMPs on work quality are less clear.
Labour market services could reduce in-work poverty and improve work quality thanks to the job-search assistance and counselling provided. These effects have been largely confirmed in individual-level studies of high-income countries
(Card, Kluve, and Weber 2018; Crépon et al. 2013; Kluve 2010). With regards to LMIC, there is a shortage of studies. Although some positive effects have been observed (Acero et al. 2009; Dammert, Galdo, and Galdo 2015), it is difficult to generalize. In some of these countries, public employment services may suffer from a limited institutional capacity, thus weakening their ability to provide effective and efficient services.
Support to micro-enterprise creation will have a positive effect on work quality, but only if remuneration for the owners of the ventures thereby created is above the poverty level and there is implicit access to other dimensions of decent work. While the empirical literature has confirmed the positive employment impact made by these types of programme
(Klinger and Schündeln 2011; Macours, Premand, and Vakis 2013; Steiner, Rojas, and Millán 2010), and their positive effect on profits and earnings (Baird, McKenzie, and Özler 2018; Blattman, Fiala, and Martinez 2014; de Mel, McKenzie, and Woodruff 2008; Fafchamps and Quinn 2017), it is more difficult to assess the effects on other work quality indicators, such as job formality. Though it varies across different countries, there appears to be a significant relationship between informality and self-employment in LMIC (Maloney 2003), which would lead one to question the capacity of micro-enterprise creation programmes to support an effective transition towards formal work.
Finally, the effect of public works is ambiguous. In terms of poverty reduction, they raise the living standard of beneficiaries while they participate
(Jalan and Ravallion 2003; Ronconi, Sanguinetti, and Fachelli Oliva 2006), but the effects following participation are less clear (Escudero 2018a; Escudero et al. 2019). For example, public works could improve work quality, if those activities in which workers are employed are in line with the demand from local labour markets, and if there is a human-capital accumulation component. In a few cases, the empirical literature has confirmed this intuition (Escudero, López Mourelo, and Pignatti 2020); but often public works do no more than perpetuate the incidence of low-quality jobs (Escudero 2018a; Hernani-Limarino, Villegas, and Yáñez 2011; Zimmermann 2012).
2.4 Conceptual framework for the integration of income support with ALMPs
ALMPs have the potential to improve workers’ employability. However, sometimes the effectiveness of such policies is limited, according to empirical analyses. In LMIC, a major challenge is that targeted workers participate in ALMPs, as this is costly and requires a time investment. Without basic financial support, many workers are not able to participate
But how do integrated approaches improve labour market outcomes? The dark blue cells in table 1 illustrate the potential overall impact of integrated approaches, which, as explained below, often exceed the sum of the impact of individually implemented measures. Although income support policies have no direct effect on labour demand, integrated approaches are expected to generate greater gains than produced by ALMPs alone. This is, first, because income support provides incentives for people to participate in ALMPs. Second, integrated approaches can be an appropriate reaction to major labour market disruptions, including those related to recessions and crises induced by the weather (floods, droughts, and so on). Such shocks have a disproportionate impact in LMIC, where most workers are not covered by contributory social protection schemes. In addition, the social assistance available tends to be limited in its duration and regional reach and suffers from insufficient financing and legal foundation
The integration of policies can also enhance labour supply and the quality of matching. When combined with income support, ALMPs helps counteract mismatches in skills demand and supply and increase workers’ productivity levels, both through their impact on individual participants and externalities
Finally, integrated approaches help tackle long-standing barriers that prevent workers in LMICs from escaping in-work poverty and from accessing work quality. ALMPs help improve workers’ education and skills. However, as argued before, this needs to be combined with financial support to allow for ALMP participation and to compensate for insufficient income and consumption among unemployed workers and the working poor.
In summary, integrated approaches can help the beneficiaries of income support to overcome barriers in their access to decent work, thereby reducing inequalities between different groups in the labour market. This policy integration fosters better working conditions for those otherwise stuck in employment with low remuneration, job quality, and productivity, with a view to enabling them to transition out of poverty in a sustainable manner (Asenjo et al. 2019).
