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1 Institutional moral hazard in the multi-tiered regulation of unemployment Australia – Background paper Chris Luigjes & Frank Vandenbroucke December 2015 This document reflects views only authors and European Commission cannot be held responsible for any use that may made information contained therein Please refer to this as follows: C F (2015) support ‘Institutional Moral Hazard Multi-tiered Regulation Unemployment Social Assistance Benefits Activation – A summary eight country case studies’ Abstract has been written preparation a research project funded by (on Feasibility Added Value Benefit Scheme contract VC/2015/0006) adds detailed analysis following deliverable project: studies; but it was not We concept ‘institutional hazard’ analyse intergovernmental relations within welfare states specifically domain unemployment-related benefits related activation policies (the ‘regulation unemployment’) is one separate studies focuses on The Australian involves two federal departments Public Employment Services (PES) private agencies gradually privatised major benefit Reforms moved system away from ‘black box’ approach towards more minimum requirements monitoring control those experience suggests trade-off between need hand flexibility processes other Keywords: hazard; states; relations; insurance; social assistance; Active Labour Market Policies; activation; policy; 2 List Abbreviations AAS Annual Assurance Statements APM Participation Model BMA Bilateral Management Agreement CES Commonwealth Service DE Department DEEWR Education Workplace Relations DHS Human EPP Pathway Plan FaHCSIA Families Housing Community Indigenous Affairs JSA Job JSKA Seeker Account KPIs Key Performance Indicators KPM Measures NSA Newstart Allowance JS search SA SSA Security Act SSAA Administration UI Insurance WfD Work Dole programme YA Youth Introduction bit an outlier our selection systems both concerning type way which delivered completely characterised managerial decentralisation opposed political present some measure or another cases we examine When comes schemes different most OECD countries sense (1) does have substantial assistance scheme (2) its single important flat-rate means-tested near universal terms eligibility (Davidson Whiteford 2012 pp 8 13-14) Australia’s foremost labour market marginal All fall under categories: pensions allowances (OECD 149-150) are financed general (federal) government revenue Pensions often consist higher generally require little no because they targeted at groups unable work On include intended who able level holds responsibilities greater (financial) powers than (or ‘Commonwealth’) historically collected bulk tax revenues through can exert considerable influence “vertical fiscal imbalance” perhaps cause strong horizontal balance found Australia; country’s equalisation strongest all federations (Castles Uhr 2005 p 60) In practice delegation takes form extensive privatisation delivery During 1990s first started experimenting with resulted ALMP 3 certainly examined There such turn entails there also institutional since insurer-insured relationship conceivable Instead perverse incentives mostly arise out principal-agent relationships 4 Historically well means- asset-tested 1991 (JA) (NSA) replaced former JA applied young mature unemployed individuals had less 12 months while introduced long-term Finally 1996 were combined into still called short period ended 1998 introduction (YA) persons age 22 recent pieces legislation (SSA) 1999 (SSAA) already 1988 special 40 000 clients See part 11 subdivision scope are: being having right (22 above) remaining active seeking employment For reason last-resort 157) Figure strictness quite strict overall context (Langenbucher 2015) due availability during participation ALMPs occupational mobility (3) frequency (Figure 2) These items result high scores job-search However sanctioning regime comparison so last resort withholding severe sanctions repeat offenders seen punitive counterproductive 29-30 102 159) Overall criteria Source: Langenbucher 27 5 Strictness 0 6 Average administration initially responsibility (DE formerly DEEWR) however involving contact jobseekers disbursement done Centrelink agency currently (DHS) inter-agency cooperation further elaboration three key actors latter now falls authority always enacted 1997 arm’s length payments services It serves initial point Initially reimbursed (then called) (FaHCSIA) operations 2009 2010 directly budgets aforementioned departments; ‘partnership’ model purchaser-provider arrangement (Auditor General 2013 25-26) 2011 formally subsumed means funding flows performed partnership agreement enters agreements Ministry Agreements (BMAs) policy outcomes design setting approaches DHS/Centrelink implementation (cf Table appendix precise division responsibilities) “Under program appropriated reflected then Business Partnership adopting compliance oriented managing Centrelink’s service delivery” 26) Officially rate principal carer cares very large family foster children) home distance educator children their care here details supplements available beneficiaries Health Care Card Rent Family Tax miscellaneous 11-13) Some these built-in ‘welfare locks’ (Bodsworth 2010) Other disincentives stem fact indexed prices wages 29) 16 indexation 7 Parent Payment Disability Support Pension Such measures included gradual closing off Partner abolition Wife restriction regular Mature Age 9 LFS category caseloads probably actively almost half job search-exemptions would overlook significant caseload words closest proxy Furthermore opted smaller territories; geographical units represent over 98% population rates 561 80 AUD person dependent 468 partnered per fortnight low effective replacement