Rethinking the Welfare State: The prospects for ... - e-Library

Labour market training 201
criteria for a well-designed voucher system. Note the emphasis on three persistent design
problems: information failure, mandatory participation and cream-skimming.
Qualified consumers
Both distributive justice and social externalities (such as reduced crime rates, drug abuse,
improved economic growth, and increased social cohesion and solidarity) suggest that all
unemployed individuals who do not possess the wherewithal to mount a successful job
search and/or who lack the personal resources to fund cost-justified training should be
eligible for some form of public assistance in finding appropriate employment. In order to
maintain the effectiveness of such an initiative we would ideally be able to target the
resulting programs specifically to these disenfranchised individuals. The additional costs
of means-testing the unemployed for limited forms of job search assistance may well
exceed the benefits. Means-testing may be cost-justified only for more expensive job
training programs. A voucher program that is implemented in stages (with hopefully high
rates of program attrition due to placement), which first provides basic job search
assistance, then provides classroom and on-the-job training and ultimately offers
remedial education for the longer-term unemployed, would be more appropriate. In this
way, we would avoid at least some of the deadweight losses associated with providing
training to the frictionally unemployed (who do not need it) while still providing jobtraining
to those who suffer from structural unemployment (who do).
Indeed, not only should a staged voucher program be made available to all the longerterm
unemployed, there is a strong argument to be made that in many cases the programs
should be mandatory. In this way, we may mitigate the operation of substitution and
income effects, 101 which reduce the incentives to seek work and increase unemployment
rates. Empirical evidence suggests that mandatory programs have a stronger positive
impact on unemployment levels than voluntary programs. 102
In Scandinavian countries, where compulsion to participate is high, studies suggest
that mandatory programs have a stronger positive impact on employment levels than do
voluntary programs. 103 The British “New Deal,” a mandatory program aimed at reducing
the incidence of unemployment among young adults, has also been successful.
Unemployed individuals between the ages of 18 and 24 are first given extensive JSA
services. 104 Those who are unable to secure employment must then choose one of four
options: training/education, a wage subsidy to an employer, voluntary work, or
government-provided employment. 105 If an individual does not choose an option, then he
or she suffers a benefits sanction: “Initially, sanctions take the form of withdrawal of
benefit for two weeks, and further refusals may result in repeated four-weekly
withdrawals.” 106 The implementation of this program has resulted in a decreased
incidence of unemployment among young people 107 and produced an estimated annual
net social benefit of more than £57 million. 108 The British Restart interview initiative,
also administered on a semimandatory basis, has shown distinct improvements for those
required to participate. 109
However, results from the United States’ welfare-to-work programs have not been as
promising, or have at least varied significantly depending on the underlying population
that is sought to be assisted. Milhar and Smith find that while disadvantaged single
parents experienced moderate employment and wage gains, participants classified as