Effectiveness of integrated approaches and the prevalence of such approaches in LMIC
3.1 Empirical evidence: What works in terms of integration?
Above, we described the main motives that led to the integration of income support and ALMPs within different countries of the EU in the late 1980s and early 1990s. Integration was primarily a reaction to persistent unemployment and the integration of both approaches was associated with a shift in favour of the “activation” of unemployed individuals, as opposed to more generous financial aid during periods of unemployment. The integration of these policies and the motivations that led to their joint implementation has nonetheless significantly evolved since its inception. During recent years, the main objective in integrating these two approaches has been to leverage the complementarities between both, and not to replace either one or the other.15
Under this more equilibrated and human-centred model of implementation, multiple evaluations of integrated approaches in high-income countries have illustrated that such policies can simultaneously help reduce the rate and duration of unemployment at the same time as improving employment conditions for those finding a job. Different studies have also shown that the effects of integrated approaches on labour market outcomes are greater than when policies are implemented separately
In addition, a review of the literature for high-income countries reveals that the success of integrated approaches is contingent on their implementation and design characteristics. Studies for different OECD countries have highlighted that programme effectiveness requires a correct definition of target groups; active policy components aligned with local context; and the interdependencies between social protection, employment incentives and ALMPs
While evidence on the effectiveness of integrated approaches is scantier in LMIC, existing evaluations detect some patterns. Foremost, the literature shows that integrated approaches can improve labour market and poverty outcomes in an economically meaningful way, when compared to the separate implementation of each type of policy. This appears to be especially the case among programmes targeted towards self-employed individuals engaged in diverse activities. For example, a randomized controlled trial of a conditional cash transfer programme in Nicaragua – Atención a Crisis – showed that participants who, in addition to a cash transfer, were provided with either vocational training or an investment grant, were more resilient to environmental shocks and had higher incomes and consumption in the two years following their programme participation
Micro-entrepreneurship schemes implemented as a part of wider social protection programmes have also yielded significant positive effects. One study analyses the Micro-entrepreneurship Support Programme (MESP) implemented in Chile in 2006 (
Furthermore, interventions combining different ALMPs – for example, training and employment incentives within income support or social protection schemes – have also produced positive effects. This suggests that broader support is more effective for individuals experiencing various labour market challenges. One example of a comprehensive intervention is the unemployment insurance scheme of Mauritius. It is open to unemployed workers, independently from whether their former job was formal or informal, and involves a mandatory active component. Beneficiaries of income support are thus required to participate in different types of ALMP. An impact evaluation study revealed that training had the largest positive effects in the medium term; however, these took a while to materialize
Despite the positive effects observed in a wide range of contexts, the literature also highlights that integrated approaches are not by definition effective. Rather, their positive impact hinges on certain implementation and design characteristics. This is illustrated by an evaluation of a training component implemented within the unemployment insurance in Colombia (
Lastly, a similar conclusion can be drawn from an impact evaluation assessing the effect of a public works scheme implemented within a social assistance programme in Uruguay named Plan de Asistencia Nacional a la Emergencia Social (PANES)
Overall, two central conclusions can be drawn from the impact evaluations reviewed. First, independent of the specific implementation context, the integration of active elements with income support can be effective, both for employment probabilities and work quality outcomes. However, second, this requires appropriate implementation. The local labour market and social context must be taken fully into consideration when designing and implementing an integrated approach for potential improvements to be translated into concrete ones.
3.2 International patterns and relevant national models
The growing literature on the effectiveness of an integrated approach makes it appear that the combination of income support with activation measures is a rarity in LMIC. This is not the case, as integrated approaches can frequently be found in these countries. Nevertheless, the shift towards integration has only occurred recently, despite income support and ALMPs having been used extensively in LMIC for several decades.