even among similarly structured ranks lowest scoring 151) generous increases apply rather activation-tested 18; reforms partially aimed moving main (NSA YA) 39) individual each differently sized shows average highly populated whole 2000-2015; range just 4% capital territory 5% Tasmania Because process federally transfers Nonetheless structural differences do redistribution funds across state/territory Bureau Statistics Force could categorised assistance: above 2% 9) 10 will therefore forgo section effect functions covered 15 2000-20158 Activation11 covers focus Like United States types might sometimes rivals size divisions basis Although functional equivalent subjected Parenting Payments residual allowance (including benefits) principle subject same recipients classified Being multiple reasons receiving registered jobseeker: possible exempt meeting (being training combination part-time parents); sanctioned suspended 122) Additionally people volunteer jobseeker without Every exemptions (Department 2014 B 175-179) serviced Unemployment-related given much impetus mid-1980s mid-1990s when performance falter As early 1970s separated PES implemented (CES) experimentation programmes experimentations relevant seeds what later become fully-privatised Private community compete used implement shifted intensive abolished (Considine Lewis O’Sullivan 815) previously arm’s prominence Originally basic administrative network provided essence step full where operated agents rise after focused adjusting governance managerially decentralised relatively adapter New principles quasi-market mechanisms unchartered waters new tendering rating providers adjustment Further focussed standardisation hampering ‘quasi-market’ existed side-by-side time disappeared 2000 54) contractors contentious leeway granted tried negate created restricted operational freedom local reducing characterises Not According study ‘jobseekers’ either met approved activities temporarily incapacitated 154-156) number non-jobseeker explained (and strengthens view that) devolved administrated interaction must noted although officially participate voluntary (which satisfies requirement) ‘jobseeker’ 13 Compact ensured six paid everyone reached 18 expanded vocational (JOBTRAIN SkillShare) wage subsidy (paid) (JOBSTART Experiences) rising One impactful Working Nation elements: ‘consumer choice’ guarantee openings Compact) element entailed referred sector contracted partners competed competition raise efficiency “this undesired managers tended make referrals [guaranteed programmes] open market” 163) ran 1994 elements lasting legacy system: hallmark workfare acts default option But poignantly tension day began newly elected current institution designed quasi-independent; provide ‘basic services’ elaborate non-government 815; Davidson 18) (WfD) activity test Activity provisions amended enable voluntarily required condition retaining entitlement Allowance” guaranteed every activity-tested beneficiary consisted maximum satisfy principle: Mutual Obligation “This obligation ‘participate activity’ return payment benefits” After client commenced 6th month 14 requirement satisfied least hours week weeks relocation participating Intensive justified idea ‘consumer-choice’ chose own provider 70) Surveys reported “nearly quarter visited once twice” 224) 17 final round longer meant bi-annual comprehensive tender continual review Providers usage though Privatisation taken up notch “fully competitive 300 Network driven job-outcome-related broad determine provision” 62) function purchaser public (1998-2000) asked bids services: Matching Search Training reverse order intensity free choose divide enforce agreed-upon share By dividing second (2001-2002) took account price past mandatory levels change reaction evaluation signalled actually engage Additional changes third (2003-2009) (APM) contracts enter below requirements) integrated set entire clients; continuum certain steps (mostly interviews) tied fees; financing introducing (JSKA) earmarked specific deposited;18 finally 71) reactions side Mainly tendency try cherry pick favourable hard-to-place said “black-box supervision behaviour feedback about clients” “prescribed undertake interviews jobseeker” 72) earliest trying modify arose too unchecked 2007 along five (JSA) reform “one fits all” inflexible orientated disadvantaged groups; considered overly fragmented rhetoric perception streamlining tools controlling built around ‘streams’ 19 until four streams stream fourth markedly rest: (Personal Programme) attracted fees draw (EPP) interview predetermined 20 surrounded (increasingly detailed) classification assessing footnote 19) IT-system (EA3000) severely limited e g 820) (partially) Stream 21 Through formulates interventions based Streams Charter Contract together Communication Protocols accompanies formal legal bound Code Practice management infra) regulations amounted presented somewhat similar Denmark municipalities Danish central struggled balancing control; structures constant fairly place issues concerned dumping municipal involved regulating Classification Instrument (JSCI) score beginning determines applicable 110-111 discussion JSCI whether should create classify highest sign reclassification 80) despite eventually altogether 92) Besides changing Stream-structure move forward increase emphasis hands 2014) table Source 2014: 31 STREAM JOB COMPETITIVE specified VOCATIONAL ISSUES SERIOUS NON-VOCATIONAL via ESAt referral Seekers 30 Stronger Full capacity* capacity Initial Contact Comprehensive Interview Referrals jobs Identify strengths 0-6 Case Monthly contacts Self help Monitor Report non competitiveness address non-vocational 6-12 Phase 25hrs 15hrs cf plan 12-18 Cf Eligible Wage Subsidy (25 30s) subsidies group 30s 18-24 0-12