Social safety nets are designed to support the most vulnerable part of the population. They do so by providing cash benefits to the most unfortunate families and individuals in society—often people who, for various reasons, have no or diminished earning opportunities because of a disability, care duties, or insufficient skills. An important question is if some of these beneficiaries of social safety nets can be supported to find a foothold in the labor market through so-called activation or welfare-to-work programs.
What are the key ingredients of a successful activation policy?
There are three main ingredients to a successful activation policy. First, the design of the cash benefit must ensure that taking up work actually pays off. Often, social safety nets are designed in such a way that income from work is fully deducted from the benefit, so that for every dollar earned, a dollar in benefits is lost. In other words, when the net gain for the family is zero, work does not pay off. A good example on how to remedy this are so-called earnings disregards—that is, a share of earned income is disregarded when the social assistance benefit is calculated. Finland has introduced such earnings disregards for its social safety net in 2002, which resulted in more female social assistance beneficiaries taking up part-time work.
Figure 1 illustrates the importance of earnings disregards. In this example, a hypothetical Guaranteed Minimum Income (GMI) benefit of $40 is paid to a household. If the household were to take up a job that pays, for example, $20, the benefit would be reduced by $20 in the absence of an earnings disregard (Figure 1. a). The net gain in terms of total income for the household would be zero—taking up a job does not pay off. In contrast, if an earnings disregard of 50 percent was applied, the benefit would only be reduced by $10 and the household would gain $10 in total income from taking up work (Figure 1. b)—that is an increase of 25 percent in total income, so work pays off.
Figure 1. Illustration of the impact of benefits with and without earnings disregards on total income
(a) Benefit and total income without earnings disregard
(b). Benefit and total income with earnings disregard of 50 percent
Second, at least some share of the social assistance benefit should be made conditional on actively looking for work, accepting suitable job offers, or participating in active labor market policies (ALMPs), such as training. This condition should only apply to adult household members who are able to work and have no care duties for children or elderly. Germany, between 2003 and 2005, introduced strict job search conditionality for its social assistance benefits. Arguably, the German reforms are somewhat controversial, but a recent international meta-analysis found that the introduction of job search conditionality had a positive impact on employment, although the quality of accepted jobs may suffer.
Third, which may be the most challenging—policymaker have to create the capacity to successfully link social assistance beneficiaries with job search support, ALMPs, and monitor beneficiaries’ job search efforts. This requires establishing effective case management teams that include both social workers and employment counselors who are frequently in touch with beneficiaries, guide them to job vacancies, check if beneficiaries are looking for work, applying to jobs, going to interviews, accepting suitable jobs, and regularly attending programs. Good examples of such policies and programs are Sweden on a country level and Lausanne, Switzerland, on a municipal level.
All of these examples on successful activation policies are from countries with well-developed social policies and programs. For an example of a country with a relatively nascent social policy, we turn to Saudi Arabia.
Regular Assistance program in Saudi Arabia
In 2020, Saudi Arabia reformed its social assistance program, called Regular Assistance, or “Damman” in Arabic. It did so with a strong focus on establishing a modern safety net that puts a premium on activation. The program was redesigned from a categorical, individual assistance program to a household-based, means-tested guaranteed minimum income scheme. That is, when assessing applicants, the means from both income and assets of the entire household are taken into account, and the gap between those means and what is guaranteed as income from the program is paid as a benefit. Importantly, a significant share of any household income from work is disregarded when calculating the benefit, ensuring that taking up work pays off for beneficiaries. In addition, adult beneficiaries who are capable of work and do not have care duties are required to actively look for work. Finally, the reform also established a sub-program called “Tamkeen” (Arabic for “enablement”) to support beneficiaries in their search for work.
Tamkeen: Helping social assistance beneficiaries to find work
Tamkeen is mandatory for all Damman beneficiaries who are capable of and available for work. An initial profiling puts program participants into three tracks: (i) Employment for those who are ready to enter the labor market as job seeker; (ii) Business for those who have the capacity to start their own company; and (iii) Rehabilitation for those who need additional support through ALMPs before entering the labor market. The program is implemented by linking to other government entities, the private sector, and nonprofits. For example, the main collaborator within the employment track is the Human Resources Development Fund (HRDF), which is the equivalent of a Public Employment Service (PES). For the business track, the program collaborates with the Social Development Bank.
What has the program achieved so far? Almost 250,000 Damman beneficiaries have registered for Tamkeen since its inception in 2017. Since then, almost 200,000 of them were successfully activated: 160,000 found employment while 35,000 started a business. A survey of over 20,000 successful program participants indicates that the job outcomes are quite sustainable: Two years after initially starting a job, only 2.6 percent stopped working. Among the remaining participants, the wage distribution has significantly improved: The number of those in the lowest wage bracket (1,000 to 3,000 Saudi riyals) decreased by over 2,000 workers while it increased in all the higher wage brackets (see Figure 2 below).
Note: The same beneficiaries are observed twice, once in 2019 and once in 2021. Source: Tamkeen, 2022
While much work remains to be done to complete the reforms and further develop implementation capacities, the first results of Tamkeen are encouraging. Many developing countries, in the Middle East and elsewhere, are struggling with establishing modern safety nets—let alone activation programs—and the example of the Saudi reforms can be informative.
Saudi Arabia is one of the first countries in the Middle East that has introduced a modern safety net, and the Damman program has all key ingredients for successfully fostering the activation of social assistance beneficiaries. It introduced a GMI design, based on both income and assets of the entire household, while applying significant earnings disregards on income from work to ensure that taking up work is rewarded. It also applies job search conditionality on adult household members who are capable of working. And finally, the country has developed capacities to actually link social safety net beneficiaries with job search services and monitor their job search efforts through the Tamkeen program. As the successful implementation of Tamkeen is continued and scaled-up, it can make important contributions to further improve labor force participation of Saudis, especially Saudi women.