We build on
We find that, today, many LMIC are implementing integrated approaches, but these vary substantially in a number of respects, which could determine their effectiveness. First, the degree of integration between individual policies varies across countries. Sometimes, pre-existing ALMPs are adapted such that beneficiaries of income support schemes access ALMPs. For example, the Argentinean programme Seguro de Capacitación y Empleo targets beneficiaries of the CCT Plan Jefes y Jefas de Hogar Desocupados
Second, the policy administration also varies. In some countries, ALMPs are included within an unemployment benefit or social assistance scheme, where participation is compulsory. For example, the unemployment benefit scheme of Mauritius offers job placement and counselling support as well as support for microenterprise creation, while also providing income support for twelve months
Third, the combinations of the different kind of ALMPs and social protection measures mainly depend on the development level of a social protection system. Indeed, the majority of low-income countries lack an unemployment benefit scheme anchored in national legislation (see the majority of sub-Saharan African countries in figure 2). Yet, integrated approaches are present in these countries, because ALMPs are integrated into non-contributory cash transfer programmes (see the same countries in figure 1). In fact, only six of the 34 LMIC with available data lack an ALMP that is part of a cash transfer programme. The variety of these ALMPs is greater as national income levels increase. As shown in figure 1, a total of 19 middle-income countries,17 as well as Chile and Uruguay, have implemented a varied ALMP approach, while this is the case for only one low-income country (Rwanda).
As a country’s income level rises, unemployment insurance policies come to play an increasing role in protecting incomes after workers’ job loss and are combined with a range of ALMPs. For example, all but one of the low-income countries in our sample have no national unemployment protection scheme (figure 2).18 In Tajikistan, however, unemployment benefits exist and are provided along with labour market services and training. Meanwhile, 16 of the 42 lower-middle income countries with available information, and 28 of the 57 upper-middle-income countries, have unemployment support schemes enshrined in national law. This is most often the case in Europe and Central Asia, as figure 2 shows.
Figure 1. ALMPs included in cash transfer schemes, by country and type of measure
In terms of the types of ALMPs, public works is prevalent in LMIC, aimed at compensating for insufficient jobs and, in this way, redistributing incomes. Of all the LMIC for which information is available, 74 per cent have public works embedded in social protection. By contrast, higher-middle-income countries often combine different ALMPs, such as training and start-up incentives, thereby targeting labour supply and demand
In general, ALMPs are more diverse when they are deployed together with a cash transfer scheme than together with unemployment insurance. Yet, the finding that integrated approaches in low-income countries are combined with cash transfer schemes has consequences, as these are typically based on means testing to target vulnerable groups.
Figure 2. Mandatory ALMPs included in unemployment protection schemes, by country and type of measure
Fourth, and finally, the design and implementation characteristics of integrated approaches are also varied, which, as discussed earlier, is known to have an influence on the effectiveness of policies. Looking at unemployment insurance schemes, these typically involve the mandatory participation in job placement services (Myanmar and Tunisia). In some lower-middle-income countries, the beneficiaries of unemployment insurance can also join a training intervention. This is the case in Egypt, Kyrgyzstan, Lao People’s Democratic Republic, Republic of Moldova, Ukraine, Uzbekistan, and Viet Nam. For upper-middle-income countries, the ALMPs available to the recipients of unemployment benefits are more varied. There are also those schemes that include voluntary ALMP participation. While not taken account of in quantitative databases,
All these different design and implementation characteristics have an impact on the effectiveness of policies. Signalling these differences is a step towards a better understanding of combined ALMPs and social protection approaches, but this is not enough. As discussed in the next section, it is imperative to know how and to what extent implementation characteristics shape policy effectiveness.
Characteristics driving programme success in LMIC
The combination of income support with ALMPs is expected to have beneficial effects from a conceptual perspective (section 3). Yet, the micro-econometric literature reviewed above includes studies that do not find significant improvements in participants’ outcomes. This is line with systematic studies on ALMPs that yield varied finding on the magnitude and in, fewer instances, the direction of their impacts
What are these characteristics? Although the preferred approach would be to give an answer based on impact evaluations capable of disentangling the causal mechanisms driving the success of such policies, the evidence is at present scant. However, getting an answer to this question is important, given the variability in the design and implementation of integrated approaches across countries described in the empirical evidence (see section 4). This section is a first effort at providing insights into this question. We build on the existing empirical literature – though this continues to be limited in part, with programme characteristics often not at the core of studies – and complement it with quantitative and qualitative information from our own field studies (hereafter referred to as case studies) in Mauritius and Uruguay
We organize our conclusions around three sets of enabling conditions: (i) correct identification and assured participation of target groups; (ii) quality of services and strong linkages between income support and ALMPs; and (iii) sufficient institutional capacity and financing.19 As shown in section 3, institutional context is key to policy integration, which can be achieved through various institutional arrangements. Some architectures aim for a joint policy design, where ALMPs are designed to fit income support programmes administered jointly through dedicated agencies (e.g. one-stop shops). These have the advantage of enabling greater policy integration but require stronger institutional capacity to coordinate between agents and the enhanced set of policy tools on offer. At the other end of the spectrum are models whose objective is to coordinate links between pre-existing separate policies. These are more flexible in terms of administration (e.g. ALMPs referral to income support programmes), but the weaker level of integration makes the need for enabling conditions even more crucial. In the middle, is a range of architectures with varying degrees of leniency in the norms of administering the integration of policies. Approaches in which participation in activation measures is voluntary may be easier to implement, but at the cost of lower take-up, whereas those in which it is compulsory might assure participation in the various components, but could be onerous in terms of required institutional capacity. This section discusses these enabling conditions, contrasting them with the barriers that LMIC will need to overcome for effective policy integration. These conclusions – summarised in table 2 – could serve as the background for further research efforts.
Table 2. Enabling conditions, barriers preventing their realisation and the facilitating factors put forward in this paper
Barriers to be tackled in LMICs
Facilitating factors that have shown effective results
Enabling condition 1: Correct identification of target groups and assured participation
– Proxy-means tests are costly and may entail imperfections in targeting
– Employability-enhancing measures have a trade-off between targeting the most vulnerable and those most able to benefit from the intervention
– Targeting policies through proxy-means tests is the preferable strategy, despite imperfections
– Low take-up of interventions, even when targeted appropriately
– Avoid overly strict eligibility criteria
– Facilitate registration and reduce bureaucratic procedures
– Adapt participation mechanisms to the needs of the populations targeted (e.g. childcare grants, transport allowances)
– Awareness campaigns to promote participation
– Excessive participation (abuse of the intervention)
– Appropriate monitoring of targeting rules at the local level
Enabling condition 2: Quality of services and strong linkages between income support and ALMPs
– Low quality of services provided
– Sufficiently generous income support to keep individuals out of poverty during participation
– Provision of services in line with country’s realities. Online services need to be coupled with face-to-face counselling provided at the local level
– Individualised support provided over a sufficiently extended period
– Weak attachment of income support beneficiaries to ALMPs
– Regular reporting and follow-up meetings with participants; case management through public employment services
– Comprehensive offer of ALMPs
– Sometimes incentives and monitoring are not enough to promote participation. In such cases, mandatory participation in ALMPs may be required
Enabling condition 3: Sufficient institutional capacity and financing
– Insufficient institutional capacity to combine and administer policies under a single framework
– Set up one-stop shops to enable greater integration
– Increase capacity to identify and contact beneficiaries of ALMPs and monitor participation
– Choose a more flexible integration architecture
– Difficulty coordinating separate ALMPs and income support schemes
– Reinforce administrative capacity at the local level to complement national efforts
– Set up coordination agencies
– Ensure appropriate referral of income support beneficiaries to existing ALMPs
– Excessive cost of the intervention
– Tailor the support based on demographic characteristics and income situations of individuals and their households
– Internalizing the external cost of inaction in terms of poverty, informality and unproductive employment
Note: Authors’ compilation.
4.1 Correct identification of target groups and assured participation
A major challenge for integrated approaches is how best to identify those groups in need who would benefit the most from the interventions. For example, cash transfer programmes in LMIC are often based on imperfect methods of identifying beneficiaries
With respect to labour market policies with an employability objective, governments face an additional dilemma of whether to target those most in need or those that are slightly less poor but could benefit more from the intervention (e.g. because individuals are more job ready). However, the empirical literature on this question is limited. In the case of micro-entrepreneurship programmes, evidence does indeed point to a certain level of previous experience and complementary inputs or skills being necessary for households to benefit fully from such schemes.
Yet, even when programmes are targeted appropriately, it can be challenging to ensure targeted groups have the opportunity and incentives to actually benefit from an intervention
Take up among eligible individuals can be encouraged by facilitating registration and bureaucratic procedures. Evidence from the case study of the Public Employment Service in Colombia (the Agencia Pública de Empleo (APE)) shows its reach among eligible people to be limited – very few job matches are made through the APE. This share is considerably higher in other countries: 3.8 per cent in Brazil
Another method of guaranteeing the take-up of policies among eligible individuals is to adapt participation mechanisms to the needs of the populations targeted. Evaluation of the integrated approach adopted in Uruguay shows that certain of its characteristics played a significant role in determining participation. In particular, family responsibilities decreased the likelihood that cash transfer beneficiaries would self-select into accompanying activation programmes
Likewise, awareness campaigns can help promote participation by overcoming the barriers to information disproportionately confronted by low-skilled workers and small firms. These groups and firms tend to rely on private networks of family and friends, often belonging to poorer neighbourhoods and the more marginalized segments of the labour market. Such networks can imply a disadvantage when it comes to accessing information about (formal) labour markets and policy options
Finally, at the other end of the spectrum an excessive degree of participation and abuse by certain beneficiaries can constrain the ability of a programme to reach everyone initially targeted. The evaluation of Construyendo Perú – a public works programme – and its underlying case study
4.2 Quality of services and strong linkages between income support and ALMPs
Whether integrated approaches are effective also depends on the quality of the support delivered, which is the basis for stronger integration between policies. With regard to the income support, this needs to be sufficiently generous to keep individuals out of poverty
Regarding unemployment benefits, these often replace a share of previous income, where the associated replacement rates decline with time spent in unemployment, subject to upper and lower thresholds. This declining payment schedule is meant to encourage beneficiaries to actively job search and find work
Empirical analyses point also to the importance of increasing beneficiaries’ attachment to ALMPs provided under an integrated approach. In this regard, regular reporting and follow-up meetings with caseworkers and other experts can prove effective. For example, individuals participating in start-up support programmes can use such meetings to discuss their business performance and receive managerial advice, as in the case of an effective micro-entrepreneurship programme in Chile
With regards to other types of active support, public employment services have an important role to play across countries with differing levels of economic development. A careful initial assessment of a jobseeker’s background and interests, ideally through case management, can guide them to the appropriate services. At the higher end of the spectrum, caseworkers provide individualized support over an extended period, encompassing a detailed analysis of a worker’s needs and competencies, job search support, and guidance when choosing and participating in an ALMP, with a view to fostering longer-term career development. Such holistic labour intermediation services are more typical of high-income countries, although there are examples in middle-income contexts
How these services are provided also matters. The impact assessment of the Colombian Agencia Pública de Empleo shows that the effectiveness of benefits accrues when there is face-to-face delivery of services rather than online communication
Strengthening the attachment of beneficiaries to ALMPs sometimes includes improving programme content and delivery. Our case studies of Peru and Uruguay illustrate that extended participation in public works programmes until jobseekers have found a job might have beneficial effects, especially since benefits are provided for a short time only
Finally, when the quality of the ALMP component is high and the component effective in promoting employment, but its incentives and monitoring ineffective, participation might need to be mandatory in order to ensure beneficiaries take advantage of the ALMP component of an integrated policy. Although a high-income country, the example of Norway shows the combining of generous income support with mandatory participation in well-tailored ALMPs to have been decisive in substantially raising employment rates among participants, who at the outset faced significant labour market difficulties; that said, they did not necessarily find high-quality jobs (
Obviously, comprehensive programme delivery requires a large amount of financial resources and imposes high demands on organisation. In this context, it then becomes important to find an appropriate mix between needed financial support and measures that improve employment prospects.
4.3 Sufficient institutional capacity and financing
The discussion above shows that ensuring institutional capacities are sufficient to administer policies is crucial for fully harnessing the potential of integrated approaches. Combining policies under single frameworks and then implementing them properly entails complex administrative procedures. These include the identification of and outreach to beneficiaries, the monitoring of ALMP participation where appropriate, and the timely transfer of financial support. It can also involve complex coordination across the different ministries concerned
Integrated approaches are also shaped by whether sufficient resources are invested in each of the two main policy components (income support and active support). As shown by macro-econometric analyses, in most countries current investments are below what is required for optimal implementation
This back-of-the-envelope calculation becomes more problematic in countries without a universal social protection system for the unemployed and where many workers transition quickly into informal, low-quality jobs. In these countries, the direct opportunity cost of not investing in ALMPs is less apparent from a fiscal perspective. Nevertheless, there are high economic and societal costs associated with not implementing integrated approaches in terms of the long-term negative consequences of perpetuated poverty, informality and low-quality jobs. People become trapped in poverty, because its detrimental physical and psychological consequences limit the capacity to work
Moreover, integrated approaches can at least partially recover their costs with time, by resulting in a reduction in (mostly non-contributory) cash transfers, to the extent that participants transition into quality employment. In addition, ALMPs can help reduce the negative consequences that recessions have for labour markets
This paper has discussed the conceptual basis for an understanding of why it is beneficial to integrate income and employment support, focusing specifically on LMIC. In terms of historical background, a move towards activation within social protection schemes implemented in Europe in the 1990s limited the right to income support and shifted the focus onto incentives to work, putting less emphasis on the quality of employment. Instead, our paper is based on more recent concepts of policy integration that have evolved substantially from the original activation approach. It has focused on the fostering of complementarities between income support and ALMPs. While these recent concepts are still the subject of an academic debate, they are advocated by various academics, as well as international organizations, including the ILO, the World Bank, the OECD, FAO and ECLAC, though with some differences in underlying rationale.
The central argument of our paper has been that, from a theoretical perspective, income support schemes and ALMPs yield positive effects when implemented jointly. To support this claim, we have discussed theoretical expectations with respect to policy effects on five labour market dimensions: labour demand, labour supply, quality of matching, in-work poverty reduction, and work quality. In short, by protecting workers’ incomes, cash transfers and unemployment insurance schemes mean that workers do not have to accept the first low-quality job that becomes available, thereby allowing them to search more intensely (and usually for longer) for better jobs. Meanwhile, ALMPs assist workers in their job search, create new employment opportunities and increase their employability through human capital accumulation. This helps improve workers’ labour market outcomes in the longer term, thus sustainably improving workers’ prospects. This theoretical examination has also revealed how theoretical expectations differ between LMIC, on the one hand, and high-income countries, on the other. Given how widespread informal and low-productivity employment is in LMIC, the effect of policies on the quality of work (including in-work poverty) is particularly pertinent for those countries, whereas extended periods of unemployment are less of a policy concern.
Empirically, there is a growing body of literature evaluating the impact of integrated policies. While many of these studies find positive effects across the different labour market dimensions, this is clearly not always the case. This points to a discrepancy between empirical findings and the positive theoretical expectations outlined. Understanding how to reconcile empirical and theoretical findings is all the more important in that a large number of countries are implementing integrated approaches that vary substantially in terms of their implementation characteristics.
To understand why there is such a discrepancy between theory and empirical findings, we have concluded the paper by examining which of the design and implementation characteristics determine a programme’s success. Building on the existing literature and our own field work, we have identified three enabling conditions and examined them in detail: (i) correct identification of target groups and their assured participation; (ii) quality of service and strong linkages between income support and ALMPs; and (iii) sufficient institutional capacity and financing. These conclusions are based on various pieces of empirical evidence. We have incorporated quantitative and qualitative information drawn from our experience implementing field studies, because programme design and implementation characteristics are often not at the core of empirical research and therefore analysed only in passing. This highlights that more research identifying the causal effects of policy characteristics would be desirable.
We thank Eileen Appelbaum, Peter Auer, Armando Barrientos, Hilary Hoynes, Michael Mwasikakata, and Domenico Tabasso for their helpful comments and suggestions. The responsibility for opinions expressed in this article rests solely with its authors, and publication does not constitute an endorsement by the International Labour Office of the opinions expressed in it